And The Scapegoats Are?
Today's Market Action
Before we get into the discussion of who is going to be the fall guy(s) and gal(s) for the debacle that we now refer to as the Financial Crisis of 2008, let's take a quick look at the continued improvement in the indicators of credit market liquidity.
The Ted Spread
The LIBOR rate continues to show improvement by dropping to the lowest level we have seen in weeks at 3.8%. The 3-month bill is at a level of approximately 1.06%, bringing the spread to the neighborhood of 2.7%, still extremely wide but well below the close to 5.0% at the worst.
For new readers LIBOR represents the London Interbank Offered Rate, the rate at which banks are willing to lend to each other. The 3 month bill is what is called the risk free rate, or an investment, because it is backed by the full faith and credit of the United States, that holds no risk of default.
When market fear was at its' worst and trust between the banks in terms of each other solvency was at its' highest, the Ted Spread was the widest (LIBOR - 3 month bill).
The VIX
The VIX, a measure of angst and fear closed at 53, well off the highs of 81 but well off of the typical range in the 15 to 20 range. Getting better but still a long way to go.
The Envelope Please
As is the American way, any problem requires that the villain(s) be identified and paraded in front of us so that we can find closure. In this case, many of the people that are most complicit in the problems that we now have are some of the loudest in saying that someone has to pay. Of course that doesn't mean them.
Our politicians that ignored what was going on, and even passed legislation that enabled many of these companies to proceed is classic posturing and might even constitute pomposity. These are many of the same guys that benefited from sweetheart mortgages that the companies lavished on them. These perks were at the very least a lack of judgement, and at the very most approaching something else.
The American public that for the most part ignored any sense of a problem giving 110% LTV mortgages to people with no income and poor credit history, who saw housing prices skyrocket and nothing but construction cranes dotting the skylines of many cities such as Miami and Las Vegas, is screaming for the heads of someone, anyone, that has led us down this slippery slope of financial destruction.
Does that mean that the corporate executives of some of these firms that earned big money while driving their stocks into the ground while professing that all was well have no guilt? Of course not. And pay some of them will.
The Winner (Loser) at least for now
Lehman Brothers and particularly Richard Fuld (until a new villain is chosen)
Comments(4)