Thursday, December 20, 2007

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More Economic Alarm Bells, Shhhhh

by Akiva at Mystical Paths

Is the world economy booming, or crumbling? There's this magical thing called "consumer confidence" that is often key to a stable economy, and maintaining this confidence through troublesome patches is the difference between a mild impact or a major impact. Therefore, the "system" has a vested interest in minimizing bad news and letting you know about risks and maximizing good news.

Good news: holiday sales are good, and people seem to be tolerating increased energy costs.

Bad news: the mortgage crisis impact continues to grow, and grow much more than 'predicted'...

-> Morgan Stanley, the No. 2 U.S. investment bank, reported a $9.4 billion writedown on Wednesday from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government. The writedown, nearly triple what Morgan Stanley warned of in November...

-> Cash-strapped banks (?????? !!!!!!) took the Federal Reserve up on its offer of $20 billion in short-term loans to help them overcome credit problems, but the interest rate wasn't as low as some had hoped.

The central bank said Wednesday that it had received bids for $61.6 billion worth of loans, more than three times the amount that was made available. The loans carried an interest rate of 4.65 percent, which is slightly less than the 4.75 percent the Fed charges banks on emergency loans through its "discount" window. Banks have been reluctant to use the Fed's discount window because of the fear that investors will believe they are having trouble getting funds in a normal manner (that's the 'consumer confidence problem I noted above)...

"There was a hope that things really weren't that bad and that the market would have been able to bid down the Fed and take the money at a cheaper rate," Marta explained. "The fact that the market wasn't really willing to, was evidence of the stress."

Cash strapped banks????? That's not a term you want to hear!

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