This is a hilarious global warming article. Conservatives claim the oceans will rise by 4 feet by 2100, resulting in waterfront losses including L.A., Savannah, all of Florida, etc. It continues to say that the bright side of this news is that travel to new areas warmer areas, like the arctic, will be the next tourist boomtowns! http://www.msnbc.msn.com/id/27090554/
NY Times: Paulson Handed Bank CEO's One Page Document, Told Them in "blunt terms" that they had best "sign it before leaving the room"
Editor's Note: Sounds like it took three-and-a-half -hours for Paulson to read to the less enthusiastic CEOs what's in their "control file". Emphasis mine:
The chief executives of the nine largest banks in the United States trooped
into a gilded conference room at the Treasury Department at 3 p.m.
Monday. To their astonishment, they were each handed a one-page
document that said they agreed to sell shares to the government, then
Treasury Secretary Henry M. Paulson Jr. said they must sign it before they
left. The chairman of JPMorgan Chase, Jamie Dimon, was receptive, saying
he thought the deal looked pretty good once he ran the numbers through
his head. The chairman of Wells Fargo, Richard M. Kovacevich, protested
strongly that, unlike his New York rivals, his bank was not in trouble
because of investments in exotic mortgages, and did not need a bailout,
according to people briefed on the meeting. But by 6:30, all nine had signed
— setting in motion the largest government intervention in the American
banking system since the Great Depression . . . Mr. Paulson, according to
his own account, presented his case in blunt terms . . . "In a relatively
short period of time, people came on board.", he said . .
Yahoo News: Like a Real Life Don Corleone, Godfather Paulson Made CEOs an "Offer they can't refuse" . . . "This smacks of straight gangsterism"
The day after the news about a watershed change in American capitalism,
the story behind the story of how Hank Paulson forced the nations top 9
banks to take capital is coming to light. After a discussion of the state of
the banking system and economy, the bankers were then unceremoniously
handed a one-page term sheet outlining Paulson's plan. The bank CEOs
"weren't allowed to negotiate," The WSJ reports. "Paulson requested that
each of them sign. It was for their own good and the good of the country,
he said, according to a person in the room." In sum, Hank Paulson made
the bank CEOs an offer they couldn't refuse -- like a real Don Corleone.
William Engdahl: Behind the Panic, There is a Massive Financial War Being Fought Over Control of the Big Banks
. . . in every major U.S. financial panic since at least the Panic of 1835, the
titans of Wall Street - most especially until 1929, the House of JP Morgan -
have deliberately triggered bank panics behind the scenes in order to
consolidate their grip on US banking. The private banks used the panics to
control Washington policy including the exact definition of the private
ownership of the new Federal Reserve in 1913, and to consolidate their
control over industry such as US Steel, Caterpillar, Westinghouse and the
like. They are, in short, old hands at such financial warfare . . . Now they
must do something similar on a global scale to be able to continue to
dominate global finance, the heart of the power of the American Century.
Mike Ruppert: The Financial Elite are Planning an Intentional Shutdown of the Economy so They Can Start Seizing Everything in Sight
This move, announced today, is absolute confirmation for me that this is
an intentioned shut down of the economy. Each bank or financial institution
that the Treasury buys into will give it (and Goldman Sachs) the power to
shut each bank down and to decide when it shuts down. It couldn't be
more transparent. They're going to turn out the lights in an orderly fashion
and it's obviously an attempt at a controlled fast crash. They've only got
three months left in office. That would essentially make Barack Obama an
economic janitor employed by the same firm. I can just hear Bush and
Cheney cracking a joke about it . . . Bear in mind that everything that
happened today happened in absolute silence about Citigroup. The latest
there is that there is supposed to be a court hearing next week about a
suit Citi may bring against Wells and Wachovia. Meantime, Citigroup has waived all claims to acquiring any of Wachovia's assets (cash deposits). Mysuspicion is that out of fear Citi is hanging back for any kind of discussionabout its stability. Then again, they just might be waiting for the rightmoment to break the bad news to achieve the worst effect: capitulation.
Vanity Fair: James Howard Kunstler Has Been Right All Along, "The machinery of U.S. capital is now a smoking wreckage"
It was James Howard Kunstler, the author of The End of Suburbia and TheLong Emergency, who warned with scourging wit and rococo imagery in hisweekly online column that high gas prices, suburban sprawl, decayinginfrastructure, the machinations of hedge-fund greedheads, and Wall Streetnecromancy were converging into a Hurricane Katrina–size "cluster****”that would deform the social and political landscape. In his August 25column, Kunstler wrote, “I’m rather convinced that the carnage on themoney scene will be so extreme this fall that the nation will seem to havebeen transformed from a superpower to a basketcase before November4th, and that the blame for this state of affairs will be blindingly obvious:the people in charge the past eight years looted the treasury, destroyedthe currency, and left the machinery of capital a smoking wreckage.”Within a month, the carnage Kunstler envisioned not only got worse butgained velocity as mortgage giants Freddie Mac and Fannie Mae requiredan emergency federal bailout, fabled Merrill Lynch disappeared into themaw of Bank of America, Lehman Brothers went belly-up, A.I.G. wasrescued, and the Dow lost 500 points in one day, the worst loss since 2001.Billions of dollars of bad loans devoured by boll weevils, thousands of well-paying jobs liquidated in a single stroke, stock portfolios turning into scarecrows before one’s eyes, and who knew what awaits the next hill?
321 Gold: Why the Price of Gold is Dropping Even Though Gold Dealers are Experiencing Shortages and Runs on Bullion
Meanwhile, real investors in real gold are enjoying their shopping spree -except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarketshelves in the old Soviet Union - bare. This is the only 'bare-market' in realgold the world will see for a long, long time to come. With this split, thisdisconnect, between Comex illusion and gold reality, one thing or the otherwill have to give, and it won't be physical gold that gives. The system builtup around Comex-gold as being a price-setting mechanism for real goldplays right into the hands of the financial establishment. The establishmentdepends for its (now increasingly meager) existence on the illusion thatgold "isn't living up to its promise" as a real inflation and disaster hedge.The implication, of course, is that investors might as well stay in thecomputer blip and paper world. As the Comex gold price illusion drops,many retail investors are still persuaded to keep their money circulating inthe paper world, and that ultimately feeds the system. Of course, by nowthat 'feeding' mechanism looks more like life-support, but try and unhooksomeone on life-support. The results are dramatic, immediate - and final.
Business Week: Iceland's Stunning Collapse Sending Massive Shockwaves Through Worlds of International Finance, Geopolitics
To avert financial disaster, the country — which is a founding member ofNATO — may turn to Russia for help. The Russian government has said itwould consider lending Iceland $5.5 billion. "We have not received the kindof support that we were requesting from our friends," Haarde said. "So in asituation like that one has to look for new friends." . . . the ramifications ofIceland's meltdown extend far beyond the tiny Nordic country. Over thepast decade, Icelanders have taken advantage of low interest rates offeredby the country's banks to finance rapid expansion beyond the island nationin numerous industries . . . Offering higher interest rates than counterpartsin Britain, Icelandic banks have attracted huge inflows from UK investors inrecent years. Since its launch in October 2006, Icelandic internet bankIcesave, owned by Landsbanki, attracted $7 billion in deposits from 300,000British retail investors. When the bank went bust, British Chancellor of theExchequer Alistair Darling was forced to step in. On Oct. 8 he pledged toguarantee the deposits of all British retail investors in Landsbanki and itssubsidiaries. The British government says it plans to sue Iceland to recoupat least some part of the savings of British customers in Icesave . .
