Financial Market Update-Tues., Oct. 21
- Oct 21, 2008
As of mid-day (and as the Dow futures market had predicted), the DJIA is down, though not by a record amount: 174 points, or about 1.88 percent. The Nasdaq and Standard & Poor’s 500 edged down somewhat more, at 2.9 percent and 2.3 percent, respectively. One of the important factors in getting the Panic of 2008 rolling last month was that some money-market mutual funds “broke the buck” — that is, priced their shares below a dollar each, which was always theoretically possible, but never really supposed to happen, certainly not to a venerable old fund like the Reserve Primary Fund or some of the others than did it. Now the Federal Reserve has invoked emergency powers to buy assets from money-market funds. The new initiative, named with the imagination that bankers usually bring to the table, will be called the Money Market Investor Funding Facility, and may be funded to the tune of $540 billion. The idea is to make sure that the funds will be able to meet the demand for redemptions from their investors. If a few investors discover they can’t get their money out, a stampede is all too likely to start, as many more panicky investors demand their money right now, regardless of whether their fund has had any problems. That is, a run on the bank, except that it would be a run on the funds — as happened in September, when panic caused $133 billion to be withdrawn in two days. That only stopped when the U.S. Treasury said it would use $50 billion to guarantee money-market funds. Ohio banks have had a rough time of it lately, facing the black dog of quarterly losses. Cleveland-based National CIty Corp., which has been feeling under the weather with four previous quarters of negative numbers, today reported a loss of $729 million for 3Q08, or 85 cents a share, and says it will show about 4,000 employees–14 percent of its workforce–the door before long. KeyCorp., also based in Cleveland, has reported a quarterly loss of $36 million, or 10 cents a share, and Cincinnati-based Fifth Third lost $56 million, or 61 cents a share. Is Hungary the next Iceland? Or to ask it another way, is there such thing as the Iceland Syndrome, and is it now affecting Hungray? (Iceland, by the way, has hat in hand and is begging the International Monetary Fund for a bailout.) Lately Hungarian currency and stock markets have been in freefall, as foreign investors have sold off Hungarian assets. The Hungarian government and central bank have said, no, no, everything’s OK, we’re not Iceland. But a little panic goes a long way in today’s world.