Global No-Confidence Vote: Full Circle

This series of posts started back in January with the title "Global No-Confidence Vote For Bush-O-Nomics" because at the time, the global response to the announcement of the financial stimulus package was just that: A global vote of No Confidence. Asian and European stock markets plummeted and continued to fall for the entire year so far.

Everything since then has been No Confidence. Every time the US tries something else, the global markets aren't convinced they are going to work. They've been right so far: the economic stimulus package, Bear Stearns bailout, rate cuts over the summer, and now the last two weeks leading up to the bailout bill have all failed.

So what does Asia and Europe think about The Big Big Bailout?

Guess.

No Confidence.

Stocks tumbled in Europe and Asia and U.S. index futures retreated as bank bailouts accelerated and the $700 billion plan to rescue American financial institutions failed to unlock money markets.

Dexia SA sank 24 percent after the governments of Belgium, the Netherlands and Luxembourg were forced to rescue Fortis and the U.K. seized Bradford & Bingley Plc. Hypo Real Estate Holding AG slumped 62 percent as the German government and a group of private banks provided a 35 billion-euro ($50 billion) guarantee for the commercial-property lender. Westpac Banking Corp. of Australia slid 3.5 percent. Wachovia Corp. declined 21 percent in Germany on increasing speculation the sixth-largest U.S. bank by assets may be forced to seek a buyer or mortgage partner.

Europe's Dow Jones Stoxx 600 Index lost 3.1 percent to 257.79 at 11:24 a.m. in London. Futures on the Standard & Poor's 500 Index dropped 1.7 percent following the measure's steepest weekly slump since May. The MSCI Asia Pacific Index slid 2.7 percent today.

``There's more pain to come,'' said Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London. ``People knew the bailout was going to happen. Now it's back to the same-old, same-old of capital writedowns and weekend bailouts. Earnings estimates for next year still are too high.''

Credit losses at UBS AG, along with profit declines at technology companies such as Ericsson AB, helped send earnings lower at 153 of the 332 members of the Stoxx 600 tracked by Bloomberg that reported quarterly results since the beginning of July. More than 40 percent of the Stoxx 600's companies trailed Wall Street's estimates, Bloomberg data show.

Above all there are two forces at work here: insolvency and psychology. The bailout fails to address either one of these two problems. The world has moved on and has rendered judgment on the situation in America. That judgment is "We have to look out for ourselves now. We don't have the resources to spare to help America any more. They will have to take care of themselves, just like we have to do now."

Europe in particular has far too many problems with its own failing banks to deal with ours.

European governments stepped in to rescue Bradford & Bingley Plc, Fortis, and Hypo Real Estate Holding AG as tremors from the U.S. credit crisis reverberated around the world.

The U.K. Treasury seized Bradford & Bingley, Britain's biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

The interventions exposed how fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy and prompted a $700 billion U.S. bank-rescue package has gone global. It also added urgency to negotiations among European policy makers as to how they deal with banking collapses.

``The precarious global environment means the weakest links in Europe are now falling,'' said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. ``If banks continue not to lend to each other we'll see more failures.''

Shares of Dexia SA, a lender based in both Brussels and Paris, fell as much as 33 percent trading after Le Figaro said the world's biggest lender to local governments may soon announce a plan to raise capital. Iceland agreed to buy 75 percent in Glitnir Bank hf, the island nation's third-largest bank by market value, for 600 million euros.

European equities and U.S. stock-index futures fell today. Euro-area economic confidence dropped this month to the lowest since the aftermath of the Sept. 11 attacks amid concern that the U.S. plan will fail to stem the crisis. The pound tumbled the most against the dollar in 15 years and the euro slid.

That rate that banks charge each other, the London Interbank Overnight Rate, or LIBOR, remains in record high territory this morning. Banks are still afraid to lend money to one another, because they're all terrified. They have no confidence in their own books. They have no confidence in the books of other banks. And they are wondering if they are next. Europe and Asia injected a fresh round of money into the system this weekend. It has done NOTHING. Liquidity is NOT the problem...it is the symptom of a much worse problem, insolvency. Europe and Asia have caught our Bank Flu. They played the same games we did. Now they are falling too, all over the continent.

Despite a bailout deal reached last night, Europe and Asia just don't care anymore. They have their own problems to deal with thanks to us. They don't have time to worry about the US right now.

They will not help us now. Nobody will.

We're on our own. The outlook this morning is very very grim.

Wall Street looked set to plunge on Monday, taking its cue from Asian and European stocks markets, as Congress is expected to vote on a bailout package but fears engulf world markets.

Doubts about the health of the world financial sector are increasing as two European banks were nationalized in two days and central banks threw money at banks trying to persuade them to lend to each other.

The bailout is not working. Despite a deal being reached, the jury is back in this week:

No Confidence. Literally, no confidence to lend, no confidence that they will be paid back, no confidence that assets are worth what they are worth, and no confidence that the US can lead the world out of the coming global recession.

And now, the pain, the real pain, begins. This week is going to be bloody.

And so will next week.

And most likely the week after that. I imagine we'll see and emergency rate cut or two again. That too will not help.

No Confidence. No parachute when we land. No view of where the bottom is. No magical solution to fix it.

We've come full circle from January. In January when the world gave Bush-O-Nomics the vote of No Confidence, we still had options. Those options have not worked other than to buy us time.

Nine months later we're in the same spot...facing a global no-confidence cascade, a systemic meltdown...and we're all out of options now.

Other than to watch the wagon go over the cliff.

More than ever...

Be prepared.

Cross-posted at the Frog Pond.