RealMoney.com Columnist
10/12/2008 2:02 PM EDT
As I write, it appears that the finance ministers of the
industrialized countries have not been able to come up with a plan for
what to do about the equity and fixed income markets. Our own response
now smacks of total panic. There is the recognition that the U.S.
Treasury's original rescue plan is not going to solve things fast
enough and that a more direct investment in banks is needed.
But without some sort of deal that would force these banks to loan the
invested capital, there is little hope that this new plan will
matter.
In fact, the best hope is a cordoning-off approach where the
government agrees to invest huge amounts in the big well-capitalized
banks -- Bank of America, Wells Fargo and JPMorgan Chase -- and the
big stretched banks -- Citigroup, really important because it's in
danger of being obliterated), Goldman Sachs and Morgan Stanley, the
latter two because of a need to keep them alive next week.
This strategy, which I presume will not be adopted, but which makes
the most sense, would allow for shotgun weddings for all the weak
banks to eliminate the bleeding. Without this kind of action I am
reverting to a downside target of 6,700 for Monday and then 4,700 for
Tuesday in keeping with the hopeful '87 playbook.
Why am I so negative? Because the forced selling is just beginning,
the only people being margined out now are the most stretched, and in
the ensuing weeks we will discover that most annuities cannot meet
obligations as the piecemeal nature of the insurance reports will
inspire even less confidence than the government.
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