Miracle of miracles! Congress appears to be moving quickly on the Treasury bill. Rep. Barney Frank said that Treasury was accepting an equity stake in companies as part of the plan.
Stock traders are almost universally opposed to this idea, but it may have enough momentum to go through.
Two topics dominate trader talk today:
1) the cost of selling assets to Treasury. What's the price? Is all anyone was talking about.
a) good news: mark-to-market losses have already been taken on many mortgage-backed securities, so the losses and write-offs here may be fairly limited.
b) bad news: banks hold many whole loans that have also gone bad. These loans have not been mark-to-market (because they are not required to be) and losses here could be substantial if they were sold to the Treasury, or anyone else, compromising earnings for some time to come.
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So will the banks sell? The bet is most will sell their problem assets, because the market may simply force them to do so. If they don't? A repeat of what we saw: rating downgrades, credit default swap disasters, and other issues.
2) the reflation trade--the move up in commodities--is also getting attention midday.
While much of the 20 percent rise in oil may be expiration-related (the front-month contract is only up 6 percent), traders note that the rally in oil only occurred after stocks began slipping about 11 am ET, and the dollar rallied.
You will now hear cries that we should limit speculative trading in oil: there’s the next area of regulation. Rest assured, there is a growing possibility they will at least raise the margin requirements for trading commodities.
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