Saturday, September 20, 2008
The most dramatic observations in the week as of 09/17/2008
Overall the week of 09/17/2008 was the most tumultuous and dramatic week in financial history. Here I summarized my observations. --The most volatile week in history: US stock market was down by nearly 9% in the first three sessions and then followed by two large upswings, leaving the stock market back to Sunday's level. --The darkest week in invesment bank history: two investment banks, Lehman and Merrill, vanished in a day and the sharp plummet of MS and GS stocks made investors believe that they will become the next vicitms. In the first time, people realized that model of independent investment banks is faultly. --Government took most aggressive and comprehensive approaches: Though banning naked short selling before, it never banned short selling before, but it did this week. UK also followed suit and curbed short shelling on financial stocks. It never gauranteed money market mutual funds before, but it did this week and pledged $50 bil. Until now, government has acted on a case-by-case basis, it now begin to decisive action to resolve the fundamental casuse of issues. --The biggest flight-to-quality: panic gripped market and the concern of money market mutual funds prompted the biggest flight-to-quality: T-bills yielded almost at zero; Overnight US Libor shot up to ~6%; 30y Treaury yield lowered to 4.08%... --The largest backfire of government's stance against intervention: Paulson rejected the overture by Lehman and makde it clear that government won't put taxpayers' money at risk. One days later when it realized the implication of AIG's failure will be more perilous, they flip-flop their stance and injectd $85 billion emergency fund to starve off the collapse of the US largest insurer. Lehman must be pissed off for being singled out. Yet, too-big-to-fail philosophy still holds except that AIG is much bigger in scale and importance than Lehman is. --The first time Fed bailout the largest US insurer. It has never happened in American history that Fed bailout a insurer. Yet it occured this week. --The largest globally coordinated measures: Besides the action by US government, Japan, Europe, UK, Swiss, and Austrailian central banks pumped money into their financial insitutions. UK even curved short selling on financial stocks, China's lowered the stamp tax on security trading. --The highest correlation of global stock market. When US stock market tanked, the world stock markets went down as well. Russian stock market halted its trading due to stock plummet for two days sequentially. China's stock market declined below 2000, the lowest in two years.