Oct. 2 (Bloomberg) -- Interest rates on three-month dollar loans rose to a nine-month high, short-term corporate borrowing fell by the most ever and leveraged loans tumbled, exacerbating the credit freeze that's paralyzing businesses around the world. The London interbank offered rate that banks charge each other for loans rose for a fourth day, driving a gauge of cash scarcity among banks to a record. The biggest drop in financial short-term debt outstanding since at least 2000 caused the U.S. commercial paper market to tumble 5.6 percent to a three-year low, according to the Federal Reserve. The crisis deepened after the worst month for corporate credit on record. Leveraged loan prices plunged to all-time lows, short-term debt markets seized up and even the safest company bonds suffered the worst losses in at least two decades as investors flocked to Treasuries. Credit markets have frozen and money-market rates keep rising even after central banks pumped an unprecedented $1 trillion into the financial system. ``The credit window is closed,'' Jim Press, president of Chrysler LLC, the third-largest U.S. automaker, said today at the Paris Motor Show. The financial rescue plan must be approved because ``it's important for us to restore credibility in our banking system.'' The U.S. Senate passed the Bush administration's $700 billion bank-rescue package yesterday with inducements for the House of Representatives to approve the measure after an earlier version was rejected. The legislation, approved on a 74-25 vote, authorizes the government to buy troubled assets from banks rocked by record home foreclosures. `Effectively Shut' ``It's going to get much, much worse,'' said Gregory Peters, head of credit strategy at Morgan Stanley in New York. ``The credit markets are effectively shut, the CP market, which there's not enough focus on, is under complete duress. That can't be sustained, as that's the lifeblood of corporations funding themselves.'' http://www.bloomberg.com/apps/news?pid=20601087&sid=a0JbUyhTA71Y&refer=home
So why is Paulson pushing a bill that allows GS and MS who don't lend to industry to access the $700Bn thereby depriving access to banks that do?
Goldman Sachs and Morgan Stanley are converting to bank holding companies http://www.moneymorning.com/2008/09/23/morgan-goldman/
............to take advantage of the Fed and taxpayer largesse. They are not and never were working capital lenders to mid size businesses. Any lending was a sweetener to get the underwriting business. The term 'bulge bracket' refers to the market cap 'bulge' of the S&P 500 supposedly (latterly?) making up most of the market cap of the exchanges.
I think the US Govt (Fed and/or Treasury) would make further extreme intervention before the S&P fell below 750. Some possibilities: Cut Federal Funds Rate and Discount Rate to 0.25% or lower. Cut taxes close to zero. Use Government money to buy equities.
None of those would work and would probably make things worse. If S&P hits 750 then the system is so fucked that cosmetic measures that you advocate would work about as well as in 1929-32 or Japan 1990-2000 i.e. not at all. These suggestions are so typical of establishment thinking right now - instead of addressing the real problem they address the cosmetics. Surprise surprise, all these silly changes achieve is a short bear market rally. Governments cannot dictate stock prices. If they could then bear markets would not exist. Please, drop this ineffective, immoral socialist nonsense about controlling market prices.
Doesn't inflation somewhat control the market these days? I mean, in real terms, the market could tank but on paper look as good as you please. I don't expect it to tank in nominal terms for years like it did in the Great Depression when the money was backed by something.