Albert Einstein is noted for stating, “you should make things as simple as possible but not any simpler.”

Perhaps that could help us in understanding the current debate over the possible bailout of our credit markets. I know the $700 billion bailout package worked out over the weekend was voted down today but the 777 point drop in the Dow Jones Industrial Average should bring some folks back to the bargaining table. I get the feeling that a lot of people, including people in the U.S. Congress still don’t understand what this is about and faced with that lack of understanding many of our representatives put their collective fingers up in the air and voted accordingly. The winds may be shifting after today’s carnage in the markets.

Continue reading ‘Is there a simple solution?’ »

Last week CME Group held its inaugural Global Financial Leadership Conference. The timing was prescient. There may never have been a time when national leadership is more important and unfortunately lacking than today.

The conference began the Monday following the collapse of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America. And CME could not have selected a more appropriate speaker than former Federal Reserve Chairman Paul Volcker to open up the conference.

Continue reading ‘Volcker speaks’ »

According to this story in today’s Washington Post the Democrats are now being suckered for being team players. Barney Frank (D-Mass) and Barack Obama (D-Ill) are left holding the bag, working with President Bush and defending the bailout plan while John McCain gets a fresh opportunity to play populist hero and distance himself from our “CEO President,” who presided over the nationalization of the mortgage industry, the insurance industry and the collapse of our financial system.

According to this story, House Republicans remained adamantly opposed to the central point of the plan: purchasing bad assets from struggling firms. House Minority Leader John A. Boehner (R-Ohio) told reporters that House Republicans “would prefer a loan where we fix an interest rate or we would prefer insurance” rather than having the government buy up bad assets.

How well do you think that will play at the debates tonight?

In between touting the Intercontinental Exchange’s new forex offering and Russell contract transition, ICE Chairman and CEO Jeff Sprecher offered some thoughts about the current Wall Street crisis at the Profit and Loss Forex Network conference in Chicago today.

“This is clearly a global crisis that we’re under. Volatility has been the order of the day, or for many FX traders, the order of the year,” Sprecher said of the current Wall Street crisis, adding that the job of exchange leaders is to “install as much confidence as our circumstances will allow and address the reality of the situation while working to provide solutions as quickly as we can.”

Post-Wall Street meltdown, Sprecher said that increased regulation in currency and commodity trading was “almost a foregone conclusion.” He urged conference attendees to speak up during the regulatory debate because “the stakes for all of us are enormous.”

Continue reading ‘ICE’s Sprecher on Wall St. woes’ »

In the midst of posting the most recent blog, we received word that the Securities and Exchange Commission’s staff has recommended reversing an earlier decision and exempt options market makers from the no short rule order issued earlier today, which went into affect immeditately.

Continue reading ‘Sanity may prevail’ »

Our Federal Government has taken unprecedented action in the last two days purportedly with our benefit in mind though in both cases the action defies logic, reason and does not seem to be based on any fundamental evidence.

Yesterday Congress passed an amended version of The Commodity Markets Transparency and Accountability Act of 2008, which aims to prevent manipulation and excessive speculation in energy markets.

They did this despite and exhaustive and comprehensive report from the Commodity Futures Trading Commission, released less than a week earlier that disputes the fundamental premise of the bill.

Continue reading ‘Bizarro world’ »

In a story in our September issue, we discussed how airlines hedge their fuel usage in order to protect themselves from higher costs. We mentioned that the expense of hedging caused many airlines to take their chances with the market, in many cases to their detriment. Southwest, one of the only airlines to record a second quarter profit, has one of the industry’s most aggressive hedging programs. However, a recent drop in oil prices (which are now creeping up again) could be turning the tide a bit. In an investor update, United reported $544 million in hedging “losses” for the third quarter. It’s important to note, however, that hedging isn’t a matter of losing money – the goal of it is to take the risks of increasing prices off the table.

Continue reading ‘Over the hedge?’ »

The Consumerist blog picked up on something that immediately came to my mind upon news of the Fed’s $85 billion bailout of insurance giant AIG – that AIG’s recently-aired ads are suddenly hilarious.

When news of AIG’s pending collapse hit earlier this week, I immediately thought about those commercials with the annoyingly precocious children hailing the rock-solid status of the insurer. Merrill Lynch’s old ad slogan “Bullish on America” also became a punchline after Bank of America purchased it on Monday.

Continue reading ‘Ad nauseam’ »

Spurred by the Lehman Brothers Chapter 11 bankruptcy, Merrill Lynch’s acquisition by Bank of America and AIG’s (American International Group Inc.) 60.79% decline, the Dow Jones Industrial Average today closed down 504.42 points, dropping to 10,917.51 from 11,416.37.

The S&P 500 dropped 59.01 points, closing at 1,192.69. That’s the biggest single day drop since Sept. 11, 2001.

According to Lehman, none of the company’s broker-dealer subsidiaries or other subsidiaries of LBHI was included in the Chapter 11 filing and all of the U.S. registered broker-dealers will continue to operate. Neuberger Berman, LLC will continue to conduct business as usual.

Lehman’s bankruptcy will reportedly result in the loss of 25,000 jobs, and the liquidation of the company, as negotiations with foreign wealth funds failed when the Federal guarantees failed to materialize. Such guarantees were made for Bear Stearns, when JP Morgan acquired it in March.

In the shadow of events, the Federal Reserve Bank has created the new Term Securities Lending Facility (TSLF), which could provide support and liquidity to the stressed markets. The Federal Open Market Committee announcement is scheduled for Tuesday, as is the Treasury International Capital (TICS) data, which will announce the amount of foreign capital entering or exiting U.S. markets.

Tuesday should be another intersting day.

The intense storm created by the credit crisis that pounded the financial sector for the past year and resulted in the collapse of Bear Stearns claimed two more victims this weekend. Lehman Brothers, which was surrounded by possible sale or Fed bailout rumors on Friday, announced Monday that it is filing for Chapter 11 bankruptcy. Also on Monday, Merrill Lynch announced it would be purchased by Bank of America for $50 billion or $29 a share.

Continue reading ‘Sunday bloody Sunday’ »