Sunday, August 12, 2007

Money. Money, Money, Money Moneyyyyyy!

Sorry, gang, it's Sunday, I know, and hardly the day you want to think about mooney and markets and economics...hell, my hangover has me hating writing this more than you hate reading it.

But it's important:
Global central banks, including the European Central Bank and the Bank of Japan, added more than $300 billion of extra cash to the banking system over the last 48 hours to stabilize credit markets.

"Central banks like the Fed and ECB are adding liquidity, and that has done a lot to calm the markets," said Rafael Martorell, chief dealer at BNP Paribas in New York.

That helped U.S. stocks recover from an early plunge, sending currency traders rushing to sell their newly acquired yen.

Recently, the Japanese currency has slipped when equity markets rose because investors could borrow in low-yielding yen to finance purchases of other risky assets. When stocks slid, the yen firmed as investors unwound those carry trades and bought back yen.
The Dow was down nearly two hundred points Friday morning, even after the Fed injected $19 billion. When that barely bumped it up to a hundred point loss, the Fed funneled another $16 billion. That made the markets go into positive ground, briefly, and it took an additional $3 billion to keep them about flat for the day.

$38 billion. About the cost of the Iraq invasion for a month and a half.

Shove it, Bush, seriously. This isn't the only news of the week that should be deeply tied (literally) to Bush's psychotic obsession with warmongering. The heavy price we've paid to secure perhaps ten percent of the known oil reserves could have basically bought us 25% of them without any military intervention whatsoever. Oh, but then there's the Republican obsession with not signing international treaties to contend with, but let's face facts: a trillion dollars buys a lot of goodwill.

Back to the stock markets. The Fed will have exhausted its ability to intervene in the markets probably by Wednesday. My guess is Bernake spent much of the weekend on the phone with the banks who control the Federal Reserve with his hat in hand, trying to find bail out money. All it will take is one banker to say no, and the entire house of cards collapses by Tuesday.

Why is this happening?

Two words: housing woes. Last year, 46% of home sales returned to the seller less than five percent equity. Since most mortgage require at least that much in a down payment, 46% of Americans either lost money or barely got back their down payment in selling a house.

I'd estimate maybe another 30% got back between 5 and 10% in equity, so about 3/4 of Americans who sold a house last year broke even. Maybe. It might be much much higher.

People have financed this recent economic growth, as feeble as its been, on their credit cards and home equity loans. Now, there will be no more home equity loans and credit card growth.

And you know who will be bailed out? Not the home owners, but the banks, who will keep lending money faster and faster and just get deeper and deeper in debt. Meanwhile, watch as people try to file bankruptcy only to find out that they can't, that they'll have to pay back each and every penny they borrowed...