But if the paper market doesn't open soon (foreclosures keeps accelerating) let's say in the next two to three weeks and there are no bidders, banks are again in trouble. And injections may be overdone soon. What happens to equity markets then? I am just trying to understand if mortgage market remains as it is or worse, how will the greater market play out in next month or so.

What happens?

Equities crash. They would have both Thursday and Friday absent those injections.

The injections will have to keep getting bigger and bigger, and eventually it won't matter how much they inject - the market will crash anyway.

Yes, it seems true. I couldn't agree more with all these growing globally.

I was really baffeled on Friday when market regained. Just can't figure why. On Thursday, I thought people panic to a thought of injections due to credit problems being bigger than realized earlier. But then again, you're thinking that an absence of them on both days would trash equities anyway. What could be the reasons besides those liq injections for markets to sell off on Thurs and Fridays?

There are plenty of people who "get it" and are headed for the door.

It just hasn't hit critical mass yet. When it does, the ****storm comes.

I agree that many get it and are headed for the door.

The door is already closed on Chuckie however.

At the individual/family level there is no way out except for complete wealth destruction-perceived, leveraged or otherwise.

Grim times indeed.

Those who overleveraged themselves are in deep ****.

The thing is, I have little sympathy for those folks. It doesn't matter if its corporate or personal, taking on more debt than you can actually manage and attempting to use what is supposed to be your shelter as a personal ATM machine is insane and those who have done will get what they have coming to them - whether they like it or not.

"The problem is that each day this goes on the injections must be larger and larger because the previous one has to be rolled over PLUS whatever you need to add for today."

That's only assuming that the repo term is greater than 1 day, right? Let's take a hypothetical example, say the Fed injected 20 million this past Thursday for overnight repo, then the additional 20 million on Friday would really be the rolled over repo so in reality the Fed only injected 20 million in aggregate during those two days.

Correct.

The Repo actions are done to manage FedFunds - that is, what banks lend between each other on an overnight basis - rates.

At some point, however, this can fail to work (at all); we ran into the first tremors of that Friday when the first injection did nothing and the second failed to hit the goal.

But the third actually overshot.

I have little sympathy either. In their own way they were 'swinging for the fences' by betting on unsustainable ongoing asset appreciation. Leveraging that even further with a heloc was beyond stupid.

The individual stories that hit the news are going to be heartrending though. e.g. little katie and johnie living under a bridge because daddy and mommy got foreclosed on by big, bad wall street billionaires, etc.

I'm sure we'll be seeing TON'S of these stories in the msm for the foreseeable future. Going to be VERY difficult for the politicians to ignore this going forward.

Sorry to keep harping on this.
I'm trying to get at what the FED "thought" they were buying with TOMO.
If it was only time, then Monday they will not renew. The bullet won't work again so soon.
Tuesday or Wednesday they will do it again to slow the decline and pop the shorts in the ass.
They will then repeat this cycle as long as it works until the markets reach a predefined level, perhaps a little above Jan 07.
If nothing changes before then, they bring out the big gun--rate change.

They're trying to prevent "runs on the bank" and/or outright bank FAILURES.

We shall see Monday.... my guess is that the prop job will evenutally have to be withdrawn but an uncoordinated rate cut will likely CRASH equity markets, not stabilize them.

It also won't fix the balance sheet problems (you can't make toilet paper into gold; it is what it is.)

Thanks, I got out at the top and do believe cash is a position.
I think the crash is coming (85% sooner than later) but I actually have a plan.
It works like military DEFCONs and has very little adverse effects to my lifestyle if there is no crash. I'm sitting between choosing DEFCON 3 or 2.
Monday will decide.
Info from Tickers has been an excellent guide.

The repurchase agreements provide liquidity, to stablilize jittery markets, such as after Sept. 11, but they cannot do anythng against insolvency and the current fear which will take months to subside.