Time Magazine: Arms Trade Doing Brisk Business as Economy Crashes
Need to start a war? No problem. While stock markets gyrate and financialinstitutions (and even whole countries, like Iceland) teeter on bankruptcy,one global industry is still drawing plenty of high-end trades and profits:weapons. Researchers say arms trading has boomed in the decade sincethe Angolagate scandal was uncovered. That's partly due to heightenedsupply. As ex-Soviet republics emerged as economic actors in their ownright, several countries developed national arms industries, refitting weapons from their stocks and manufacturing new weapons of their own.Those industries have taken off in recent years. Ukraine has about 6 millionlight weapons from Soviet stockpiles, and has modernized tanks, missilesand other weaponry, says Hugh Griffiths, an expert on illicit weapons at theStockholm International Peace Research Institute. A dramatic example ofUkraine's reach is playing out off the Horn of Africa, where a majorshipment of Ukrainian weapons, including 33 T-72 tanks, was hijacked bySomali pirates and remains a vexing military and diplomatic problem . .
Fortune Magazine: Crisis Pushes Jefferson County to Brink of Bankruptcy
For months now, Riley and other leaders in Alabama have been battling toavert what appears almost certain - that Jefferson County will file forChapter 9 protection, in what would be the largest municipal bankruptcy inour nation's history. The county has fallen hopelessly behind on paymentsto service the $3.2 billion it borrowed - on reckless terms - over the pastdecade to build a new sewer system . . . Every decade or so, somethingbig and scary does happen in the normally staid world of public finance:
There was a near miss in the '70s when New York City almost went broke;
in the '80s the Washington Public Power Supply System defaulted on $2.25
billion in loans when it stopped construction of two nuclear power plants;
and California's Orange County went into Chapter 9 in the '90s, after the
county treasurer made bad bets on interest rates and lost $1.6 billion. But
the saga of Jefferson County stands apart. Unlike previous municipal
meltdowns, it is a financial disaster that was to a large degree invented,
packaged, and sold by Wall Street. And there are striking parallels to the
wider credit crisis that has enveloped the financial world - with overeager
borrowers, willing enablers, and dangerously complex financial instruments.
Economist: California Rapidly Running Out of Money to Pay the Bills
The world’s eighth biggest economy has two problems, both stemming
from the economic downturn. First, it is finding it hard to raise enough
money to pay the bills. Under normal circumstances the state would sell $7
billion in bonds to tide it through until April, when income taxes flood in.
Thanks in part to the delayed budget, the state has been forced to go to
the bond markets at a time when investors are wary of everything but
Treasury notes. If the credit markets gum up even more, the state may
seek relief from the Federal Reserve or from its public pension funds . . .
Christian Science Monitor: States Begin Lining up for Emergency Bailouts
How California fares with a $4 billion short-term bond sale this week will
help answer a key question looming over the current US financial crisis: are
traditional credit markets so frozen that states won't be able to raise
revenues to tide them over their cash crunch? The practice of selling
short-term bonds is used regularly by at least a dozen US states, and
occasionally by several more, to keep state programs and services running
smoothly year round. Because tax income is not steady throughout the
year – far more revenue comes in from September through December
than January through March – California and others borrow short-term to
pay their bills when revenues are temporarily insufficient. Now, with states
facing the same problem faced by millions of businesses – tightening credit
markets – at the same time revenues are sinking, many budget officials
are worried that they may not be able to borrow when they need to . . .
UK Guardian: Victorville, California Goes From Desert Boom Town to Bust
Victorville was a desert boomtown. Up until a year ago, it was the second-
fastest growing city in the United States. There are still signs of the boom
everywhere. Driving into town, there are signs pointing to developments,
and as you get closer, people stand on the street corners waving signs to
try to entice buyers to model homes. But now, 11% of the homes in the
city are in foreclosure, and the city recently was part of a $13 million grant
to help buy some of the homes before they are abandoned. New building
has come to a standstill. They can't build homes because the foreclosed
homes are selling for less than the cost to build a new home, he said.
That's hit the construction industry. High food and petrol costs have also
hit the economy. The spike in petrol prices made it prohibitively expensive
for people who commute 50 plus miles to work in Los Angeles, and that
might make it difficult for people to move there unless they work locally.
Yahoo News: As Crisis Bites, More Americans Turning to Food Stamps
Living on food stamps is a devastating reality for millions of Americans --
and the numbers are growing to alarming levels. The number of food
stamps being distributed in the U.S approached a new record this summer
and promises to reach a new peak with repercussions of the financial crisis
starting to bite. More than 29 million Americans received food stamps in
July, an increase of close to one million over just three months earlier. The
latest figures do not count the new requests for assistance in September,
when several financial institutions collapsed, stock values plunged, housing
foreclosures soared, and job losses spiked to the highest level of the year.
Business Week: Now Wall Street Wants to Get Its hands on Your Pension
Editor's Note: Relinked at reader request. When the pension funds collapse the way housing prices have and workers start dropping dead because they can't afford necessities, the good news for the companies is they will still manage to make money. "How can that be?" you ask. Well most of these compannies have taken out what's known as "Dead Peasents Insurance" (DPI) on their workers. DPI happens to makes up 20% of all life insurance policies sold each year:
The folks who brought you the mortgage mess and the ensuing hedge fund
blowups, busted buyouts, and credit market gridlock have another bold
idea: buying up and running troubled corporate pension plans. And despite
the subprime fiasco, some regulators may soon embrace Wall Street's
latest scheme. The Treasury Dept. on August 6th offered a blueprint for
lawmakers to allow "financially strong entities in well-regulated sectors" to
acquire pension plans , after the IRS ruled that the concept needed
legislative approval. "The Administration's proposal says these deals should
only be permitted when the acquiring entity has a higher credit-rating than
the seller," says Charles Millard, director of the Pension Benefit Guaranty
Corp. (PBGC), the federal insurer of last resort of corporate pension plans.
Thursday, October 16, 2008
Tuesday, October 14, 2008
October 14
It's time for a quick lesson on credit derivatives; "weapons of mass destruction" as Warren Buffett likes to call them. The first three articles listed below deal directly with these nasty fellows, and based on my research, these are what have the potential of causing collapse. At the very bottom of this message is research/teaching regarding what credit derivatives are and how they work.
A reminder to all that I am an extremely positive person, always hoping for the best. Nevertheless, I am also a realist, and I don't see how, despite the world's governments trying their best to intervene, we're going to avoid a collapse. The first article below discusses the idea that these credit derivitives are valued at 10 times the entire world's global output. The next article mentions that all it takes for financial stability to unravel is "failure of one link in the chain" The following article discusses the bankruptcy of countries around the world... Well, it doesn't take a brainiac to realize that there are billions of links in the global financial chain, from AIG to Iceland that could contribute to what the director of the International Monetary Fund calls a "systemic meltdown." (see article below).
