Market Talk

Markets across asset classes and national borders have been wildly erratic today, and the longer that condition persists, the weaker the “fat finger” or computer glitch explanation for yesterday’s meltdown gets.

Whatever the trigger was, a bad trade, an outlier kind of spike somewhere, there were God knows how many sell orders programmed into the market’s computers. Yesterday afternoon may have been a one-off, but it was also one of those flashes of illumination, where for a bright instant you see all those vicious creatures hiding in the dark, waiting to devour you.

What markets need right now, more than good data, more than liquidity, more than an end to Greek riots, is leadership. Somebody, somewhere, in a position of responsiblity, needs to stand up and stop this thing before it goes any further. Heading into this week, it was all about the risk trade. Heading out of it, it’s all about the fear trade.

There isn’t much the U.S. can do, directly. Our problems aren’t driving this. It started in Greece, but since at the heart of this whole thing we’re still talking about a credit problem, it’s quickly washed over Greek borders. Let’s be clear here. The global recovery, and especially the recovery in the developed world, is still a fragile thing. Nobody can afford to flirt with another seizure in the credit markets. But there’s a lot of chatter about that happening among European banks. And if European banks seize, well, in an automated, interconnected world, you saw yesterday just how fast things move.

Toward the end of his book “The Quants,” Scott Patterson quotes one exec at a company that supplies services to high-frequency trading firms: “My concern is that the next LTCM problem will happen in less than five minutes.”

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You know, at every step, from the first signs of strains in the subprime market right up until today, there have been these official pronouncements that all is well, the problems are contained, that it’s a small market, or there’s a bazooka on the table, or a loaded gun, or something that’s going to scare off the bond vigilantes and speculators from forcing the hand of whatever individual/corporation/industry/sovereignity has gotten itself into trouble.

And yet, the ramifications of the credit crisis keep rolling through markets and nations, despite all officials attempt to corral it. It’ll end when it ends, no matter how much money governments and central banks throw at it. Here’s a News Hub Extra where we break it down.

Okay, so “Clash of the Titans” stunk, but that’s the least of the Greeks’ problems. The Greeks are in a very tight spot, between a rock and a hard place, between Scylla and Charybdis, even as everybody keeps making statements that sound an awful lot like whistling past the graveyard.

It’s amazing that Greece was this big problem in the morning, with the nation’s 10-year bond yields surging to a record 7.58%, but was forgotten in the afternoon, after ECB’s Trichet said default was not “an issue.” It was a classic nondenial denial kind of comment, because he didn’t say, it’s not an issue because we the nations of Europe will save Greece, and he didn’t say, it’s not an issue because the Greeks can clearly fund themselves through the open market. Frankly, we’re not exactly sure what his point was, but it was enough to mollify the masses, again, for a time.

Please tell me this isn’t really happening:

It is very evident to me that the underlying crisis was caused by what is clearly a once-in-a- century event.

I don’t mean, please tell me a once-in-a-century event isn’t happening; I mean, please tell me Alan Greenspan isn’t telling me the financial meltdown was caused by a once-in-a-century event. Because I’ve about had it with this nonsense. Look, it’s bad enough when some sell-side analyst peddles this nonsense, or some party hack with banking-lobby money behind them. But to hear it from “The Maestro,” well, it’s just galling (by the way, that is the last time I will use that nickname to refer to him; “The Maestro”? Are you kidding me? More like “The Sorcerer’s Apprentice.”) Because he is far too smart to actually believe that nonsense.

I’m not sure how many more times this will need to be said: everything about this crisis was 100% man-made. There’s no “perfect storm” nothing about it. If you want to point out that the financial meltdown was the result of a big, complex series of individual and institutional choices over a series of years that led to it, fine. That is true. But every single of them was made by a thinking, sentient being. Therefore, the entire fiasco was preventable. If only somebody in a position of authority, somebody in a position to make a difference, was paying attention.

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Apologies for the light posting today. Just busy today. Did Fox Business in the early morning, writing a column for the paper in the late morning, and editing Market Talk for the wire in the afternoon, so just can’t catch up. I’d like to see a robot do all that, but it hasn’t left me any time for blogging.

Anyhow, here’s today’s video, which, given that ECB’s Trichet went and upset the apple cart, may sound a bit stale. But I’m still pretty convinced the bulls are going to hold on until they hit 11000 and 1200 on the Dow and S&P 500, no matter what happens today.

'Metaphor,' derived from the Greek metapherein, is a figure of speech in which one object is used to suggest a likeness to another object.

It’s still amazing to me that Greece’s finance minister, George Papaconstantinou, referred to his country’s economy as the Titanic. Was it a Freudian slip? Who would consciously invoke such a horrible metaphor? I mean, for God’s sake, even in the Hollywood version the ship sinks and Leonardo DiCaprio freezes to death.

“We are trying to change the course of the Titanic, it cannot be done in a day,” he said the other day. “We are beginning to show that step by step, we are following words with action. If additional fiscal measures are needed, we will take them.”

Did anybody else do a spit take when they heard that? Ben Bernanke, Alan Greenspan and the rest of this nation’s “finance ministers” are so careful about their words that they often end up delivering a lukewarm stew of boiled platitudes, leaving everybody wondering just what in the hell they’re really thinking. You think Ben Bernanke would ever refer to the U.S. economy as the Titanic?

But, hey, maybe old Georgie was onto something. Newswires publishes economic and political calenders for most nations. I looked at Greece’s this morning, and the first item on it was this:

Wednesday, February 24, 2010: National strike in Greece over public debt dispute.

