Sunday, October 26, 2008

German minister: Crisis far from over


Germany's finance minister said in comments published Sunday that global financial markets could still collapse and that the situation remains dangerous despite government efforts to bailout lending institutions.

"The danger of a collapse is far from over. Any `all clear' would be wrong," Finance Minister Peer Steinbrueck told the Bild am Sonntag weekly. "We are still dealing with a very dangerous situation."

Germany approved a 500 billion euro ($675 billion) rescue package for the country's financial markets on Oct. 17. So far only one bank, the state-owned BayernLB, has requested assistance. Two other state-owned banks, WestLB and HSH Nordbank, indicated over the weekend they were considering seeking assistance.

Saturday, October 25, 2008

Friday, October 24, 2008

The Bank Capital Mirage

The above chart more or less supports what some have been saying for a while -– that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over –- but it's still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks' prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won't take much to tip banks over into insolvency again.

Tuesday, October 21, 2008

The Wrong Answer to the Wrong Crisis

Anna Schwartz wrote the book on the last great banking crisis. That book was called "A Monetary History of the United States," and it was co-authored by the far more famous Milton Friedman. She says the bailout would have worked if it forced banks to take serious write downs on junk assets and allowed imploding banks to fail. Unfortunately we're doing the opposite.

Friday, October 17, 2008

Foreign Central Banks buy Treasuries - The Fed dumps them!

Over the last 52 weeks, foreign central banks have added $321b to their Treasury holdings at the New York Fed (and no doubt more to other accounts) and $147b to their Agency holdings — for a total of $468b. And there clearly has been a big shift towards Treasuries recently. The rise in Treasury holdings over the last two weeks, annualized, tops $1 trillion. The fall in Agency holdings over that period (after the bailout of the Agencies), annualized, also tops $1 trillion.

Stunning? Yes. Stabilizing? Not really. There isn’t a shortage of demand for Treasuries right now. But there is a shortage of willing lenders of dollars to European banks and — to a degree, s shortage of buyers for the debt issued by the US Agencies (Freddie, Fannie and the like). And remember that the Agencies are the main current source of credit for American households looking to buy a home — without their lending, home prices would fall much much further.*
The Fed’s balance sheet by contrast is moving in the opposite direction — out of Treasuries. The Fed has been selling off its Treasury holdings for a while now. But there are limits to how many loans to banks and broker dealers and European central banks the Fed can finance through the sale of its existing stock of Treasuries. The recent increase in Federal Reserve lending has been financed by both the $500b in cash raised by the Treasury and deposited at the Fed through the supplementary financing facility — and a big rise in bank deposits at the Fed. Those two sources combined to provide the Fed with about $750b in financing.
The scale of the expansion of the Fed’s balance sheet is equally stunning. The Fed is currently provided at least $950b in dollar liquidity to the US financial system through various term facilities and its direct lending, and another $450b of dollar liquidity to European central banks — liquidity that is then lent to European financial institutions that are facing a shortage of dollars. Let there be no doubt that this is a systemic crisis.

U.S. Demand for Crude Oil

The sharp drop in U.S. oil demand -- down in recent weeks by about 9% from a year ago -- shows how deep the economic malaise is across much of the industrialized world now.

Sunday, October 12, 2008

Saturday, October 11, 2008

IMF Warns of Systemic Meltdown

The world financial system is teetering on the "brink of systemic meltdown", the head of the International Monetary Fund (IMF) has warned in Washington.

Dominique Strauss-Kahn said rich nations had so far failed to restore confidence, but he endorsed a new action plan by the G7 group.

He also said the IMF was ready to lend to countries in dire need of capital.

Mr Strauss-Kahn spoke after talks with US President George W Bush, G7 finance ministers and the World Bank.
On Friday in the US capital, the G7 group of most industralised nations released a five-point plan to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market.

Speaking in Washington on Saturday, Mr Strauss-Kahn said: "Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown."

BBC made it sound as if he later retreated from his assessment:
He later told a news conference: "The first co-ordination between advanced countries and the rest of the world is now on track."

Krugman Last Chance to Avert Great Depression

Krugman says we need equity injections and guarantees of interbank lending to restore confidence in banking system on a global basis and letting Lehman collapse was a mistake.

Dow May Fall to 7000

The Dow Jones Industrial Average would have to fall about 18 percent more to reach its ``trend line'' since August 1982, when the 1980s bull market started, according to Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York.

World Stock Markets Lose $26 Trillion

A Discussion with Paul Volcker - Thursday, October 9, 2008


Wednesday, October 8, 2008

Sunday, October 5, 2008

Hedge funds wilt in credit drought

Investor redemptions could cull herd of hedgies; 700 to 1,000 funds may disappear by year-end.

CBS 60 Minutes: A Look At Wall Street's Shadow Market

Thursday, October 2, 2008

The U.S. Financial Crisis Is Spreading to Europe

Barely a week after Europeans rebuffed American pleas to join in their bailout of the banking system, Europe now faces a financial crisis almost as grave as that in the United States — demonstrating how swiftly this contagion is spreading around the world.

In the last two days, governments from London to Berlin have seized or bailed out five faltering banks. In Ireland, where rumors of panicked withdrawals from banks spooked the stock market, the government has offered a two-year blanket guarantee on all deposits and bank debt.

Asia has been less buffeted by the turmoil, though a brief run on a bank in Hong Kong last week brought back dark memories of June 1997, when speculation against the Thai currency sparked a financial crisis that fanned rapidly across Asia, and later to Brazil and Russia.

Economists see a parallel between these two crises a decade apart: once creditors panic and begin to pull out their holdings, the underlying health of banks — or entire countries — no longer matters a great deal. In a global financial system, national borders are porous.

“In this day and age, a bank run spreads around the world, not around the block,” said Thomas Mayer, the chief European economist at Deutsche Bank. “Once a bank run is under way, it doesn’t matter anymore if you have good loans or bad loans. People lose confidence in you."