furiouslol

In other words, the issue here is that the banks are reducing their leverage and not because they don't trust each other, which is my main point. If the Fed inject so much money into the banks that they can afford a few loan defaults here and there, the credit market will start to go back to precrisis levels. An interbank lending guarantee without the capital injection won't help much.

Yes. But because of decreased supply, the cost of borrowing is higher now.

Eg. Usually I loan out $1 billion. But now, my risk appetite is smaller because of my desire for a smaller leveraged balance sheet, hence i will loan out only $100 million.

So even if I trust that you are able to pay back the loan, I will no longer lend to you because I have no desire to lend so much anymore. The overall credit supply decreases.

Maybe my initial post was not clear, I believe the main reason for the tight market is this: Constriction of desired leverage -> Decreased credit supply

Eg. Assuming the precrisis loan-to-cash mean leverage is 500%, USD 100 billion of cash can yield USD 500 billion of loan supply in the credit market. Now, the loan-to-cash mean leverage is about 200%, so the same USD 100 billion of cash will yield only USD 200 billion of loan supply. Thus, the Fed has to print a lot more cash to restore the precrisis credit supply. The announced capital injection is not enough. They have to inject a lot more. If they don't wish to print that much cash, the Fed can be the direct lender and assume the precrisis leverage themselves.

Here's a good article that explains it all: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10...

The UK market would make for a good case. With interbank lending guarantee by the govt, you would expect the credit markets to resume flowing, but it has not materialized. The banks have made a decision to lend less and deleverage.

So don't expect the capital injection by Paulson to make the banks start lending. They won't. Which is why the Fed will have to go into the markets and be the direct lender (which is what they did in the commercial paper market)

Oh yes. Just in case it gets ugly. Attend some MMA classes and load up on ammo.

The probability of MS getting nationalized or going bankrupt is 90%. So it's 0.9 * 0 + 0.1 * 3 = 0.3 = -70%.

Whoops.

There's a lot of danger in picking stocks based on P/E. You have to look at their debt ratios and short term financing requirements. You should avoid highly profitable firms that use crazy leverages in achieving these high returns.

Eg. you think Morgan Stanley is dirt cheap at current levels ($10) and you are willing to invest $100,000 in them.

Action 1: You bought $100,000 worth of MS shares at $10 each

Action 2: You bought $90,000 in bonds that yields 11%. You bought $10,000 worth of Jan 2010 MS 5 call options at $7 each.

Scenario 1: MS gets nationalized or goes bankrupt Action 1: You would have lost almost all of your $100,000 investment. Action 2: If you hold out until your bond mature, you'll get back your $100,000 principal after 1 year. Your options is worthless.

Scenario 2: MS goes up to $30 Action 1: Your investment is now worth $300,000 Action 2: You get $100,000 from your bonds and your $7 options is now worth $18. So your investment is worth $125,000.

So Action 1 is very volatile and risky. Your profit range from -100% to 200%.

Action 2 allows you to sleep soundly at night, even during current market conditions. Your profit range from 0% to 25%. Hey not bad at all. In the worst case, you'll have at least preserved your capital.

Sure, we could process the data rows outside of Rails in C but because the processing of data rows is an integral part of the project, that would mean coding 80% in C and 20% in rails. Not exactly an enjoyable experience.

So we rewrote it in PHP and avoid objects and use just functions and hashes/arrays. And it worked very well for us. The site render time drops from 0.8s to 0.03s. Memory usage rarely exceeds 100MB.

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It's happening everywhere. Housing, equity, bond, commodities etc.

The term "There's always a bull market somewhere" is no longer relevant at this period of time.

If you are bootstrapping, you should be particularly happy because you'll be seeing less competitors who are better-connected than you and have more funding. This very much levels the playing field between the davids and the goliaths.

You should invest them.

If you are conservative, you can go for Treasury Inflation Protected Securities (TIPS)

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In the event of capital inadequacy due to fraud/investments-gone-wrong, should the government bail out Google with taxpayers' money since Google is so integral with the Internet economy?

In my words, the economy is heading for a long-drawn recession due to a much needed deleveraging, albeit a drastic one. The world was too flush with credit in the past decade. The financial system is currently fubar with the credit market virtually frozen at this moment. Banks don't trust each other. The Chinese government has instructed their banks to stop lending to US financial institutions. The Feds are currently keeping the financial system on life support. Expect the side effects of the credit contraction to trickle down to the real economy very soon. More company failures, more layoffs, higher unemployment rate etc. Buffett wasn't exaggerating when he said this is an economic pearl harbor. Which is why the Paulson bailout plan will prove to be very crucial.