Financial Crisis Update

You thought I'd given up on the financial crisis, didn't you?

The Dow dropping AGAIN by the hundreds hardly even seems like new anymore. "It all took place one year to the day after the Dow closed at its record high of 14,164. Since that day, frozen credit, record foreclosures, cascading job losses and outright fear have seized the market and sapped 39 percent of its value.Paper losses for the year add up to an staggering $8.3 trillion, according to figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies representing almost all stocks traded in America."

A friend of mine confided that her husband finally bit the bullet and looked into their 401(k). They hadn't had a lot in the account-- just $7500, but it was down to around $3000.

Here we go, new ways to parse the phrase "Nationalizing banks": "The Bush administration is considering taking ownership stakes in a number of U.S. banks as one option it might use to deal with a serious credit crisis, an administration official said Wednesday. This official, who spoke late Wednesday on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return....Asked about the British approach, Treasury Secretary Henry Paulson did not reject the idea but said he did not want to speculate on which of the new powers would be employed. 'We have a broad range of authorities and tools,' Paulson told reporters. 'We've emphasized the purchase of liquid assets, but we have a broad range of authorities. And I'm confident we have the authorities we need to work with going forward.'"

Bet that sent a cold chill through Cindy McCain's cold heart.

And after AIG execs took a relaxing spa trip to the St. Regis in Monarch Beach, The Fed decided to bestow another $38 billion on AIG beyond the $85 billion they already got. They were going to have another "va-cay" to celebrate in Moss Beach, but, decided against it. I guess the manicures are so recent that they're still holding anyway.

In a continuation of the crazy up-is-down month, Iceland is going down. But Spain is going up thanks to Banco Santander's shrewd banking regulations. There's that word again. "Regulations." "Analysts are praising the role that Spain's regulators have played. After a financial crisis in the 1970s and another in the 1990s, Spain's central bank encouraged lenders to build up reserves and warned them away from high-risk assets. Currently 70 percent of Banco Santander's loans are backed by its own customers' deposits, but Spanish banks are still feeling the squeeze, says Manuel Romera, a finance professor at Madrid's IE business school. 'It's not that Spanish banks are doing well; it's just things are worse for those American and European banks that are in trouble,' Romera says. 'The priority now is that customers continue having faith in the banking system.' In a videocast to a meeting of international bankers in London this summer, the 74-year-old chairman explained how Santander stayed out of the subprime mess.'If you don't fully understand an instrument, don't buy it,' Emilio Botin said. 'If you will not buy for yourself a specific product, don't try to sell it. If you don't know very well your customers, don't lend them any money. If you do all these three things, you will be a better banker, my son.'"

In the mean time, GM stock is down to $5.42, its lowest point since 1950, Christopher Hitchens (Hitchens of all folks!) dubs the US a "Banana Republic." And now, Minorities to blame for the financial crisis? "Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?" Daniel Gross at Newsweek sets the record straight. Jeez, people.

By the way, if you;'d like to take another stab at understanding Credit Default Swaps, Paul Solman at the Lehrer Newshour has explanations -- along with cartoons for you. "As of last year, according to an industry group, there were not $62 million, not $62 billion, but $62 trillion worth of credit default swaps out there. That's more than four times as much as the GDP of the entire U.S. economy.But what are these things? In essence, they're just insurance contracts that pay off in the event of a disaster, a credit default..."