You know that there is a problem, when I open with ratings downgrades.<\/p>\n
We have S&P downgrading Washington Mutual to junk status<\/a>, and even more significantly, AIG, the largest insurance company in the world has been downgraded by Fitch Ratings<\/a> to A from AA-, and S&P and Moody’s downgraded them too<\/a>, from to A- from AA- for S&P, and to to A2 from Aa3 for Moody’s.<\/p>\n This is ugly, and it is not surprising that the costs of corporate bond insurance has skyrocketed on<\/a> what is called “counterparty risk” by the MBA types, and the belief that you are dealing with a bunch of lying bastards foo the rest of us.<\/p>\n It’s the same reason that the costs of overnight borrowing has gone up too<\/a>, with the LIBOR more than doubling from 3.10625% to 6.43750%<\/a>.<\/p>\n No one knows when the next shoe is going to drop, and even the additional $70 billion that the Fed dropped out of helicopters<\/a> wasn’t much help.<\/p>\n It’s why we’re seeing Thornburg Mortgage struggle under a sudden onslaught of margin calls<\/a>.<\/p>\n When Goldman Sachs earnings 70%<\/a>, even though they hedged against the real estate crash, you know that no one<\/span> is making money.<\/p>\n And at the end of all this the Fed decided to leave interest rates unchanged<\/a>, which is not surprising, since they are already<\/span> pushing on a string.<\/p>\n Meanwhile, the dollar is behaving like my cat when he gets outside in a rain squall<\/a>, it really did not move, but you can see the conflict between fear driving people to dollars, and the fear of the US financial meltdown driving people away from the dollar.<\/p>\n We actually saw consumer prices fall<\/a>, driven by falling energy prices (oil is now about $91.15\/bbl<\/a> on demand concerns from the financial meltdown)<\/p>\n