Bankruptcy

More Shorts:

By J. Michael McBride

Market Not as Bad as it Could Have Been, Really: On one hand, the markets ended the day sharply lower. On the other hand, by the end of the day, they had all made up enormous ground from earlier points in the day when the markets were really really down. That is not to say that the markets are not trending down, because from what I read, they are. It is just that yesterday could have been really really bad and wasn’t.

Fed to Buy Commercial Paper: The federal reserve has announced that it intends to unfreeze the credit markets by buying commercial paper itself. “The $99.4 billion daily market for this crucial financing, which relies on investors rather than banks, has virtually dried up. That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.

The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a ‘backstop’ that would give companies a new place to get cash, the Fed said. The action makes the Fed a source of credit for nonfinancial businesses in addition to commercial banks and investment firms.

The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies.

‘The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors’ have become increasingly reluctant to buy commercial paper, especially longer-dated maturities.

The Treasury Department, which worked with the Fed on the program, said the action is ‘necessary to prevent substantial disruptions to the financial markets and the economy.’ The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. …The Fed said it hoped its effort would jolt the commercial paper market back to life.” Here is a link to that article: http://www.breitbart.com/article.php?id=D93LM4Q80&show_article=1 There is no indication at this point whether the money to make these purchases will come from the 700 billion bail out passed last week or from some other source.

Icelandic Bank Melts: The response between various members of the EU has been different. Moreover, it has (to put it in the best light, evolved). That is, Germany has at one time said that it will not support and protect depositors and then does. The London banks are falling as well. (For that story: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3150626/Banks-in-crisis-as-billions-wiped-off-share-prices.html) Now we have a bank, an Icelandic bank, called Icesave, that is showing all the signs of a death spiral. Deposits were frozen as the Bank attempts to work out some kind of arrangement or sale. “The global financial crisis wiped billions of pounds from the value of British banks today as 300,000 British savers were blocked from accessing their money in the Icelandic bank Icesave after it collapsed.

Alistair Darling, the Chancellor of the Exchequer, is expected to make a statement today after flying back to London early from a meeting of EU finance ministers. The 27 member states today agreed to more than double the minimum level of bank deposit protection in Europe to €50,000. …But Iceland’s market authority is battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas, far exceeding the country's gross domestic product.

In a surprise move, this morning the Icelandic central bank announced that it hoped to arrange a €4 billion loan from Russia to stave off financial meltdown. Officials will travel to Moscow tomorrow for talks.

The failure comes only a week after Glitnir, Iceland's third largest bank, also had to be part nationalised.

Fed to Make Direct Loans to Businesses: “In New York, the US Federal Reserve announced a new scheme to offer short term loans to companies unable to borrow in the financial markets, in yet another emergency move aimed at increasing liquidity and calming market panic. The move is separate from the planned $700 billion bailout agreed by Congress last week.” No further word on this topic nor on the source of the funds to be utilized to make these loans. Here is a link to this article: http://business.timesonline.co.uk/tol/business/economics/article4898553.ece?token=null&offset=0&page=1

Michael

Full post as published by Texas Lawyer Blog on October 07, 2008 (boomark / email).