I have been saving this for a day like today.  If you feel a little down just imagine how this plane owner feels.

Today is the kind of a day that affirms,

Don't carry all your eggs in one basket.

Are those letters "DJIA" on the wing there?

New Credit Hurdle Looms for Banks

By CARRICK MOLLENKAMP
August 27, 2008; Page A1

U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

As banks scramble to pay the floating-rate notes, they could see profit margins shrink as wary investors demand higher interest rates for new borrowings. They're also likely to become less willing to make new loans to consumers and companies, aggravating economic downturns in both the U.S. and Europe.

"It's going to be a bigger problem now than it was in the first half of this year, but it's going to continue on for probably at least a nine-month period," said Guy Stear, credit strategist at Société Générale SA in Paris.

By the end of this year, big banks and investment banks such as Goldman Sachs Group Inc., Merrill Lynch & Co, Morgan Stanley, Wachovia Corp., and U.K. lender HBOS PLC must each redeem more than $5 billion in floating-rate notes, according to a recent report from J.P. Morgan. Other big lenders such as General Electric Co., Wells Fargo & Co. and Italy's UniCredit Group also face big bills in coming months, the report says.

Representatives of the banks said they're fully able to meet their floating-rate note obligations, either because they've already lined up the necessary funds or because they have ample customer deposits they can tap.

The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.

As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.

The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.

Redemptions Loom

Most of the floating-rate notes are denominated in dollars. But redemptions of notes denominated in euros also loom for European and U.S. banks. In the final four months of this year, some €15 billion to €20 billion will come due every month, says Mr. Stear, the Société Générale strategist. That compares with some €7 billion to €15 billion that came due every month in the first half of 2008.

The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.

Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.

At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.

Central Banks' Role

All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.

To be sure, some banks are finding plenty of buyers for new debt. In July, Spain's Banco Santander SA sold €2 billion of fixed-rate debt -- an issue that was increased from €1.5 billion because of investor demand. In July the bank also increased the amount of short-term IOUs, known as commercial paper, it could sell to €25 billion, from €15 billion. If it sells the paper to pay off longer-term notes, that would significantly increase the frequency at which it would have to renew large chunks of its borrowings. A Santander spokesman said the bank is comfortable with its ability to meet its obligations.

Some institutions, such as Morgan Stanley in New York, are issuing new debt months ahead of major redemptions to ensure they have the money when they need it. In June, when Morgan Stanley reported second-quarter results for the period ended May 31, finance chief Colm Kelleher told investors that the investment bank had tapped the bond market to cover fiscal 2008 debt, meaning the firm didn't have to use company cash. Those bond proceeds also could be used to pay more than $1 billion coming due in December, when the firm's 2009 fiscal year starts.

UniCredit and San Francisco-based Wells Fargo said they had set aside money for the redemptions. HBOS said the debt repayment is "business as usual." A Goldman spokesman said that the firm is focused on using long-term debt, and that Goldman is comfortable with its funding. A General Electric spokesman said the company has access to multiple lending markets and has completed 83% of its 2008 funding goal.

Other firms, such as Merrill Lynch in New York and Wachovia in Charlotte, N.C., have said they can tap customer deposits. Merrill, one of those worst hit by write-downs tied to mortgage-loan securities, has increasingly focused on developing its bank unit, which had $101 billion of deposits as of June 27, compared with $82 billion a year earlier.

A spokeswoman for Wachovia, which was hit by losses tied to the acquisition of California lender Golden West Financial Corp., said that 55% of the bank's balance sheet is funded by core deposits and that the bank has the ability to "seamlessly handle the refinancing of short-term debt maturities as a result of our prudent liquidity planning."

So the banks need the money back from RAD to cover themselves. To make matters worse you cannot take 100 billion out of the economy plus the Feds overspending and not see the consequences. People will sell other securities to buy these. Add to that that wave theory suggests we have another five waves down in Sept. to 1088 on the SPY or a minimum of 1125 on the SPY. Looks like the dollar may strengthen to 144 against the Euro but then will fall back to 149. C the biggest bank in the world is leveraged over 43 to 1 and has been unable to unload 500 billion in debt them promised 5 months ago. 43 to 1 means a default rate of 2.7% makes them worthless. The default rate is already higher.