Some quick links to items of interest:

• The CBOE set a volume record on option trading in September (CBOE)
• Best year ever for options traders (Bloomberg)
• List of the 31 (!) stocks with >$1b market cap and share price >$5 that gained 4% or more on Monday (Google)
• Ken Griffin's Citadel hedge fund under immense pressure (NYTimes)

I'm not sure which part of an absurd interview with writer Tom Wolfe to point to -- there are many idiocies to choose among -- but I'll just point to this one and go with it:

The whole thing, starting with the subprime, is the fault of the computer. I was just talking to a banker the other day, and not that long ago, 20 years ago, an investment banking house, let’s say, Lehman Brothers, when it got a package of mortgages, they would go through every mortgage, every single one, and they’d throw out the ones that just seemed absurd, they just wouldn’t accept them. Things used to arrive on paper. Today things arrive on a screen, and a screen is back lit, and one of the biggest pains in the neck is trying to read something dully written and complicated on a computer screen. It will drive you nuts—I mean, try it sometime. Now they say, ‘Oh, to hell with it,’ and they just accept the whole package. And if it hadn’t been for that, they’d be going over each loan. What’s happened is the backward march of technology.

Right, that's it. It's the computers' fault, not to mention backlit screens. Fool.

In one of the more remarkable moves in the current credit crisis, the Fed has announced it will start directly purchasing commercial paper:

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day. A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.

By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.

As Buffett has said, everyone in the world is trying to deleverage at once -- which is unworkable -- leaving the U.S. as the only institution in the world that can lever up at all -- and levering up it is. I just wish it was more obvious to me how you exit the other side of programs like this. Would we not be better off to quickly recapitalize and backstop some banks?

A scan of some key headlines from Iceland over the last two years. People didn't notice, but in many ways credit crisis really started there -- with many of the same characters, like Moody's -- not with Bear Stearns and the quant-quake in the U.S.:

• April 2, 2006: British firms face chill as Iceland crumbles (Times)
• Feb 26, 2007: Moody's blasted for giving Icelandic banks top rating (Bloomberg)
• Oct 7, 2008: Iceland gets €4bn Russian loan as banks collapse (Telegraph)

If nothing else, the current credit crisis is giving researchers and analysts an opportunity to try out all sorts of new ways of visualizing truly unusual data. Case in point, the following heat map showing how the crisis has over time permeated various asset classes worldwide:

Shocks in developed economies are causing massive capital outflows in emerging economies. The point is driven home nicely by the following figure:

Some quick links to other items of interest:

• Excellent new IMF report on global financial (in)stability (IMF)
• ETFs Grab More Market Share, Reach 35%  (IndexUniverse)
• AIG testimony documents from House Oversight Committee (House)
• Wall Street's meltdown is good for non-financial entrepreneurs (Fortune)
• Rain Relief Slows California Wildfire (Stormwire)
• The Worst Decade Since the Thirties (Bespoke)

Blackly amusing tidbit from a Bloomberg piece about credit troubles at U.K. football clubs:

The English Premier League has become a scoreboard for the global credit crisis. Newcastle players wear the logo of Northern Rock Plc, a U.K. mortgage-lender that was nationalized in February; West Ham lost XL Leisure Group Plc last month when the tour operator grounded all its flights because it ran out of money; and West Bromwich Albion was unable to land a shirt sponsor after being promoted from the second-tier championship.

More here.

I know it's way too early to really start picking winners and losers in the current credit carnage, but let's at least start thinking about it. After all, one day this war will end.

One quick candidate: CME. We are about to see a plethora of OTC products become centrally cleared and traded, volatility is the rule of the land, and commodities are more important than ever. Who stands to benefit more than CME? As today's release on a new CME/Citadel CDS clearing mechanism shows, the company is pushing forward quickly into the other side of this crisis.

Whatever your feelings on Jim Cramer, or Stephen Colbert for that matter, this segment from last night's Colbert Report is funny.

The obligatory tag cloud of Ben Bernanke's NABE speech today. Gosh, other than using scary words like liquidity, funding, Congress, developments, risks, stability, lending, rates and that sort of thing, I can't see why the market took it so badly.

[via Wordle]

Useful new testimony out from Peter Orzag at the CBO on pension plan losses in the U.S. over the last year or so. At $2-trillion the headline number is huge, but you need to keep it in perspective. But that said, the people who are facing the biggest issues are the sponsors of defined benefit plans, who will be forced to make up the difference in plan losses.

Here is a snippet that is worth keeping in mind with respect to the absence of mark-to-market in pension plan accounting:

Funded ratios have been steadily declining in recent years. In 2000, about 90 percent of public pension plans had funded ratios greater than 80 percent. By 2006, that share had decreased to about 40 percent (though, again, a much larger share of large plans have funded ratios above 80 percent). Lower returns caused by a declining market and the economic slowdown, which will translate into lower corporate and personal income tax revenues, will exacerbate the downward trend in funded ratios.

Many public pension plans use actuarial methods that will mute the effects of recent
changes in asset values on funded status. One of those methods is “smoothing,” or valuing current assets on the basis of averages over recent years, rather than on current market values. That method generally causes the reported valuations to lag behind the market; in the current environment, it can cause reported valuations to be higher than current market values.

Although the laws governing state and local pension plans vary, significant drops in funded ratios could trigger requirements for higher contributions to the plans from state and local coffers or from public-sector employees at a time when tax collections are also waning.

More here.