Worst crisis for 20 years, say banks

[babylonsister]

Worst crisis for 20 years, say banks
David Smith and John Waples

LEADING bankers are warning of the worst crisis in the money markets for 20 years, which will come to a head this week when $113 billion (£57 billion) of commercial paper – market IOUs – comes up for refinancing.

This huge refinancing, mainly through London, exceeds the $100 billion that became due in mid-August, and which sparked the most serious phase in the money-market crisis, which has seen banks scrambling for funds and market interest rates rising sharply. “This is a serious pressure point,” said one leading banker.

Another senior executive of one of Britain’s top five retail banks said: “These are the worst conditions I have seen in money markets for 20 years”.

The huge amount of commercial paper becoming due is the hangover from the crisis in credit markets that began with American sub-prime mortgages. Many of the off-balance-sheet structured investment vehicles (SIVs) set up by the banks were borrowed in the form of asset-backed commercial paper.

Now, even if they succeed in rolling over some of this paper this week, they will eventually be forced to take some of it – much of which is of questionable value – onto their balance sheets. To meet this potential liability, banks are hoarding cash and have stopped lending to each other. This has created a liquidity freeze.

“Asset-backed commercial paper is rolling off every day and the banks are taking more and more onto their balance sheets, which is using up capital,” said Paul Mortimer-Lee, global head of market economics at BNP Paribas in London. “It is both a liquidity and a capital crisis.”

more...

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2412740.ece

[whistle]

1. Right, since black Monday, October 15, 1987

<snip>
Black Monday (1987)
From Wikipedia, the free encyclopedia

Black Monday is the name given to Monday, October 19, 1987, when the Dow Jones Industrial Average (DJIA) dropped dramatically, and on which similar enormous drops occurred across the world. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. (The terms Black Monday and Black Tuesday are also applied to October 28 and 29, 1929, which occurred after Black Thursday on October 24, which started the Stock Market Crash of 1929.)

The Black Monday decline was the second largest one-day percentage decline in stock market history. The largest one occurred on Saturday, December 12, 1914, when the DJIA fell 24.39%. However, in that case, the New York market had been closed since July due to the outbreak of the First World War. The greatest point loss in DJIA history was on Monday, September 17, 2001, 684.81 points, six days after the September 11, 2001 attacks and the first day after which the market was open.

A certain degree of mystery is associated with the 1987 crash. Many have noted that no major news or events occurred prior to the Monday of the crash, the decline seeming to have come from nowhere. Important assumptions concerning human rationality, the efficient market hypothesis, and economic equilibrium were brought into question by the event. Debate as to the cause of the crash still continues many years after the event, with no firm conclusions reached.

In the wake of the crash, markets around the world were put on restricted trading primarily because sorting out the orders that had come in was beyond the computer technology of the time. This also gave the Federal Reserve and other central banks time to pump liquidity into the system to prevent a further downdraft. While pessimism reigned, the market bottomed on October 20, leading some to label Black Monday a "selling climax", where the excess value was squeezed out of the system.
<MORE on causes>

http://en.wikipedia.org/wiki/Black_Monday_(1987)

[Deja Q]

2. And we still recovered from all of it.

[whistle]

7. Are you sure that we really recovered as a nation?

[Neshanic]

20. Yes that RTC firesale was quite the bargain.

[Loge23]

9. Attn: Supply-siders - Time's Up!

This is the great fallacy of supply-side economics. It's good for 6-8 years which gets them through a re-election. If not for Iraq, they would've taken the mid-terms as well. The crisis really heated up after the mids.
The elephant in the room however, has to be the Iraq cost as measured in dollars if not in the blood of its victims. That price still must be paid.

[EST]

3. If you or I tried to create a pyramid scam like this, selling smoke,

we'd be convicted of fraud, slapped in prison and made to work for thirty cents an hour to pay off a few million.
It must be those "serious" pundits and their fantasmagorical flair.

" “It is both a liquidity and a capital crisis.” "

I think that means "we can't sell it and we're broke."

[quiet.american]

10. Hello! And what happens to the "brilliant" corporate minds behind this fiasco?

With the smirk typical of the "haves and have-mores," they cash in their stock options worth hundreds of millions of dollars, and with a "good luck, suckers" parting shot, drive off into the sunset to build their private golf courses and shop for their second private jet.

[Warpy]

4. It's the inevitable result of GOPonomics

The boom fueled by cheap credit followed by the bust when the bills start to come due.

Dumb people fall for it every time.

If they want to bail it all out this time, they're going to have to tap the rich. We the people are tapped out.

[nadinbrzezinski]

5. Yep and has been the case since the 19th century

every major dip, GOP is in charge.

You'd think they learn.

[ljm2002]

8. They do learn...

...they just look at different charts. The ones that show "revenue from military hardware", "revenue from continuous rebuilding of devastated countries", that sort of thing. And those charts always show sharp peaks when Republics are in charge, and the worth of the money-worshipping idolators continues to grow...

They don't give a rat's ass for the overall economy, because at their levels they can play it either way. They'll still have enough money, and when markets crash and bubbles burst, they see "investment opportunities".

Nice rigged game they've got going for 'em.

Too bad about the rest of us though.

[sandyd921]

19. Well put

I'm no expert on economics and "the markets" but that sure characterizes "the game" from where I sit.

[ryanus]

16. not exactly. The central banking systems are to blame

The money system is inherently unsustainable. No democrat could keep the system going either. However, it is true that GOP has made it worse with excessive spending and borrowing. This problem has been in the works for decades.

Watch "Money as Debt"

[Rosemary2205]

6. And 20 years from now they'll have another "worst ever" crisis.

They are more predictable than cicadas and nothing will ever be done about it.

[Lone_Star_Dem]

11. "They are more predictable than cicadas"

How true! Do you mind if I use this in a LTTE that I'm writing re: hedge funds/credit/our economy?

[Rosemary2205]

21. My pleasure! :)

[SoCalDem]

12. It's a clever little scheme to pilfer the wealth of a generation

every 20 yrs or so.. and by the time the next one's "due" the ones who suffered through the previous ones, will be considered doomsaying old fogies :grr:

[quiet.american]

13. Well said. n/t

[lovuian]

14. Capitalism causes Depressions its cylical

it runs up and then crashes

the common people are the ones who get hurt everytime

[Gregorian]

15. Every dime I've ever earned is in my bank account right now.

I really don't like it. But I was one of the lucky ones who sold their house recently. And now I'm sitting on electronic digits. People here have said this isn't like the Depression. I still would like to know what advice people have. I suppose no one really knows. If I could afford a place to live, I'd buy it. I don't want money, I want a damn place to call home. I might have neither, shortly.

[TankLV]

17. You mean Neil Bush is back in banking?!?! God help us...

[flashl]

18. No, its worst

Bush's Family Profits from 'No Child' Act

A company headed by President Bush's brother and partly owned by his parents is benefiting from Republican connections and federal dollars targeted for economically disadvantaged students under the No Child Left Behind Act.

[goforit]

25. This is just Dandy! One scam after another!

[Quantess]

22. This is why we need some regulations on the market. (eom)

[Zorro]

23. Nikkei down over 2 percent in Monday AM trading

Not exactly a reassuring sign.

Don't know if it's a response to the Dow's drop last Friday or not.

[goforit]

24. Yikes!