Some other serious stuff that’s happening:
When Lehman filed $63 billion of commercial paper simply disappeared. Now firms are worried and are drawing down on their CP programs. This hits the banks very badly because CP facilities aren’t heavily counted in their capital adequacy requirements. However when the lines are drawn it hits the capital chain all the way up forcing banks to restrict their lending even more to other areas. Therefore the credit multiplier simply stops like a pump that is supposed to be pumping out water has air going through it. The banks simply don’t have any money to lend as they don’t have the funds to meet demands. This could be the reason dollars are so tight seeing US dollar for overnight loans went as high as 11% in Asia this week and didn’t fall below 7% from what i saw.
This is where we could get to Armageddon and we see wholesale firings as firms can’t meet payrolls simply because the banks can’t give them the cash. Some of you guys think this shit isn’t serious but it is. If they don’t get the support package, its over. I don’t think the Fed has the balance sheet to meet such a sudden demand for funds.
I don’t normally make these comments and I always wanna see markets do all the work. But this is so friggen serious it scares the shit outta me.
Update 29 Sept.
Another day another banks goes under:
Wachovia. Gone to Citigroup.