The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac – the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market – had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.

Monday mornin\’s gonna be interesting. 11.30, 12 am UK time. As the US debt markets wake up.

9 thoughts on “Eeek!”

  1. For good, news worthy reasons, the FT often garnishes its front page with pictures of Ben Bernanke, chairman of the US Federal Reserve Bank since February 2006.

    He is 55 years old but has lately been looking decidedly haggered. Those previously tranquil times of a professor of economics at Princeton must seem like another life away:

    The reassuring news is that among his credentials for the job of Fed Chairman, he wrote: Essays on the Great Depression (Princeton UP, 2005), as well as editing a collection of papers on: Inflation Targeting (Princeton UP, 2005). He is also co-author of a mainstream student text on: Macroeconomics (2007). Few other central bankers can lay claim to such a strong academic provenance.

    What events have already proved is the enduring nonsense of all those claims that Keynesian economics is long since dead, as well as all those calls for Free Markets without fiscal and monetary policy interventions. Remember, the Bush administration recently pushed through Congress that fiscal stimulus package of $150bn:

    “WASHINGTON (Reuters) – President George W. Bush said on Friday that fiscal stimulus measures should be given a chance to perk up the economy before taking a risk of overreacting through more direct government intervention. . . ”

  2. Bernanke and the Monetary Policy Committee (MPC) of the Fed are already reviving old guidelines – or writing new ones – for stabilisation interventions by US monetary authorities:

    “Bernanke and the four Fed governors voted yesterday to become creditors to Bear Stearns Cos., a securities firm that isn’t a bank, by invoking a law that hasn’t been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms. . .

    “Former Treasury Secretary Lawrence Summers said the Fed is trying to navigate through a once-in-a-generation financial and economic storm.

    “Panic selling is lowering the value of stocks and bonds, spurring more selling. Unemployment is rising, reducing incomes and spending, and falling asset prices — including homes — are leading to a contraction in credit.

    “‘That three-way combination feels like something we have not seen in this country in a very, very long time,’ Summers, now a professor at Harvard University, said in a Bloomberg Television interview in Washington. ‘It’s a near-certainty we are in a recession and there is a real prospect that it could be a serious one without strong policy action.'”

  3. Bob B – I’d read your comments if they were pithier, less verbose. Imagine you’re heckling at Speakers’ Corner and keep it brief

  4. Your motives for reading blog comments and mine are poles apart so I simply don’t care whether you read my comments or not.

    I search through comments for new and interesting analysis in order to learn and also to collect links to citations. The result is that I disregard pithy comments as mostly worthless.

    As GBS wrote: Don’t do unto others as you would have others do unto you – their tastes may be different.

  5. I’ve said the same about Bob B’s comments in the past: prolixity and wisdom are rarely bedfellows.

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