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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