The current fear, which is causing banks to charge 6% on overnight lending, is due to the stupid lack of transparency in all the banks. They brought it on with hiding all their holdings. Now, nobody trusts them. "Why should I lend you money, when I don't know how creditworthy you are? You've been hiding your CDOs and overvaluing your assets, so I don't trust you anymore. I want my loans paid back, I'm making margin calls. "

That is a legitimate fear. That is not just a jittery market. Lenders have a right to be worried. Investors are justly withdrawing their money. I myself have no faith in what is in my bank's books either.

Until the SEC combs through the investment banks and finds out what is in there, this fear will continue. This could take weeks or months.

The Fed had to do the repos, as a first shot. If I am right in what I wrote, then they will have to try again next week, and that won't help either so they will go to Plan B, whatever that is. Unless something else big blows up first.

We have quantitative hedge funds moving in unpredictable ways, i.e. one was quoted in the WSJ as saying that movements which should occur only 1 in 10,000 years happened 3 days last week. So they started to buy/sell based on their own human reactions, and they had to short cover, making bad stocks rise and good stocks fall. So homebuilders went up and Disney went down. For some reason, gold went up too.

For me, gold is a form of cash. I would not add to gold or mining companies now, but I will not sell it either. My Newmont mining shares are a form of cash.

In a world where we have hit once-in-a-lifetime crisis events, nobody can guarantee that Treasuries are safer than gold, not even Karl.

I agree with him - do your own thinking, have a thesis.

The problem with "cash" is where do you keep it?

Over $100,000 this becomes a REAL problem.

Remember, the first rule of investing is "don't lose the principle!" It sucks when you bail to cash and then lose THAT! Just ask the people who held the AXA MONEY MARKET fund over in Europe (26% loss?!)

It is a problem that I deal with as well..you can buy Treasuries or gold or foreign currencies in any amounts.

Money markets and fixed income funds are not safe. Banks are not safe.

Yep.

Short-term treasuries are a quite-reasonable place to stash. If the Federal Government goes down you won't care about "money" (you WILL care about how many shotgun shells you have though!)

If you don't want to purchase physical bonds you can use something like SHY (< 3 year bonds) or BIL (< 4 month T-Bills); both are quite low risk even with changing interest rates as while they will move being short-term their moves will be more muted than long-dated bonds (which move a LOT in terms of face value)

If you buy actual bonds and hold them then of course you don't care about the market swings as you get the face back at maturity; that's another option....

My point is that any stash that involves someone else holding your investment in street name for you has the potential risk of trouble and at least a freeze until SIPC protection recovers it for you. Physical delivery of course avoids that problem but then YOU have to store "it".

What if you hold ETFs or securities in a brokerage account, and the brokerage firm goes belly-up?

I believe you're good for up to 500K.... so it might be wise to have several brokerage accounts.

Genesis, even if the FED lowers rates it won't matter because most of the toxic mortgages are bench marked against LIBOR. At fist I thought it was funny that banks would use that rate instead of say the Feds prime rate but then I realized something. If I am making a gamble on interest rates I don't control. I want to make damn sure you (the borrower) don't control them either. That is in the form of angry home-debtors who will call their senator saying, lower the f*#@$ing rates!

KD chatted about that before. Just because rates go down doesn't mean that the rates people pay for mortgages go down.

And speaking of Quant hedge funds - you have to keep in mind that people haven't withdrawn their money yet. Everyone is desperately trying to keep them in. The argument being that if you withdraw now, you won't get the recovery. But with the way the returns went on Friday for the Quant funds (BAD VERY BAD), I'd be surprised if clients didn't start bailing soon. How can you convince someone to keep money in a fund that probably averages about 2% (If you're lucky) a month return and you just lost them 30% in 6 days. Yes, I said 6 days, as the quant world has really been looking weird since 3 August (yeah - I was looking at returns trying to figure out what the **** is going on here?). ****e, considering inflation, it might take a couple of YEARS to get the money back, let alone MAKE any money. And I figure a lot of people will say **** it. Especially since the models aren't expected to recover for a couple more months. THAT'S when it gets really interesting. Because not only will the refund encompass the cash in the fund, it is also encompasses that part of the leverage. Uck.

Yeah, rememeber too that when you lose 50% you need a double to get it back!

That's one of the nasty parts of losses - they're much worse going down then back up!