Saturday, September 20, 2008

The Money Panic -

Are you looking for detailed information about the financial industry meltdown?

Here's an excerpt from an article written by FRANK BARBERA, titled, "Quiet meltdowns and the Money Panic" for your consideration:

Last week, " Fed Chairmen Bernanke reacted with outstanding sensibility to try and calm the outwardly irrational fears that have gripped the international credit markets. While we may, as of yet, be unable to know whether these fears were truly irrational, the degree of paranoia and the degree of real fear was unmistakable. Just look at the Canadian Commercial Paper market last week, and it's near seizure. For our part, while we realize that the Fed’s move may not be seen in the best light by those in the Austrian School (and they may well be right in the medium term), from a more ‘here and now’ mainstream point of view, the move was inventive, for the Fed may have calmed some nerves by re-introducing the Discount Window as a more viable funding tool.

Stepping back for a moment, we were stunned by the revelations which emerged from the commercial paper market, where total outstanding paper plunged by $91.10 billion dollars in just over a week. This was a clear sign that borrowers were unable to roll over short term debts, with the nearly 2.20 trillion dollar Asset Backed Commercial Paper market (ABCP) now transcending the Sub-Prime market as the next flash point in the Credit Crunch. According to Ambrose Evans Pritchard at the London Daily Telegraph, “This short-term debt is used to fund long-term investments, creating a maturity mismatch that has now turned deadly.

The Fed quietly softened its rules yesterday to let banks use the ABCP loans as collateral, a move that effectively offers a government floor.” Quoting a senior strategist at Barclays, Pritchard continues, stating that, in effect, “The sub-prime losses have been spread through the system in such a way that nobody knows who’s got what, and where the losses are, so the safest thing is to not lend to anybody.”

The entire post, with charts and links, can be read at Financial Sense Wrap Up:

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