Andy Kessler

WSJ: What Paulson Is Trying to Do

http://online.wsj.com/article/SB122402984044334627.html
Less than two weeks into it, the $700 billion Troubled Asset Relief Program (TARP) is stuck between a rock and a hard place. Next week, several hundred billion dollars of credit default swap (default insurance) payments on Lehman's debt default are due. No one quite knows who owes what and if they're good for it. Hence the urgency in Henry Paulson and Ben Bernanke's plan to inject $250 billion directly into bank balance sheets, which seems a necessary evil to get capital to the right place and help weaker banks save face. The credit markets agree -- so far.

Wall Street and banks live by short-term loans. But as a loan shark might say, right now, nobody wants to lend to nobody. The rate that banks charge each other, the London Interbank Offered Rate (Libor), has been trading so high above three-month Treasury-bill rates (on Monday it was 4.75% vs. 0.11%) that no one is lending. This so-called TED spread -- the difference between what banks pay and what the Treasury pays to borrow for three months -- signals the health of credit markets and has rarely been over 1% since the 1987 crash. The Treasury is clearly focused on this metric and needs to get it down to historic spreads. First it has to change the current mentality of "who wants to lend to the next Lehman or Wachovia?"

Forbes.com - New Life

Thank you, sir, may I have another? As the stock market gets spanked,down 40% in a year and a day, there is a silver lining. We Americans get our lumps out the way, and start a new life. Much has been made of the "mark to market" rule and its role in the credit crisis, but it probably has saved us from 10-plus years of gloom and doom.

Mark to market just accelerated the inevitable, the write-down of bad loans.

Google the number 157 and the first result that comes up is the Financial Accounting Standards Board (FASB) statement on fair value measurements. It's way too boring to read, but what it says is that if a bank or investment bank has a security that trades at 62 cents on the dollar, you have to carry it on your books at 62 cents on the dollar. Pretty simple. You may think it's worth more--well, of course you do, or else you would have sold it, dummy--but the market says it's only worth 62 cents, so quit arguing.

New York Magazine: Why Wall Street Will Prevail

Why Wall Street Will Prevail
Things are bad now, but the world will never out-finance us.

http://nymag.com/news/intelligencer/51168/

With the stock market tanking and Wall Street’s top firms either vanished or trembling under the skirt of commercial banks, is finance as we know it over? Will the Credit Crisis of 2008 turn New York dominance into submission—to London, Shanghai, Dubai, or even Moscow?

Not a chance. First, globalization has proved itself out. Some schmuck defaults on his 3,000-square-foot exurban dream home, and Fortis Bank in Belgium gets nationalized. It wasn’t just Wall Street buying stupid toxic securities—everyone was. Right now, nearly $200 billion is trying (unsuccessfully) to prop up Russian markets, hundreds of billions of euros are trying to resuscitate European banks. Wanna bet over/under on Chinese financials next year?

Weekly Standard: What is Wall Street these days, anyway?

http://www.weeklystandard.com/Content/Public/Articles/000/000/015/654vucfz.asp

Before the last of Wall Street gets sold off as day-old fish on Fulton Street or washed into the East River altogether it’s worth asking, what is Wall Street these days anyway?

Thanks to Dick Grasso and CNBC, most of us think of Wall Street as balding men in ugly solid-colored suits yelling at each other and throwing litter on the floor of the New York Stock Exchange. Not even close. They might as well be holograms from Disneyland’s Haunted Mansion, just a hangover of years gone by. Or maybe Wall Street is stockbrokers, calling you at dinnertime, trying to put you into a few shares of some hot IPO. Or sleek bankers, guys (mostly) in gray Armani suits, blue shirts with white collars, and Hermès ties, jetting off to London to close some important deal. Not anymore.

Thanks to Dick Grasso, most of us think of Wall Street as balding men in ugly solid-colored suits yelling at each other and throwing litter on the floor of the New York Stock Exchange. Not even close.

So what is it? From 40,000 feet, Wall Street is about access to capital. The stock market trades every weekday, and sometimes slowly, sometimes violently, picks the economy’s winners and losers. Actually, it’s not the market, it’s you and me, our mutual funds and pension plans, the collective “we,” that do the picking via our buying and selling. It’s nice to be needed. You may not even realize it, but magically, the value of companies with great prospects goes up, meaning they can raise capital much more cheaply to hire smart programmers or build another solar panel factory. The flip side is that the price of companies doing all the wrong things (think General Motors and now Lehman Brothers) goes down, starving them of capital, a punishment for screwing up, until they disappear or do something to turn themselves around. The stock market, which is really you and me, does the dirty work of hiring and firing managers and green-lighting or killing projects. Pretty cool.