The Semantics of Crisis: “Decidedly Wobbly”

by Erin McCune on March 17, 2008

in Economic Outlook

This morning, the usually staid financial press have got their thesaurus out – how many different ways can you say "historic"?

"sank" "slipped" "decreased" "fell" "slid" and "slumped" all in one paragraph!

The S&P 500 sank 21.08, or 1.6 percent, to 1,267.06 at 12:59 p.m. in New York. The Dow average slipped 85.08, or 0.7 percent, to 11,866.01. The Nasdaq Composite Index decreased 40.23, or 1.8 percent, to 2,172.26. More than four stocks fell for every one that rose on the New York Stock Exchange. Europe's benchmark index slid to the lowest since November 2005 and Asian shares slumped for a third day. – Bloomberg

"jittery" and "apprehensive"

Wall Street and Corporate America awoke Monday in a jittery and apprehensive mood to analysis of JPMorgan Chase & Co.'s Sunday news that it is acquiring Bear Stearns Companies Inc. for about $2 per share — as close as it comes to an emergency bailout. – CFO.com

"unprecedented scale of the storm "

The historic nature of the steps the Fed has taken reflects what the central bank sees as the unprecedented scale of the storm now sweeping through the markets and the economy. Starting with rising defaults on subprime mortgages a year ago, the crisis now has caused investors to question the ability of once rock-solid firms to repay loans. – WSJ

"Panic is in the air" (headline) and "financial catstrophe"

Now the Fed has extended its area of operation, where will it stop? Investment banks are not the only parts of the financial system showing the strain. Can the Fed afford to get entwined with hedge funds that are big derivatives counterparties or embattled money-market funds? By ditching its longstanding rule about lending only to commercial banks and extending this facility to investment banks, the Fed is in effect admitting that it faces a different sort of financial system—one in which dealers pose as much of a threat to stability as lenders. The regulatory regime for investment banks may now have to be rethought to make them more resilient to financial catastrophe. – The Economist

"decidedly wobbly" (my personal favorite)

The Fed’s decision to introduce loans to brokers as well as regulated banks marks a significant shift in policy, and raises the question of whether the former should now be subject to more stringent regulation in return. But the Fed’s widening role is a sign of its fears that other pins might fall. Merrill Lynch looks decidedly wobbly. Lehman has lots of toxic mortgage securities on its books. Lehman's shares plunged on Monday morning but it is not the only one facing trouble. All the other big investment banks will be under intense funding pressure in the coming days. And when trading partners start to pull away, a rapid chain reaction can begin. In effect, with Bear Stearns being sold for such a low price, including its valuable office property, the price of the securities portfolio is zero. – The Economist

"extraordinary"

To help facilitate the deal, the Federal Reserve is taking the extraordinary step of providing as much as $30 billion in financing for Bear Stearns's less-liquid assets, such as mortgage securities that the firm has been unable to sell, in what is believed to be the largest Fed advance on record to a single company. – WSJ

And, finally, bonus points to Bloomberg for this one:

"Bernanke Plays `Whac-A-Mole' With Turmoil in Markets"

Bernanke has reached deep into the Fed's toolkit to come up with innovative ways to head off a recession and restore some calm in credit markets. While many have initially been greeted with rallies in stocks, cumulatively they haven't yet had lasting impact on bringing down credit costs and setting the stage for economic recovery.

The Fed has been playing the equivalent of Whac-A-Mole as financial turmoil keeps cropping up in new and unexpected places,'' says former Fed Vice Chairman Alan Blinder, referring to the arcade game where players try to hammer down plastic critters that randomly pop out of holes. “Yet many of the problems facing us are beyond its reach.''

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