$700 Billion, a lot of money? How quaint.
Do you know how much money essentially evaporated on Wall St. today?
1.2 TRILLION. In about 8 hours
Happy now? Guess how much value has been lost over the last year?
4.2 TRILLION
I realize a good number of people here are triumphally slapping each other on the backs, high fiving, and such. Well, let me fart in church here. There is a very good possibility that the following is now true:
WE'RE FUCKED
Count me, along with Paul Krugman, among the supporters of the "bailout" plan. One objection to it last week is that it doesn't go far enough, and isn't large enough. Sure. But the credit markets clearly needed some sort of positive political action, some sense that the US Gov't has the ability to act in a crisis.
Think of the global markets as a large semi-organized stampede, a school of fish, or a large flock of starlings. It moves rapidly, and can turn on a dime in directions that have no concern for human welfare. Fear and greed will always motivate markets, and fear is the far more powerful motivator. The TARP was meant to address the fear problem.
Now, it wasn't clear that this absolutely had to happen this week, other than the pending congressional recess. But something had to happen. Now it has devolved into political bickering and chaos. World markets realize this, and the next 20 hours could determine whether you will get a paycheck this month.
Before you get all happy and gleeful that the bailout failed, please consider that we likely cut our noses off to spite our faces. The resulting bleeding may not stop for a long time, and the doctors will argue for months about how to fix it.
I leave you with text ripped off from the blog "acrossthecurve.com", which I recently started reading. A good insiders picture of this mess.
Prices of Treasury coupon securities surged dramatically today in a truly historic day of trading. It was a day in which the populist impulse triumphed and the latent suspicion of Wall Street grounded in the middle class heartland rose up to defeat a bill crafted and formed by the ruling elite. (I do not necessarily subscribe to the theory but I think it is what domed the legislation. As I have written in this space before,
$700 billion aint an odd lot!!)
The markets were fragile from the start as credit fears erupted in Europe. The defeat of the rescue package magnified those fears and sent investors scurrying for the safety of the treasury market.
The yield on the 2 year note rotated through a mini interest rate cycle as its yield tumbled 37 basis points to 1.73 percent. The yield on the 5 year note dropped 32 basis points to 2.74 percent. The yield on the benchmark 10 year note fell 23 basis points to 3.62 percent. The yield on the 30 year bond dropped 21 basis points to 4.11 percent.
The 2 year/10 year spread widened 14 basis points to 189 basis points.
The Tips market reflects the collapse in commodity prices and suggests that we are about to usher in an era of deflation. While the yield on the benchmark 10 year note dropped 23 basis points the yield on the 10 year TIP slipped by only 6 basis points, placing that spread at 160 basis points.
I am not sure what to write. We sit on the edge of an historic and potentially destructive financial eruption. This surpasses the fear that I recall in October 1987 when stocks plunged. This is global in nature and chases down its prey ever more rapidly.
The markets have ignored every initiative by authorities to solve the problem and every attempt has failed to halt the deleveraging.I am not sure what sort of plan that the authorities can devise overnight to once more rescue the system. I think that you just stay liquid and pray that you have a seat when the music stops.