So, if the financial system could unravel at any time, people, it's time for a plan! In all my reading, the number one survival tactic deemed necessary is the coming together of communities. This goes totally against the individualist natures that we have all grown up with, so the first step is just to begin thinking about who you might want to be grouped with, and where that community will exist. When communications companies go bankrupt and you are unable to communicate with family, then it is too late. Start doing some prep work now about the assets within your family system, as well as allegiances with friends.
I hope you find this all helpful and look forward to chatting with you on the blog.
Jill
UK Independent: $516 Trillion Derivatives Market Timebomb Has Blown
The market is worth more than $516 trillion, roughly 10 times the value ofthe entire world's output: it's been called the "ticking time-bomb". It's amarket in which the lead protagonists – typically aggressive, highlyeducated, and now wealthy young men – have flourished in the derivativesboom. But it's a market that is set to come to a crashing halt – the GreatUnwind has begun. Last week the beginning of the end started for manyhedge funds with the combination of diving market values and worried
investors pulling out their cash. The derivatives markets in which these
hedge funds played has been dubbed the world's biggest black hole . . .
UK Independent: Traders Worst Fears Realized at Lehman's AuctionDerivatives traders were yesterday nervously picking their way through thewreckage of the Lehman Brothers bankruptcy in what was the biggest testof the unregulated $60 trillion credit default swaps market. Investors whohad placed bets on Lehman's creditworthiness held an auction aimed atclarifying who owes what to whom after the investment bank went bustfour weeks ago, and analysts believe that several hundreds of billions ofdollars will change hands. The insurance giant AIG was one of the biggestsellers of Lehman Brothers credit default swaps, and it faces big losses asa result. It had to be bailed out by the US government three days after theLehman bankruptcy filing, and has so far been extended $123bn in loansfrom taxpayers. What investors and regulators fear is a failure to pay by one link in the chain could cause a cascade of losses through the system.
NY Times: Insurance on Lehman Debt the Next Gauntlet to Run
First the house of Lehman fell. Now the insurance bill is coming due. Nearlythree weeks after the Wall Street bank sank into bankruptcy, financialcompanies and investment funds that wrote what are effectively insurancepolicies on Lehman Brothers’ debts are being called on to pay hundreds ofbillions of dollars in claims. Whether those claims can or will be paid, andthe financial repercussions that could follow if they are not, will signify thebiggest test yet for the vast, unregulated market in credit-default swaps.
UK Telegraph: If You Think the Worst Was Over, It's Time to Think Again
Our fear explains why Friday’s sell-off was so brutal. This delayed reactionto a month of almost unbelievably bad news in the credit markets wasdriven primarily by ordinary investors – Mr & Mrs Average finally deciding tocash in their pension nest egg for fear it might be cracked beyond repairby Monday. All round the world, fund managers reported a huge surge incustomers demanding their money. The professionals panicked long ago.
UK Independent: Global Financial System at Brink of "Systemic Meltdown"
As we return to work this Monday morning, let the words of the directorgeneral of the IMF, Dominique Strauss-Kahn, ring in our ears. Mr Strauss-Kahn, having spent all Saturday with finance ministers in Washington D.C.,warned that the global financial system has been pushed "to the brink of asystemic meltdown". And he added that the measures taken thus far todeal with the financial crisis "have not yet achieved the goal of stabilisingmarkets and bolstering confidence". I stretch "systemic" to mean we areall affected by what has begun to happen – the shrinking of bank credit . . .
Wall Street Journal: Financial Danger Zones Emerge Around the World
Investors are feeding a dramatic world-wide slowdown by trying to flee it,racing away from many corners of the globe they used to favor. Theresulting tumbles in stocks and currencies have helped provoke a broadercrisis in places such as Iceland, whose turmoil in turn is hitting bankdepositors from London to Amsterdam. As foreign capital flows out of ahost of smaller economies, it's laying bare the excesses built up during fiveyears of strong growth and easy access to borrowing. Concerns are risingthat such countries could prove weak links in the world's financial system.
UK Telegraph: Many Countries from Pakistan to Baltics May Go Bankrupt
Nuclear-armed Pakistan is bleeding foreign reserves at an alarming rateleading to fears that it could default on its loans. There are mounting fearsthat Ukraine, Kazakhstan, and Argentina could all now slide into a downwardspiral towards bankruptcy, while western banks exposed to property bubbleacross Eastern Europe have seen their share price crushed. The marketsare pricing an 80pc risk that Ukraine will default, based on five-year creditdefault swaps– an insurance policy on a country being able to pay itsdebts. The country's banking system has begun to break down after yearsof torrid credit growth; its steel mills are shutting as demand collapses;
London Times: We Just Moved Closer to the Edge of a Financial AbyssIt has been a long, wearying weekend the world's most powerful financialofficials will likely live to regret. This was the moment when they peeredinto the abyss of global financial cataclysm — and then decided to take astep closer to the edge. It may yet live in infamy. With the eyes of theworld upon them and the bedrock of the global financial system crumblingunder their feet, finance ministers from the big Western economies decidedthat this was the ideal moment to show resolve only to remain irresolute;to decide only to stay undecided. It is the mother of all bungles . . .
Economist: "The global economy has begun to suffocate . . ."
Deprive a person of oxygen and he will turn blue, collapse and eventually
die. Deprive economies of credit and a similar process kicks in. As the
financial crisis has broadened and intensified, the global economy has
begun to suffocate. That is why the world’s central banks have been
administering emergency measures, including a round of co-ordinated
interest-rate cuts on October 8th. With luck they will prevent catastrophe.
Economist: Long Feared Surge in U.S. Bankruptcies is Now Under Way
Sharper Image filed for bankruptcy protection in February, and has sincebeen liquidating itself, getting even lower prices for its assets than it hadhoped. Several other well-known retailers have since gone bust. Steve &Barry’s, a casualwear retailer that is a core tenant of numerous shoppingmalls, terrified commercial-property investors when it entered bankruptcyprotection in July. It emerged in August with new private-equity ownersand a plan to close 103 of its 276 stores. Linens ’n Things filed in May, andat first hoped to reorganise itself and leave bankruptcy. After the collapseof a planned sale to Cerberus it now plans to liquidate itself, with closing-down sales due to start at its remaining stores on October 16th this year
Jim Puplava: Rapid Implosion of AIG Shows How Explosive Derivatives Are
Where this comes home to roost, you had a company like AIG, the largest
insurance company – a trillion dollar balance sheet. If you were to think ofa blue chip company that would be one of them. And the basic business ofAIG – their insurance divisions – they were profitable, they were makingmoney but they had one little division writing credit default swaps on thesecollateralized toxic securities and look what happened; they went from thelargest insurance company to receivership in two days . . . that’s where Ithink that saying that Warren Buffett said many years ago that derivativeswere financial weapons of mass destruction because when you can take atrillion dollar insurance company with a trillion dollar balance sheet and blowit up in two days, it just goes to show you how explosive these things are.
