The Australian this morning:
Banks act on stock rout
David Uren, Economics correspondent | August 11, 2007
WORLD central banks have poured almost $200 billion into financial markets in less than 24 hours in a bid to stem a global financial panic.
The Reserve Bank of Australia had to pump almost $5billion into the local market, about double the normal daily injection, to ensure that the cash interest rate did not spiral higher than the new 6.5per cent set only on Wednesday.
The fear of a financial meltdown stripped 3.9per cent, or about $58billion, from the value of the top 200 shares listed on the Australian sharemarket, with theAll Ordinaries index closing at 5965.2points.
It was the biggest plunge in markets, both in Australia and around the world, since the aftermath of September 11, 2001.
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Hat tip wagga for keeping up with the news back home.
17 comments:
Central bankers of the world unite in injecting liquidity in every Murst.
Where will that money wind up? Stocks?
Which was kinda scary, so I'll be making an estimated tax payment in September. Even money market funds can have undisclosed exposure to subprime mortgages. (IKB Deutsche Industriebank was floating short-term commercial paper in order to buy these AAA rated asset-backed securities and required a bailout.)
People were demanding their cash from banks, etc and these banks were 'overdrawn.' So, the central bankers acted as lenders of last resort to loan the banks money for a few days. Banks are not allowed to be overdrawn. That's where the money went.
During these volatile times, I decided to lock in some profits and limit my exposure. Maybe there will be a fire sale on stocks next week.
Most markets are up for the year despite the recent sell offs, and yet central bankers made a big deal of announcing the liquidity injections. Maybe they know something we don't know.
Lou, this sounds a little tinfoil but there is no money. $7-9T nneds to taken off the books, written down, whatever from the US residential housing aggregate valuation. Not only is that a lot but it is disproportionately risk spead to a portion of that asset class. I can afford the $500-600k hit, just paper for me and half my neighbors but I doubt my immediate next door neighbor can afford the $1.2-$1.6m hit to his wishing price.
KCAL Channel 9 (bakersfield cable carries this channel) had a story last night on Ventura County and how hard the CFC and Amgen layoffs would hurt. They used the word "depression" at least twice...
I am bearish but come one - depression, no way!
http://cbs2.com/business
See video on the right
The intro used the word depression which was not included in this video...
What every drives ratings higher...
Depression won't be the right word. Agriculture is the number one industry here still. Amazing as that may seem. The number one employer is the county government and they just foolishly negotiated an 8.5% pay raise for most civil service jobs. There will be very high, persistent unemployment and home prices will crater. We'll end up part "Santa Barbara" and part "San Fernando Valley." A rich/poor with no middle class in the nice areas and monotonous ugly lower middle class in others.
Okay, what's up here? I just checked this blog for the first time in more than a month expecting to click past the usual "All Casey All The Time" clap trap. Instead I see actual substance, the way things used to be.
Welcome back. Pull up a chair. It took some effort but the angry mob has moved on.
So, what happened?
Is there a post or two that explains the Death of Casey and the Return To Substance?
Casey who?
UK, good one!
FCB, Casey lawyered up and sold out and shut up. Everybody cut their losses and the peanut gallery burned out in one or two final haterzcasts. Good riddance but also a good thing to have documented. Now there isn't a DA or lender that's going to be able to deny they didn't know what was going on.
100 Billion here, 100 Billion there - pretty soon, it all adds up to real money.
So where the fuck does all this money come from and was it earning interest before?
Central bankers create and destroy money all the time through the magic of 'open market actions' and fractional reserve banking.
During this particular liquidity injection, the Fed temporarily bought US Treasuries and 'Agency' debt (backed by the government). The banks transfer these securities to the Fed, and the Fed electronically credits the banks. In a few days, the banks and the Fed must reverse the entire process because it was structured as a 'repo' or Repurchase Agreement. The banks get to use the cash for a few days while cash from other sources. The Fed earns interest on the loan. This whole process smoothes out a temporary cash shortfall in the system.
If the Fed permanently wanted to create money, it buys Treasuries on the open market. The banks could then make loans on part of this created money because of fractional reserve banking.
The Fed can destroy money by selling US Treasuries. Banks that buy the Treasuries decrease their cash and the amount they can loan. Poof! Cash is destroyed. Banks have lower reserves, and so can't loan as much.
See Wikipedia for more information. It makes great party conversation. Women love it.
Oops. That should read: The banks get to use the cash for a few days while AWAITING cash from other sources. Didn't want to say 'while cash from other sources comes in.' Isn't that against the rules?
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