If you’re wondering why the stock market continued to plunge on Friday, despite the bailout being passed and signed by the president, it may be because the financial system has already passed a threshold, and is now in systemic collapse. Nouriel Roubini on Friday:
It is now clear that the US financial system—and now even the system of financing of the corporate sector—is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).
Yesterday Thursday a senior market practitioner in a major financial institution wrote to me the following:
Situation Report: So far as I can tell by working the telephones this morning:
- LIBOR bid only, no offer.
- Commercial paper market shut down, little trading and no issuance.
- Corporations have no access to long or short term credit markets — hence they face massive rollover problems.
- Brokers are increasingly not dealing with each other.
- Even the inter-bank market is ceasing up.
This cannot continue for more than a few days. This is the economic equivalent to cardiac arrest.