Seizure


“Short-term money markets remained in turmoil, heightening the likelihood the credit pullback may harm the broader economy.

“Inside markets that are hidden to most Americans -- the overnight Treasury repo market, the short-term commercial-paper markets and the floating-rate municipal bond markets -- action was unfolding that will soon affect how companies meet payroll, pay vendors and make investments.

“These markets allow companies with ample reserves to squeeze out a few extra dollars by investing the cash in securities with life spans of just days or weeks. All that cash helps keep the economy lubricated by distributing money to other firms that need short-term loans to buy inventory or meet payroll.

“Some distressing signs emerged Thursday from one of the most important of these marketplaces, the commercial-paper market, where companies borrow money for periods of just a day to up to a year. The market contracted by $61 billion in the week ended Sept. 24, its largest decline since August 2007, when investors fled over some of the first warning signs of the subprime-mortgage crisis. In the latest week, banks and other financial companies accounted for most of the decline, as they took $50.3 billion of paper off the market.

“The decline follows a $52.1 billion shrinkage in the week ended Sept. 17, which reduces the overall market to $1.702 trillion.”

(“Debt Market Distress Spreads; Commercial Paper Shows Signs of Tightening as Investors Flee.” Liz Rappaport and Anusha Shrivastava. Wall Street Journal: September 26, 2008. pg. C.1)


NOTHING ELSE MATTERS if markets cease to function. That is the end of capital-ism as we know it.

We have long put our trust in the notion that value and worth were established by the invisible hand of buyers and sellers exchanging in an efficient nexus of supply and demand.

If we see markets ceasing to establish reliable indications of value and worth, if market prices appear capricious and disconnected from reality, we lose confidence in the validity of the market mechanism. We hold back from participating; there is no market, and we can't see anything.

Once this unreliability and invalidity catch hold in the minds and hearts of those who otherwise would be market participants, markets seize-up and a market-based economy falters and halts.

If this occurs in money markets, then other markets likely will freeze too.

Faith, hope, belief, trust -- the eyes, ears, mind, heart, spirit and soul of our world.

4 comments:

Anonymous said...

Hi Gordon -- Did you go to JD High School? Sorry to leave this here but if it's you, we're planning a reunion for this summer (35th -- ouch). Scott Williams

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