When the Federal Reserve has an EMERGENCY MEETING, it means that there is a potential financial crisis ahead.
The Federal Reserve (which is the most powerful bank in the world) and does not just call emercency meetings on a whim.
If Citibank and JP Morgan Chase have invested billions of derivatives (powerful but dangerous financial instruments), and these derivatives are linked to the companies that have been going bankrupt and are collapsing in the stock market, then these banks may also get dragged down too, which would essentially mean a COLLAPSE OF OUR ENTIRE BANKING SYSTEM.
A DEPRESSION, not just a recession may result from this.
It's like a bunch of dominoes all falling down.
That's about as simple as I can state it.
The former scenario is very scary. We haven't had a major depression since the 1930's. Of course, on the other hand I could have no clue what I am talking about and everything will be OK, with the stock market, banks, and economy all doing very well.
For all of our sake, I hope it is the latter.
You know stock market has declined rapidly in last few weeks. Everyone knew that stock market was tremendously over-valued as price/earnings ratios were and still are far far higher than historical norms. So, a correction was expected. But if stock market goes back to historical ratios of stock price to earnings (company's income), then it will still decline another 30-40%. It is unlikely that decline will go that deep because people have a lot of money nowadays to invest and they have to put it somewhere. But still, we don't know where it will stop declining. This is compounded by the fact that the average company listed on the stock market is heavily in debt. I read that their average debt is 75% of their value, whereas historically the big companies listed had only 40% of their total value in debt. So, when their stock prices decline, then it looks like for many their total company value will be less than their debt. I would think that this could spell bankruptcy for a significant number of companies. Today AT&T reported that they lost 12 billion dollars in only 3 months time. Evidently, AT&T has been lying for a long time about their financial condition, their executives are coming clean now because of new legislation that may be passed that will throw them in jail if they continue to lie. So, a number of companies are now under pressure to come clean.
But what has apparently triggered the meeting tonight is that CitiGroup? and JP Morgan, 2 very very big banks, have made a lot of very bad loans to enron and other companies that are going under. It seems that without government intervention these huge banks will go bust. If they go bust, and all of this drama is allowed to unfold, like dominoes company after company and bank after bank will fold, then we will certainly have a depression similar to 1930's.
Alan Greenspan and his friends at the federal reserve have some plan for heading this off, that's what the meeting is about. The federal reserve has the power to create money. Most likely they will simply create a lot of money and give it to these big banks. Printing money out of thin air and giving it to some people means that everybody else's money becomes less valuable in real terms. Corruption is simply being normalized on a grand scale and even further institutionalized, that's what's going on tonight at the big meeting ElisabethInCincy.