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Tuesday, September 30, 2008


Dexia did get its infusion of capital last night, but I'm sure CR will cover that.

However, this does not look good:
Banks borrowed the most since 2002 at the European Central Bank's emergency rate and deposited a record 44.4 billion euros ($64 billion) as money markets remained frozen.

Banks yesterday borrowed 15.5 billion euros from the ECB at the emergency overnight marginal rate. They lodged more than 1 billion euros in the ECB's overnight deposit facility for an unprecedented eighth straight working day. The ECB's deposit rate is 3.25 percent and the marginal lending rate is 5.25 percent.
So the bigger entities won't lend to each other and are sharply constraining lending to businesses.
The London interbank offered rate, or Libor, that banks charge each other for loans climbed 8 basis points to 5.22 percent yesterday, the largest jump since June, the British Bankers' Association said. The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, jumped to a record 231 basis points, after breaching 200 for the first time on Sept. 25. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze.
It might loosen up a bit as the new quarter begins, but then the countdown to year-end begins. The only trusted financial entities are the central banks, so they are forced to be the intermediary between banks - i.e. banks deposit with them and other banks borrow from the central banks.

I know that a lot of this may sound as if the central banks are creating money, and thus seem inflationary, but the central banks are actually fighting a contraction of the effective money supply.

The problem with a frozen money market is that it indicates that the supply of credit to businesses is very tight. Unfortunately, short term funding of business working capital has become the norm in many areas.

In the US, money market funds have been the source of a lot of short-term capital. A guarantee of those funds is possible, but can't be indefinite. If there is no guarantee and very little interbank lending, depositors might lose liquidity. That would put the entire system into a tailspin as investors pulled out of money markets.

It looks to me as if something like TARP is the only way out.

The real economy worldwide was on a sharp and highly correlated downturn before all this. A withdrawal of business credit will make the real economy much worse than it needs to be, will cause higher defaults on all debt classes, and will thus further tighten up liquidity in the financial system.

If we don't do TARP than the only alternative is for the Fed to guarantee explicitly a certain portion of bank credit, but there's no good mechanism for that, and overall the Fed would have guarantee far more. Thus a TARPish solution is probably the cheapest option by far.

What's at stake here is business-to-business credit, which is dependent on the working capital that companies have. If you are not following this, consider the fuel oil example because the mechanics are the same:

1) Consumers have to come up with significantly more money to heat their homes using fuel oil than they did last year.
2) Because of this, far few consumers prepaid fuel oil contracts with their distribution company this year, or if they did, they prepaid a significantly lesser number of gallons. There is often a minimum prepay number of gallons, and many consumers couldn't afford it.
3) The heating oil companies usually use their prepaid contracts to buy product early in the season. They then deliver as requested. When customers who didn't prepay order fuel oil, the companies deliver oil that was purchased with prepay funds, and then turn around and use the revenue from those deliveries to buy more oil from the refineries to supply the prepaid customers.
4) Since the cost of the number of gallons of heating oil the distribution companies need on hand had greatly increased while the flow of early $$ to the distribution cos had dropped, the early orders from the refineries were much lower, and now fuel oil distribution firms are short of product. To maintain supply, the distributors can draw on credit lines if they have them, but that costs them more in interest, and in some cases intermediaries had some supplier credit. However even for gasoline distribution major suppliers had tightened up credit earlier in the year because the float was costing them too much.
5) Thus it is almost certain that distribution cos will be rationing the first round of deliveries to prepaid customers and perhaps to cash customers if they are really short. Because the distribution cos have to get the extra cash from the cash customers to buy more oil, they are more likely to ration deliveries to prepaid customers.
6) The net effect will be to significantly lower early refinery sales of heating oil, which has happened btw. That further constricts the ability of the refiners to buy crude.
7) Hypothetically, even if the price of crude were overnight to drop to $70, there would still be a constriction of the heating oil supply, because refiners are behind and probably won't catch up. So in fact prices would not drop as much for the end user (effective supply is still constricted), and the consumers still wouldn't end up being able to buy as much heating oil as they really need to keep warm. This is similar to the problem that the Fed is seeing with rate cuts - they are not propagating through to the bottom level of money consumers.

The same dynamic can work for all sorts of businesses. You can easily get a situation in which the demand is present and the manufacturer has orders to meet that demand, but the constriction of business to business credit and ancillary credit lines is such that the manufacturers can't get components, etc.

