Word: defaulting
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...losses on these now virtually worthless securities could amount to $1.4 trillion. So far, banks have written off less than half that. Concern about who is still holding dud paper has gummed up credit markets, with banks refusing to lend to one another for fear that the borrowers may default or may have themselves lent to other banks that could default. That in turn is causing solvency problems for some financial institutions that rely on short-term borrowing to fund their operations...
...cost of insurance against a Morgan Stanley credit default recently exceeded an unheard of 1000 basis points, even after the bailout bill was signed into law. That means the market price for insurance against a $10 million Morgan Stanley default hit $1 million per year, more than 10 times the typical ceiling cost for such insurance in a normally functioning bank sector. "The bailout is a step forward, but it's not at all clear that it's going to work," says Darrell Duffie, professor of finance at the Stanford University Graduate School of Business...
Duffie says sky-high rates for default insurance for 10 of the world's most prominent banks, including Morgan Stanley and Goldman Sachs, demonstrate that there is a lot of market concern about the stability of leading financial institutions, even after the Treasury's recent steps. Another piece of evidence: the premiums on three-month interbank loans remain very high in comparison with overnight loans, signaling banks' deep uncertainty about the sector's stability...
...governments stepped in, the message they sent to the public was supposed to be reassuring: Don't panic - your money is safe. Most European nations have some sort of deposit insurance that would reimburse account holders, at least up to a point, in the event of a default - although by their rescue actions the authorities sought to make it clear that it wouldn't come to that...
...Part of Obama's steadiness is born of necessity: An angry, or flashy, black man isn't going to be elected President. But I've also gotten the sense, in the times I've interviewed and chatted with him, that calm is Obama's natural default position. He is friendly, informal, accessible ... and a mystery, hard to get to know. He doesn't give away much, doesn't - unlike Bill Clinton - have that desperate need to make you like him. His brilliant, at times excessive, oratory is an outlier - the only over-the-top, Technicolor quality he has. There...