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I just read an analysis of today's action by John Authers. Top headline story in FT.com tonight:
"Stocks fall as US bank plan detailed"
http://www.ft.com/cms/s/0/840cc5dc-0...077b07658.html
>> QUOTE
"As in November, this sell-off revolves around Citigroup. The central issue is unchanged: what can the government do to stop the collapse of a bank that was allowed to become far too big?
The question is now sharper: can the problem be solved without outright nationalisation? The Obama administration on Monday tried to signal that it wants to avoid this, or at least that it requires more proof that nationalisation is necessary before it takes such a politically perilous step. In effect, it was testing the market.
Meanwhile, stocks have been on hold since November’s Citi rescue package. As it was clear that the banking crisis had excited an aggressive policy response, traders needed to wait for the policy details before pushing stocks lower.
To test the lows is also to test market confidence in the policy. Market and government are testing each other – and the results could scarcely be more important."
<< END QUOTE
In the accompanying video clip he seems to make clear that by "policy" he means the policy of avoiding nationalization of citi.
He then says that the market going down is a bet that the government WILL nationalze.
It needs to be spelled out for me however, as to why the bet is not just on financials, but on the whole market.
Is it because a lot of bond-holders and thus funds for leverage in the stock market will be wiped out by nationalization? That lines of credit won't be rolled over?
Is the argument that ciorporate profits and debt are hinging on zombie banks being able to keep them afloat?
Is it a confidence issue about being able to resusciate the old FIRE economy - nationalize the banks and you can kiss goodbye foreever to the return of seven year, zero-down SUV loans, and McMansions?
What is the obvious one-liner that didn't have to be explained in the FT article?
"Stocks fall as US bank plan detailed"
http://www.ft.com/cms/s/0/840cc5dc-0...077b07658.html
>> QUOTE
"As in November, this sell-off revolves around Citigroup. The central issue is unchanged: what can the government do to stop the collapse of a bank that was allowed to become far too big?
The question is now sharper: can the problem be solved without outright nationalisation? The Obama administration on Monday tried to signal that it wants to avoid this, or at least that it requires more proof that nationalisation is necessary before it takes such a politically perilous step. In effect, it was testing the market.
Meanwhile, stocks have been on hold since November’s Citi rescue package. As it was clear that the banking crisis had excited an aggressive policy response, traders needed to wait for the policy details before pushing stocks lower.
To test the lows is also to test market confidence in the policy. Market and government are testing each other – and the results could scarcely be more important."
<< END QUOTE
In the accompanying video clip he seems to make clear that by "policy" he means the policy of avoiding nationalization of citi.
He then says that the market going down is a bet that the government WILL nationalze.
It needs to be spelled out for me however, as to why the bet is not just on financials, but on the whole market.
Is it because a lot of bond-holders and thus funds for leverage in the stock market will be wiped out by nationalization? That lines of credit won't be rolled over?
Is the argument that ciorporate profits and debt are hinging on zombie banks being able to keep them afloat?
Is it a confidence issue about being able to resusciate the old FIRE economy - nationalize the banks and you can kiss goodbye foreever to the return of seven year, zero-down SUV loans, and McMansions?
What is the obvious one-liner that didn't have to be explained in the FT article?