Credit Taps Trickle Again

Stock markets in Asia continued yesterday's U.S. flourish as investors took heart in twin signs that the global financial system may have avoided complete meltdown. The Dow Jones Industrial average jumped 4.7 percent on indications that the "frozen flow of credit [had begun] to thaw," reports the New York Times, with energy stocks Chevron and Exxon Mobil leading the charge, adds the Wall Street Journal. Most heartening to the market was the easing of LIBOR, the benchmark borrowing rate among banks. It fell Monday by the largest amount in nine months, "an indication of growing confidence in the financial system," though the three-month rate remains above its level prior to the meltdown of Lehman Bros. Investors took further heart from news on Capitol Hill that Federal Reserve Chairman Ben Bernanke was hinting at a second stimulus package to counter the "risk of a protracted slowdown," even though he offered no further details. Globally, it was day for capital injections as the six major French banks rejoiced at a $14 billion boost from their government and the IMF stood poised to orchestrate a $6 billion rescue of Iceland's economy. Don't get too cock-a-hoop, though. China's economy is slowing fast and likely to drag the rest of us down with it.

Remember the carefree days when a Republican administration delighted in unfettered competition? That was so two months ago. The WSJ reports the $250 billion banking bailout package may well succeed in "persuading healthy banks to lend again, but it's likely to foster further consolidation in the industry, with some banks already saying they intend to use the funds to help make acquisitions." What's more the Treasury is actively encouraging some mega-mergers by "steering some of the money in its $250 billion rescue package to banks that are willing to buy weaker rivals," adds the NYT. This is a controversial move, says the WSJ, writing: "Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions probably would provide less of a boost to the economy than would new bank lending." Not to mention less retail banking choice on Main Street. And with mergers come layoffs, so even more financial services employees should steel themselves to join what Business Week calls a "pink slip epidemic" in which "virtually every industry is likely to be scathed in the widely predicted downturn starting this autumn." Not all will be as fortunate as Merrill Lynch's head of strategy Peter Kraus. He joined the firm in September and leaves now with more than $10 million in compensation, the WSJ reports.

Kraus won't have any problem paying his credit card bill, unlike thousands of others who have contributed to American Express, which reported a 24 percent decline in earnings for the third quarter, CNN Money writes. Still, stocks in Amex soared as its profit from continuing operations of 74 cents a share comfortably beat the Street's expectations. Overall the loan write-off rate for U.S. credit cards was 5.9 percent in the third quarter, up from 5.3 percent in the second quarter and significantly higher than 3 percent one year ago. That prompted Amex CEO Kenneth Chenault to say—in classic understatement—that the company will "be more selective" in who it lends money to in the future. It was also a bad reporting day for the tech sector, with Texas Instruments warning of a dire fourth quarter and Sun Microsystems projecting a "quarterly loss between $185 million and $260 million."

Zut alors! Could Chrysler join the successful Renault-Nissan alliance? It's probably a long shot (and maybe just aimed at annoying GM into a better deal) but "Cerberus Capital Management LP, Chrysler's majority owner, is discussing having Nissan, and possibly Renault, acquire a minority stake in Chrysler," the WSJ reports. The "Nissan-Renault alliance is a rare automotive partnership that has proven successful. Together they rank as the fifth largest auto maker in the world, with a global market share of about 9%," notes the WSJ. Renault is also bolstered by the ability of its financing arm to access the French government's bank rescue fund, says the FT.

Finally, it seems the credit crisis is causing concern in Hollywood. "As they have watched their 401(k)s shrivel in recent weeks, entertainment executives have started to grapple with how best to reflect the global economic crisis in movie and television story lines, or whether to bring the topic up at all," notes the NYT. Historical precedent suggests a new era of escapism may be on hand. "The 1930s featured gangster films, lavish musicals (“The Wizard of Oz”) and screwball comedies in which the rich were portrayed as lovable fools," the NYT writes. It might take a while for the "lovable" part to re-enter the storyline.