The Impact of the Credit Crunch on Energy Markets
Posted by Gail the Actuary on October 4, 2008 - 9:27am
Topic: Economics/Finance
Tags: credit market, lehman, leverage, natural gas, oil, renewables [list all tags]
The credit crunch is already having an impact on energy markets. New projects are harder to fund. Highly leveraged companies are sometimes finding it necessary to shed assets. Some players are finding themselves to be the indirect casualties of other players, like Lehman, that have already failed. Long term, we will probably see consolidation and lower production than would have been the case without the credit crunch. Of course, if there is a major recession, it is possible that we won't need as high production.
In this post, I have tried to bring together some of the impacts of the credit crunch on the energy industry that are already being felt. If you are seeing other impacts, please make note of them in the comments.
One article seems to suggest that speculators are being driven away from the oil and gas industry, and that more care is being taken with counter-party risk:
Credit crunch slows oil trading
The OTC markets in oil have not seized up because of credit issues, but liquidity is lower and participants are treading more carefully.
Platts, a unit of the McGraw-Hill Cos. and which provides price assessments in physical oil markets, says derivatives trading, but not physical deals, is slowing down.
"The number of trades and the length of a trading chain are likely to be reduced because of the problems banks are having," said Jorge Montepeque, Platts global director of market reports.
"But the physical oil markets are carrying on because oil has to be moved from producers to consumers.
They said credit worries were also spurring a shift to clear over-the-counter (OTC) oil trades, such as price swaps, on NYMEX Clearport, which offers clearing for some OTC derivatives. . .
"People are worried about counterparty risk, so if you don't clear your OTC deal you are simply relying on your counterparty to perform," said Bellew.
More marginal production seems already to be getting squeezed:
Credit crisis squeezing western juniors
For Canada's junior oil and gas companies, the credit crunch comes on top of a helter-skelter commodity price drop that has hit company valuations hard.
As a result, new exploration activity now seems more fraught with risk, especially as Alberta is set to implement a new royalty regime in January that will erode profit margins.
"There's no doubt there's not enough capital around in the market," said Kel Johnston, chief executive officer of Alberta Clipper Inc., a Calgary-based junior oil and gas firm. "I can't see anything other than [drilling] levels dropping off, especially in Alberta."
Newer projects are getting squeezed, especially IPOs.
Russian IPOs fall dramatically amid credit crisis
NEW YORK (MarketWatch) -- Capital raised through initial public offerings in the third quarter by companies from Russia and the former Soviet Union fell to the lowest level since 2004, as the global credit crisis took its toll, the PBN Company said Thursday.
Forty-three companies from the Commonwealth of Independent States (CIS) have postponed or pulled their flotations this year, said PBN, a consultancy with a focus on Russia and the CIS.The CIS consists of former Soviet republics, such as Russia, Ukraine, Belarus, Azerbaijan, Armenia, and Kazakhstan, among others.
The credit crisis is providing buying opportunities for the more cash-rich. The recent decline in prices is forcing the more highly leveraged companies to put properties up for sale, and this is putting downward pressure on sale prices of assets.
Cash-Rich Oil Firms Snap Up Assets
The turmoil on Wall Street is reshaping the U.S. oil industry, forcing debt-laden smaller producers to sell assets and creating opportunities for larger, cash-rich companies that until recently had been criticized by investors for spending too conservatively.
The latest example: Occidental Petroleum Corp., one of the largest independent oil producers, Thursday snapped up the 50% interest it didn't already own in oil and gas fields in Texas and the Rocky Mountains from smaller company Plains Exploration & Production Co. The $1.25 billion price tag was nearly 20% less than the $1.55 billion Occidental paid less than a year ago for the first half of the assets.
Another credit related sale was the purchase of Constellation Energy by Warren Buffet's Warren Buffet's Mid-American Energy Holdings. About this we read:
Constellation in Quick Deal With Buffett
Constellation's shares had fallen 70 percent since July 31 as investor concerns increased over the liquidity needs of the company's energy-trading business, which was growing until this year. That business relies heavily on financing that has all but disappeared with the turmoil in the financial markets.
Investor and lender confidence was damaged by chief executive Mayo A. Shattuck III's August disclosure that Constellation had dramatically underestimated the collateral it would need to put up if its credit rating were downgraded. Then late last month, the company took several steps to raise capital, selling off some natural gas reserves. That appears to have been too little, too late.
