2007 now worse than 1998's Long-Term Capital

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Submitted by one_muggle on November 9, 2007 - 9:14am

Got Krona?

http://www.reuters.com/article/fundsFund...

NEW YORK, Nov 9 (Reuters) - The credit crisis gripping the U.S. is now worse than the crisis of confidence following the collapse of Long-Term Capital Management in 1998 and recession risks are growing, said Jack Malvey, chief global fixed income strategist at Lehman Brothers.
This is the deepest correction we've ever seen in structured finance," Malvey said in an interview on Friday. "This is now worse than Long-Term Capital. This is so dispersed, so interlocked and the relationships among the various entities are not as evident. This is a painful lesson in financial engineering."

(Reporting by Walden Siew;)

Similar points echoed by Krugman, claiming 3-8 Trillion loss to economy including spillover.

FWIW: DOW ~(-222) as of 11:15 PST

‹ 401k advice The end of an empire comes when the currency is destroyed.. ›
"I’m now being told that
Submitted by 4plexowner on November 9, 2007 - 9:26am.

"I’m now being told that if no one wants to buy pieces of paper from you, it turns out they are worthless. Believe me. I’m as shocked as you are."

After the Money’s Gone On
Submitted by bsrsharma on December 15, 2007 - 6:46pm.

After the Money’s Gone

On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. Maybe this one will do the trick, but I wouldn’t count on it.

In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.

Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.

Let me explain the difference with a hypothetical example.

Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan to the president’s brother-in-law, who squandered the money on a failed business venture.

Even if the rumor is false, it can break the bank. If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices — and it may indeed go bust even though it didn’t really make that bum loan.

And because loss of confidence can be a self-fulfilling prophecy, even depositors who don’t believe the rumor would join in the bank run, trying to get their money out while they can.

But the Fed can come to the rescue. If the rumor is false, the bank has enough assets to cover its debts; all it lacks is liquidity — the ability to raise cash on short notice. And the Fed can solve that problem by giving the bank a temporary loan, tiding it over until things calm down.

Matters are very different, however, if the rumor is true: the bank really did make a big bad loan. Then the problem isn’t how to restore confidence; it’s how to deal with the fact that the bank is really, truly insolvent, that is, busted.........

http://www.nytimes.com/2007/12/14/opinio...

Suppose that there’s a
Submitted by Ash Housewares on December 15, 2007 - 11:38pm.

Suppose that there’s a nasty rumor about the First Bank of Pottersville: people say that the bank made a huge loan to the president’s brother-in-law, who squandered the money on a failed business venture.

Damn Mr. Potter. Long live George Bailey and Bedford Falls!