Market Ticker Forum: "It is now, quite literally, about the ability of food and fuel to reach our markets . . ."Sovereign debt (Treasuries from various nations) has become infected withtrash - unfortunately including ours now that Fannie and Freddie werenationalized and TARP has been passed - and may fail in a cascade-stylefashion across the world . . . We are facing a global DEPRESSION and thecut-off of essential goods and services in this nation if we do not stop thislunacy immediately. Please understand - the TRUCKER who has a full loadof food headed for your grocer REQUIRES commercial credit in order to fillhis truck with diesel. The local GAS STATION owner REQUIRES commercialcredit to fill his underground storage tank. . . . IF THESE MARKETS DO NOTIMMEDIATELY UNFREEZE THE CONSEQUENCE WILL BE THAT FOOD AND FUEL,MAY NOT FLOW TO YOUR GROCERY STORE AND GAS STATION.
James Howard Kunstler: "In Iceland, the people are stripping the grocery markets of whatever remains . . ."Iceland is the poster-child du jour for this. The little island nation of about320,000 souls (roughly half of Vermont's population) lately grew a bankingsector that thrived on something-for-nothing finance. In little more than amonth, its banks have imploded like mini death stars, leaving Iceland with apariah currency. Since it has to import just about everything, and it now
finds itself unable to pay for imports, the people are stripping the grocery
markets of whatever remains there now. You wonder what they will do in
two weeks. Ten years from now there may be 32,000 of them left . . .
Time Magazine: "Odds of Morgan Stanley defaulting within five years are 45%, for Citigroup the odds are 21%"
Now that fear is everywhere, how does Weiss feel? In some ways, morefearful than ever. Speaking over the phone from his office as marketsplunge around the world, Weiss, 61, says: "The possibility of a total financial collapse is higher than at any time I've ever seen. We just don'tknow how bad things could get." One thing that has him spooked is theprice of credit-default swaps for major U.S. banks — a derivative thatprovides insurance against the possibility they might default on their debt,dooming them to bankruptcy. According to data provided by Bloombergusing a model devised by JP Morgan, the price of this insurance currently mplies that the odds of banking giant Morgan Stanley defaulting in the nextfive years are 45%. For Citigroup, another financial linchpin, they're 21%."This is astonishing," says Weiss. "If Citigroup fails, it could be disastrous."
UK Independent: Financial System Crumbling like the Tower of BabelIt took centuries to build sophisticated free-market economies, but thisweekend, it looks like it may have only taken one week for it all to unwind.Not only have stock markets fallen to their lowest levels for decades, but,more than that, the assumptions that have underpinned commercial life foryears are now threatened, some possibly doomed. Banker is not trustingbanker, savers can trust no one, share traders do not trust governments,leaders (including conservative ones) suddenly discovered the virtues ofpublic ownership; and there is the very real prospect of a country in thedeveloped world actually going bankrupt. Today the world's leading centralbankers to prevent the crumbling financial system from cracking further.
Bloomberg: GM, Ford, Chrysler Face Bankruptcy Risk on Crisis
General Motors Corp., Ford Motor Co. and Chrysler LLC, the three biggestU.S. automakers, may be forced into bankruptcy as the global credit freezedamps U.S. sales, Standard & Poor's analyst Robert Schulz said. "Macrofactors could overwhelm them at some point'' even as GM, Ford andChrysler vow to stick with their turnaround plans, Schulz, S&P's lead automotive credit analyst, said today in a Bloomberg Television interview inNew York. The companies said they have no plans to seek bankruptcyprotection. His assessment underscored the pressure on the industry asthe worsening credit crisis makes it harder for buyers to get loans . . .
Forbes: Orange County Among America's Luxury Foreclosure Capitals
Numerous factors affect an area's rate of foreclosure. Unemployment andfalling home prices certainly play a part. Sen. Dick Ackerman might arguethat weather plays a role. He represents a sizable chunk of South OrangeCounty, including Laguna Niguel, and says that there is something aboutthe desirability of the area that makes the real estate market swing a littletoo far during boom and bust cycles. "People bought high-end homes whenthe economy was good, and now somepeople can't make their payments."
San Francisco Chronicle: Crisis Hits Bay Area Housing Market HardSan Francisco may be 3,000 miles from Wall Street, but the crisis that hasengulfed the country's biggest financial institutions is putting even morepressure on the Bay Area's real estate market, making it increasinglydifficult for home buyers to get credit. Cheap credit played a dramatic rolein fueling the housing boom of the late 1990s and early 2000s, particularlyin places like the Bay Area, where buyers relied heavily on unconventionalloans to purchase homes that would have otherwise been unaffordable,economists said. That cheap credit also played a dramatic role in topplingfinancial institutions like Lehman Bros., Washington Mutual and Wachovia.
LATOC: Where Are Things Likely to Go in the Short-to-Medium Term?
Civil unrest will break out in major cities when incomes fall but the cost offood and essential services fail to come down materially, leaving millions ofAmericans hungry, broke and homeless. Unlike in the 1930s America willnot quietly stand in soup lines - instead they will riot, loot and burn. TheNational Guard will be called but will find it impossible to exert meaningfulcontrol without shutting down all commerce in the affected areas. Thedecision will be made to cordon off the cities and deny entry to anyonewho does not live in that specific neighborhood, essentially shutting downcommercial activity. GDP will fall by 30%. The S&P 500 will fall to 150 andflatline, a 90% loss. CNBC and Bloomberg will cease broadcasting . . .
CREDIT DERIVATIVE 101
In finance, a credit derivative is a derivative whose value derives from the credit risk on an underlying bond, loan or other financial asset.
A credit default swap (CDS) is a swap contract in which a buyer makes a series of payments to a seller, and in exchange receives the right to a payoff if a credit instrument goes into default or on the occurrence of a specified credit event, for example bankruptcy or restructuring. The associated instrument does not need to be associated with the buyer or the seller of this contract.
In practice, as most other derivative products, the huge development of the market is not to be imputed to hedging purposes, but to arbitrage and speculation. Suppose that an investor holds neither bonds nor debts on company X, but thinks that this company may default. He can buy a CDS on X and pockets the pay-off in case of default. This strategy is equivalent, but more straightforward than short-selling bonds. The CDS market is also reported to have recently been used to bet on companies’ default after the ban on short-selling in financial stocks.
The size of the market has soared well above the value of the underlying debt that they are supposed to insure (reaching about $62 trillion at the end of 2007). This has become clear since 2005, when Delphi, the auto parts maker, went bankrupt: the CDS on Delphi’s debt in the market exceeded the value of its bonds tenfold.
All major financial actors are deeply involved in the market. From the beginning, in the mid-'90s, banks have used CDSs to escape from their capital requirements. But nowadays, banks, hedge funds, insurance companies and pension funds are hugely exposed as buyers or sellers, or both. By transferring the risk, the CDSs have acted as a kind of insurance and provided incentives for risk-taking. They are therefore at the heart of the present crisis.
The CDS market is now in the eye of the storm. The reason is straightforward, because this crisis is about credit risk. A credit bubble has ballooned for years, being enhanced by the existence of credit derivatives. As credit originators can pass their risk to other agents, they have been less careful about the quality of their loans. In that sense, CDS have given an incentive for distributing more credit to more risky borrowers.
