"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury," Bair said.For information, Bair is the Chairman of the FDIC.
Let's sum up what happened in the past week, and in the past week only:
- Washington Mutual went bust
- Goldman Sachs raised $5 billion
- Wachovia went bust
- Morgan Stanley raised $9 billion
- JPMorgan announced it's raising $10 billion
- The Federal Reserve injected more than $220 + $630 billion in the banking system (about $1 trillion USD)
- The total reserve of the banks as a whole in the USA is negative $158 billion as of the 24th of September 2008
Markets almost crashed today and I had been writing about the overvaluation of the stock market for quite some time. After several months of rallying on every bad news, it looks like the market has finally put on its reality lenses.
So what happened today on the markets? The Bernanke+Paulson PUT that I have been talking about for a couple of weeks has expired. It looks like this PUT had a strike price of 10,800 on the Dow and about 1175 on the S&P 500. It was a sad day for most traders, but a great one for Democracy in the US (and incidently, my portfolio). Let's hope that they keep on going this way and don't ever turn back.
Finally, please remember that this bailout plan will not help in any way the economy and will not lead to any kind of recovery except the recovery of the personal stock options of the finance industry CEOs. The reason is simple: Paulson and Bernanke want to overpay for valueless paper in order to shore the balance sheets of the banks and allow them, supposedly, to resume their lending and the credit expansion (also known as inflation). But the only reason of this crisis was that borrowers were so much into dept that they couldn't even pay back their current mortgages and other sorts of credit. So how on earth would allowing people to borrow more would solve any problem while they are unable to take any more dept?