Today, we are seeing the beginnings of the true failure of the banking system. The Federal Reserve has transitioned from the lender of last resort to the central bank. In fact, the Fed has now attempted to lend to banks in one day a sum greater than its entire balance sheet--and failed. Naked Capitalism and others reported that the Fed lending facilities have actually become counterproductive, and today's evidence significantly substantiates their hypothesis. Here, I will attempt to construct a quick time line of the most recent events over the weekend, so as to get a sense of how we got here:
- Emerging markets fail
- Europe evidences the consequences of its intentional lack of plan for a banking crisis under the euro
- Credit markets price to become the most expensive interbank borrowing environment on record.
- Commodities markets plunged, pricing in a total global economic recession.
- The futures markets have priced in a 100% likelihood of an inter-meeting Fed rate cut.
- And all of this is just part of the story.
So, my analysis, in keeping with the non-hyperbolic traditions of this fine blog: The world is melting.
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Damn global warming!
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