Part I of a three-part series looking at how so-called “credit default swap” derivatives could ignite a worldwide capital markets meltdown.
Are you shell-shocked? Are you wondering what’s really going on in the market? The truth is probably more frightening than even your worst fears. And yet, you won’t hear about it anywhere else because “they” can’t tell you. “They” are the U.S. Federal Reserve and the U.S. Treasury Department, and they can’t tell you what’s really going on because there’s nothing they can do about it, except what they’ve been trying to do – add liquidity.
Frustrated by the US government’s rescue of AIG, Fannie Mae and Freddie Mac, a group of 100 conservative congressmen today urged the Bush administration to stop keeping Wall Street afloat.
In a letter to the treasury secretary and Federal Reserve chairman, members of the conservative Republican Study Committee (RSC) lamented the abandonment of free-market principles.
Rescuing failing financial firms has “set a dangerous and unmistakable precedent for the federal government both to be looked to and relied upon to save private sector companies from the consequences of their poor economic decisions,” the RSC members wrote.
In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free- market capitalism.
Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street – and indeed financial institutions around the world – in a bail-out of unprecedented size.
In effort to calm critical part of the broader financial system, Fed and Treasury take three-pronged measure to stabilize troubled funds.
NEW YORK (CNNMoney.com) — Coming to the rescue of a bedrock of American investing, the Treasury Department and the Federal Reserve took three big steps Friday to shore up the $3.3 trillion U.S. money-market fund industry.
Investors have beenfleeing money-market funds after a week of chaos on Wall Street that included the bankruptcy of Lehman Brothers, an $85 billion government bailout of American International Group and a sweeping plan for the federal government to buy up financial companies’ troubled mortgage debt.
…………….. Experts: No need to cash out
Money-market experts say investors shouldn’t panic. They felt most funds were safe even before Friday’s government action, which will only add more confidence in the investments.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 19, 2008: 1:13 PM EDT
Full article here: CNNMoney
Money-Market Funds Get $50 Billion Backstop From U.S.
Sept. 19 (Bloomberg) — The U.S. will insure money-market funds against losses for the next year as it seeks to prevent a run on $3.35 trillion of assets that average investors and institutions rely on as a safe alternative to bank deposits.
……………. “They’re putting up a firewall,” said Paul McCulley, managing director at Pacific Investment Management Co., which oversees $830 billion including money funds. ``It’s the ultimate nightmare to have a run on the money markets — that is truly the Armageddon outcome — and they’re not going to allow that to happen.”
By Christopher Condon
Full article here: Bloomberg
Imagine what a run on the banks would do to the financial market.
Now you know why the government and ‘the experts’ panic that the investors might panic.
Watch this video to understand more about money and why a run on the banks would be so devastating.
“There are 5 giant multinational corporations who control all 14.000 radio stations in America, all 5.000 TV Stations, 80% of our newspapers, all of our billboards and most of the large internet content providers.”
A child receives an ultrasonic inspection for kidney stones at a children’s hospital in Chengdu, in southwest China’s Sichuan province Friday, Sept. 19, 2008.
BEIJING (AP) – China’s tainted milk crisis widened Friday after tests found the industrial chemical melamine in liquid milk produced by three of the country’s leading dairy companies, the quality watchdog said.
Singapore suspended the sale and import of all Chinese milk and dairy products because several tested items were contaminated.
Tainted baby formula has been blamed for killing four infants and sickening 6,200 in China since the scandal broke last week. Some 1,300 babies, mostly newborns, are currently in hospitals and 158 of them are suffering from acute kidney failure. Thousands of parents across the country were bringing their children to hospitals for health checks.
WASHINGTON (AP) – Senate Banking Committee Chairman Chris Dodd says the United States may be “days away from a complete meltdown of our financial system” and Congress is working quickly to prevent that.
Dodd said Friday that Democrats and Republicans on the Hill are coming together to support the Bush administration’s developing plan to buy up bad debt from financial institutions and get the credit system working again. Dodd told ABC’s “Good Morning America” that the nation’s credit is seizing up and people can’t get loans.
The ranking Republican on the Banking Committee, Senator Richard Shelby, predicts the new bailout plan will cost at least half a trillion dollars.
Shelby says the nation has “been lurching from one crisis to another.” Both veteran lawmakers say this is the most serious financial crisis they’ve seen in their years in Congress.
Stocks end sharply higher on report that government will create entity to hold banks’ debt
NEW YORK (AP) — Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 400 points following a report that the federal government might create an entity to absorb banks’ bad debt. The report also cooled investors’ fervor for the safest types of investments like government debt.
The report that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left previously solemn investors ebullient. Wall Street hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.