Despite the successful passage of the suspect Paulson Plan on Friday, stock markets have since plunged not only in North America but also now in Asia. Thus far, the NIKKEI, NZSE 50, and Seoul Composite are -2%, -2.3%, and -2.6%, respectively. Also, DOW futures is about -160 at this point.

According to the article below, we might see a FED interest rate cut as early as tomorrow depending on how bad markets become overnight. With the turmoil in Europe over the weekend, European markets are bound to fade within a few hours upon opening.

Also, we will see a major Credit Default Swap auction tomorrow as described as follows...

Credit Default Swaps for Fannie and Freddie will see their recovery set tomorrow in an auction described by Reuters as "...the largest settlement of the contracts the market has ever seen." That this has rather serious ramifications for the CDS market in general, at least as a stress-test of the potential for mass settlement when its needed most, in the face of a significant collapse. Reuters continues:

Twenty-two dealers will participate in the auctions, which will determine how much protection sellers will recover after paying out the insurance. The timeline for the auctions follows. 8:30 a.m. to 9:30 a.m. - Auction participants will submit initial bids and offers for the debt backing the credit default swaps. 9:30 a.m. to 11 a.m. - Auction administrators Creditex and Markit will calculate the midpoint of the bids and offers and also determine the open interest of the contracts.

Regards - VHF

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Fed under pressure to do more on credit crunch

The Federal Reserve and US Treasury were on Sunday night under increasing pressure to follow passage of the $700bn financial rescue plan with further measures to shock the ailing credit markets back to life.

Among the options available to policymakers are additional liquidity operations and an emergency rate cut - possibly in co-ordination with other central banks. A combination of the two is also possible.

The Fed is likely to further expand both the size and scope of its liquidity operations. Experts believe it could address a shortage of US Treasuries that has emerged as investors have looked increasingly to government paper as a safe-haven investment and collateral for trades. This could happen through an expansion of the Term Securities Lending Facility, which was created by the Fed in March to help banks access liquidity during the crisis.

Another potential target of intervention is the commercial paper market, which has been shrinking substantially in recent weeks. Money market funds could, for example, be allowed to borrow money via banks to fund their holdings of commercial paper. Some experts think the Fed could take the radical step of offering term loans on an unsecured basis to regulated banks at a fixed spread over its main interest, therefore capping the interbank lending rate, which has risen sharply during the crisis. This possibility has become more realistic following passage on Friday of the "troubled asset relief programme", which gave the Treasury the authority to guarantee the Fed against any losses incurred in such an operation.

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And just how bad is the credit crisis hitting wealthy Europeans...

Would you like fries with that?