Credit-default-swap insurance on US treasury debt is now 40 times what it cost a year and a half ago. That's really not very good. The rate is still low - $40,000 for $10M in coverage, vs. $1,000 in early 2007 - but still. That's treasuries. And oh, by the way, the Fed is now officially buying out non-US-generated non-US-held non-US-at-all debt with... well, I suppose it's TARP funds. But who knows, it's all ad hoc at this point. Bernanke is now banking (a-heh) on so much deflationary pressure that he can essentially print money globally (Brad Setzer has more on this), and is threatening to cut rates to zero percent. (They're damn near there already; they cut rates by half a point and missed by 63 basis points.)
The IMF is making the same bet; the International Monetary Fund is talking about essentially printing its own money by issuing new debt as it has already gone through most of its balance sheet and countries like Pakistan are reportedly a few days from Icelandic-style bankruptcy. And the UK is being told it needs a ZIRP to prevent a depression. Yay.
Perhaps unsurprisingly, now that corporate debt can be traded for Treasuries at damn near will, companies have started issuing more long-term debt instruments. I wonder if any of them are any good at all? They'd better be, because this week's treasury auction sure could've gone better.
Oh, but as far as the actual TARP money goes - the US$700B in Treasuries? Bank recipients are going to use it to buy up other banks, not lend out. It's taxpayer-funded industry consolidation: "In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist." And at least Goldman Sachs says they have no plans to change their business practices regarding the leveraging that got us here to start with, but so far, only a very people people are paying attention to this theft of tax money, such as The Nation's "Paulson's Swindle Revealed" and the New York Times really, really, really wanting to know where the $123B in bailout funds for AIG went. They're through most of it already, and the clear implication is that they were hiding assloads of losses through accounting fraud.
Oh, and in a blow to corporate lending, Citigroup Inc. and Credit Suisse Group AG are among banks tying corporate loan rates to credit- default swaps, raising borrowing costs and exposing companies to derivatives accused of crippling the financial system. This is insane.
Consumer confidence, as previously reported many places fell through the floor. This was of course predictable based on polling data.
Karl Denninger at Market Ticker looks at all this and mortgage-"assistance" plans being floated and says that if you're underwater or close to it, default on your mortgage right now, and in particular do not accept any bailout being offered that would take you from a "non-recourse" loan (as most are) to a "recourse" loan. Read the column for why; he explains in more detail here.
Dr. Roubini at RGE Monitor is saying we need to be prepared for stagnation plus deflation, which is pretty obvious at this point, as the Financial Times notes that we've gone through his 12 steps to create a collapse of the financial system. Interestingly, another RGE Monitor blogger (username economonitor) comments on Dr. Roubini's post that things are so broken now transparency would actually be counterproductive; the banking system would be recognised as utterly insolvent and what's left of the system would fall over dead that day. I think this comment forgets that people generally think that already. He also talks about the civil unrest that would follow a deflationary collapse; hyperinflationary spirals do the same damn thing.
Dr. Roubini also wants a US$400B stimulus package. The previous round, by contrast, was $168B.
I don't see how these printing+stimulus combinations go down without a collapse of the US dollar. I know what governments are trying; I don't see how you both create enough money to have it work without destroying confidence in that instrument - particularly with banks overtly working against the stated plans and stated intents. Hopefully I'm missing something.
Here, this'll amuse you; Tuesday's big ramp up in stocks, in historical context:
Note when seven of the top 10 occurred. This ain't over.
Largest daily percentage gains Rank Date Close Net % Change 1 1933-03-15 62.10 +8.26 +15.34 2 1931-10-06 99.34 +12.86 +14.87 3 1929-10-30 258.47 +28.40 +12.34 4 1932-09-21 75.16 +7.67 +11.36 5 2008-10-13 9,387.61 +936.42 +11.08 6 2008-10-28 9,065.12 +889.35 +10.88 7 1987-10-21 2,027.85 +186.84 +10.15 8 1932-08-03 58.22 +5.06 +9.52 9 1932-02-11 78.60 +6.80 +9.47 10 1929-11-14 217.28 +18.59 +9.36