CreditCrisis posts
FeedPosted Jun 1st 2009 2:40PM by Mark Fightmaster (RSS feed)
Filed under: International markets, Economic data

Everything is fine, right? I mean May was a great month, following a solid April - so we are out of the woods, right? Not so fast my friend, there are some hints that we could hit a second credit crisis. According to
this article, some early warning signs of another global financial crisis include surging government bond yields, a slumping dollar, and the end of the bear market rally in the U.S.
The most worrisome possible signal is the heavy selling of U.S. dollar-denominated assets, which could "trigger a full-blown currency crisis and usher in surging inflation." This assertion means that we should be a bit concerned that the Treasury note yields' surged to six-month highs near 3.75% this week. This move indicates that investors may be concerned about the U.S. government borrowing requirements this year.
Continue reading Do bond yields hint at another credit crisis?
Posted Apr 10th 2009 5:00PM by Michael Fowlkes (RSS feed)
Filed under: Forecasts, Good news, Consumer experience, Employees, Market matters, Money and Finance Today, Economic data, Housing, Recession, Financial Crisis

The entire country has been struggling with the current recession, and while we are still not out of the woods just yet, there are signs that the economic free fall is
at least close to coming to an end.
This morning President Obama stated that we were starting to see "
glimmers of hope" in the economy, claiming that we are "starting to see progress" on a number of fronts. While Obama admits that the economy is still under "severe stress", he noted that we are seeing a boom in demand for mortgage loans and refinancing, and a thaw in some credit markets.
Continue reading Is the end to the recession on the horizon?
Posted Jan 25th 2009 4:00PM by Michael Shulman (RSS feed)
Filed under: Bad news, Recession, Financial Crisis
Yes, you may hear that the corporate bond market is breathing again and the exotic "TED spread" -- the difference between T-Bill and LIBOR rates -- is shrinking, but no one is lending money to anyone and confidence is non-existent.
Recently the entire country of Spain (meaning Spanish national debt) was put on credit watch due to deteriorating economic conditions.
Remember, the Wall Street Crash of 1929 and the Great Depression (I am not forecasting either one, by the way) started at a medium-sized bank in Austria, not on Wall Street or in London.
Credit markets are not only frozen because we don't know what is on the banks' balance sheets; they are also frozen because banks are repairing their own balance sheets by hoarding capital.
Be sure to read all 7 reasons the stock market isn't going up any time soon.
Michael Shulman is a contributor to OptionsZone.com.
Posted Jan 25th 2009 12:00PM by Michael Shulman (RSS feed)
Filed under: Bad news, Citigroup Inc. (C), Recession, Financial Crisis
The banks are a wreck and now the pieces are beginning to fly apart, with Citigroup (NYSE: C) struggling the most and beginning to dismember itself.
Meredith Whitney, the uber-analyst who has been right about everything in banking for more than two years, said there were $2.4 trillion in asset downgrades at the end of last year by the credit agencies. This will really whack the banks' critical Tier 1 capital.
And even if you forget earnings problems, the banks will continue to have no money to lend, which will strangle businesses and the economy.
Be sure to read all 7 reasons the stock market isn't going up any time soon.
Michael Shulman is a contributor to OptionsZone.com.
Posted Jan 23rd 2009 3:15PM by Zac Bissonnette (RSS feed)
Filed under: Good news, Berkshire Hathaway (BRK.A)

