IT WAS AN inauspicious start to the week of October 6: Hank Paulson had finally got his Troubled Assets Relief Program and yet there was no relief to the sell-off in stocks – far from it. US stocks sold off the previous Friday despite Congress finally agreeing to contribute to the administration’s $700 billion begging bowl. Could it be that the bowl was not big enough? Waking in the wee hours in New York – as is the way for the traveller from London – the early morning news programmes were fevered in tone. Worse was surely to come given London’s awful opening, hardly a surprise given that the price action from Asia was so bad: in Japan the Nikkei was down 511 at 10427 while the Hang Seng hung low at 17090, off by 593 – the UK’s Footsie was to end that day 391 points lower.
Even the adverts offered no respite from the awful tales of the ticker tape and fears of systemic risk. "Worried that your Wall Street broker is no longer sound? Then let us take their place – we’re the largest independent broker, we have $1 billion of capital and no structured credit, sub-prime or leveraged loan exposure for you to worry about! Call us now on..."
In Europe, the weekend’s action had been almost surreal. Fortis was dismembered – its €11.2 billion equity injection just days earlier had not been enough. The government of the Netherlands took the Dutch assets and BNP Paribas the rest. In Germany, further government action was necessary to prop up Hypo Real Estate. Then on Sunday came chancellor Merkel’s bank deposit guarantee – or was it? The uncertainty about what state backing she was actually giving was unfortunate. More so was the impact on confidence of the German state’s unilateral action. It amplified the view that it was every man or, more appropriately, every country, for itself. Only the previous day, Europe’s leaders had met and stood together on the steps of a grand building promising a united front to tackle the crisis. Piecemeal action was still the order of the day.
There was some good news as Wells Fargo entered a rival bid for Wachovia Corp that trumped Citi’s by some degree and left the Charlotte-based shareholders much better off. This was remarkable – an auction for a troubled bank.
Monday, October 6: Tarp to the rescue?
"There’s a wildfire that the authorities are struggling to put out. We the market need a firebreak"
Tuesday, October 7: Psychological barriers are breached
"If they didn’t let a bank fail, how were they going to prove there was a serious problem? You kill a chicken to scare the monkey..."
Wednesday, October 8: Looking into the black hole
"The financial structure has changed, ending credit-led financing and disintermediation, and into a funded model"
Thursday, October 9: It feels like capitulation
"Enough! Just sell my stock, sell me anything with credit risk and buy T-bills – at least I know I’ll get my money back"
Post-script: Washington DC, Friday, October 10 to Monday, 13
"Either we get a coordinated response from the world’s leaders by the end of the weekend, or we might as well give up and go home"