UBS is the latest victim of the ongoing credit crisis. The company announced earlier today that they are shutting down their softs and energy commodity trading groups, sending several hundred traders and support folks to the unemployment line. This shut down is somewhat ironic in that UBS was the company that came in to sweep up what was left of Enron, and now those last remnants are going by the wayside.

I used the term contagion in the title to this piece purposely (and couldn’t resist the allitteration). What we are seeing is truly a contagion - this market is suffering a viral infection that attacks credit. Not only are we seeing financial traders bailing out, we’ve seen solid companies brought to their knees due to credit linkages to failed financial institutions (like Constellation), and we are now experiencing the impacts in commodity pricing. Crude is being driven lower as many trading shops that have held long positions are being forced to prematurely liquidate those positions due to margin calls brought about by their declining credit worthiness. Several market analysts are now pointing to $50/bbl as being the target if this infection continues to spread. What would a hard dive to $50 do to hedge funds, merchant traders, and even producers?

The upcoming vote for the $700 billion bailout will be telling. Even if it passes, it will take time for the impacts to start to take hold. Sure, Wall Street may react positively as raw emotions and frayed nerves start to settle a bit and cash will start to come back into the markets; however, getting the system up and running will take time and time is not on the side of many of these companies. If the bill fails to pass…who knows. Could the Credit Crisis Contagion become the Andromeda Strain?

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