As banks and all financial institutions have massively committed themselves in the CDS market, they are now highly dependant on market continuity and its smooth functioning. The failure of a major participant, or worse a whole set of participants, can put at stake all the others. Bankruptcies of Bear Sterns, then that of AIG, two key counterparties, could have brought about a complete meltdown of the market. This has certainly been taken into account when the US government decided to step in and prevent them from going bankrupt. However, faith in the reliability of the market has been deeply shaken by these events. Lehman Brothers’ bankruptcy has also severely hit the whole market, as it was among the 10 main participants.
Another cause for concern is that the market is unregulated. CDSs act as insurance against default, but they are not submitted to any regulations as is the case for insurance companies. The latter have to meet required reserves and are closely monitored by public authorities. On the CDS market, no reserves are required from the sellers of protection, only very thin margins, ranging from 2% to 5% of the amount insured. However, the danger is even greater than insuring against natural catastrophes for example, because of the high correlation of default risk, which is linked to the business cycle.
A reminder to all that I am an extremely positive person, always hoping for the best. Nevertheless, I am also a realist, and I don't see how, despite the world's governments trying their best to intervene, we're going to avoid a collapse. The first article below discusses the idea that these credit derivitives are valued at 10 times the entire world's global output. The next article mentions that all it takes for financial stability to unravel is "failure of one link in the chain" The following article discusses the bankruptcy of countries around the world... Well, it doesn't take a brainiac to realize that there are billions of links in the global financial chain, from AIG to Iceland that could contribute to what the director of the International Monetary Fund calls a "systemic meltdown." (see article below).
So, if the financial system could unravel at any time, people, it's time for a plan! In all my reading, the number one survival tactic deemed necessary is the coming together of communities. This goes totally against the individualist natures that we have all grown up with, so the first step is just to begin thinking about who you might want to be grouped with, and where that community will exist. When communications companies go bankrupt and you are unable to communicate with family, then it is too late. Start doing some prep work now about the assets within your family system, as well as allegiances with friends.
I hope you find this all helpful and look forward to chatting with you on the blog.
Jill
UK Independent: $516 Trillion Derivatives Market Timebomb Has Blown
The market is worth more than $516 trillion, roughly 10 times the value ofthe entire world's output: it's been called the "ticking time-bomb". It's amarket in which the lead protagonists – typically aggressive, highlyeducated, and now wealthy young men – have flourished in the derivativesboom. But it's a market that is set to come to a crashing halt – the GreatUnwind has begun. Last week the beginning of the end started for manyhedge funds with the combination of diving market values and worried
investors pulling out their cash. The derivatives markets in which these
hedge funds played has been dubbed the world's biggest black hole . . .
UK Independent: Traders Worst Fears Realized at Lehman's AuctionDerivatives traders were yesterday nervously picking their way through thewreckage of the Lehman Brothers bankruptcy in what was the biggest testof the unregulated $60 trillion credit default swaps market. Investors whohad placed bets on Lehman's creditworthiness held an auction aimed atclarifying who owes what to whom after the investment bank went bustfour weeks ago, and analysts believe that several hundreds of billions ofdollars will change hands. The insurance giant AIG was one of the biggestsellers of Lehman Brothers credit default swaps, and it faces big losses asa result. It had to be bailed out by the US government three days after theLehman bankruptcy filing, and has so far been extended $123bn in loansfrom taxpayers. What investors and regulators fear is a failure to pay by one link in the chain could cause a cascade of losses through the system.
NY Times: Insurance on Lehman Debt the Next Gauntlet to Run
First the house of Lehman fell. Now the insurance bill is coming due. Nearlythree weeks after the Wall Street bank sank into bankruptcy, financialcompanies and investment funds that wrote what are effectively insurancepolicies on Lehman Brothers’ debts are being called on to pay hundreds ofbillions of dollars in claims. Whether those claims can or will be paid, andthe financial repercussions that could follow if they are not, will signify thebiggest test yet for the vast, unregulated market in credit-default swaps.
UK Telegraph: If You Think the Worst Was Over, It's Time to Think Again
Our fear explains why Friday’s sell-off was so brutal. This delayed reactionto a month of almost unbelievably bad news in the credit markets wasdriven primarily by ordinary investors – Mr & Mrs Average finally deciding tocash in their pension nest egg for fear it might be cracked beyond repairby Monday. All round the world, fund managers reported a huge surge incustomers demanding their money. The professionals panicked long ago.
UK Independent: Global Financial System at Brink of "Systemic Meltdown"
As we return to work this Monday morning, let the words of the directorgeneral of the IMF, Dominique Strauss-Kahn, ring in our ears. Mr Strauss-Kahn, having spent all Saturday with finance ministers in Washington D.C.,warned that the global financial system has been pushed "to the brink of asystemic meltdown". And he added that the measures taken thus far todeal with the financial crisis "have not yet achieved the goal of stabilisingmarkets and bolstering confidence". I stretch "systemic" to mean we areall affected by what has begun to happen – the shrinking of bank credit . . .
Wall Street Journal: Financial Danger Zones Emerge Around the World
Investors are feeding a dramatic world-wide slowdown by trying to flee it,racing away from many corners of the globe they used to favor. Theresulting tumbles in stocks and currencies have helped provoke a broadercrisis in places such as Iceland, whose turmoil in turn is hitting bankdepositors from London to Amsterdam. As foreign capital flows out of ahost of smaller economies, it's laying bare the excesses built up during fiveyears of strong growth and easy access to borrowing. Concerns are risingthat such countries could prove weak links in the world's financial system.
UK Telegraph: Many Countries from Pakistan to Baltics May Go Bankrupt
Nuclear-armed Pakistan is bleeding foreign reserves at an alarming rateleading to fears that it could default on its loans. There are mounting fearsthat Ukraine, Kazakhstan, and Argentina could all now slide into a downwardspiral towards bankruptcy, while western banks exposed to property bubbleacross Eastern Europe have seen their share price crushed. The marketsare pricing an 80pc risk that Ukraine will default, based on five-year creditdefault swaps– an insurance policy on a country being able to pay itsdebts. The country's banking system has begun to break down after yearsof torrid credit growth; its steel mills are shutting as demand collapses;
London Times: We Just Moved Closer to the Edge of a Financial AbyssIt has been a long, wearying weekend the world's most powerful financialofficials will likely live to regret. This was the moment when they peeredinto the abyss of global financial cataclysm — and then decided to take astep closer to the edge. It may yet live in infamy. With the eyes of theworld upon them and the bedrock of the global financial system crumblingunder their feet, finance ministers from the big Western economies decidedthat this was the ideal moment to show resolve only to remain irresolute;to decide only to stay undecided. It is the mother of all bungles . . .
Economist: "The global economy has begun to suffocate . . ."
Deprive a person of oxygen and he will turn blue, collapse and eventually
die. Deprive economies of credit and a similar process kicks in. As the
financial crisis has broadened and intensified, the global economy has
begun to suffocate. That is why the world’s central banks have been
administering emergency measures, including a round of co-ordinated
interest-rate cuts on October 8th. With luck they will prevent catastrophe.