It is difficult in the US to tell exactly how bad it is because of hurricane disruptions, but the sharp trucking drop in July and August and the corresponding rail freight drop show that things were tightening rapidly before the latest round of credit problems. I know that suppliers are tightening credit terms across a wide range of industries.

It would not be surprising at all to get a temporary -2% ~ 3% drop in production just from a rolling credit constriction on working capital. That would add to the drag on economies from other factors to produce astonishingly bad GDP numbers in the fourth quarter.

I'd hit the panic button. I really would. TARP in its amended form may not be that great, but it's better than the alternative.

"“I think she [Sarah Palin] has pretty thoroughly — and probably irretrievably — proven that she is not up to the job of being president of the United States,” David Frum, a former speechwriter for President Bush who is now a conservative columnist, said in an interview.


Uh oh. More and more Republicans are saying these unkind things about Sarah. Why do they hate America?

And by the way, why has Ahmadinejad had more press conferences with American reporters than Palin?

He's not afraid to take some questions, and he's a certified whacko. What does that say about Sarah?

Its not really clear how the TARP will bail out the money markets. The mechanism which you have cited -- buying and restructuring whole mortgage pools -- would take too much time. Also, the $700b has to be arrayed against mortgages, CDO's, CDS, Credit Card ABS, Heloc's, etc. Is it enough? I doubt it.

It seems that the TARP is a way to accomplish a stealth recap of the banking industry. If so, the amount of overpayment for assets would have to be on the order of $500b -- difficult to achieve and politically explosive.

I have not seen a good case made for why the TARP will accomplish its task. Bernanke seems to think that making "irrational" (fire-sale) pricing rational (HTM) is all you need. This is a typically academic point of view.

A plan that works by overpaying for assets, and by giving one man decision-making power for that overpayment, should be a political non-starter.

BTW, I agree that in a sense the job will end up being the Fed's, and that it will be accomplished by paying interest on reserves. Fine. Now someone please explain how the Fed will disintermediate itself from the banking system, someday, without crashing it.
Hi MaxedOutMama,

Can I ask you what you do for a career? I have been wondering for about half a year now.

An interesting article for you and your readers. fed balance sheet
Maybe what is needed is some disintermediation. For example, I might be willing to lend some $ to a fuel oil distributor if I could review the books, talk to references, etc, and get a decent interest rate. It strikes me that it is much easier for an investor to assess the risks of a tangible business like an oil distributor than to assess the risks of a bank.
Hey Clemente. Sarah Palin is not afraid of anything. She's showing the liberal media who the boss is. She doesn't have to grant a single interview to those jackals until they show some respect.

And Ahmadinejad called Israel a stinking corpse, so if that's your type of friend, maybe you better move to Iran where you can live a nice socialist life.

MaxedOutMama is a Christian and she'll be saved when the end of the world comes. You'll be hanging out with your Iranian friends in hell.

Have a nice time.
Gee Clemente, you've convinced me! I'll vote instead for the guy with the VP that thinks FDR was president in 1929 and appeared on tv! This is the same guy that had to plagarize a speech when he was running for President. And by the way, have you bothered to consider that Biden has a good chance of becoming president too? Obama may think he is the new messiah, but he could just as easily die on the job as McCain. No one seems to be discussing that on your side. You just might want to take a better look at Obama's first member of his new administration. Have a nice day!
"Obama may think he is the new messiah . . ."


Serious question: why do you people frame political questions in religious terms?

Messiah? Who in their right mind uses a term like that to describe some guy from Delaware? He's just a guy, just a Senator -- like McCain, like Obama.

They're not gods, they're not demons. They're just regular people.

Do you realize how nutty you sound when you use terms like that?

Regarding Biden and the FDR on TV gaffe, yeah, that was stupid. Really stupid.

If only there were some way to compare the two side by side. You know, to judge their qualification, assess their views, their knowledge.

If only there were a way . . . .
The video in this has to be seen to be believed.

Behold what will replace the flag salute in all our schools after January of 2009...
By the way Teri, I hope you prayed real hard to Jesus for using the term "chicken shit" on the "Obama is a postmodernist" thread.

I'm just concerned about you.

I don't want you to go to hell.

There are a lot of Democrats there.
Now this is getting crazy. Look at this:

Gallup: Obama 49%, McCain 43%

Rasmussen: Obama 51%, McCain 45%

Hotline/Diageo: Obama 47%, McCain 41%

Research 2000: Obama 51%, McCain 41%

Why do these people hate America . . . and Jesus?

John McCain is a fine Christian young man running an excellent campaign. World Net Daily supports him.

