Davidson is back with more data and commentary inferring the worst may indeed be over. He has provided the charts at the end of his commentary.
“Davidson” sumbits:
The point to observe in all this is that market psychology went from cautious to panic on the Lehman failure Sept. 15th, 2008. Corporations experienced an almost immediate freezing of short term cash accounts which cascaded into Money Market funds as a literal “run on the bank” and an almost complete halt to credit based import/export and capital transactions in the US and around the world.
The reason the global financial system works is that all participants trust that certain rules will be followed and that terms in contracts will be honored. When it became clear that marginal participants had gamed the system and infected it with contracts that had violated the accepted standards of conduct, trust in exactly which contractual arrangements would be honored experienced a dramatic decline for all contracts.
The psychology of trust is elemental to a global financial system. With trust the system works! Without trust the system fails!
The system requires rules that all understand and that cannot be arbitrarily changed.
At the moment trust in the global financial system is returning as is reflected in The Conference Board’s reports of the past few days. Declaring victory, declaring the “End of the Recession” as many would like to do at this time is always subject to continuing trust in the system.
I have just finished Amity Shlaes’ “The Forgotten Man” a new and refreshing look at the Great Depression. I highly recommend it. While many previous authors have focused on policy issues, legislation errors, banking errors and the like, Shlaes’ focus is centered on the intangible quality of “Trust in the System” and how when trust is lost the system fails to function. Corporations and individuals hold on to cash not knowing who or what to trust. Just as we recently experienced!
Trust is returning, but if someone again games the rules, then trust can be lost. Market participants are working through the issues one at a time.
Risk to trust is always present.
Disclosure (“none” means no position):