Market Mix Tape: October 13, 2008

Here is the usual "mixture" of relevant news stories and other items I think you may find interesting, I meant to publish many of these items last week so you'll have a mixture of the old and the new in this edition. Think of it as both a look back and a look forward:

Here is a link to review of a interesting book by Martin Wolf that discusses the need to "fix the global finance system", not so much in terms of the roots of the current crisis but in terms of what he believes to be an "unsustainable" current account deficit.

I think that as the current crisis progresses (and as we move past it) there will be a tendency to start pointing figures, and naming villains for the current crisis, when in truth it's probably smarter to look at the uber-big picture and consider systemic roots to the problem. I haven't read the book and can't comment on its content directly, but at first glance it at least "seems" like the type of thinking we need to truly fix the multitude of systemic issues facing the global economy. 

An interesting FT article that discusses Paulson's embrace of a U.K. style banking bailout system, and how he should both follow the U.K's lead whilst also developing some additional features that are more suited to America's specific problems.

Spanish Bank Santander SA is in talks to take full control of Sovereign Bancorp, in what could be a sign of a future trend as the banks of various foreign nations use currency imbalances and/or stronger balance sheets to acquire some of our ailing banks. While I'm sure there will be some protectionist grumbling over this (if my prediction is correct), it doesn't change the fact that our own banking system doesn't have the resources to absorb all of our struggling banks so we don't exactly have a choice right now.

Speaking of which here is an update on MUFG's proposed investment in Morgan Stanley, needless to say recent events have led to a change in terms that is going to give MUFG a sweeter deal overall.

Direct borrowing from the Fed has soared to $430 billion as the government continues to pull out all of the stops in its attempts to either slow down mitigate or end the credit crunch; considering the fact that we could very well  a protracted slow down and/or tightness in the credit markets it's scary to think about how much money the Fed and the Treasury are going to have injected into the economy when all is said and done.

Apropos of the above here is an interesting commentary from the FT proposing a bailout plan here China makes a direct loan to the U.S. Government, for use in bailing out our banks based on the idea that indirect loans via bonds will be insufficient. You can find additional commentary here(FT - Commentary) , and a section from the FT on the Icelandic economic crisis here.

Instead of discussing the merits of the plan I will offer the following question instead: "if the U.S. did indeed directly borrow 100s of billions from a foreign nation, could we even continue to call ourselves a superpower anymore?"

Here is a commentary from the FT that provides a high level overview of the Crisis in Iceland; the FT has devoted considerable effort to covering the topic and this particular commentary is a good jumping off point to additional links, news, information, etc. 

I think more efforts need to be made towards fixing things so we're not just pumping money into a broken system, as at present it feels like the Fed and the Treasury are just throwing as much money a the problem as possible in hopes that things just start magically working again. 

Time for a little humor: a story from NPR discusses a depression era movie that despite being written 70 years ago as a satire of the nation's economic problems during the 30s, still seems completely relevant (if not an eerie harbinger of the future) in the light of the nation's current economic crisis.

While I've never seen the movie what  heard on NPR and some reading I did online about it has me itching to find a copy and watch it pronto, not to mention wondering if today's filmmakers will attempt to produce something similar in response to the current crisis.

Here is a look at the share price performance of the U.K.'s largest banks on Tuesday (10-07-08), which led to the creation of the bailout plan for their banking system:

 

Graphic courtesy of the WSJ

The graphic comes from an article discussing the problems within the British banking sector, and the government's plan to halt the crisis, which you can read here.

Over the long-term it's going to be interesting to see not only how the British banks fare compared to our own (especially since Barclay's purchased many of Lehman's assets), but how this situation impacts the "war" between London and NYC to be the world's financial center. While one could make a valid argument that London already won, it doesn't change the fact that the global banking environment will be drastically different 3-7 years from now.

For all we know SWFs, Japanese (or some other Asian nation) may wind up controlling a lot of the assets of the U.S and European banks, it sounds far-fetched but it's not exactly improbable either.

In a sad "sign of our times" the Debt clock in NYC no longer has enough digits to track the national debt and will be retrofitted to include two additional digits, oh for those halcyon days when the clock was actually turned off.