Last night I wrote a piece where I stated my belief that we are now in a new phase of the crisis. The day to day pounding on our financial plumbing, the short term credit markets, is beginning to take a very dangerous psychological toll on the system. We are moving from fear to despair. Once despair and complete lack of faith kicks in, it really is game over. I said that it is time for the Fed to intervene directly in the Commercial Paper (CP) market. Here is a comment posted by one of our most astute readers and free-market thinkers last night.
Credit facilities everywhere are being cut. Covenants are being forcibly and EMOTIONALLY renegotiated. If you board a plane heading to NY right now you'll have at least a handful of cfos and treasurers in your company.
The commodities business is grinding to an ear-splitting, metallic halt. No one wants to trade anything: be it natural gas swaps to trains of aviation fuel on down to barges of soybeans. Producers are getting assaulted by the double entente of surging interest expenses (if they can get credit!) and stutka-diving prices. This on top of the fact many expanded what were only marginally profitable businesses during high prices- only to see unprecedented board drops.
Something must be done fast. Otherwise we're about to enter the ultimate house of pain.
Last night, I wrote that it is time for the Fed to throw the old playbook out, and do what I called "A Bobby Layne". Bobby Layne was a Hall of Fame quarterback in the 1950's. When the game was on the line, Layne was known to toss the playbook, draw his own play in the dirt while in the huddle, and lead his team to improbable victory. I am very happy to see this morning that Ben Bernanke, Hank Paulson and our friends across the pond in the U.K seem to be doing just that. Here is what has happened overnight and what is being seriously discussed.
If we go down, we are going to go down swinging. That inspires some hope on my part. Be lucky today.