The Ultimate Fallback Postion

an announcement from the G7 Meeting that there is an consensus plan for dealing with the financial crisis but here is the last paragraph of the statement . . . . let's hope it doesn't go there.

No G7 official was sure the plan would work, so deep is the global financial crisis. If it does not, the next steps would be one of two nuclear options: either to guarantee all liabilities of banks, effectively nationalizing the financial system, or for governments to seek to bypass financial institutions by lending direct to companies and households. Officials hope they will not have to contemplate these options.

Comments from Henry Paulson on the G7 meeting

The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Policy makers will pursue ``robust international partnership and cooperation.''

This relieves me a little but the sooner this gets going the better.

Oil

OPEC will need to reduce production not because the price is currently too low but because there is not enough demand . . . . are we looking at a world wide recession?

Another comment on predicting (or looking forward)

As observers of historical results, we have the advantage of knowing the end of the story. You don’t know the end of the story when you are in the action. We should not impute the clarity we have looking back, when our need is to look forward.

Credit Crisis - Financial Meltdown in simple terms

from Barry Ritholz at Big Picture blog

To repeat my prior arguments, the proximate cause of the Housing crisis were 1) Ultra-low rates; and 2) Abdication of traditional lending standards, thanks to 3) originators ability to resell mortgages for securitization purposes, and therefore not have to worry about loan defaults.

The credit crisis was caused by 1) the above securitized mortgage paper, that was 2) rated triple AAA by Moody's and Standard & Poors, which then 3) Which was then "insured" by credit default swaps (CDS) -- the unreserved for, shadow insurance products whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance.

If you are going to blame Fannie/Freddie/CRA, or George Bush or Barney Frank, you are missing the big picture.

What does the future financial world look like?

From the Financial Times in London . . . . Take a look here

Bail Out Legislation in detail

If you'd like to read the entire legislation, click here

is the S&P still overpriced?????

The S&P 500, down 25 percent this year, still trades for almost 21 times profit from the past 12 months. Only four of 48 developed and emerging nations tracked by MSCI Inc. -- Switzerland, Jordan, Colombia and Morocco -- have a higher price-to-earnings ratio, according to data compiled by Bloomberg yesterday.

Can't Take My Eyes Off of You

Just saw "Jersey Boys" while in Toronto. Great show and the music of the Four Seasons was then and now pretty good. Researching Bob Crewe and Bob Gaudio I found this . . . In 1999, when the US performing rights and royalties organization BMI (Broadcast Music Incorporated) announced its Top 100 Songs of the Century, Can't Take My Eyes Off You landed in the top ten with six million airplays or. BMI calculates one million continuous performances of a song of the average length (3 minutes) as representing 5.7 years of continuous airplay.

Money Market Funds closing / / / / yes

Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund yesterday and plans to return all cash to investors.

The fund, which was valued yesterday at $1 a share, experienced ``significant redemption pressure,'' the Boston- based company said in a statement. A drop below $1 a share, known as breaking the buck, would have exposed investors to losses.

The fund had no exposure to securities issued by Lehman Brothers Holdings Inc., Washington Mutual Inc. or American International Group Inc., the company said.

Reserve Primary Fund, the oldest U.S. money-market fund, on Sept. 16 became the first in 14 years to break the buck. Investors pulled 60 percent of their money from the $62.6 billion fund on Sept. 15 and 16 before withdrawals were delayed.

Putnam is a unit of Canadian insurer Great-West Lifeco Inc.

VIX indicates a bottom is very near

Investors paid up for protection from further losses. The Chicago Board Options Exchange Volatility Index jumped 20 percent to 36.22, the highest closing level since October 2002. The VIX measures the cost of using options as insurance against declines in the S&P 500.

Buchon Brothers update

Jim and I have a website now where you can learn about us, our music and upcoming gigs on the Central Coast click here

Don't you love these downgrades???? Their timing is exquisit . . .

Standard & Poor's downgraded the ratings of Washington Mutual Inc. today (2.00, -0.73, -26.7%) and Washington Mutual Bank because of increased market turmoil. Now get real, this company once sold for as much as $47 during the last two years and NOW it gets downgraded?

Capitulation?

Probably not . . . As of Monday evening, for example, the HSNSI (Hulbert Stock Newsletter Sentiment Index) stood at minus 33.2%. Though that suggests that the average short-term timer is bearish, he is not nearly as bearish as on past occasions of capitulation. The all-time low for the HSNSI, for example, is minus 81.8%--or nearly 50 percentage points lower.

Lehman owes . . . .

New York-based Lehman, which filed for protection from creditors today, owes its 10 largest unsecured creditors more than $157 billion, according to the Chapter 11 filing today in U.S. Bankruptcy Court in New York. The largest single creditor is Aozora Bank Ltd. in Tokyo, with $463 million in a bank loan. Other top creditors include Mizuho Corporate Bank Ltd., owed $382 million, and a Citigroup Inc. unit based in Hong Kong, owed an estimated $275 million, according to the filing.

Cubes

an fun site to just amuse yourself click here

Aaron Sorkin on the internet . . .

"Nothing has done more to make us dumber or meaner than the anonymity of the Internet."

Buchon Brothers music gets better

Jim Thurman and I, The Buchon Brothers, played 11 songs last Saturday night at a local club in San Luis Obispo (8 of the song were original compositions) and received rave reviews from the audience. It was the first time we've played in front of a serious audience without music stands and we did well, hitting 90% of our marks. Click here and you'll be taken to my website where you can hear two songs from last night's show craigkincaid.com/music

The Journey of Mankind . . . click here

FDIC needs some bailing out?

Yep, another financial "biggy" is having problems . . .

FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

The FDIC issued a report showing that the number of financial institutions on its so-called problem list rose to 117 from 90 which were reported at the end of the first quarter.

That's an increase of 30% in three months, and things look to get worse before they get better. The number of banks on the list is the most visible thing to consumers, but the amount of assets held by those problem institutions is more troubling still. The total assets of institutions on the problem list tripled. That means some pretty big players are in the additions.