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.