Yen Dead Star Theory |

Yen Dead Star Theory |
"...At this point, Japan has become a kind of dead star. It’s industrial economy has collapsed. Virtually no one is employed. The country continues to take in goods, but, produces nothing. The JPY is the strongest currency in the world. It’s become a kind of uber-claim on world goods and services. However, it’s also a claim on the dead star of Japan. Which is to say it’s a claim that no one really wants, or can use. It’s likely that during this period, most of the world has panicked into the Yen, thus reversing the multi-decade short position. Up to this point that trade has been the best trade in the world. And then, it reverses...."

The Meltdown... Why?

Robert Reich's Blog: The Meltdown (Part IV)
"Why? Because the underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value."

Scramble to avoid collapse - Financial Times / In depth - Scramble to avoid collapse
World leaders are scrambling to finalise rescue plans for their banking systems before stock markets open on Monday, amid fears that the global financial system is on the brink of collapse.
The extraordinary series of moves, which followed record market falls last week, came amid grave concern that investors would scramble for cash this week, threatening the implosion of financial institutions.
Dominique Strauss-Kahn, International Monetary Fund managing director, said: “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”
Nicolas Sarkozy, French president, said last night: “We need concrete measures, we need unity, which is what we achieved today. None of our countries acting alone could end this crisis.”

"Euthanize Weaker Banks..."

Heard on the Street -

"Injecting capital alone isn't enough. The government also needs to force banks to recognize losses they have so far ignored, require banks to provide fuller disclosure of holdings, push banks to lend to one another again, euthanize weaker banks while helping strong banks get stronger, guarantee deposits and backstop a portion of bank credit.

Above all, the government needs to tell banks that they have to take part in a systemic solution. The time for negotiation by banks is over.

Yet such a draconian approach should also include market-based solutions. The strong should be encouraged to use markets to get stronger, in some cases in conjunction with government support."

The Only Stuff Not Nailed Down

Across the Curve � Blog Archive � More Thoughts on Treasury Market Weakness

"Another portfolio manager made an interesting point about the manner in which large portfolios have chosen to operate recently. He suggests that many funds have moved to private equity funds from public stock. He also notes that many had retreated from individual stocks and bonds for the glitz of hedge fund returns.

The problem there is that the new technique of management parks money in a place from which it is not extracted with ease, speed and dexterity. So the only stuff that is not nailed down and available for sale is Treasury and mortgage paper.
In this market climate, I recommend reading this guy's (John Jansen) stuff ☛ (keep in mind I'm a technologist and someone that has been away from "the Street" for almost 20 years....)

Banks Don't Trust Each Other Enough

U.S. Weighs Backing Bank Debt -

"The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure.

To remove the ceiling on deposit insurance, multiple government agencies would first need to agree that there was a "systemic risk" to the economy, thereby invoking a rarely used legal power. Amid repeated efforts by the federal government to prop up ailing institutions, some bank regulators say the move is justified".
"One major flaw in the global banking system, and a sign that problems extend beyond whether U.S. homeowners can pay their mortgages, is the fact that banks don't trust each other enough to loan beyond an overnight period. That means that cash isn't being circulated through the financial system and banks are relying too heavily on short-term loans, which does little to help pay off looming debts. Banks are hoarding cash, both to cover their debts and to improve their year-end books."