Why, oh why, are the American people rejecting John McCain?

Maybe Bristol's wedding will win them back!
Hey anonymous, I saw that video on World Net Daily, too.

Thank God for World Net Daily.

I found this article very interesting, as well:

Feast of Trumpets is here: See what you're missing

Find out how it is related to Jesus' return in new video series

Like I said, thank God for World Net Daily. I mean, if I didn't have WND, I'd have to go to a religious site AND THEN to a political site.

WND saves me time. Plus, they cut right to the chase and tell me exactly why Jesus hates Obama.

Although Joseph Farah's mustache reminds me a little too much of that German guy.

And why do they refer to Pat Buchanan as Patrick J. Buchanan? Are they trying to make him into an aristocrat or something?

I guess it's not my place to question WND, though. Thinking makes my head hurt.
> But question: If it were your decision, and you were putting your country first, would you put an untested small-town mayor a heartbeat away from the presidency?

This so-called "logic" makes no sense -- it's a classic example of GIGO in action

The simple response?
If it were your decision, and you were putting your country first, would you put an untested "community organizer" IN the presidency?

How about one with clear and self-evident ties to unapologetic members of the Radical Left?

How about one with clear and self-evident ties to unapologetic Black Racists?

How about one with a childhood raised in and surrounded by determined communists, who has a voting history that shows he believes in communism and collectivist principles?

Who ya gonna vote for?

The guy who even the critic, here, says "America First!", or the one who shows a long history of association with those who openly and without condition believe that they should tear it down?

Gee, that's a tough call, innit??!!

Gimme a break.

The illogic of this position is so absurd it's mindboggling that anyone wastes time repeating it.

David Frum is the Naomi Wolf of the Right.
Small bet time...

Clemente619 = teri (lower case).

Any takers?

Who else but...

Good Ole Charlie
> Thinking makes my head hurt.

That much is painfully obvious.

I hear ibuprofen works miracles, if you decide you want to stop spouting the leftist party line, though.
Black Racists?

You don’t need to tell me about the scourge of Black Racism. I come from a long line of white people, proud white people, held back by the Black Man -- his jack boot at our throats.

Daddy couldn’t get into the Black College – no whites allowed. Mama was turned down by Black Law Firm after Black Law Firm. She earned her degree from one of the best schools, but they wouldn’t have her; they called her a white she devil.

Grand dad couldn’t even vote. The Black Man controlled everything: the courts, the police, every little government office right down to the dog catcher. Each one controlled by a Black Man, and every Black Man determined to deny the white man his rights.

One day, the Black Sheriff told grand dad, “Kill it before it grows.” Well, OK, he didn’t tell grand dad, he said it to the deputy, but the message was clear.

Black Racism? You don’t need to tell me that story, brother, I’ve lived it.

Now regarding communists!

That’s only the part of the story.

Obama has clear and self-evident ties to the following:

- Mississippi Freedom Democratic Party

- States’ Rights Democratic Party

- American Party (don’t let the name fool you – they’re bad!)

- Anti-Nebraska Party

As a child he was raised by redcoats, and he has a voting history that shows he believes in the divine right of kings and the helio-centric view of the universe.

This is one bad Black Man.

The logic that any self-respecting white man would vote for such a Black Man, given what we KNOW about this Black Man, is clearly, as you say, Garbage In Garbage Out.

You, Sir, have made your case splendidly.

Your logic is impeccable!

Your sourcing is unimpeachable!

Down with the tyranny of the Black Man!
Hey man, I'm not Clemente.

Where different people. He's Clemente. I'm teri.

You can tell because I don't capitalize black man.


I wrote "black man".

He writes "Black Man".

Case closed.

Perfect logic.
Hey Clemente, why do you do this?

I mean, what's the point.

Take this guy obloodyhell or whatever he calls himself. He's not not just a stupid racist, he's an exceptionally ignorant breed of racist. He's off the charts. The dude is so far over to the left of the bell curve, he looks like he's sitting on the x-axis.

This is the type of person that has trouble navigating the most simple of life's tasks. He's a troubled dude.

Why even talk to the guy?

I mean, if you saw him on the street, you might toss him a quarter and feel sorry for him, but would you engage him in a conversation?

Same goes for most of the birds on this blog. They're just warped, fearful little puppies.

Why even speak to them?
Well, when you have children singing songs about the wonders of McCain, let me know:
link Funny how many people thought it reminded them of that Nazi youth singing "Tomorrow Belongs to Me" in Cabaret. I didn't say that though.