When the top item on your economic calendar is a national strike, well, maybe you are riding on the Titanic.

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I caught all of about five minutes of that show that was on after the Super Bowl, “Undercover Boss,” but it took only about two minutes for me to realize what a public service that show could have done, had it been on four or five years ago. Done correctly, it could have prevented the entire housing implosion and credit crisis.

The show’s premise is actual bosses of actual companies pose as new hires and meander around, sniffing out all the inefficiencies and waste going on under their noses. Great idea, right? On last night’s premiere, Waste Management’s president, Lawrence O’Donnell, went undercover to discover what was really going on at his company.

But, boy, just imagine the shenanigans that could’ve been uncovered had the show been on five years ago:

- The president of a big mortgage company, posing as a “new hire,” sits in as one of his loan officers approves a 26-year old waiter for a $700,000 home loan:

“We didn’t even check his W-2. We didn’t even check his pay stubs. We didn’t even ask him for pay stubs. There’s absolutely no way we can say if this kid can pay the loan, for even a month. I’m the president of the company, these are the kinds of things I should know about.”

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A disaster as big as the housing meltdown and credit crisis isn’t cause by just one thing. For one thing, the disaster itself wasn’t even one thing, it was two, the housing meltdown and the credit crisis, so it’s unlikely that only one thing caused both calamities.

People look for a single cause, for that one loose end of the ball of yarn that led to the whole thing unfurling, because it’s then easier to assign blame. Of course, much like there wasn’t one cause, there isn’t one culprit, although some loom larger than other.

There were at least three main causes of our current ailments, and three secondary causes, and then a number of coincident causes, as Barry Ritholtz makes clear today. “The reality of crisis causation is far more complex and nuanced,” he writes. He distills the prime causes from the coincident ones.

The idea is to ferret out the “but for’s” — the problems but for which other problems would not have come about — from coincident causes, some of which are being propagated as the real causes by the ” ‘it’s all Fannie’s fault!’ crew,” he says. “By muddying the waters, they hope to avoid retribution for their own roles in what occurred.  As the mid-term election approaches, we should expect to hear more from this crowd.”

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I thought about using an earthquake reference to describe what happened both politically and in the marketplace this week, but it’s far too insensitive given the pain and suffering the Haitians are enduring. But something big and unexpected did happen this week. Actually, it was a number of somethings.

Remember back in January of 2008? The recession had just started but most people didn’t know that yet (I don’t want to name names, but they used to have a show together. Kudlow & Cramer, I think it was called.) Barack Obama and Mike Huckabee staged huge upstart victories in the Iowa caucuses, a totally unexpected pair of upsets. Facts on the ground, as the military says, were changing faster than people were prepared for. This week reminded me of that time. And we all know how 2008 turned out.

The story out of the White House since President Obama was sworn in has been, as it is really with every administration, we’re cool, and we’ve got this thing under control. Between the White House, Congress, Treasury Department and Fed there was a concerted effort to arrest the slide, to prop the economy back up. Wall Street didn’t give the Democratic administration any credit, but was more than happy to play along, if they could turn a profit of course.

That story changed this week, drastically. Even three weeks ago, it was unthinkable that the Democrats would lose Ted Kennedy’s Senate seat. But they did. Given every sweetheart deal the banks have gotten from the DC crowd since this crisis started, it was unthinkable that the president would turn on the banks. But he has. It is still unthinkable that a nation in the so-called developed world, a nation like, say, Greece, could actually default on its debt.

But it’s only January.

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Ferdinand Pecora

The response to the financial crisis out of Washington has been such a disappointment, from blanket bailouts to funneling AIG’s counterparties 100 cents on the dollar to the so-called “stress tests,” that it’s hard to get too worked up about today’s Financial Crisis Inquiry Commission hearings (watch the hearing live here.) This Congressional panel is being sold as a modern-day Pecora Commission, the Depression Era inquiry that dug into the market crash and led to the creation of the SEC and the Glass-Steagall Act.

This morning the panel will hear from the heads of four big banks: Lloyd Blankfein, John Mack, Jamie Dimon and Brian Moynihan, the new CEO at BofA. It’s sure to produce the usual dog-and-pony show kind of fireworks Congressional panels are well know for. If there’s one thing Congress still does it, it’s play to the cameras.

The Journal is live-blogging the hearing, which is getting a little test already. Goldman’s Blankfein tried to compare the financial crisis to a hurricane, something the panel’s chairman, Phil Angelides, quickly shot down, saying hurricane’s are acts of God, whereas the financial crisis was created by men and women.

Without a doubt, we’d imagine the high point will be when panel-member Brooksley Born, who famously tried and failed to regulate derivatives in the ’90s as head of the CFTC, gets to ask a few questions.

The Commission is also soliciting questions from the public for the hearings, an unusual request to be sure. One of the panelists, Keith Hennessey, is soliciting questions on his website, and the commission itself has a homepage. The Times already collected the thoughts of a number of educated observers, who offer up their questions for the CEOs.

Here’s a pointed one from James Grant of Grant’s Interest Rate Observer:

“The Federal Reserve’s setting of its benchmark federal funds rate at nearly 1 percent in 2003 to 2004 was a primary cause of the housing and mortgage debacle. Yet, in an attempt to nurse the economy back to health, the Fed has set that rate at nearly zero percent. So what’s the next bubble, and how do you intend to profit by it?”

Good luck getting that one answered!