Are we going through an immediate systemic meltdown?

September 17, 2008

The anticipation in the financial world right now is that before the end of the week a number of big firms are going to come to an end.

I don’t know if this will be the case. But here’s the situation:

1. Interbank lending is down to a trickle, almost complete frozen.

2. Money market funds are facing a run, as enormous amounts of money are heading to Treasuries. The financing for the day-to-day operations of corporations, financial, and non-financial is in danger of being cut-off.

3. Corporate bond market is almost completely shutdown. Municipal bond spreads on treasuries have reached the highest on record.

4. Stock markets around the world are crashing.

5. The Treasury is selling additional debt, because the Fed is out of funds to bailout any more private firms.

6. There’s an unprecedented liquidity crunch in the going.

7. There’s frenzied deleveraging in everything from forex, stocks to debt, while gold is rallying.

I’m at a loss to understand why there’s no liquidity injection in the US. Maybe this is because of the balance sheet problems of the FED. Immediate action needed to prevent complete collapse of the system.

Update from Bloomberg: “Former treasury secretary John Snow, chairman of private-equity firm Cerberus Capital Management LP, said today in a telephone interview that capital markets are on the verge of seizing up.

“Our debt markets are close to frozen” he said. “Unless we get this fixed pretty soon, we’re in for a big, big, deep slowdown.”

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