Then there are the indirect problems, coming from the failures of other organizations. For example, the state of Georgia formed the Georgia Municipal Gas Authority in 1987, to help communities get better prices in natural gas. This authority formed Main Street gas corporation, to enter into prepaid gas contracts on behalf of communities. These contracts were entered into with Lehman Brothers, J. P. Morgan, and Merrill Lynch. Now Lehman has defaulted on its contracts, and Main Street and the communities it represents will need to go looking for more natural gas, probably at higher prices. Tax exempt bonds were used to purchase this gas which has "gone missing". One hopes the contracts with J. P. Morgan and Merrill Lynch will hold up better.
Lehman failure leaves natural gas supplier searching
Main Street, an affiliate of the Municipal Gas Authority of Georgia, lost a $709 million, 30-year gas supply contract.
The contract was with a subsidiary of Lehman Brothers, the investment bank which collapsed last week.
Main Street now has to find new gas to replace the low-priced supplies that Lehman was supposed to deliver in Georgia and Florida.
The new gas will almost certainly cost more.
We also have the next layer, a gas marketer, failing as well. In Thursday's Atlanta Journal Constitution, we read:
Catalyst Energy Files for Bankruptcy
De Aguero said his company’s bankruptcy stems directly from the meltdown on Wall Street.
“We are all aware of what’s happening with the macro economy,” he said. “And it’s gone down into the midmarket and now Main Street.”
“It’s very common. It’s going on all over the country right now.”
Catalyst’s credit line and gas supply contracts were both with Constellation Energy, the nation’s largest independent energy marketer. Constellation was a trading partner of Lehman Brothers. Its stock price collapsed after Lehman Brothers’ demise two weeks ago. Constellation announced it was selling itself to Warren Buffett’s Mid American Holdings for a cheap discount a few days later.
Constellation cut off Catalyst late last week, leaving the marketer scrambling for credit in a market that isn’t giving any.
“The illiquid credit markets have exacerbated the issue,” de Aguero said.
The credit crisis can expect to cut back in investment in alternatives. Where an investment is made, it is likely to be made by the larger, better funded organizations.
Credit Crisis May Delay Biofuels Development
LONDON, Sept 29 (Reuters) - A global pull-back from bank lending may dent the commercialisation of biofuel technologies to replace conventional gasoline, said the chief executive of U.S. cellulosic ethanol firm BlueFire Ethanol.
A credit crisis which claimed more bank victims on Monday has raised project finance costs and made ambitious targets to replace fossil fuels with renewable energy sources look less achievable. . .
The credit crisis could slow that transition both through more costly finance and by diverting subsidies from renewables, which are often more expensive than conventional fossil fuels.
Credit Crisis Could Lead to Consolidation in Renewables Industry
A clamp down on the credit market will make it difficult for renewable energy developers to finance new projects, putting utility companies in a strong position to increase their share of the renewables pie, according to a Reuters report.
Utilities have large supplies of cash, and even if they have to borrow, they can do so more cheaply as government-regulated businesses, an analyst at Raymond James & Associates notes.
"The big projects being built by big utilities don't need to borrow from banks for short-term loans," said JP Morgan analyst Chris Rogers. "But if banks don't lend to each other they certainly won't lend to small project start-ups."
Let us know what you are seeing as well.
I heard this afternoon that some service companies (one MAJOR and many smaller) are having trouble accessing lines of credit and are incapable of paying bills. I am unclear whether this is banks refusing them credit, or the banks themselves unable to send funds. Unless credit markets unfreeze they will have to raise money via public equity markets, something that for them would have been unheard of a few months ago. Here is a related Bloomberg story tonight: Libor Rises, Commercial Paper Slumps as Credit Freeze Deepens
I also talked to some E&P executives, who while concerned about both Peak Oil and their stock price, are not concerned about money because they fund themselves through producing low cost oil, and selling it higher...e.g. via operations. I asked what would happen if their service companies suddenly couldn't service them and there was a long silence. In sum, some sort of short term remedy better pass the House or we are in big trouble (we are in trouble in either case, but some sort of relief valve on credit markets seems now essential)
I don't think anyone can imagine the manifold implications that the global deleveraging will have. One that I have written about in my past several posts and am even more confident in after this weeks events is that Peak Oil is a thing of the past. 2008 may not even catch 2005, but in either case we will never again produce as much oil as now. The high cost of the marginal barrel, delays in projects due to funding, inability of lower EROI (or ROI) projects to meet capital thresholds, lack of capital availability in general, will all combine to not keep pace with ongoing depletion. On top of that, lower prices (and lack of credit) will now cause problems for scaling of alternatives, just when we need them most. As TOD commenter BrianT said in Jeromes post yesterday, a longshot but brilliant move now by government would be a massive stimulus package completely directed at renewable energy infrastructure, locally feasible food and transortation systems, and national railways. Would impact 2 problems at once. One can hope...
