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Almost Armageddon: We were 500 trades away from total collapse on Thursday

 
Anonymous Coward
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09/21/2008 02:00 PM
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Almost Armageddon: We were 500 trades away from total collapse on Thursday
[link to www.nypost.com]

ALMOST ARMAGEDDON
MARKETS WERE 500 TRADES FROM A MELTDOWN

September 21, 2008

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.

The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.

Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.

Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11.

By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals.

Banks, which usually keep an average of $2 billion in excess reserves earmarked for withdrawals, pumped that up to an astounding $90 billion by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The Journal.

And for good reason. By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services.

By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion. It was still not enough to stem the tidal wave.

The banks knew something drastic had to be done. So did Paulson.

The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players like Bank of New York Mellon and State Street in Boston informing them that federal money was in the market and they should tell their clients the Feds would be back with a plan to stem the constriction in the credit market.

Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed.

Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday.

By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown.
SkyWatcher

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09/21/2008 02:09 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
. On December 15, 1931 Rep. Louis T. McFadden, who for more than 10 years served as chairman of the Banking and Currency Committee in the House of Representatives, said: "The Federal Reserve Board and banks are the duly appointed agents of the foreign central banks of issue and they are more concerned with their foreign customers than they are with the people of the United States. The only thing that is American about the Federal Reserve Board and Banks is the money they use" On June 10, 1932, McFadden said in an address to the Congress: "We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve BanksSome people think the Federal Reserve Banks are United States government institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customersThe Federal Reserve Banks are the agents of the foreign central banksIn that dark crew of financial pirates, there are those who would cut a man's throat to get a dollar out of his pocketEvery effort has been made by the Federal Reserve Board to conceal its powers, but the truth is the Fed has usurped the government. It controls everything here (in Congress) and controls all our foreign relations. It makes and breaks governments at willWhen the Fed was passed, the people of the United States did not perceive that a world system was being set upA super-state controlled by international bankers, and international industrialists acting together to enslave the world for their own pleasure!" [link to www.rense.com]

We are so doomed hiding
Anonymous Coward
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09/21/2008 02:15 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
Yes, this was surely caused by the little folk buying houses they couldn't afford.

And, it's the fault of foreign banks wanting us to make payments on the trillions that we owe them.

And it's the short sellers fault for knowing how to play the game.

And it's the Republican's fault for setting it up.

And it's the Democrat's fault for nurturing the mess

And the Liberals, and the conservative, and the independents, and the WTF???

It's so easy to bicker and blame and insult and scapegoat the institutions we understand. It's the sleight of hand of the power brokers.

Just like goatherds could not stand down NORAD and fly high-tech planes with boxcutters, and some come out amazingly alive, neither could any of the above engineered such a Perfect Storm to hold the entire globe hostage to the massive greed and financial gluttony of the financial powers who rule Wall Street.

We feel impotent because there is not outlet for the treason and treachery we've been led into.
Anonymous Coward (OP)
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09/21/2008 02:15 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
What gets me is this is TWICE in 2008 where we've come "this close" to total meltdown.

The first time was back in March with the Bear Stearns bailout, and now again this past week.

How can anyone believe things are going to be okay moving forward with this new bailout? The most powerful economy in the world nearly flatlined twice in seven months folks!

I have to believe foreign investors will soon be abandoning American in droves.
Anonymous Coward (OP)
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09/21/2008 02:37 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
This came off another forum:

"I'm a partner at a half billion dollar convertible bond hedge fund. I'm a firm free market believer, I love Ayn Rand and the Austrian political economists. I have been living this crisis on the front lines.

I don't think people realize how close to the abyss we came on Wednesday and Thursday morning. Morgan Stanley and Goldman Sachs were about to fail. The credit markets were frozen. Other brokers and banks stopped taking assets. You couldn't move good securities from Morgan to another prime broker before it went bankrupt. There were no buyers and sellers were taking any price in the market. Money market funds were going to fail. I try to refrain from the breathless hyperbole that runs rampant in times like these, but I was truly fearful that the system was about to collapse.

Some may say that this is how the system cleanses itself and they may be right, but if everything is allowed to unwind in a haphazard way the results will affect every person in this country in a substantial way. You simply cannot take that much cash out of a leveraged economy all at once without serious consequences. Companies will not have cash to make payroll, factories will be shut down immediately, there will be no severance and no paycheck on no notice, credit cards will be cancelled, car loans and mortgages will cease to be available, home equity loans will be called in.

I'm not pretending to know what the answer is, but the problem is that serious."
Anonymous Coward
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09/21/2008 02:37 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
This is CRAZY...real doom, we're so F*@$%D!!!


bump
Anonymous Coward
User ID: 507473
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09/21/2008 02:56 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
Time to stop blaming the wrong people, institutions and everyone or anyone else.

The questions should be, how can we collectively, hold them accountable.
coolhandluke74

User ID: 490659
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09/21/2008 03:01 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
Yes, this was surely caused by the little folk buying houses they couldn't afford.

And, it's the fault of foreign banks wanting us to make payments on the trillions that we owe them.

And it's the short sellers fault for knowing how to play the game.

And it's the Republican's fault for setting it up.

And it's the Democrat's fault for nurturing the mess

And the Liberals, and the conservative, and the independents, and the WTF???

It's so easy to bicker and blame and insult and scapegoat the institutions we understand. It's the sleight of hand of the power brokers.

Just like goatherds could not stand down NORAD and fly high-tech planes with boxcutters, and some come out amazingly alive, neither could any of the above engineered such a Perfect Storm to hold the entire globe hostage to the massive greed and financial gluttony of the financial powers who rule Wall Street.

We feel impotent because there is not outlet for the treason and treachery we've been led into.
 Quoting: Anonymous Coward 507473


How is it the fault of foreign banks? We owe them the money so why should we not pay it? You don't pay your banks here they take your house or car.
Anonymous Coward
User ID: 507473
United States
09/21/2008 03:14 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
Yes, this was surely caused by the little folk buying houses they couldn't afford.

And, it's the fault of foreign banks wanting us to make payments on the trillions that we owe them.

And it's the short sellers fault for knowing how to play the game.

And it's the Republican's fault for setting it up.

And it's the Democrat's fault for nurturing the mess

And the Liberals, and the conservative, and the independents, and the WTF???

It's so easy to bicker and blame and insult and scapegoat the institutions we understand. It's the sleight of hand of the power brokers.

Just like goatherds could not stand down NORAD and fly high-tech planes with boxcutters, and some come out amazingly alive, neither could any of the above engineered such a Perfect Storm to hold the entire globe hostage to the massive greed and financial gluttony of the financial powers who rule Wall Street.

We feel impotent because there is not outlet for the treason and treachery we've been led into.


How is it the fault of foreign banks? We owe them the money so why should we not pay it? You don't pay your banks here they take your house or car.
 Quoting: coolhandluke74



Should have been more clear...tongue in cheek.

Point was, it's none of the above, but the press and the government, and the frustrated people on glp all trying to blame someone or something tangible rather than the ephemeral "banking cartel" that has engineered it.
Anonymous Coward
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09/21/2008 03:17 PM
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Re: Almost Armageddon: We were 500 trades away from total collapse on Thursday
The collapse was just delayed for a few more days. There is no escaping the collapse. AS long as they can keep holding things up the system will not collapse. However, when they can not hold things up anymore it will collapse.