As for framing things in religious terms, I don't notice anything at all religious in my last post. I'm more concerned about you. I don't spend my time online, badgering people about their choice for president.
"I don't notice anything at all religious in my last post."

My bad.

You can now refer to me as Messiah Clemente, since there's no religious significance to the term. Perfectly normal everyday greeting.

Oh, and hey, nice sleuth work finding something weird posted on youtube.

And, last thing, make sure you pray to Jesus about the "chicken shit" thing.
Oh, almost forgot.

"I don't spend my time online, badgering people about their choice for president."

I get paid big bucks by George Soros to do this, so don't worry your little wingnut head over me.
Hey, has this been posted on World Net Daily?


"Historic Disapproval: Bush Hits All-Time Low Amid Economic Meltdown"

Do you approve or disapprove of the way George W. Bush is handling his job as president?

Approve: 26%
Disapprove: 70%


a. better understands the economic problems people in this country are having:

Obama 55%
McCain 36%

b. would do more to bring needed change to Washington:

Obama 61%
McCain 33%

c. is the stronger leader:

Obama 49%
McCain 45%

d. has a better personality and temperment to be president:

Obama 57%
McCain 34%

e. would work better with both Democrats and Republicans in Congress

Obama 45%
McCain 47%


Wow, Obama is in trouble. McCain is kicking his butt on the works better with Dems and Reps question.

Raising McCain!
Apologies for the off-topic comment, but as a first-time visitor here, I'm just curious why you put up with the 'clemente619/teri' asshole.

More on-topic, I'd feel a lot better about TARP if the people pushing it gave any indication that they will change their future behavior so that this does not happen again.
Dang, Paco, that hurt my feelings.

But I was cheered up by your blog profile:

"Immortal processed waiting for their migration, and sedate passed with a dull, heavy, monotonous clang; and the chambers, upon the sable carpet, upon which it opened."

Heavy, man.

Is that from your unpublished bodice buster?
Paco - because I think it is a fascinating demonstration of how a candidate's supporters can be the candidate's worst enemies. Call it an exercise in abnormal psychology. Like those bizarre music videos with the religious imagery and all the preggo women, it's a subsegment of the campaign in which emotion is elevated over rationality. It's not that Obama is a bad candidate, although of course he is so inexperienced and has so little concrete achievements during his legislative history that he's something of a mystery candidate. It's that a segment of his supporters are cultic - mapping their dreams and hopes onto a person who will not be able to fulfill them. Worse yet, imposing those hopes will probably prevent achieving what he could achieve to redress various problems.

Of course, Obama has explicitly appealed to this crowd in his speeches, which says something about him. I had believed that he was doing so for political advantage, but after the last debate I suspect he drinks his own Koolaid. That's why I was so shocked.

I'd feel a lot better about TARP if the people pushing it gave any indication that they will change their future behavior so that this does not happen again.

Yep, yep. That's the worry. It needs oversight and I don't see any serious oversight. Nonetheless, we will bail the system out regardless. I just want the taxpayers to get some quid pro quo.

For what it's worth, my guess is that any meaningful oversight would have to come from a revamped regulatory structure. Well, admittedly we don't have time for that, but even though I think the problem is real, I dislike the way power and money is being handed around.

It's kind of like going to a doctor and having this conversation:
Doc: "Bad news! That lump on your leg is cancer."
Patient: "I don't want to die! What can I do?"
Doc: "It's treatable and there's a very high survival rate. But we'll have to amputate your leg as a first step."

There is from my POV no acceptable solution, so therefore I opt for survivability, but I do not concede that this is a "good" way to deal with the problem.
"it's a subsegment of the campaign in which emotion is elevated over rationality."

Here's some reality MoM:


Pew Research Center

"Obama Boosts Leadership Image and Regains Lead Over McCain"

"Barack Obama has achieved a significant lead over John McCain in the days following the first presidential debate. Pew’s new survey conducted Sept. 27-29 finds that Obama has moved to a 49% to 42% advantage among registered voters. The race was virtually even in mid-September and early August. Obama had not led McCain by a significant margin in a Pew survey since June."

No emotion.

Just numbers.
"It's that a segment of his supporters are cultic"

Says the World Net Daily kettle.

Let's see what's on at World Net Daily today"

- "Cancer 'Bible' saves lives"

- "Hofstra poll: McCain leads suburban vote"

- "Do Americans have anything in common with Obama?"

Fair, balanced, accurate, reality-based.

Go World Net Daily!
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