Economist: Long Feared Surge in U.S. Bankruptcies is Now Under Way
Sharper Image filed for bankruptcy protection in February, and has sincebeen liquidating itself, getting even lower prices for its assets than it hadhoped. Several other well-known retailers have since gone bust. Steve &Barry’s, a casualwear retailer that is a core tenant of numerous shoppingmalls, terrified commercial-property investors when it entered bankruptcyprotection in July. It emerged in August with new private-equity ownersand a plan to close 103 of its 276 stores. Linens ’n Things filed in May, andat first hoped to reorganise itself and leave bankruptcy. After the collapseof a planned sale to Cerberus it now plans to liquidate itself, with closing-down sales due to start at its remaining stores on October 16th this year
Jim Puplava: Rapid Implosion of AIG Shows How Explosive Derivatives Are
Where this comes home to roost, you had a company like AIG, the largest
insurance company – a trillion dollar balance sheet. If you were to think ofa blue chip company that would be one of them. And the basic business ofAIG – their insurance divisions – they were profitable, they were makingmoney but they had one little division writing credit default swaps on thesecollateralized toxic securities and look what happened; they went from thelargest insurance company to receivership in two days . . . that’s where Ithink that saying that Warren Buffett said many years ago that derivativeswere financial weapons of mass destruction because when you can take atrillion dollar insurance company with a trillion dollar balance sheet and blowit up in two days, it just goes to show you how explosive these things are.
Market Ticker Forum: "It is now, quite literally, about the ability of food and fuel to reach our markets . . ."Sovereign debt (Treasuries from various nations) has become infected withtrash - unfortunately including ours now that Fannie and Freddie werenationalized and TARP has been passed - and may fail in a cascade-stylefashion across the world . . . We are facing a global DEPRESSION and thecut-off of essential goods and services in this nation if we do not stop thislunacy immediately. Please understand - the TRUCKER who has a full loadof food headed for your grocer REQUIRES commercial credit in order to fillhis truck with diesel. The local GAS STATION owner REQUIRES commercialcredit to fill his underground storage tank. . . . IF THESE MARKETS DO NOTIMMEDIATELY UNFREEZE THE CONSEQUENCE WILL BE THAT FOOD AND FUEL,MAY NOT FLOW TO YOUR GROCERY STORE AND GAS STATION.
James Howard Kunstler: "In Iceland, the people are stripping the grocery markets of whatever remains . . ."Iceland is the poster-child du jour for this. The little island nation of about320,000 souls (roughly half of Vermont's population) lately grew a bankingsector that thrived on something-for-nothing finance. In little more than amonth, its banks have imploded like mini death stars, leaving Iceland with apariah currency. Since it has to import just about everything, and it now
finds itself unable to pay for imports, the people are stripping the grocery
markets of whatever remains there now. You wonder what they will do in
two weeks. Ten years from now there may be 32,000 of them left . . .
Time Magazine: "Odds of Morgan Stanley defaulting within five years are 45%, for Citigroup the odds are 21%"
Now that fear is everywhere, how does Weiss feel? In some ways, morefearful than ever. Speaking over the phone from his office as marketsplunge around the world, Weiss, 61, says: "The possibility of a total financial collapse is higher than at any time I've ever seen. We just don'tknow how bad things could get." One thing that has him spooked is theprice of credit-default swaps for major U.S. banks — a derivative thatprovides insurance against the possibility they might default on their debt,dooming them to bankruptcy. According to data provided by Bloombergusing a model devised by JP Morgan, the price of this insurance currently mplies that the odds of banking giant Morgan Stanley defaulting in the nextfive years are 45%. For Citigroup, another financial linchpin, they're 21%."This is astonishing," says Weiss. "If Citigroup fails, it could be disastrous."
UK Independent: Financial System Crumbling like the Tower of BabelIt took centuries to build sophisticated free-market economies, but thisweekend, it looks like it may have only taken one week for it all to unwind.Not only have stock markets fallen to their lowest levels for decades, but,more than that, the assumptions that have underpinned commercial life foryears are now threatened, some possibly doomed. Banker is not trustingbanker, savers can trust no one, share traders do not trust governments,leaders (including conservative ones) suddenly discovered the virtues ofpublic ownership; and there is the very real prospect of a country in thedeveloped world actually going bankrupt. Today the world's leading centralbankers to prevent the crumbling financial system from cracking further.
Bloomberg: GM, Ford, Chrysler Face Bankruptcy Risk on Crisis
General Motors Corp., Ford Motor Co. and Chrysler LLC, the three biggestU.S. automakers, may be forced into bankruptcy as the global credit freezedamps U.S. sales, Standard & Poor's analyst Robert Schulz said. "Macrofactors could overwhelm them at some point'' even as GM, Ford andChrysler vow to stick with their turnaround plans, Schulz, S&P's lead automotive credit analyst, said today in a Bloomberg Television interview inNew York. The companies said they have no plans to seek bankruptcyprotection. His assessment underscored the pressure on the industry asthe worsening credit crisis makes it harder for buyers to get loans . . .
Forbes: Orange County Among America's Luxury Foreclosure Capitals
Numerous factors affect an area's rate of foreclosure. Unemployment andfalling home prices certainly play a part. Sen. Dick Ackerman might arguethat weather plays a role. He represents a sizable chunk of South OrangeCounty, including Laguna Niguel, and says that there is something aboutthe desirability of the area that makes the real estate market swing a littletoo far during boom and bust cycles. "People bought high-end homes whenthe economy was good, and now somepeople can't make their payments."
San Francisco Chronicle: Crisis Hits Bay Area Housing Market HardSan Francisco may be 3,000 miles from Wall Street, but the crisis that hasengulfed the country's biggest financial institutions is putting even morepressure on the Bay Area's real estate market, making it increasinglydifficult for home buyers to get credit. Cheap credit played a dramatic rolein fueling the housing boom of the late 1990s and early 2000s, particularlyin places like the Bay Area, where buyers relied heavily on unconventionalloans to purchase homes that would have otherwise been unaffordable,economists said. That cheap credit also played a dramatic role in topplingfinancial institutions like Lehman Bros., Washington Mutual and Wachovia.
LATOC: Where Are Things Likely to Go in the Short-to-Medium Term?
Civil unrest will break out in major cities when incomes fall but the cost offood and essential services fail to come down materially, leaving millions ofAmericans hungry, broke and homeless. Unlike in the 1930s America willnot quietly stand in soup lines - instead they will riot, loot and burn. TheNational Guard will be called but will find it impossible to exert meaningfulcontrol without shutting down all commerce in the affected areas. Thedecision will be made to cordon off the cities and deny entry to anyonewho does not live in that specific neighborhood, essentially shutting downcommercial activity. GDP will fall by 30%. The S&P 500 will fall to 150 andflatline, a 90% loss. CNBC and Bloomberg will cease broadcasting . . .
CREDIT DERIVATIVE 101
In finance, a credit derivative is a derivative whose value derives from the credit risk on an underlying bond, loan or other financial asset.