When I talked to Red Cavaney, Chairman of American Petroleum Institute, on the phone last Friday, he was much more concerned about the credit crisis in oil and gas companies than I had expected (at 57:54). In his words, "Our economy runs on credit." He was quite concerned that there would be a "big impact" on the oil and gas industry if the credit problem continued for a "couple more weeks".
The issue he mentioned in particular was the one of the service companies needing credit. It would seem to me that there are other smaller parts of the system that need credit as well--for example, the gas stations that are not owned by the major oil companies may use credit to buy their gasoline. There are probably some aspects of pipelines operation (perhaps handled by subcontractors) that rely on credit also.
Nate and Gail,
Why can't the larger, cash rich, oil and gas companies pay the service companies in advance and establish lines of credit with the smaller gas stations? It seems to me that if the business relationships are essential, and there is a large cash flow then an arrangement should be easy to reach.
It is very likely that I am over simplifying this, but if I had to pay my phone bill in advance to get service and I had to establish a line of credit with my customers in order to retain them as customers that I would find a way to make it happen.
Here's my take on it.
The bail-out package should mitigate the problems, but it will not avert them. To date governments have been dealing with the problems one at a time. They have struggled to gain control not just because of the speed of contagion but also because politicians and central bankers do not fully to understand the breadth and depth of the crisis. For example, Germany’s finance minister declared on September 25th that America was “the source and the focus of the crisis”; the governor of the Bank of France declared “there is no drama in front of us”. Since then several European banks have been failed-out.
The problems have also hit banks outside the US and Europe in Hong Kong, Russia and India. Some European countries, including the British, Irish and Spanish banks, also have housing bubbles.
Governments need to co-ordinate. Unfortunately Greece has probably prevented or delayed the French sponsored European EUR300bn plan by following Ireland and guaranteeing all deposits.
The money markets are the plumbing of the financial system. Banks and companies lend and borrow trillions of dollars for up to a year at a time but the markets for longer term paper are shutdown, so banks and companies must borrow even more money overnight than usual. Investors are unwilling to lend for long, many companies are unable to sell any commercial paper with a maturity longer than overnight. Those that have lines of credit with banks are increasingly drawing on them. This is causing the banks more problems.
Companies face higher interest charges and are also losing access to bank loans altogether. So they also hoard cash, cancelling acquisitions and investments, in order to pay down debt, delay new products, leaving factories unbuilt, shut loss-making divisions, and cut costs and jobs. They will no longer extend credit and loans will become harder to obtain and more expensive, unemployment will rise. Private-equity groups that bought companies with leveraged buy-outs will find it harder to refinance their debts.
Bank borrowing costs reached almost 7% on September 30th, more than three times the level of official American rates, while some were willing to pay 11% to borrow dollars from the European Central Bank (ECB). Banks have become so risk-averse that they deposited EUR44bn with the ECB on September 30th (quarter end) even though they could have earned far more by lending to other banks.
Over the coming weeks the CDS market faces its biggest test as billions of dollars worth of contracts on Fannie Mae, Freddie Mac, Lehmans and WaMu are settled. An auction is scheduled for next Tuesday to evaluate a price for Fannie Mae and Freddie Mac CDs. Estimates are that payments on Lehman's bonds could be as much as $350bn. I fear that some underwriters have insufficient capital and will simply go bust when the claims are made.
Interestingly Buffet has just pumped USD3bn into GE; I would be reluctant to bet against Buffet!
I just heard that Fannie & Freddie contributed over $200m to congressmen, they were one of the biggest lobbyists. Why the heck is there so much money swilling around in US politics??
A bit more on the subject of money and politicians, here's a quote from Ayn Rand
"Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion---when you see that in order to produce, you need to obtain permission from men who produce nothing---when you see that money is flowing to those who deal, not in goods, but in favors---when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you---when you see corruption being rewarded and honesty becoming a self-sacrifice---you may know that your society is doomed."
