Daily Financial Crisis Recap 13.10.08

Jean-Claude Trichet, Gordon Brown, Jose-Manuel Barroso, Nicolas Sarkozy and Jean-Claude Juncker. Photo by Philippe Wojazer
Jean-Claude Trichet, Gordon Brown, Jose-Manuel Barroso, Nicolas Sarkozy and Jean-Claude Juncker. Photo by Philippe Wojazer

Shares of Morgan Stanley surged after they announced that the deal is going through with Mitsubishi. The Dow is up almost 500 pts midday, nearing 9,000. This is because US stocks have surged overseas. They are trading close to $14. MS finished the day at $18.10. Most indexes gained a few percentage points.

At the end of the trading day, the Dow surged 11% to 9,387.61. It gained 936.42 today.

European govts will act together to help their banks. Spain pledges $130 billion, Paris will go for $435 billion. Lending hasn’t resumed between banks. IMF is ready to help out Hungary. Britain effectively took control of its largest banks. Germany doesn’t plan on taking control of its banks though, unlike the UK.

(will be updated at the end of the day)

Goldman Sachs seeks a NY Bank Charter. This move sets GS apart from its closest rivals, such as Morgan Stanly, JP Morgan Chase and Citigroup. The other banks have national charters, meaning that they can open branches across states without separate applications.

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Relevant Posts (check out the finance category for more)

Daily Financial Crisis Recap 12.10.08

Government leaders from the major European Union, by Lucas Dolega EPA
Government leaders from the major European Union, by Lucas Dolega EPA

An unsurprising move, after the something similar was announced in the US and the UK. Germany will inject up to $536 billion. The initial plan calls for $50 to $100 billion. Norway is going to spend $58 billion. France will pledge less than Germany. Britain is spending $255 billion and the US $700 billion.

Analysts are predicting a bleak holiday season for retailers. Are you planning on spending a lot of money?

The Fed approves Wells Fargo’s takeover bid of Wachovia. The bid was for $12.2 billion.

Fannie Mae and Freddie Mac were ordered to buy $40 billion a month of troubled mortgages.

Mitsubishi and Morgan Stanley are renegotiating their deal. MS was supposed to get an infusion of $9 billion from the Japanese giant. MS stock has hit $9.68. It was valued at $25.38 when they announce part of the deal. Mitsubishi still wants 21% of MS, but at a far lower price than last month.

Finance students are having a hard time finding the six figure jobs they thought were waiting for them.

Continue reading “Daily Financial Crisis Recap 12.10.08”

Daily Financial Crisis Recap 11.10.08

“We will do what it takes to resolve this crisis,” photo by Ken Cedeno for Bloomberg
“We will do what it takes to resolve this crisis,” photo by Ken Cedeno for Bloomberg

The American govt plans on buying stakes in banks and has put the proposed bailout plan on the back burner for now. Bush met with the finance ministers of the G7 nations. They are pushing for a global response to the crisis by the G7. The fact that the govt is thinking about nationalizing banks is almost antithetical to what the free market economy stands for.

GM is pondering a merger with either Ford or Chrysler. I don’t have a car and I don’t plan on buying one for the next few years. I will most definitely not buy a new car in the next ten years. What I will buy is bicycles and more than one, but that’s just me.

This article suggests that it’s time to buy stocks. The stocks haven’t yet hit rock bottom, so it’s not the actual time yet. But it’s coming. The trick is to distinguish between the companies that are going to go bankrupt and the ones which will survive healthily, unless you are short-selling of course. Still, you’d better hedge your bets by doing both.

Goldman Sachs doesn’t like Professor Roubini, who predicted their downfall and any other investment type bank on Wall Street back in February due to their business model which relied on short-term leverages.

Economic uncertainty continues to spread worldwide. The global recession is almost unavoidable. Morgan Stanley’s stock is down 82% this year.

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Relevant Posts

Daily Financial Crisis Recap 10.10.08

Daily Financial Crisis Recap 10.10.08

“We can solve this crisis,” photo by Jim Lo Scalzo for NYT
“We can solve this crisis,” photo by Jim Lo Scalzo for NYT

The US govt plans on buying stakes in banks in order to free up credit. Too little too late. European markets continued to fall today, by as much as 10%. Morgan Stanley’s stock fell by 22.35% today after falling by 25.8% on Thursday. Goldman Sachs’ shares also fell by 15%. A last minute rally helped the Dow only lose 1.28% today. It closed at 8,451.19, a loss of 128.

