The stock market, that omnipresent and all-purpose barometer of all human sentiment and endeavor, was back up today. So, everything’s fine, right? Congress will get back to work, pass the bailout bill (of course, we all knew we really needed it all along, it was just an election year test, you see) and then we can all go back to important things like driving our SUVs around and watching Desperate Housewives on our big screen TVs. Right?



There are still a few items of concern.


1. LIBOR:  The London Interbank Offered Rate, or LIBOR as it is more familiarly known, has gone stark raving mad. The rate measure climbed 431 basis points today, to an all time high of 6.88 percent. Bloomberg (here) quoted one commentator as saying that "any institution that hasn’t completed its 2008 funding needs by now is going to be in serious trouble. More banks are going to fail." Another trader is quoted as saying that "the money markets have completely broken down, with no trading taking place."


2. Hedge Funds: The Market Movers blog asks rhetorically about hedge funds (here), and in light of hedge funds’ recent dramatic underperformance, "what happens when investors decide to take their money out [on October 1], as they are generally allowed to do on the first day of any quarter?"


The answer, according to the Pensions & Investments blog (here), is that there could be a "bloodbath." The "body count could be as many as 2,000 hedge funds and 500 hedge fund of funds between now and the end of March."


As the Market Mover blog notes, the hedge fund shakeout could have enormous consequences as "thousands of hedge funds are all trying to unwind their positions at the same time." A "worst-case scenario" is that the funds that provided credit protection fail, "leaving their investors with nothing and counterparties with little."


3. Europe (and Beyond): You may have noticed that over the past weekend, Europe caught America’s bailout fever. Fortis, Bradford & Bingley and Dexis all required massive governmental bailouts. The Washington Post, in a September 30, 2008 article entitled "As Contagion Spreads, Moods Abruptly Shift" (here), noted that central bankers and national leaders around the globe are alarmed and on high alert. Economies throughout the world perceive themselves to be besieged.


Of all of the threats to the American people, there may be no greater threat right now than that the rest of the world feels so unwell that they decide to stop buying U.S. debt. The technical definition for the position we would then be in is, I believe, "screwed."


4. Headlines Change Daily, Dust Settles Slowly: Let’s recap. During the past three weeks, the government has assumed control of Fannie Mae and Freddie Mac. Lehman Brothers has gone bankrupt. Bank of America agreed to buy Merrill Lynch. The government bailed out AIG. Washington Mutual became the largest bank failure ever. Citigroup agreed to buy Wachovia in an FDIC-brokered rescue. Congress punted on an administration-sponsored bailout plan. Got that?


Any one of these events represents an enormous development with huge consequences. Taken collectively, these events are, I don’t know, choose your own metaphor, an earthquake, a tsunami, the comet hitting the planet. The consequences for the larger economy are colossal, gargantuan, choose your own adjective. It will take months, if not years, for the effects and consequences to fully emerge.


There are already countless examples of these forces at work, but to choose one that is likelier to be of greater interest to readers of this blog, on Monday, Fitch Ratings lowered its outlook on Hartford Financial Services Group from stable to negative due to concerns that credit market exposures are eating into the company’s capital. As discussed here, the company has significant exposures in its asset portfolio to Lehman Brothers, AIG and Washington Mutual. This is merely the most recent example. There will be many, many more.


Coda: In a democracy, the electorate gets the political leadership it deserves. Under current circumstances, then, I suppose it is no surprise that reelection is our national legislature’s sole priority. On Monday, they sure showed us. Ultimately, history will judge. In the meantime, perhaps Congress and the electorate will have had more leisure to assess where true interests lie. We can only hope that delay (or further inaction) will be without further consequences. We already have quite enough damn things to worry about, thank you very much.


And please read James B. Stewart’s October 1. 2008 column in the Wall Street Journal, entitled "A Bailout May be Unpopular, But Doing Nothing is Worse" (here).


Note to file: Financial crises should not occur during election years.


Historic Perspective: One of the great curses for any blogger is to lack anything to write about. In recent days, opposite conditions have prevailed. So much has happened of such potential significance that it is simply overwhelming. The extraordinary events of the past few days have left many of us (even verbose, opinionated bloggers like me) at a loss for words.


In despair of finding the time to comment on all that has happened and of finding the words to give it expression, perhaps the best approach is to rely on the thoughts of those who have been down this road before.


With this observation in mind, a loyal reader sent me a link to the Mark DiIonno’s September 30, 2008 column in the Newark Star-Ledger (here), which among other things, quotes at length from FDR’s first inaugural address. DiIonno’s column motivated me to track down and read the entire address, which can be found here.


FDR delivered the address on March 4, 1933, a dark time indeed in the nation’s history. It was in this speech that FDR said that "the only thing we have to fear is fear itself."


I commend the entire address, but call the specific excerpts to readers’ attention:


Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.


True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.


The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.


Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.


Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.


We require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.


As an exercise, picture your preferred Presidential candidate attempting to say  anything remotely approaching the foregoing in either sentiment or eloquence. Now picture your preferred Presidential candidate’s vice presidential nominee making the same attempt, if you can.


Elections matter.