A couple of thoughts come to be about the $3 billion Buffet has pumped into GE. One is that he is getting an awfully good interest rate /stake in company for what he is doing. The other is that he may be trying to protect his other investments. If the US government cannot take a lead in fixing the situation, perhaps he can--and get some favorable publicity to go with it.
I think what's more likely is what we're already seeing being reported in this thread: outright absorption of less-well-capitalised operations. Why extend a private line of credit when you can just pick up the service for a song?
Whether an overall trend in this direction is good or bad is going to depend on your point of view, methinks.
Today I read an article blaming Bill Clinton for the sub prime mess. The article is behind a pay wall, but basically Clinton wanted to increase home ownership amongst poor Americans, especially minorities. To do his banks were bullied and arm twisted in to in to lending in poor areas. they were given rating systems depending on how much they lent in said areas, without which they would be severely restricted. To do this they had to abandon normal rules of credit worthiness, with the eventual results we see around us.
It's called 'Equal Opportunities Lending'.
A brief but excellent history of this disaster can be found here:
The Long Road to Slack Lending Standards
http://www.realclearmarkets.com/articles/2008/10/the_long_road_to_slack_...
Steve Sailer (movie critic at the American Conservative) has also written a penetrating analysis of the 'affirmative action' dimension of the sub-prime crisis:
Karl Rove—Architect Of The Minority Mortgage Meltdown
http://www.vdare.com/sailer/080928_rove.htm
i loaned money to my fat lazy brother in law so he could get a car to drive to work. well, he never got a job or even looked for a job and he was lying about how much he was going to make too, he ended up sleeping in the car. in short, this turned out to be a sub-prime loan, a non performing asset and as a result, i dont have the liquidity i need to buy anything else. where is my bailout ?
A close friend of mine had a story to share that is right in this ballpark. His aunt loaned money to a flaky inlaw. When she was asked why she said she loaned just enough that he would never come back asking for more. To little they come back- too much it hurts you.
something to think about.
The article you read has its roots in the fever swamps of the right wing -- Freerepublic.com, Cato Institute, National Review, etc. -- and like most right-wing arguments, is "truthiness" incarnate. In other words, it sounds logical, but isn't true at all.
The argument goes that the subprime crisis was a result of the combination of the Community Reinvestment Act (CRA) forcing banks to make loans to minority and poor borrowers and that the GSEs (Freddie Mac and Fannie Mae) accelerated this phenomenon by buying up the toxic mortgages and encouraging more to be made.
Some facts that chew holes in that arguement ...
The real root of the subprime/credit crisis is the deregulation championed by Sen. Phil Gramm, who later became a banking lobbyist (surprise!) and is now an on-again, off-again economic advisor to John McCain. If McCain wins the election, Gramm is the odds-on favorite to become the next Secretary of the Treasury.
So why was CRA created anyway? It was in response to both intentional redlining and structural barriers to credit for low-income communities. CRA applies only to banks and thrifts that are federally insured; it's conceived as a quid pro quo for that privilege, among others. This means the law doesn't apply to independent mortgage companies (or payday lenders, check-cashers, etc.)
The law imposes an affirmative duty to lend throughout the areas from which banks and thrifts take deposits, including poor neighborhoods.
You can argue that the CRA did introduce more risk for people who were happy with the existing system. Just as giving poor folks political rights was “risky” for the existing power structure. What the CRA did more than anything was force financial institutions to take on the risks that had been created by their exclusionary practices.
No one put a gun to the banks' heads. If making loans in those areas was too "risky," they could simply stop taking deposits in those areas and close up that branch. Apparently the banks thought that the plus of the deposits more than outweighed the minus of making loans to people they considered riff-raff.
As for Fannie Mae and Freddie Mac, their problems were rooted in their private sector managers engaging in the same kinds of questionable business practices that managers have made at other big-name financial institutions thta didn't an implied Federal guarantee. That's why there are lot of lenders and banks going bust lately, not just Fannie Mae and Freddie Mac.
This has little to do with the current price of energy, so I'm sorry to go on about this. But right-wing propaganda has to be answered with facts, or you end up with weirdness like the Congress passing an $850 billion bank bailout bill that doesn't even address the real problem. But that's another rant.
On the other hand, the longer the credit crisis goes on, the more likely that it could affect future energy prices.