Oil closes below $78 a barrel. Will the barrel of crude sell for less than $65? Something that didn’t seem possible just a few months ago is almost reality.

Banks from Iceland face claims from depositors abroad. This could easily make Iceland go completely bankrupt, since the krona is so totally devaluated.

The credit squeeze hits Europe. Business credit lines are starting to be frozen, chopped into smaller pieces or just plain canceled as a response to the credit crunch. Businesses needing revolving credit in order to do their daily operations are going to have to find alternative financing, which if it isn’t found, will shut them down.

Stock markets in Asia plunged as well. With exports slowing down, it was bound to happen. So many markets are tied to the US, it was inevitable. With the US economy in disarray, many believe that their salvation lies with China. India hasn’t felt the squeeze that much, but they would be stupid to ignore the upcoming recession. Fear has already gripped Japan. Russia plans on buying shares on its market as well.

Stocks Continue To Plummet

 Treasury Secretary Henry Paulson after a news conference by Brendan Smialowski for NY Times
Treasury Secretary Henry Paulson after a news conference by Brendan Smialowski for NY Times

Stocks continue to plummet. The Dow is below 8,600.

Meanwhile in Iceland, the government seized Kaupthing Bank, the country’s largest lender, effectively completing the nationalization of its banking system. *

Citigroup decides not to block the Wells Fargo/Wachovia merger, but demands $60 billion in punitive damages in a law suit. Fat chance that they’ll ever get that money.

US considers injecting cash into financial institutions. I don’t think that will work. We’ll see more bankruptcies soon.

Iceland is going bankrupt. Since they are already part of the European Economic Area, adopting the euro would be a way to get themselves out of trouble, since the krona is completely devaluated and they’ve stopped trading in it since Thursday.

The latest Reckoning article is up. Greenspan was all for not regulating the derivatives market, which is at the heart of the current financial crisis. If he would have been for regulating it, things might have been different. Then again, the main fault lies with greedy Wall Street and London investment banks, who exploited the contracts to their utmost limits.

Short-Selling Ban Lifts Tonight At Midnight

At the stroke of midnight on Wednesday night, the SEC ban on short-selling will be lifted. Since the ban was put into effect on September 23, stocks have plunged by nearly 23%. Tomorrow, we will see another day of stocsk plunging because short-sellers will… sell short.

Wall Street Stocks Plummet

The Dow almost lost 10% in a single session, but was saved by a big loss by a rally towards the end of the trading day. Still, it’s the first time in 5 years that it dropped below 10,000, to 9,962.3.

AIG: A Blind Eye To A Web Of Risk

Excellent article over at the NYT about what exactly happened at AIG. AIG was bailed out by a $85 billion Fed loan.

The Fed’s Move Is Seen As A Free Market Detour

The US has always been a global beacon of free market capitalism. But what does the latest bailout of the Fed of the ailing American insurer AIG say to the global financial community? That unfettered capitalism doesn’t work. The most aggressive companies acting on Wall Street act like broncos. When things don’t work out for them, they let the government bail them out. Wall Street won’t learn if the Fed continues with its policies, but what choice did it have? If AIG fails, it would disastrous for the US economy.

AIG is best known for selling conventional products like insurance polices and annuities, products that are overseen by state and federal regulators. The problem is that AIG is also deeply involved in the risky, opaque market for financial derivatives and other complicated financial instruments, which are unregulated.

“It’s pure crisis management,” Mr. Chernow said. “It’s the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They’re afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight.”

Fed To Loan A.I.G. 85 Billion

In an incredible move, the Fed reversed its decision from Sunday night and decided to loan the struggling insurer AIG $85 billion. Unless backed by the government, the insurer would have followed Lehman Brother suit into bankruptcy. AIG’s struggle stem from credilt default swaps:

Credit default swaps are a type of credit insurance contract in which one party pays another party to protect it from the risk of default on a particular debt instrument. If that debt instrument (a bond, a bank loan, a mortgage) defaults, the insurer compensates the insured for his loss.