The item was posted for about an hour on the site, but was taken down after a Citadel executive called. “We removed the Citadel post after it was brought to our attention that it was a baseless rumor, and was irresponsible to repeat,” Dealbreaker wrote on its site. The site had labeled it the item an “unfounded” rumor.
The Journal reports that the crisis is like whack-a-mole: knock it down one place and it pops back up in another.
Government efforts to heal the credit markets are having unintended consequences that are roiling different sectors of the market and adding to anxiety among investors, who already are worried about the impact of a possible recession on U.S. companies…
“You have unintended consequences that spark government actions, that create other unintended consequences,” said David Kotok, chairman at money managers Cumberland Advisors.
Bloomberg’s Jonathan Weil has a good column on how the banks are taking taxpayer’s money and still trying to conceal the true value of their balance sheets:
What investors need now is a good reason to believe corporate balance sheets. Otherwise, it won’t matter how much taxpayer money gets pumped into ailing financial institutions. We’ll still be risking systemic meltdown because nobody, especially the banks, will be able to trust anyone else’s books.
Yet that’s where the banking industry and its lobbyists keep taking us. They want government blessing to value their assets any way they want, using whatever numbers they desire. And the banks will fight to their deaths to get it.
Jesse Eisinger posts a good look in Portfolio at the advent of the credit-default swap.
Morgan’s derivatives project began in the wake of the Asian financial crisis in 1997 as an attempt to protect the bank from bad loans. Demchak’s innovations worked—for his bank. Morgan came to dominate this corner of the financial world while preserving a culture of prudence. Morgan—deemed to be so safe that it snagged two of the victims of the financial-system collapse, Bear Stearns and Washington Mutual—is still swimming in credit derivatives, far more than any other firm on Wall Street, though the bank says it’s hedged. As of the second quarter of 2008, the bank had written derivatives contracts backing credit valued at $10.2 trillion, roughly three-quarters the size of the U.S. economy.
But Demchak’s innovation has a more troubling legacy. J.P. Morgan, rather than being inoculated, was actually becoming the Patient Zero of Wall Street, eventually carrying the credit virus to the far corners of the global financial system. The structure of the first derivatives deal wasn’t as solid as Demchak’s team had intended. That initial, flawed financial instrument was later replicated thousands of times by J.P. Morgan and other banks, with the same defects repeated and magnified over and over again.