The equities markets are an open game.
....not as long as you have investors totally hamstrung on the long side (401k's) and you have 'cannot short lists'
the 'game' has rules imposed that are weighted to one side, despite that, there are entities (hedge funds) that are not constricted by the same rules, btw, doesn't mean they can't lose money as well, their liquidating as we speak
btw...looks like yet even more market intervention (rule breaking) isn't working, not to worry though, and extra $700B will fix all that
LONDON (MarketWatch) -- Massive liquidity injections haven't freed up crucial money markets, leaving the world's central bankers little choice but to try more radical measures in order to dampen the odds of a wider economic collapse, economists said Tuesday.
Overnight borrowing rates and other key short-term interest rates and credit spreads rose sharply a day after the House of Representatives dramatically and unexpectedly rejected a $700 billion U.S. bank-bailout plan, leaving Washington in a state of shock and roiling global financial markets.
'A coordinated central-bank rate reduction ... is certainly not off the table.'
— Brian Bethune, Global Insight
Commercial banks have grown increasingly reluctant to provide each other with short-term loans, partly out of fear of further bank failures and concerns about the health of their own balance sheets.
"Money markets are in a state of extreme distress," said Neil Mackinnon, chief economist at ECU Group, a research firm.
The overnight London interbank offered rate, or Libor, registered a record one-day increase, reaching 6.875% from 2.56875% on Monday, according to news reports. Libor rates for sterling and euro loans also rose.
And three-month dollar Libor, a closely followed short-term rate, climbed to 4.0525% from 3.8825%.
Mackinnon said central banks should now "rip up the rule book" and take extraordinary steps to get money markets moving, including measures to guarantee interbank loans.
Unless markets are thawed soon, "we face financial-market and economic meltdown. I think that is not an exaggerated scenario," he said.
Fears about the ability of banks to fund near-term obligations has contributed to bank failures and steep declines in financial stocks, while the drying up of the commercial-paper market and other strains on credit indicate that the money-market woes are beginning to take a toll on the broader economy, Mackinnon warned.
'Self-fulfilling run'
Marco Annunziata, chief global economist at UniCredit MIB, said the depth of the broader crisis of confidence in financial markets is "now threatening to turn into a self-fulfilling run on the system, which could trigger a global financial and economic meltdown."
Rising rates come despite massive and unprecedented moves by central banks to inject liquidity into the global financial system. And interest-rate spreads that serve as measures of tensions in the money markets were elevated and at or near record levels, observers said.
The failure of money markets to respond to liquidity injections has fostered speculation that the central banks may move -- sooner rather than later -- to cut official interest rates. The severe strains in credit markets as well as subsiding inflation pressures and mounting recession worries have fueled growing conviction about the need to ease rates.
What next for rates?
"A coordinated central-bank rate reduction of 50 basis points, or more -- by the Fed, the Bank of England, the Bank of Canada and the Reserve Bank of Australia -- is certainly not off the table given the scale of the crisis," said Brian Bethune, chief U.S. economist at Global Insight.
"At a minimum, we would be looking for the Federal Reserve to cut interest rates sooner rather than later," he said Monday night.
Economists at Danske Bank said odds for coordinated rate cuts by global central banks have risen. However, the Fed may be reluctant to move while lawmakers on Capitol Hill haggle over another version of the bailout plan out of fear of being accused of political interference, they said.
Also, said Mackinnon, the European Central Bank remains strait-jacketed by its sole mandate to contain inflation, which despite slowing to an annual pace of 3.6% in September remains well above the ECB's target of near but just below 2%.
As a result, prospects for a rate cut at Thursday's meeting of the ECB's governing council remain a long shot, he said, though ECB President Jean-Claude Trichet is widely expected to adopt a tone underscoring potential downside economic risks at his monthly news conference.
Extraordinary measures
Central banks have taken unprecedented steps to inject liquidity into money markets in recent weeks.
On Monday, the Fed boosted its dollar-swap arrangements to $620 billion, up from $290 billion previously. The agreement, with nine central banks, allows authorities to provide short-term dollar loans to commercial banks in an effort to ease funding woes that have resulted from reluctance by commercial banks to lend short-term funds to each other through the interbank market.
The Fed also increased the size of its liquidity auctions and announced two forward auctions to provide funding over the year-end period.
And on Tuesday, the ECB provided a massive 120 billion euros in 38-day loans through a special auction. The Bank of England and other central banks have also taken added steps to provide added liquidity at various maturities.
Underscoring the reluctance to lend in the overnight market, euro-zone commercial banks deposited more than 44.35 billion euros, a record, in the ECB's overnight deposit facility on Monday, even though the facility pays an interest rate more than a full percentage point below the overnight market rate.
Meanwhile, banks borrowed 15.8 billion euros from the ECB's overnight lending facility at a 5.25% interest rate.
Reliance on overnight lending and deposit facilities confirms "banks are unwilling to lend to each other and that the ECB has so far failed to restore confidence in the interbank market," wrote economists at BNP Paribas. "A similar picture applies for other money markets."
marketwatch.com.
*********
yeah, just RIP UP THE RULE book, that will inspire confidence...the more the rules are changed in the middle of the game the more market participants are just being driven off the field |
