A 'massive' rush for safety as financial markets crater

There’s a sense of desperation in the credit markets today that exceeds anything many traders have experienced.

The most telling number: A three-month U.S. Treasury bill purchased right now would pay an annualized yield of just 0.1%, down from 0.7% on Tuesday and 1.47% on Friday.

That shows how rabid demand is by banks and other big investors for ultra-safe securities. They don’t want to lend to each other. They just want to hoard cash.

What's more, money market mutual funds are said to be rushing to buy short-term Treasuries to prepare for potential investor redemptions, after a large New York money fund on Tuesday became only the second fund ever to "break the buck" (fall below $1 a share) because of losses on Lehman Bros. IOUs.

"There’s a massive safe-haven bid," said Tom DiGaloma, who trades Treasuries for brokerage Jefferies & Co. "It’s massive risk-reduction" across the banking system.

Another telling number: Gold was up $67.20, or 8.6%, to $847.70 an ounce in futures trading at about 10:50 a.m. PDT. Not knowing where else to turn, some investors are trading paper money for hard money.

The stock market is cratering. The Dow industrials were down 354 points, or 3.2%, to 10,704.

The government’s $85-billion rescue of insurance giant American International Group, announced late Tuesday, obviously didn’t make the financial markets feel any better.

"Nothing here seems to make anybody feel better," said David Resler, economist at Nomura Securities International in New York.

This crisis is rooted in the housing market, but now Wall Street has turned on itself. Major banks, brokerages, hedge funds and other big players don’t want to take the chance of being on the hook to another institution if they feel there’s even a remote chance that that institution can’t pay what it owes.

"Everybody’s trying to reduce credit exposure to all the institutions that they feel aren’t viable," DiGaloma said.

And that apparently is a long list, and getting longer.

After the failure of Lehman Bros. over the weekend, and the emergency takeover of Merrill Lynch & Co. by Bank of America Corp., traders now are turning on the two remaining independent investment banks -- Morgan Stanley and Goldman Sachs Group. Morgan shares were down $11.09, or 39%, to $17.61 at about 10:50 a.m. PDT; Goldman was off $32.81, or 25%, to $100.20.

Investors have always been told that panics are a great buying opportunity. But the attitude today clearly is: You go first.

Photo:  On the NYSE floor today. Credit: Richard Drew / Associated Press

Comments

[ROLO TOMASI]

What did you expect it was coming to, given that the person who very well could end up being President is essentially a carbon copy of the Realtor who's mantra is, " Its always a good time to buy real estate".

As for me, I'm gong to go through my grown daughters "junk" in the garage, and see if I can find that old stash of that "Sure Thing Investment" from the 90's....."Beanie Babies". I'm going to make them into a Necklace and Peel them off as needed to Barter them for essentials.
Those of you that want to unload your shares in a bank stock or your home, I"ve got a pristine, "Squealer the Pig" Beanie Baby, I will consider trading.

[joshooi]

I am trying to make more money now by working more than two jobs nowadays to get more money to invest. Yep.. I believe in going in when everyone is running out. I am a firm believer of that. If fact it is a better investment than housing right now. I do not see any appreciation in housing at all for the next five years. It is a great time to pick and buy it is much more a smarter gamble than putting all those money in Las Vegas. Do you know why this work??? Secret LOW DEBT and VERY LOW LIABILITIES.

[jim redondo beach]

...so much for the Republican deregulation mantra...who are you going to vote for now?...the same-'ol-same-'ol....or the breath of fresh air?...

[Jim Ferguson]

Our stock market is being manipulated by a very destructive entity. Whether it is a foreign country, major hedge fund, or extremely wealthy individual this crisis shows that naked short selling can cause a catastrophe in our financial system. We need the grown ups to come back and put some regulation in place so that our economy isn't manipulated into bankruptcy.

[cbk16]

Democrats take control of congress in 2006, two year later the economy crashes. More Democrats will not help.

[djsomers]

cbk16...your kidding right? every major financial crises has occurred while a Republican President was sleeping at the wheel while their friends were selling the future getting rich. No one is buying your mantra, though your free to continue to waste your time trying. we need to finally come to our senses and vote for accountability.

[martscan]

djsomers: You can add that in 1929 Herbert Hoover stated that "the economy is fundamentally sound." yesterday, Dr. Strangelove, McCain, stated that "the economy is fundamentally strong", echoing Bush.

[martscan]

joshooi: Isn't "smarter gamble" something of an oxymoron when talking of investments?

[Ed C.]

cbk16 is right. To add...partisanship will make things worse.

[RB]

The Clinton years look pretty darn good now.

[EdwinG]

I remember 8 1/2 years ago when this son of a former President ran for the President of the United States and could not identify the names of President of other countries. Everytime, the issues on economy came up or remember the Gore's lockbox, he just chuckled. Well, the Red States voted a bozo. A year later while the twin towers were burning, he was in a kindergarden class reading an inverted kiddie's book, the bozo was clueless on what was going on. Today, there was a financial meltdown in rescuing his financiers in the Wall Street, he was playing golf and as usual the bozo was good on interviews. His counterpart is the temperamental herot nowadays, he was clueless too on what to do? - to rescue or not to rescue Big Dick Fuld of Lehman Brothers. No way, no new taxes, just go to the next schemer, Bill Williumstad protege' of Greenberg of AIG. Mr. Greenberg was sued and exposed by former Gov. Spitzer NY for frudulent accounting. Yesterday Mr. Paulson got to do what has to be done by bailing out AIG for $ 85B to save the world economy. Guess what? the day later it was the revenge of the ordinary people with 401 K's, small business owners totally lost confidence of Dubya and bozo policies. That's what happens when you put an unqualified person in the highest position of the land. He was good only for PR while his VP was a Neo-cons who were clueless why small investors preferred to sell than trust their word. Karl Rove, please help! McCain asserts again: No earmarks, no deregulation, we'll reform (our friends) Hahaha...I think that's sign of senility when one is not sure what to say next. Karl Rove, please help. Smart Rove walks away, "Too late buddy, you are on your own."

[djsomers]

I agree, partisanship will make things worse, and Republican model of governance has shown a complete absence of will in oversight, and an absence of will to cooperate in working with Democrats on making necessary changes to safegaurd the future. When the future is not safegaurded it eventually rudely arrives as the present. As the California budget catastrophy has shown, even when Republicans are the minority, they hold the process hostage untill they get all their demands, i.e. no new taxes for their rich friends (even in times of war). They have not demnonstrated any capability in applying sober responsible leadership but rather fostered an political environment where lobbyists where at the table framing the agenda. I honestly don't mean to be offensive in my post, though the record needs to be straight on where the failure has been so we can collectively chose a different path. eight more years of what got us here? Thanks but no thanks.

[martscan]

cbk, Ed C.: You both speak of the fallacy of Democratic control of Congress. A Party having a razor thin majority in either House, or both, does NOT control Congress and is effectively hamstrung in getting anything done. To say that the mid-term election outcome resulted in the current financial debacle is disingenuous at best, a "fraud upon the public" at worst. I would be more comfortable with your observations were I to believe you two know better, and are just parroting the fashion of McCain's campaign of incessant lying in a sleazy, Rovian attempt to garner votes, rather than learning you are dumb enough to actually believe your outrageous claims.

[Jonathan]

Go back to the old saying: the only way to create wealth is to make it, mine it, or grow it. Unfortunately, as our industrial output has shrunk due to globalization, someone had the brilliant idea to put financial production into GDP. Thus we have been very happy for a long time with our paper "wealth", which turns out to be not worth much as things unwind. In this case, what went up had to go down.