A Black Monday scenario for the US stock markets is unlikely due to quick action by the Federal Reserve to add liquidity with rule changes and the creation of a 10 bank cooperative that put $70 Billion into an emergency fund.

Black Monday Averted

Six Reasons Today Will Not Be Another Black Monday on Wall Street

Remember the last Black Monday was back on October 19, 1987 and was the single largest single day percentage drop in the DJIA of 22.6 percent.

1. $70 Billion is a lot of money.

2. Federal Reserve changing rules for… “temporary exception to the limitations in section 23A of the Federal Reserve Act. It allows all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market.”

3.Federal Reserve changing rules for… “collateral for the Term Securities Lending Facility (TSLF) also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.”

4. Federal Reserve changing the rules for…”collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.”

5. Merrily Lynch found a buyer in Bank of America.

6. The last Black Monday was precipitated by 20% plus foreign stock market drops. Today the FTSE only dropped 5%, the CAC 5.4%, and DAX 3%. which is unlikely to trigger a Black Monday type drop for the DJIA.

Don’t panic folks…all this talk about a Black Monday makes for great headlines. Getting some of this bad news out of the way, so the financial, bond, mortgage, and real estate market can stabilize is a good thing.

Who would have ever thought a few bad mortgage programs could have the potential to wreak this much havoc…oh, right…I did.

You can read an article on the mortgage crisis I wrote back in February called “Mortgage Giants Collapse Could Trigger Stock Market Panic”

Good Luck!

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