Almost Armageddon: Markets Were 500 Trades From Meltdown

MICHAEL GRAY
NY Post
Sunday, Sept 21, 2008

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds “breaking the buck,” or dropping below $1 net asset value.

The Fed’s dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.

Without commercial paper, “factories would have to shut down, people would lose their jobs and there would be an effect on the real economy,” Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.

with stops in the stock market, by design, to stem a one day fall like that, the market can only fall 500 points a day before the stops halt trading here in the US.

It would take a week to unwind that kind of correction.

meanwhile internationa trading would unwind their positions with lightening speed and completely collapse the whole market without anything being done to give US traders opportunity to unwind their own positions.


it is a good thing that the Fed stepped in.

Japan did likewise.

It is not that simple, anymore.

It is an economic war and the soldiers wear white collars.

whose soldiers do you want to come out on top?

It is a bigger mess than the average American can comprehend.

Meanwhile, the looney left seizes the opportunity to paint in crayola shades of ugly red and purty blue.


Time for KOOL AID.

I think the loony right is doing a fine job of being loony.

From what I see on these forums.

Meanwhile, the looney left seizes the opportunity to paint in crayola shades of ugly red and purty blue.

did i not say this the looney left's answer?

So much for the "Free Market".

LOL true.

so much for the "free lunch program" too.