To go back to the article the instigator was one Roberta Achtenberg, who in cahoots with the then Attorney General, Janet Rino brought all kinds of lawsuits against mortgage banks under the Civil Rights act,even on the grounds that the term master bedroom had slavery connotations.
The clinton team made changes to the Community Reinvestment Act which stated that without a good rating they could not get approval for mergers, expansion or opening new branches.
The effect was that banks were forced to forget their normal criteria for lending. This took years to unwind but when it did.
Go back and read the bullets in my previous comment (the one you're replying to). You may be quoting an article, but the article simply has it wrong in the cause and effects of the credit crisis.
You are repeating right-wing memes (I saw John Sununu repeating these very same talking points) that aren't helpful. Only by dealing with the credit crisis in a reality-based manner can we hope to get through this problem.
It may be too late -- we may not be able to avoid a severe recession and deflation even if we do everything right. But our odds improve if we don't let ourselves get distracted by fallacious fairy tales.
Reality is a good thing. Some might think the provisions of the 1995 CRA revisions did indeed contribute to loss of objectivity in fiscal standards for lending.
"The performance criteria for lending test are:
1. Lending activity: including the number and amount of loans in the bank’s assessment
area.
2. Geographic distribution: including the proportion of loans in the assessment area and
distribution of loans in low-, moderate-, middle- and upper-income38 geographies in
the assessment area.
3. Borrower characteristics: including the proportion of loans across low-, moderate-,
middle- and upper-income borrowers in the assessment area, and the number and
amount of loans to small business and small farm.
4. Community development (CD) lending: including the number and amount of
community development loans and their complexity and innovativeness. Lenders can
elect to have their regulators consider CRA-qualified community development
lending by their affiliates under certain guidance. This guidance in terms of types of
CD lending that are qualified, data that needs to be collected, maintained and reported
and other restrictions on the affiliate lending are discussed later in this section under
‘Data Collection and Reporting Requirement’.
5. Use of innovative or flexible lending practices: including use of innovative or flexible
lending practices to address credit needs of LMI borrowers and neighborhoods."
Then there is the 1999 update as well:
"The FMA also known as Gramm-Leach-Bliley
Act (GLBA) is one of the most sweeping financial modernization acts in recent years. The act
repeals sections 20 and 32 of the Banking Act of 193362 that restricted depository institutions’
affiliation with securities firms. This act also modifies the Bank Holding Company Acts of 1956
and 1970 and creates a new "financial holding company" that would be able to engage in a list of
statutorily provided financial activities, including insurance, securities underwriting, agency
activities, merchant banking and insurance company portfolio investment activities."
And some key ramifications:
"The act requires that Federal Reserve may not permit a company to form a financial
holding company if any of its subsidiary banks or S&Ls did not receive at least a satisfactory
rating in its most recent CRA exam. A bank or financial holding company may not commence
new activities authorized under the Gramm-Leach Act if any bank or bank affiliates of a
financial holding company, received less than satisfactory rating at its most recent CRA exam."
And some observations:
“Successful lower-income residential lending programs often rely upon techniques
and procedures that require local presence and flexible decision making. These might include the
use of flexible underwriting standards, nontraditional measures of credit quality, a variety of
credit enhancements, or intensive monitoring of outstanding loans that all depend upon
knowledge local neighborhoods, and economic conditions and credit risk factors specific to the
local community [Haag 2000].”
A review in 2004 noted significant changes in the lending industry, and that house prices had rising "significantly higher" in CRA neighborhoods, which at that late date was still apparently a good thing.
CRA was amended many times, and as with most regulations it appeared to grow it's own unique oversight approach which increasingly favored bulk lending and loan repurchases, and less the combined local bank branch and lending institution that was originally envisioned. I'd say that over the course of several decades everybody had a hand in this, and when you combine a left desire for social engineering with the right favor of big-business you have a recipe for fleecing everybody.
"You are repeating right-wing memes..."
clinton hasnt been president for nearly 8 yrs and we are still hearing that he is to blame for everything from teen pregnacy to wmd's. clinton was, imo, a mediocre president - a lot better than the current one.
I agree. And even more simply, why can't my mother "loan" my brother $150K for his house at 5% interest? She gets more and he pays less. Othewise, she get 2-3% interest and he pays 6%. Why not keep that money in the family/community?
There is a pretty big risk of default with personal loans. Furthermore, a default can cause quite a bit of animosity within the family (though not as much as loans to friends).
