A Frazzled Market

I have no idea whether or not the government is going to set up the bailout fund to end all bailout funds -- a new RTC which would essentially become one big "bad bank", precluding the need for entities like Morgan Stanley to set up their own.

What I do know is that all of the rumors and noise surrounding this story are going to keep a lot of reporters up very late tonight, despite the fact that most of them haven't had a decent kip since Saturday. Here are the Facebook status updates for one reporter, starting Monday:

is apparently never going home. 9:23pm
will sleep when he's dead. 1:12am
is pretty sure he's getting home an hour early this morning. 12:13am

Combine overwork with the feverishness in the markets, and mistakes will happen, and financial stories will start to eat themselves:

As the fear that gripped markets after Lehman Brothers failed also enveloped the firm, John J. Mack, Morgan Stanley's chief executive, spoke Tuesday evening with Citigroup's chief executive, Vikram S. Pandit, about a possible combination, according to people briefed on the talks.
On Thursday, however, Morgan Stanley vigorously denied a report in The New York Times that Mr. Mack had said that Morgan needed to seek a merger in order to remain in business.
Mr. Mack was said to have made the comment in the conversation with Mr. Pandit. Citigroup, which had declined to comment on Wednesday night, also denied Thursday that such a comment had been made during the conversation.

Can we believe what we read? For instance, here's Bloomberg on Barclays:

The London-based bank also is in talks to take over parts of Lehman's equities business in Europe and may hire some of its employees in Asia, Barclays President Robert Diamond said today.

Did he really say that? When? To whom? I certainly don't know, and the article isn't clear on whether the reporter got the information first-hand, from Diamond himself, or second-hand, from someone Diamond spoke to, or third-hand, from someone purporting to have knowledge of what Diamond said.

(Incidentally, Diamond might be well advised to buy Lehman's European business outright, rather than just cherry-pick the businesses he wants: that way he won't end up facing a massive lawsuit from PwC, which is now running Lehman Europe, asking for $3 billion in cash which rightly belongs to Lehman Europe and not to Barclays.)

And if you think that financial reporters are frazzled right now, just imagine what it's like for the people on the front lines. Stocks are going haywire, volatility's soaring, counterparty risk is through the roof, regulators aren't helping matters -- and the upshot is shot nerves, hasty decision-making, and generalized chaos.

The same is true, of course, at Treasury, at the New York Fed, and at any other regulatory organization you can think of. And it's a recipe for disaster. Just remember -- if you can keep your head when all about you are losing theirs, it doesn't matter, because they're the people in charge.

This is why the speed at which things are falling apart is so worrying. Monster deals are being done and then forgotten about within hours: last night I was at a dinner party, talking about the crisis (natch) and listening to someone say "oh yes, AIG, I forgot about that one".

I don't think anybody's capable of holding in their head all the vital information needed to get a grip on things right now -- not in the wake of Lehman and Merrill and AIG and the liquidity injection and the TED spread and Morgan Stanley and the money-market funds and counterparty risk in the CDS market and bans on short-selling and WaMu and negative nominal interest rates on T-bills and the oil price and the dollar and why on earth that German bank wired $300 million to a bankrupt bank and on and on and on and on. We've been overwhelmed by the complexity of the system, and nobody knows anything.

But hey, at least the stock market rose today.