Next step is riots

From Reuters….

DETROIT (Reuters) – General Motors Corp (NYSE:GM – News) shares fell as much as 21.6 percent to their lowest level since 1950 on Thursday amid financial market turmoil and the car maker’s report of European sales declines through the first nine months of 2008.

Should be zero, but I guess the markets are thinking that the government will bail GM without wiping out shareholders.

From Felix Salmon…

If Morgan Stanley was in distress back in mid-September, it’s much worse today, trading as low as $12.50 a share: that’s just 40% of its stated book value. For all the denials coming out of the bank, clearly the market is very skeptical that the injection of cash from Mitsubishi UFJ Financial Group is going to happen — or that even if it does happen, it will be sufficient to stave off insolvency. After all, even $85 billion wasn’t enough for AIG, and MUFG is putting much less than that into Morgan Stanley, which has a similarly-sized balance sheet to AIG.

People in the comments section are just about ready to shoot Mr. Salmon for writing that post. They think he is going to bring down poor innocent Morgan Stanley by pointing out that the market is losing faith that the bank will survive. It is amazing how many people still think that this is crisis of confidence. They must not be paying attention to the skyrocketing default rate.

From Naked Capitalism….

First it was banks and securities firms, and now the focus of worry has widened to include insurance companies. Reader John referred us to a Reuters article that MetLife credit default swaps are now trading on an upfront basis, which means buyers of protection against the default of MetLife bonds must make an upfront payment as well as agreeing to periodic fees. Only companies seen as being in serious risk of failure trade on an upfront basis. Another story shows similar pricing of XL Capital CDS.

One of the things that they used to push through the bail out package was the claim that a big insurance company was about to go bust. I thought they were talking about AIG (which had already received a bail out from the Fed) but maybe they were talking about MetLife.

This also from Naked Capitalism….

One has to wonder whether the FDIC’s giving a wink and a nod to Wells Fargo’s attempt to snatch Wachovia away from Citi will prove to have been too clever by half. The apparent motivation was the lower explicit cost to the taxpayer of the Wells deal (note Wells was going to take large tax writeoffs, which reduce, indeed may eliminate the cost differential, but that point seems lost on the mainstream media), but it may also have been to keep pressure high to wrap up a deal before anyone could take too hard a look at at the supposed prize. Wachovia is looking less desirable than it once did, now that both sides have dug deeper as a result of the negotiation process, further complicating achieving a quick resolution.

This is why I don’t buy the “if we could stop the panic we would be fine” argument. Every time outside parties start looking at the balance sheets of these banks, it turns out that things where worse then everyone thought.

From the Globe and Mail….

“It’s Armageddon out there,” Mr. Tonken, the chief executive officer of junior oil and gas company Birchcliff Energy Ltd., said yesterday.

“I’ve lost millions. Everyone has.”

The value of Canada’s energy companies has been devastated since oil plunged from record levels in the summer. Among the 58 companies in the S&P/TSX capped energy index, about $110-billion in market value has been wiped out in the past six weeks, calculations show.

Higher cost oil producers the world over are being killed. When demand goes down the people who have to pay 60 dollars just to get a barrel of oil out of the ground have a hard time competing with those who can do it for 20 to 30 dollars a barrel.

The bottom line as far as most Americans are concerned is this….

The Dow Jones Industrial Average is now below 8900 8800 8700.

The S&P 500 is off 40% from the peak of last October.

Leave a Reply

Your email address will not be published. Required fields are marked *