The Event Horizon

The black hole of OTC derivatives continues to pull anything and everything towards the event horizon.

This is what happens when 40 to 1 leverage is stacked on top of 40 to 1 leverage, on top of 40 to 1 leverage, on top of 40 to 1 leverage. When one counterparty fails, the chain reaction is almost impossible to break.

The Federal Reserve and other central banks around the world have opened up the floodgates and the tidal wave of liquidity is doing little, if anything, to fill the void. Yesterdays coordinated rate cut has not has the desired effect on LIBOR. Three month rates are deteriorating and today, rose to the highest point of the year. Credit markets have grinded to a halt. What do you do when you’ve already used the kitchen sink?

Today, Standard & Poor’s said it was placing General Motors credit rating under review for a possible downgrade. Maybe B- will be downgraded straight to F for Fail. GM shares dropped 30% to their lowest level in 58 years.

The DOW dropped 678 points or over 7%. The NASDAQ sank 5.5%. The S&P plunged almost 8%. An ounce of gold now buys the S&P.

Asian markets are open and crashing. Japan’s Nikkei index is falling off a cliff and is currently down 10%.

President Bush will make a statement tomorrow, in an attempt to assure anxious Americans that he and his crack team are on the case. Proudmonkey sources have leaked the speech. Here’s an excerpt:

“I will go down as the worst President in history…”

In a rare show of support, people will believe him.

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Coming soon; bank holidays.