I would suggest either getting the loan from the bank (without a co-sign) and paying that spread or outright giving the house as a gift.
A even better solution would be for house building to be a community affair such as the Amish do, but that seems to be a far-fetched dream in this country.
Hello LeeAnn,
Your mother can load your brother $150K for his house at 5% interest.
Register the load at the county court house for a small fee.
Your brother can deduct the interest from his income tax.
Your mother has to pay income tax on the interest she earns.
This is a recourse loan; if your brother defaults, your mother gets the house.
As yartrebo points out, be careful of the emotional fallout.
Even talking about these loans can stir up bad feelings.
I anticipate:
Rig utilisation will fall in 2009.
Small Service companies carrying debt will struggle
Distress sales and mergers and takovers will occur
Super Majors with production will be ok.
Mid-Cap and minnows will struggle to fund projects unless they fund out of existing earnings (production)
Exploration will tail off
And for all TODers out there salivating at the prospect of Wall Streets demise:
None of this is helpful in a post-peak world that still runs on oil
It leaves more oil for later, and forces adaptation to less oil sooner. Those are good things.
When you think of the oil in the ground as finite and unsubstitutable then the logic changes. Treat it like the last few tins of biscuits on the lifeboat. Why should the goal be to deplete it as fast as possible?
the last few tins in the lifeboat are not useful - if no one can open them.
If the oil industry cools down next year, then a lot of old hands will take retirement. They will take a lot - a serious lot - of experience with them.
No, this is not good. We still need oil and the crunch will squeeze out a lot of much needed exploration.
Mud - I agree with you and in fact IMO this is true of many industries.
Younger generation would do well to latch on to an elderly professional an their industry of choice and make themselves indespensible.
The payoff will be HUGE (read - A JOB).
Some oil majors are sending emails to all employees talking about the financial crisis.
-- supplier stability
-- customer problems paying
-- insurance risks
-- pension investments
-- oil price swings
-- exchange rate swings
-- economic slowdown
-- falling confidence
That's what the biggest companies are worried about.
Of course, it's much worse for the smaller companies...
Not good! Any excepts available?
No comment necessary.
This is a real concern. I had lunch with the chief economist of Chevron yesterday and asked specifically whether retail deliveries could be a problem because of the need to finance inventories. He wasn't sure but said their management were meeting yesterday and today to talk about it. Oil companies might find themselves in the position of having to be financiers to move their product if the credit situation doesn't ease.
Is he friends with the Chief Economist at BP who thinks that there is zero evidence of Peak Oil, as long as one isn't concerned about costs?
LOL.
Interesting comment re: oil companies having to be their own financiers...take that trajectory a few steps out...
Ask your Chevron friend how much money/and or energy it takes them to find a NEW barrel of oil, on average...My fear is that world production is mixing old cheap oil with new expensive oil and showing a big profit - this profit is subsidized by relatively cheap marginal production but new fixed infrastructure rapidly raising avg cost. If he could get us some data on this it would be most appreciated...Will he join us?
;-)
But will tar sands be sustainable with $50-$90 oil. I doubt it.
If the tar sands fail....
and 4-5 mbpd of projected production is not available....
what percentage of TOD readship will die as a direct result?
IMHO, time for a reality check.
This is ugly folks...
For a moment everything looked fine....
It would be an interesting trap for Big Oil if just after diverging themselves of their own stations (which many have been doing) due to declining end margins they had to get back in on the backside via credit to sell their products.
I heard a CNBC commenter say that what we have now is a real slowing economy coincident with purely psychological banking problems (spiking distrust between institutions). These two things usually happen independent of one another. He said the last time this happened was the Panic of 1907. This once-in-a-hundred-years lightening bolt has at least temporarily scrambled all the normal supply/demand equations for not only oil, but all resources. The short term relation between credit crimped supply and credit crimped demand is a roll of the dice.
House prices ramped up to the point of unaffordability at any prudent multiple of income are not psychological, and nor is a high level of personal, corporate and Governmental indebtedness.
That is why the Paulson plan is a scam which does not even begin to tackle the real issues.
It is based on the false premise that the housing market will recover.
The loss of confidence is based on sound reason, that the Ponzi scheme in housing is over.
A friend mentioned today that some of the bills tacked on to the bailout plan that passed the Senate are designed to do parts of what you describe. I don't know the details but perhaps a few people are using the crisis to get funded some "needed pork." Anyone looked into this? It is happening so fast.