Speaking on
PBS' Nightly Business Report,
Berkshire Hathaway (NYSE:
BRK.A) honcho Warren Buffett provided his outlook on the economic crisis:
"They're bad, they're bad. The credit situation is getting a little better now. Things have loosened up from a month ago in the corporate debt market. But the rate of business descent is at a pretty alarming pace. I mean, there is no question things have really slowed down. People's buying habits have changed. Fear has taken over and fear is a tough thing to fight."
Other highlights from the interview: Buffett said that he is "not opposed" to buying back his company's stock and said that the government cannot stand by and "do nothing" to stimulate the economy, even though there is the potential for major inflationary consequences.
But the most important item for investors is this: Warren Buffett bought stocks yesterday.
Posted Jan 3rd 2009 7:00AM by Greg Tucker (RSS feed)
Filed under: Major movement, S and P 500, DJIA, , Federal Reserve, Recession, NASDAQ
As we ring in the new year, it feels nice to put 2008 behind us.
In what all traders would agree was the craziest market they'd ever seen, we were taken on a roller-coaster ride fueled by the subprime mortgage fiasco, a recession, bailouts, a credit crisis, scandal and a historic election.
Here are 10 of the wildest days and biggest point moves on the Dow during the last 12 months:
#10 Saving our Fannie (and Freddie): After years of financial shenanigans and controversy, Freddie Mac and Fannie Mae were placed into conservatorship in a federal takeover of the government sponsored enterprises. (July 14)
# 9 The day after (Bear Stearns): Just one day after the collapse of Bear Stearns, the market rallied on a 75-basis-point Fed rate cut and better-than-expected earnings reports from Goldman Sachs and Lehman Brothers. (March 18)
#8 We've got a bad feeling about this: Facing the possibility of a 500-point drop in the Dow, the Fed sprang into action early to shore up the markets. (Jan. 22)
#7 I've always wanted to be loved ... and be a banker: The federal government announced it would take preferred equity stakes worth up to $250 billion in several U.S. banks to keep money flowing through the financial system. (Oct. 14)
#6 Consumer confidence hits all-time low ... let's buy stocks!: Consumer confidence reaches the lowest levels on record since the survey began 41 years ago and the market rallies to post its second-largest gain of the year. Huh?!? (Oct. 28)
#5 It's official: U.S. economy enters recession ... in 2007: This headline from the NBER combined with other weak economic data and more troubles in financials to drag down the Dow by nearly 700 points. (Dec. 1)
Continue reading Markets gone wild: 10 craziest days on Wall Street in 2008
Posted Oct 24th 2008 12:30PM by Douglas McIntyre (RSS feed)
Filed under: Amer Intl Group (AIG), Federal Reserve, Financial Crisis
AIG (NYSE: AIG) is borrowing even more money from the Federal government. As of October 23, it had tapped into $90 billion of the $123 billion the government has made available. The insurance giant was set up with the massive credit line on concerns that if it fails, it could bring the global financial and credit system down with it.
According to The Wall Street Journal, the weekly total of AIG's draw-down remains large. "The new total is $7.4 billion, or nearly 9%, more than AIG had tapped as of a week earlier," the paper said. On Oct. 22, AIG's chief executive said the current bailout loan might not be enough.
Since it is a real possibility that the amount of capital available to AIG may be inadequate, the important question to ask now is, what happens if AIG needs more money?
For starters, common shareholders will probably see the value of their holdings go to zero. AIG's shares are already down to under $2 a share -- a sign traders think it will go bankrupt -- compared to a 52-week high of $64.25 (a full year ago). The government owns 80% of the firm now. For people in the stock, it is probably a good time to take whatever money you have left and run.
The more difficult question is how far does the government go in providing funds? The answer is that the amount of capital may have to go much higher. The credit crisis is not getting better. AIG's credit derivative swaps and mortgage-backed paper are falling in value almost every day. If the government still believes that propping up AIG is the key to averting a true global financial meltdown, it will have to extend more credit to the company.
Economists could debate whether AIG had to be saved. But now that the government has set itself up as a savior, it can hardly back down. If AIG were to go bankrupt it could spark a catastrophe which might be bigger than the one caused by the failure of Lehman. That's a risk the country can't take right now.
Douglas A. McIntyre is an editor at 24/7 Wall St.
Posted Oct 24th 2008 9:50AM by Jonathan Berr (RSS feed)
Filed under: Major movement, DJIA, Federal Reserve, Financial Crisis

One of my relatives works in construction. Bags of material needed to make concrete have lately been piling up at his job site because no one is mixing the stuff. That's yet another sign of the slowing economy and the impact it's having on people. Today's expected dramatic selloff in the stock market is another.
Investors used to gasp when they saw a triple-digit decline in the Dow Jones industrial Average. Now, as one of my friends recently noted, it's "another day at the office." It's not that people like huge declines; they have grown accustomed to living in a constant state of dread.
Today is no exception. Trading, which was limited in the pre-market, is going to be awful. Call it "Frantic Friday" or "Freaky Friday." Fear is ruling the day again. Investors are not acting rational. Blah, Blah, Blah. You have heard it all before. The only questions is why the world appears to be coming to an end today.
My colleague
Peter Cohan points out that markets in Asia and Europe have been tanking.
Even Canada, which largely avoided the subprime crisis, is guaranteeing up to C$218 billion in bank debt to match the bailouts offered by other countries. Remember, Canada's banks were recently recognized as being the most stable in the world. This underscores the nervousness of investors.
Continue reading Get ready for a frantic, freaky Friday in the stock market
Posted Oct 9th 2008 7:27AM by Peter Cohan (RSS feed)
Filed under: Financial Crisis
It's looking like the White House is floating the idea of using tax dollars to increase bank capital -- as the UK did yesterday. If it does not get significant political objections to the idea, this will probably happen. I think it is a great plan if they do it in the right way.
In order for this idea -- about which I posted -- to work, the Feds should not apply a peanut butter approach to capital injection. Rather, they should cull the herd and put enormous amounts of capital into a smaller number of strong banks.
The White House's original plan -- to buy up toxic waste -- is a great WPA program for Wall Street, but it won't solve the problem. That's because the price that Washington will set for the toxic waste will either be so high that it puts taxpayer money at risk, or so low that it slashes the banks' capital accounts -- making them unable to lend.
The basic problem is that banks are not comfortable lending to each other because they don't know whether the borrower will be around when it comes time to pay back the loan.
That's where the cull and capitalize plan comes in. Washington needs to decide which banks will get the combination of private and public money injected into their capital accounts. But it also needs to decide which banks must merge or close. Here's the important thing: if the money gets spread evenly among survivors and the rest, it won't do any good. The money needs to go to a handful of extremely well-capitalized and profitable banks -- otherwise confidence will not be restored.
Continue reading Washington likely to put capital into banks: A great idea if done right
Posted Sep 29th 2008 5:10PM by Amey Stone (RSS feed)
Filed under: Market matters, Financial Crisis

