Fallout of hostility towards bonuses to AIG employeesComment by Anonymous:
It is also worthwhile to note that the AIG bonuses were contractual obligations of AIG, and that most of the folks who received them were working on a $1 salary, cleaning up after the ones responsible for the mess were fired.http://www.nytimes.com/2009/03/25/opinion/25desantis.html
A rapid recovery is unlikelyComment by JD:
Some differences with your assumptions, though I would agree with the overall conclusion.
The US adminstration will not need to go back to the Senate to ask for more money to recapitalize banks. The original TARP money was created as preference shares. By sleight of accounting, converting these to ordinary shares achieves re-capitilisation. Secondly, the political environment has tilted in what, with hindsight, seems obvious - with Congress claiming that TARP money gives them a right to dictate to TARP banks. This is actually wrong - the US doesn't need to regulate the banks who are drowning, those banks are unlikely to do the same stupid things. It needs to regulate the banks who are now healthy and are going to rush in to do the stupid things that (they believe) made money in the past. However, the practical impact is that US Banks are trying as hard as they can to repay TARP money.
This doesn't fundamentally affect your analysis though, because European banks have not yet taken the writeoffs that they need to, so the basic point remains, sort of - that banks will be undercapitalized.
I fail to see why you think that there isn't the political will to effect bank regulation.
About pt #2, that is the reason for the stimulus package and near zero interest rates. That doesn't neccesarily mean that the economy is going to bounce back right away, just that the point that you make is well understood by policy makers, who are attempting to act against it.
About pt #3, mostly agreed, but my assumption is that the hugely lower factor cost of commodities, especially oil, is going to help.
The big change in the S&P 500 reflects a fundamental change in the pricing of risk (or risk averseness). One has to be wary of drawing conclusions from the price movements. Again, I mostly agree with the statement, but not sure that the conclusion directly follows from that data.
18 May 2009 is the reverse of 17 May 2004Comment by jumpup:
We were tracking SGX NIFTY all through the morning, and not very surprisingly, the volume turnover was one of the lowest in NSE. To the tunes of 3k crore.
Around 90% which makes around 2700 crores was in FNO and the rest was in cash.
Very canny players could have seen a decisive move if they would have followed the huge 3300 PE activity on Friday. Till the last week, open, 3400PE was the hedge everybody was working on, yet on Friday, masses started becoming increasingly bearish.
On Friday, in a rare phenomenon, although the underlying NIFTY kept on rising,Calls rose, [Smart Money effect] and Puts appreciated as well[partly straddles, partly bearish bias]