A credit default swap (CDS) is a swap contract in which a buyer makes a series of payments to a seller, and in exchange receives the right to a payoff if a credit instrument goes into default or on the occurrence of a specified credit event, for example bankruptcy or restructuring. The associated instrument does not need to be associated with the buyer or the seller of this contract.
In practice, as most other derivative products, the huge development of the market is not to be imputed to hedging purposes, but to arbitrage and speculation. Suppose that an investor holds neither bonds nor debts on company X, but thinks that this company may default. He can buy a CDS on X and pockets the pay-off in case of default. This strategy is equivalent, but more straightforward than short-selling bonds. The CDS market is also reported to have recently been used to bet on companies’ default after the ban on short-selling in financial stocks.
The size of the market has soared well above the value of the underlying debt that they are supposed to insure (reaching about $62 trillion at the end of 2007). This has become clear since 2005, when Delphi, the auto parts maker, went bankrupt: the CDS on Delphi’s debt in the market exceeded the value of its bonds tenfold.
All major financial actors are deeply involved in the market. From the beginning, in the mid-'90s, banks have used CDSs to escape from their capital requirements. But nowadays, banks, hedge funds, insurance companies and pension funds are hugely exposed as buyers or sellers, or both. By transferring the risk, the CDSs have acted as a kind of insurance and provided incentives for risk-taking. They are therefore at the heart of the present crisis.
The CDS market is now in the eye of the storm. The reason is straightforward, because this crisis is about credit risk. A credit bubble has ballooned for years, being enhanced by the existence of credit derivatives. As credit originators can pass their risk to other agents, they have been less careful about the quality of their loans. In that sense, CDS have given an incentive for distributing more credit to more risky borrowers.
As banks and all financial institutions have massively committed themselves in the CDS market, they are now highly dependant on market continuity and its smooth functioning. The failure of a major participant, or worse a whole set of participants, can put at stake all the others. Bankruptcies of Bear Sterns, then that of AIG, two key counterparties, could have brought about a complete meltdown of the market. This has certainly been taken into account when the US government decided to step in and prevent them from going bankrupt. However, faith in the reliability of the market has been deeply shaken by these events. Lehman Brothers’ bankruptcy has also severely hit the whole market, as it was among the 10 main participants.
Another cause for concern is that the market is unregulated. CDSs act as insurance against default, but they are not submitted to any regulations as is the case for insurance companies. The latter have to meet required reserves and are closely monitored by public authorities. On the CDS market, no reserves are required from the sellers of protection, only very thin margins, ranging from 2% to 5% of the amount insured. However, the danger is even greater than insuring against natural catastrophes for example, because of the high correlation of default risk, which is linked to the business cycle.
Thursday, October 9, 2008
Thursday, Oct. 9, 2008
Wall Street Journal: U.S. Treasury Considers Buying Stakes in Banks
The Treasury Department is considering ways to inject capital directly into
banks, possibly by taking equity stakes, as the financial crisis continues to
worsen. Treasury Secretary Henry Paulson, in a marked shift in rhetoric,
played up Treasury's newfound authority to "to inject capital into financial
institutions" in remarks Wednesday. As the financial crisis continues to
escalate, Treasury has begun fleshing out ways to use its authority to
make direct injections into financial institutions . . . No such moves are
imminent, but the fact that the department is engaging in such discussions
is an indication of how the crisis is constantly morphing. Such a move was
not under consideration just a few days ago but has become more of a
possibility in recent days as the credit crunch shows no signs of easing.
The Treasury Department is considering ways to inject capital directly into
banks, possibly by taking equity stakes, as the financial crisis continues to
worsen. Treasury Secretary Henry Paulson, in a marked shift in rhetoric,
played up Treasury's newfound authority to "to inject capital into financial
institutions" in remarks Wednesday. As the financial crisis continues to
escalate, Treasury has begun fleshing out ways to use its authority to
make direct injections into financial institutions . . . No such moves are
imminent, but the fact that the department is engaging in such discussions
is an indication of how the crisis is constantly morphing. Such a move was
not under consideration just a few days ago but has become more of a
possibility in recent days as the credit crunch shows no signs of easing.
L.A. Times: Federal Debt-Purchasing Program May Exclude States
A new federal program designed to ease credit by purchasing short-term
business debt probably won't be available to California and other troubled
beleaguered state and local governments, Treasurer Bill Lockyer said
Wednesday. Although the New York Federal Reserve Bank hasn't ruled out
helping agencies sell tax-free bonds, Lockyer said the Commercial Paper
Funding Facility set up this week by the government to help corporations
hobbled by the credit crunch was unlikely to provide any assistance to
municipal bond issuers. "I'm saying, gee, you need to adjust the scope of
the program so it includes municipal commercial paper," Lockyer said. "We
have a problem, and we don't know how you can care about business and
not care about state and local government." California needs help, and
quickly, Lockyer said. Next week, California plans to offer $4 billion worth of
short-term revenue anticipation notes for sale. If the IOUs don't sell, the
state could run out of money to pay for many routine expenses . . .
Business Week: Unfolding Derivatives Crisis Will Make Enron Look Tame
In 2003, legendary investor Warren E. Buffett called derivatives "weapons
of mass destruction." Buffett predicted the complex financial instruments
would morph, mutate, and multiply "until some event makes their toxicity
clear." The failure of Lehman Brothers may have been the disaster he
imagined. How lethal was the investment bank's derivatives portfolio? Just
look at the long line of banks, hedge funds, and other big investors trying
to get their money back. Lehman Brothers' bankruptcy threw into jeopardy
derivative deals with a staggering 8,000 different firms that paid Lehman
billions of dollars in collateral. Now some trading partners are calling on
state and federal courts to reclaim their assets, which have been frozen
since the Sept. 15 bankruptcy filing. It will be a "very awesome task to try
to unwind this," says Harvey Miller, Lehman's lead bankruptcy attorney . . .
UK Telegraph: European Central Bank Sees Crisis of Enormous Size
A string of governors from across the eurozone have today issued grim
warnings in what seemed a coordinated move to prepare the markets for
interest rate cuts, perhaps within days. Guy Quaden, Belgium’s ECB
member, said the violent storm ravaging Europe’s banking system was far
from over. "This is the worst financial crisis since the Thirties," he told the
Belgian parliament. Miguel Angel Ordonez, Spain’s ECB governor, echoed
the warnings in testimony to the Spanish Cortes, acknowledging that the
world now faces a crisis of "enormous proportions." In a clear rejection of
the ECB’s controversial 'go-it-alone’ policy on monetary policy, he called for
joint action with the US Federal Reserve to nurse the credit markets back
to life. "We’ve got to get together on both sides of the Atlantic," he said.
In 2003, legendary investor Warren E. Buffett called derivatives "weapons
of mass destruction." Buffett predicted the complex financial instruments
would morph, mutate, and multiply "until some event makes their toxicity
clear." The failure of Lehman Brothers may have been the disaster he
imagined. How lethal was the investment bank's derivatives portfolio? Just
look at the long line of banks, hedge funds, and other big investors trying
to get their money back. Lehman Brothers' bankruptcy threw into jeopardy
derivative deals with a staggering 8,000 different firms that paid Lehman
billions of dollars in collateral. Now some trading partners are calling on
state and federal courts to reclaim their assets, which have been frozen
since the Sept. 15 bankruptcy filing. It will be a "very awesome task to try
to unwind this," says Harvey Miller, Lehman's lead bankruptcy attorney . . .
