Economy

This is an incredible turn of events.  This is the biggest news of the decade.

I was not expecting this sort of activity for another year or two yet.

The Federal Reserve has bought a majority stake in a private company in exchange for cash.  Where did the Fed get this cash?  It was created out of thin air.

This article addresses the questions posed by ready Phredd earlier in the comments section of the post below.

The question concerns the new Federal Reserve actions allowing equities
to be submitted to the Fed in exchange for cash, requiring the
"temporary" suspension of "Section 23A" of the Federal Reserve Act,
which forbids a depository institution from transferring funds (‘making
loans’) to its affiliates. 

What types of funds are we talking about?  Depositor accounts.  

AIG is down another 34% in the premarket.  Something wicked is brewing over there, despite the "lending pool" announced last night.

There are reports of AIG policy holders cashing in their policies while they still can.  The report I read was about people in Singapore doing this…either they are more on top of things over there, or we just don’t report on such stuff happening in the US, for whatever reason.

The final hour finished down big on high volume with the Dow off 504 points and the S&P 500 down 59.

A question of vital importance is whether the recent dollar rally is real or fake. If fake, it is an engineered outcome of central bank policy (US, EU and JP combined) and it will fail, possibly spectacularly.

Things are certainly progressing at a very fast pace.  I find it
inconceivable that Bank of America (BAC) would step up and buy Merrill
Lynch (ML) on such short notice.   ML is heavily exposed to the same
stuff as Lehman, and we know that today (Monday) is going to see some
heavy trading in the derivative markets as a result of the bankruptcy
filing by Lehman.

Oh, man.  After posting that prior article below, I was waiting for the right article to appear to post next.

Here it is, served up on a platter:

[quote]

NEW YORK (AP) — As the outlook for Lehman Brothers dimmed Sunday, U.S. and foreign banks were pressed to create a plan aimed at inoculating the global financial system against the investment bank’s failure, a top investment banking official said.

Banks were in tense talks to create a pool of money worth up to $100 billion to lend troubled financial companies, the official said on condition of anonymity because the discussions were ongoing. And officials at the U.S. Treasury and the Federal Reserve were expected to announce they are prepared to be more generous in the Fed’s emergency lending program for commercial and investment banks.

[/quote]

This is an incredible headline. It is incredible news. Be sure you read the punchline all the way at the bottom.

[quote]Largest Financial Powers in the City Meet After Day of Hysterical Liquidation Sinking Prices Below Thursday’s
By Laurence Stern

After the stock market had come crashing down again in a veritable deluge of forced and hysterical liquidation, word sped through the financial district last evening that the largest banks in the city were prepared to exert their organized power this morning to prevent further disaster.

Arrangements described as "fully adequate" were completed at a conference at the offices of J. P. Morgan & Co. at Broad and Wall Streets…

Although no formal statement was issued, it was the consensus of those at the meeting that the worst of the liquidation is over and that a natural demand for investment stocks now available on the bargain counter should go far toward an immediate restoration of trading stability.[/quote]

It looks like we’re headed for liquidation. Nobody has any idea what this really means or how this will play out in the derivative markets.

Just a little more context for the brewing Lehman situation.