Thursday, October 09, 2008


Keep bailing; get more buckets

Well, so, the bailout financial recovery package was passed and signed into law, with much foofaraw, and it’s really done its job. I feel so silly for having been skeptical, seeing how the markets turned right around and have been going up and up since then.

[What? I... Oh, I see.] Um, excuse me; I’ve been told that I had the chart upside down. My mistake.

It seems that we had six straight days of continued crashing markets since Congress and the president signed $700 billion over to Henry Paulson, and the only “up” day was yesterday, caused by a worldwide interest-rate cut.

Yes, with things going from bad to worse after our legislators did their work, European countries started getting together to crank out their own bail-out, which included some issues among The Netherlands, Belgium, and Luxembourg, actions by Germany and Ireland to guarantee personal savings, and worries in Iceland of isolation and financial collapse (they’re not in the EU).

Follow that with a bailout plan in the UK yesterday that’s comparable to ours (PM Gordon Brown calls it even more extensive, saying, “We had to do more than just buy up assets.”), and then a coordinated cut in benchmark interest rates that finally had some effect:

The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates.

In another monetary first, the Chinese central bank joined the effort — without explicitly saying it was doing so — by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending.

But it’s still not clear that all this will actually fix things.

And Secretary Paulson, now armed with a $700,000,000,000 bank account (doesn’t it look impressive when one actually writes all the zeroes?), tells us that we have to be patient, that this will all take time, that none of these actions will turn things around overnight:

“The turmoil will not end quickly and significant challenges remain ahead,” Paulson said as he outlined what the Treasury has done to start implementing the $700 billion financial rescue package Congress passed and the president signed last week. “Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.”
That’s as may be, but didn’t Mr Paulson tell us, when asked why he needed the whole 7×1011 dollars at once, that it was a question of investor confidence, and the full amount was necessary to ensure confidence?

Confidence, it seems, is more related to cuts in interest rates than to hundreds of billions of dollars at the disposal of bureaucrats. Or maybe not to that either: the response to the rate cut might just be brief. In any case, no one appears to be very confident in Henry Paulson.

Least of all, me.

The last word goes to Emilio Botín, the chairman of Spain’s Banco Santander (pronounce it sahn-tahn-der), which is faring quite well through this whole mess. Señor Botín has three points of banking advice that should be obvious, but that seem to have escaped many in recent times (listen at 1:28 into the audio):

If you don’t fully understand an instrument, don’t buy it. If you will not buy for yourself a specific product, don’t try to sell it. If you don’t know very well your customers, don’t lend them any money.

Now, excuse me, while I put the numbers from my latest financial statement into my spreadsheet. The value of my investments went down 10% just in September (18% so far this year), but I remain... patient.

1 comment:

Katie said...

That's all you lost? You're lucky.