Banks Insolvency

More banks and financial institutions are likely to face insolvency and need bailouts before the global financial crisis is over, according to former US Federal Reserve chairman Alan Greenspan.
Greenspan called the current crisis -- which started a year ago -- a once or twice in a century event and said insolvency would only end once US house prices stabilized, underpinning mortgage-backed securities.
Until then, the threat of collapse among banks and other global financial institutions would persist.
"Fears of insolvency have not, as yet, been fully set aside," Greenspan wrote in an article published online on Monday. "There may be numbers of banks and other financial institutions that, at the edge of defaulting, will end up being bailed out by governments."
By extension, continued falls in global equity prices would have a debilitating impact, he said, despite the offset of rising global savings rates.
"Lower global stock prices could impede the recapitalization of banks and other financial institutions. Debt issuance would also be suppressed as it leverages off the level of equity," he wrote.
"The price of equities worldwide will determine whether the international financial system can maintain a modicum of stability as it eases out of its credit crunch, or falls back into another period of angst and turmoil."
Greenspan said increased market regulation was not the answer, and could do more harm than good.
"The cause of our economic despair, however, is human nature's propensity to sway from fear to euphoria and back, a condition that no economic paradigm has proved capable of suppressing without severe hardship," he said.
"Regulation, the alleged effective solution to today's crisis, has never been able to eliminate history's crises."
Instead of believing that more rigidity in the system would prevent breakdown, he said continued flexibility was required.
"We may not easily confront or accept the price dynamics of home and equity prices, but we can fend off cries of political despair which counsel the containment of competitive markets.
"It is essential that we do so. The remarkably strong performance of the world economy since the near-universal adoption of market capitalism is testament to the benefits of increasing economic flexibility."

Tracking the Dow on Monday,4/08/08


9:30am--Gap Down 20.0 points.
A bearish Hammer formed.the release of a mixed June personal income and spending report. Month-over-month, personal income rose 0.1% (-0.2% consensus), personal spending increased 0.6% (+0.4% consensus) and core PCE rose 0.3% -- the Fed's preferred inflation measure -- (+0.2% consensus).
10:30am--Bearish Spinning Top
The financial sector (-1.8%) comes under selling pressure. The only two sectors posting a gain are defensive-oriented healthcare (+0.6%) and consumer staples (+0.4%).
11:30am--Retracement to day's opening price.
Crude prices plunged 4.5% to $119.50 per barrel after being up as much as 1.0%. Crude is currently trading with a loss of 3.4% at $120.88 per barrel.
12:30pm--Bearish Hammer.
Commodities as a whole are under selling pressure, as all 19 components within the CRB Index (-3.1%) are posting a loss.
1:30pm--Graveyard Dojis.
The stock market continues to post a loss as the recovery effort fades. The enthusiam over the drop in crude (-3.5%) and commodity (-3.3%) prices is partially offset by steep drops in the energy (-4.1%) and materials (-3.8%) sectors

2:30pm--Spike up & a bullish hammer.
The stock market goes on the retreat as energy (-5.3%) and material (-4.7%) stocks continue to plummet. The decline in both sectors is the largest since March 19, when oil plunged 4.5% and gold tumbled 6.5%.
3:30pm--Bearish Hammers.
The latest factory orders report showed that the manufacturing sector is much healthier than is widely recognized. June total factory orders were up 1.7%, which is much stronger than the expected gain of 0.7%. Excluding transportation, orders rose 2.3%.
4:00pm--Bearish Hammer.

The stock market posted a steep decline on Monday as plunging crude oil and commodity prices caused a steep sell off in energy and material names, but did not translate into large gains in the broader market. Selling interest was also fueled by continued concerns regarding financials and a June personal income and spending report that showed higher-than-expected inflation.
The main trading catalyst tomorrow will be the FOMC rate decision at 2:15 ET. The fed funds rate is expected to be left unchanged at 2.00%.
The chart pattern shows Tuesday,July 29 white bar has not been fully covered yet.