UK Telegraph: European Central Bank Sees Crisis of Enormous Size
A string of governors from across the eurozone have today issued grim
warnings in what seemed a coordinated move to prepare the markets for
interest rate cuts, perhaps within days. Guy Quaden, Belgium’s ECB
member, said the violent storm ravaging Europe’s banking system was far
from over. "This is the worst financial crisis since the Thirties," he told the
Belgian parliament. Miguel Angel Ordonez, Spain’s ECB governor, echoed
the warnings in testimony to the Spanish Cortes, acknowledging that the
world now faces a crisis of "enormous proportions." In a clear rejection of
the ECB’s controversial 'go-it-alone’ policy on monetary policy, he called for
joint action with the US Federal Reserve to nurse the credit markets back
to life. "We’ve got to get together on both sides of the Atlantic," he said.
Econommist: Investors See No End in Sight to Financial Crisis
America’s Federal Reserve is now said to be considering its own plan to
take a flame to frozen interbank lending markets, and tackle the equally
pressing problem of a shrinking commercial-paper market that could choke
off funds to businesses. On top of further efforts to pump liquidity into the
banking system, it might begin unsecured lending to banks and businesses,
something that central banks rarely attempt and that the Fed has never
tried before. The Fed and other central banks may also turn to another
weapon they have held in reserve — a co-ordinated cut in interest rates.
Asia Times: Corporate, State Sectors Face Devastating Liquidity Crisis
At this point, there is clearly insufficient credit expansion to support
inflated asset markets; incomes and household spending; corporate cash
flows and investment; and government receipts and expenditures. Lending
markets are frozen, securitization markets broken, corporate and municipal
debt markets in disarray, derivatives markets in shambles, and the
leveraged speculating community is engaged in panic de-leveraging. As a
consequence, the over-indebted household, corporate and state and local
sectors now face a devastating liquidity crisis. We are today witnessing
the acute stage of bursting credit bubble. It's an absolute debacle, and
there's little our policymakers can do about it other than try to slow it.
America’s Federal Reserve is now said to be considering its own plan to
take a flame to frozen interbank lending markets, and tackle the equally
pressing problem of a shrinking commercial-paper market that could choke
off funds to businesses. On top of further efforts to pump liquidity into the
banking system, it might begin unsecured lending to banks and businesses,
something that central banks rarely attempt and that the Fed has never
tried before. The Fed and other central banks may also turn to another
weapon they have held in reserve — a co-ordinated cut in interest rates.
Asia Times: Corporate, State Sectors Face Devastating Liquidity Crisis
At this point, there is clearly insufficient credit expansion to support
inflated asset markets; incomes and household spending; corporate cash
flows and investment; and government receipts and expenditures. Lending
markets are frozen, securitization markets broken, corporate and municipal
debt markets in disarray, derivatives markets in shambles, and the
leveraged speculating community is engaged in panic de-leveraging. As a
consequence, the over-indebted household, corporate and state and local
sectors now face a devastating liquidity crisis. We are today witnessing
the acute stage of bursting credit bubble. It's an absolute debacle, and
there's little our policymakers can do about it other than try to slow it.
London Times: Iceland Could be Sucked into "Failed State" Status
The eruption in the financial markets has hit Icelanders in an elemental
way. Across the world, banks are going under or being given expensive life
jackets. In Iceland, which has let its banks run free, the country itself
could go under. Even the Prime Minister, Geir Haarde, admits as much:
"There is a very real danger, fellow citizens, that the Icelandic economy in
the worst case could be sucked into the whirlpool, and the result could be
national bankruptcy.” Suddenly an island with a population of 300,000, seen
for the past decade as the essence of cool - a successful nation where
people couldn't stop partying - is on the brink of becoming a failed state.
Herald Tribune: Iceland Fast Moving inancial Crisis Deepens Dramatically
Iceland's fast-moving financial crisis deepened on Wednesday as the
government seized control of a large bank it had planned to prop up and
the central bank failed to defend the country's currency. Kaupthing, the
sland's top bank, was forced to take an emergency loan from Sweden and
put its Swedish unit up for sale. Its shares dived on the Stockholm stock
exchange by 34 percent before they were suspended. The Icelandic crown,
battered in recent days, plunged again and the central bank abandoned its
attempt to peg the currency at 131 per euro. It was last trading at 165.
"It has become clear this rate has insufficient support. The bank will make
no further attempts in this regard for the time being," the bank said.
Fortune Magazine: AIG Gets an Additional Bailout of $38 Billion
AIG needs more money, it seems, and not just to pay the tab on its
$400,000 California resort junket. The Federal Reserve Bank of New York
said Wednesday afternoon it will lend as much as $38 billion in additional
funds forAIG’s troubled securities lending operation. The announcement
comes less than a month after the Fed extended $85 billion in emergency
loans to keep AIG from filing from bankruptcy, and just days after the Fed
said AIG had drawn down $61 billion of that credit line, in part to unwind
securities lending transactions. Under the new plan, the New York Fed will
take "investment-grade, fixed-income securities from AIG in return for cash
collateral." The move will allow AIG to roll over securities lending obligations
that aren"t being "rolled over by transactions withmarket participants."
Washington Post: Mainstream Media Starts Begging For Forgiveness
"We all failed," says Gasparino, a former Wall Street Journal and Newsweek
reporter. "What we didn't understand was that this was building up. We all
bear responsibility to a certain extent." The shaky house of financial cards
that has come tumbling down was erected in public view: overextended
investment banks, risky practices by Fannie Mae and Freddie Mac, exotic
mortgage instruments that became part of a shadow banking system. But
while these were conveyed in incremental stories -- and a few whistle
blowing columns -- the business press never conveyed a real sense of
alarm until institutions began to collapse. After being burned by years of
cheerleading before the dot-com collapse, the media warned repeatedly
that the surge in housing prices might turn out to be a bubble. But the
emphasis was on homeowners, not the banks that would be left holding
bagfuls of bad loans. The press was a day late and several dollars short.
UK Register: Pentagon and Homeland Security Simulating How Millions Will React to Food and Fuel Shortages in the U.S.
. . . the US Department of Defense may already be creating a copy of you
in an alternate reality to see how long you can go without food or water,
or how you will respond to televised propaganda. Called the Sentient World
Simulation (SWS), the program replicates financial institutions, utilities,
media outlets, and street corner shops. By applying theories of economics
and human psychology, its developers believe they can predict how
individuals and mobs will respond to various stressors. Yank a country's
water supply. Stage a military coup. SWS will tell you what happens next.
. . . the US Department of Defense may already be creating a copy of you
in an alternate reality to see how long you can go without food or water,
or how you will respond to televised propaganda. Called the Sentient World
Simulation (SWS), the program replicates financial institutions, utilities,
media outlets, and street corner shops. By applying theories of economics
and human psychology, its developers believe they can predict how
individuals and mobs will respond to various stressors. Yank a country's
water supply. Stage a military coup. SWS will tell you what happens next.
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