Friday, August 10, 2007

"All-Around Sense Of Panic"

The panic over subprime woes and liquidity problems continues to spread:

LONDON (Reuters) - Fears of a global liquidity crisis intensified on Friday, knocking stocks and high-yielding currencies, while the European Central Bank and Asian authorities acted to calm surging short-term borrowing costs.

What started as trouble with risky U.S. residential mortgages is gripping world financial markets as the fallout hits banks globally, squeezes once ample liquidity and threatens to damage world growth.

World stocks have shed over seven percent since they hit record highs only a month ago. Investors rushed to buy safe-haven government bonds, unwind yen-financed carry trades and moved to scale back expectations for interest rate hikes by some major central banks this year.

Emergency action by central banks -- with the ECB acting for the second time on Friday -- underlined that the risk of a global liquidity crunch was more serious than anticipated.

"What we have at the moment is just an all-round sense of panic," said Marc Ostwald, bond analyst at Insinger de Beaufort in London.

"Quite clearly there's a lot of deep-seated fear out there and it's going to take a while to resolve this."

Yesterday the European Central Bank loaned the banking system an unprecedented 94.8 billion euros to assuage a credit crunch. That sum was double what the ECB loaned the system on Septermber 12th 2001. Then today, the ECB loaned the banking system another 61.05 billion euros in order "to assure orderly conditions in the euro money market."

Think about this for a moment.

Yesterday the ECB throws double the amount of money at the problem that they threw after 9/11 and then today they throw in 2/3rds of what they threw in yesterday.

They must really think there's a problem.

And yet, the shills on CNBC told me yesterday that Secretary of the Treasury Henry Paulson says the economic fundamentals are good, the global economy is strong and all is well. And if Paulson says all is well, then all is well.

Uh, huh.

Except for the spreading panic.

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