Here And There

by hilzoy

From the Washington Post:

"In a dramatic reversal, the House today approved by a comfortable margin a $700 billion financial rescue package that will bring the greatest intervention of the federal government into the private marketplace since the Great Depression, attempting to prevent the economy from sliding into a deep recession. (...)

President Bush signed the bill into law this afternoon shortly before heading to St. Louis for a political fundraising event, to be followed by a weekend stay at his Texas ranch, the White House said. The signing ended the bill's 15-day odyssey through the legislative process, a journey that roiled the financial markets and focused the presidential campaign debate on the economy."

Meanwhile, stocks closed down. However, things seem to be even worse in Iceland, where the government is trying to put together a bailout package, but bond markets don't seem all that confident in Iceland itself:

"The cost of protecting government debt from default soared to a record yesterday, according to traders of credit-default swaps. Contracts on Iceland's debt jumped to 17.5 percent upfront and 5 percent a year to protect 10 million euros ($13.8 million) of bonds, CMA Datavision prices show."

Felix Salmon, from whom I got that last link, reprints an email:

"They are fighting powers that they are powerless to fight. It's like tackling a storm raging in the sea with a teaspoon. The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early."

Yikes.

Comments

[Ugh]

Ugh would like to congratulate the Democratic party for agreeing to push the depression past the end of Bush's presidency and into Obama's by passing what will ultimately be an ineffective bailout package.

Now excuse me while I go out and buy some more canned food.

[Tsam]

Here is a "stab from the past" on how this problem was allowed to happen...

Seattle talk radio host Dave Ross , a moderate liberal and "common sense" proponent, interviewed William Isaac, who was FDIC chair from 1981 to 1985. Isaac singled out the SEC for blame. He stated as an example that it took action in 1999 against Atlanta bank SunTrust for holding excessive loan loss reserves, claiming that this was manipulating earnings. (This interview can be downloaded from www.mynorthwest.com/rss/dave.rss in the 2008-OCT-03 9:00-10:00am Dave Ross Show podcast. Look at 19:00-21:00 for this anecdote.)

[Kári Tulinius]

There's a lot of weirdness in Iceland right now. Iceland's third biggest bank, Glitnir, got forcibly nationalized by the Central Bank:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aQwIFKhLTL2Q&refer=home

Because of this forced nationalization the state is currently very vulnerable because it's got so much of its reserve tied up in this one venture. If the two banks that are bigger fail, there might be nothing the Icelandic state can do about it since the those two banks have assets valued at 10 times the GDP of Iceland:

http://www.portfolio.com/views/blogs/market-movers/2008/10/03/iceland-when-too-big-to-fail-becomes-too-big-to-rescue?tid=true

Finally, there's a lot of weirdness surrounding the takeover since there has been a lot of bad blood between one of the directors of the Central Bank, a former prime minister, and the principal shareholder in Glitnir. Read the whole weird, soap-operaish story here:

http://icelandweatherreport.com/2008/10/the-biggest-bank-robbery-in-icelandic-history.html

[shah8]

I traced back Felix Salmon's report to some FT blog. That email is reported spurious.