The government bailout that was supposed to save the financial sector from certain doom failed to pass vote on Congress. Does that mean we now face certain doom? I think not.
I don't want to sound Pollyanna-ish and I don't really have a crystal ball (as my headline promises), but here are some reasons why investors should not panic and sell their stocks now:
First, as frightening as the market looks -- the Dow fell 778 points for its worst one-day drop ever -- there is going to be a rebound. If you sell at the bottom, you will miss out on an eventual recovery. If you really want to get out, wait for a bounce and then sell some of your stock holdings. Don't sell into a freefall. Think about it: the S&P fell an astounding 8.79% on Monday -- the worst percentage drop in more than 60 years, except for 1987's Black Monday crash. The Nasdaq fell 9.14%. Given the devastation, I think a bounce could come as soon as Tuesday since there will no doubt be some news that has to be better than Monday's.
Incidentally, this "don't sell in a panic" advice is the same you'll get from any financial advisor worth his or her salt. If you're invested in the market for the long term, you should ride out such waves and -- if you're really brave -- even use episodes of panic selling to buy more stocks.
Continue reading Three reasons why you shouldn't panic and sell your stocks
Posted Sep 5th 2008 9:30AM by Douglas McIntyre (RSS feed)
Filed under: Forecasts, Recession
Bill Gross of Pimco, one of the most respected bond investors in the world, thinks the credit crisis is about to get much, much worse. He also believes that the federal government is the only entity that can save the markets.
Gross's biggest concern is that financial companies will have to keep selling assets to raise cash. With home prices falling, he does not see an early end to this, and that troubles him. According to Reuters, Gross wrote "Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami."
Gross may be right, but his suggested solution is wrong. He wants the U.S. Treasury to start buying distressed assets to help build a floor for their values. Of course, the funding source for Treasury is the U.S. taxpayer.
Solving one problem by creating a larger one is rarely a good program. There is a great deal of evidence supporting the fact that taxpayers are already stretched to the limit. Job losses are up. Easy credit is gone. Gas, oil, and food cost much more than they did a year ago. The average person, who may already be unable to handle his own financial burdens, can hardly be asked to help support the purchase of assets being sold by large financial institutions.
If Gross's vision about the future of the credit markets is right, the financial system is only at the beginning of a growing disaster. But, turning to the U.S. citizen for cash is like looking through a man's pockets for a spare change. All the more valuable paper money has been spent.
Douglas A. McIntyre is an editor at 247wallst.com.
Posted Aug 22nd 2008 10:21AM by Douglas McIntyre (RSS feed)
Filed under: Forecasts, Economic data
Warren Buffett is becoming concerned that the national debt may present a crisis much greater than the one roiling the credit markets. In a forum with other economic experts, he expressed doubt the U.S. could handle the $53 trillion it has committed to spend.
According to Reuters, the group said that "the United States has become too dependent on foreign investors to buy its goods and its publicly-issued debt." Most of America's debt commitments are for Social Security and Medicare.
Buffett may be wrong. It may just be the recession talking. The government's ability to pay its own debt is dependent, to some extent, on the size and taxability of the nation's personal and industrial earnings base. During a slow economy, that pool drops.
One of the most obvious solutions to the problem is to get large companies to pay more taxes. Many move money overseas to nations with lower tax bases. Legislation should be passed to stop that.
As the economy moves back to growth, tax revenue will increase on its own and Buffett may be able to sleep better at night.
Douglas A. McIntyre is an editor at 247wallst.com.
Posted Jun 18th 2008 11:55AM by Michael Fowlkes (RSS feed)
Filed under: Major movement, Earnings reports, SEC filings, Bad news, Goldman Sachs Group (GS), Morgan Stanley (MS),
Morgan Stanley (NYSE: MS), the nation's second largest investment bank, posted its second quarter numbers today. As expected, the firm saw a hefty drop in quarterly profit. The ongoing credit crisis hit the bank hard and resulted in a 61% decline in quarterly profit, a number that could have been much worse.
The reason why I say that the situation could have been much worse is that the company benefited from the sale of around $1.4 billion in assets during the quarter. This contributed to a profit of 95 cents per share for the quarter.
The 95 cents per share was actually above Wall Street estimates, as analysts had been expecting to see the company show earnings for the quarter of 92 cents per share. But that has not prevented traders from pushing the stock lower in early morning trading. As of 11:00 am, we are seeing shares trading down 5% to $38.49.
Continue reading Morgan Stanley (MS) sees a 61% decline in quarterly profit
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