Historic Times

What can I say - we are simply living through times that books will be written about in the future. My jaw was on the floor during 3 hours of Sunday night CNBC as announcement after announcement came through the the wire.

The Plunge Protection Team is working overtime to hold S&P 1200. We will hear how amazing it is the market can absorb all this bad news and not take a big loss. Let me tell you - in a week's span we've had

1. Fannie, Freddie bailout
2. Lehman bankruptcy
3. Forced marriage of Merrill and Bank of America
4. AIG crumbling
5. A series of initiates by the Federal Reserve over and above everything they've done in the past

And the stock market is flat from where it was before all this happened.

I'm not rooting for shorts, but this is truly not a free market. How the market can be "flat" in all this is hilarious. I truly would not be surprised if the market is up by tomorrow or in a few days as your tax dollars go hard to work buying S&P futures by the bushel behind the scenes. If you are not familiar with the Plunge Protection Team and their "workings" I recommend reading this [Jul 14: Our Gospel is Spreading - Jim Cramer References "The Hand"]

I cannot even begin to go through all the "changes" made in the system Sunday night. I will tell you the most alarming is the change in collateral that the Federal Reserve is now exchanging for Treasuries. Back in the early spring during the last round of dislocations the Federal Reserve said we'd widen what we accept from "AAA rated safe" type of product to credit card debt, auto debt, student debt, etc - AND they lengthened the time they'd exchange this with the banks - up to 84 days (in the "old days" it used to be an overnight loan). They said it's just a temporary measure, until credit markets improve. I said "yeh right". Now we've gotten to the point they will accept EQUITIES (stocks!!!) in exchange for US Treasuries. So what happens if stocks plummet in those 84 days? Are you kidding me? We now are letting banks offload their stock holdings into the balance sheet of America?? This was one of multiple jaw dropping moments.

• The Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks in an effort to help Wall Street weather Lehman Brothers Holdings Inc.'s plans for bankruptcy.
• The Fed will now accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt. Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities.
• The Fed also granted an exemption on a rule that limits banks' transactions with their brokerage subsidiaries, a move that provides securities dealers with another source of funding if they need it for market making this week
  

I keep using the word historic. It keeps becoming even more surreal.

[Jul 30: Federal Reserve Continues its Historic Actions]
[Jul 11: More Historic Actions (Potentially) by the Fed]
[May 4: Moral Hazard Run Amuck]
[Mar 22: A Historic 9 Days for the Federal Reserve]
[Mar 16: Fed Races to Rescue Bear Stearns]