Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Wed 10.01.2008
"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel." --Abraham Lincoln, Speech to Illinois legislature, (January 1837)
Senate to vote on rescue plan with added tax cut Senate to vote on $700 billion financial rescue plan on Wednesday with added tax cut plan In a bold bid to revive President Bush's multibillion-dollar financial rescue plan, Senate leaders scheduled a vote for Wednesday night on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House. The goal is to net at least 12 more House votes than the rescue proposal received Monday, when lawmakers rocked the political and financial worlds by rejecting it. The gambit is certain to anger some conservative House Democrats, who object to tax cuts that are not offset with spending cuts. But Senate strategists assume it will gain more House votes than it will lose.
Main number: 202 225 -3121 - ask for your elected officials in D.C.
The Rescue Package Will Delay Recovery In his testimony to the Congress on September 24, Fed Chairman Bernanke urged the legislators to quickly approve the bailout of the financial sector with a package of $700 billion. Bernanke echoed Treasury Secretary Paulson's view that the bailout expense, while hefty, is needed to remove from banks' balance sheets the mortgage-linked assets, which are paralyzing the flow of credit. Most experts came out in strong support for the package. Without the rescue package, many large institutions that are "too big to fail" could go belly up. Many believe that the consequences of all this could be very severe to the real economy. It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.
The (Near) Death of the State I'm fully aware that Paulson and Bernanke have some nefarious scheme in mind to reverse the thrilling defeat of their criminal bailout package, a package shot down by independent members of Congress on both sides. But reflect for a few minutes on what it means that the House did this. It was a revolutionary act in the best sense of that term.The entire establishment was united in favor of what was surely the most horrible and outrageous bill ever to come before Congress. . . . .Forget back-door socialism: this was right through the front door. The consequences would have been dreadful and very scary. It was to be the first of many bailouts, since of course it cannot and would not work. Bad debts can't be made good by legislation. This means that more money would be necessary, as the middle class was sucked dry by the vampire state for years to come. Deeper and deeper economic depression — a repeat of the '30s — was certain. Best to put a stop to this now.
Senate to Vote Wednesday on Bailout Plan Senate leaders scheduled a Wednesday vote on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week. After a day of behind-the-scenes maneuvering, top lawmakers said the Senate proposal would include a tax package as well as a plan endorsed on Tuesday by both major presidential candidates and the Bush administration to raise government coverage for bank deposits.
Lawmakers scramble to revise bailout bill Congressional leaders, prodded by presidential hopefuls, search for new rescue plan Congressional leaders labored Tuesday to find out how many changes are needed to sell the defeated $700 billion financial system rescue to rank-and-file members. John McCain and Barack Obama offered long-distance encouragement from the campaign trail, announcing separately their backing for a plan that some House Republicans had pushed earlier: raising the federal deposit insurance limit from $100,000 to $250,000. The aim would be to reassure nervous Americans and to shore up the economy. For his part, President Bush sought to avoid being marginalized, making another statement in the White House. "Congress must act," he demanded in front of the cameras. "I recognize this is a difficult vote for members of Congress," he said. "And I understand that. But the reality is we are in an urgent situation and the consequences will grow worse each day if we do not act."
Bailout by Stealth While the public is distracted by the "bailout bill" and its rejection, trillions are pumped in to keep financial balloon inflated The media is falling all over itself to report on every minutiae of the so-called Wall Street "bailout bill" and its rejection by Congress yesterday (just a few of the thousands of examples can be seen here and here and here and here). And why not? The media's breathless coverage of the bill has produced a furious backlash by the public and hysteria on Wall Street in a self-justifying feedback loop that makes the media attention seem merited. The startling truth which the controlled corporate media is not reporting, however, is that a bailout is actually taking place right now, completely out of the public spotlight. This program has already pumped trillions of dollars into Wall Street (compared to the mere $700 billion proposed in the legislation that the media is focusing on) to help prop up the faltering investment banks and promises to pump in even more, every dime of it to the detriment of the taxpayer though the public will have no stake in its success. Why, then, is this program not being talked about in the media?
Wealthy investors hoard bullion Investors in gold are demanding "unprecedented" amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.
Investors start a fresh gold rush "Fiat money, in extremis, is accepted by nobody," Alan Greenspan, the former chairman of the US Federal Reserve, told lawmakers in Washington almost a decade ago. "Gold is always accepted," he added. The "in extremis" scenario was for years only a possibility in the mind of die-hard gold bugs, but the financial crisis is leading regular investors - from the ultra-rich to middle-class savers - to believe that the environment in which Mr Greenspan said fiat money would be worthless is now around the corner. The investors' response is a rush into physical gold not seen since the second oil crisis in 1979, bankers say. The shift into gold coins and bars is so extreme that it is causing shortages at refineries and mints around the world.
Gold rush that's all about hard currency Investors in gold are demanding "unprecedented" amounts of actual bullion bars and coins and moving them into their own vaults as fears about the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unforeseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds. Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street's woes. "It is a flight into gold because it is a physical asset," he said.
Gold slips below $900 as firmer dollar prompts profit-taking Gold slipped below $US900 an ounce in Europe as a firmer dollar and weakness in other commodities such as oil and industrial metals encouraged profit- taking. Platinum and palladium tumbled as investors worried about the outlook for carmakers who are major consumers of the platinum group metals. "I am surprised gold is not higher," Deutsche Bank trader Michael Blumenroth, said. "But the market is very long since we had the $100 move two weeks ago." "Investors are starting to take their profits in the gold market," he added. "They don't want to leave it in any investment, they just want dollars." The dollar rebounded against the euro and the yen, as investors cut back on risky positions after an emergency plan to rescue the troubled US financial sector was rejected by lawmakers.
Five Reasons Why the $700 Billion Banking Bailout Will Translate into $250 Oil . . . . As the curtain closed on the third quarter yesterday (Tuesday) - leaving many investors worried that the long-feared "Super Crash" was imminent - crude-oil futures were staring at their first decline in seven quarters and their biggest quarterly decline in 17 years, thanks to worries that a slowing economy would curtail global demand. As of early afternoon yesterday, crude oil for November delivery had dropped $39.36 a barrel - or 28% - during the third quarter to close at $100.64 yesterday afternoon.
Banking’s crisis of confidence deepens Wall Street rebounded on Tuesday in spite of a worsening crisis of confidence in the global banking system, as leaders of the US Congress moved to try to salvage the Bush administration’s $700bn bail-out plan. A proposal to increase the ceiling for government insurance on bank deposits to $250,000 emerged as the best hope of swaying reluctant Republicans and Democrats who voted against the bill on Monday. The Senate agreed late Tuesday to vote on a revised bail-out measure on Wednesday night. Meanwhile, the Securities and Exchange Commission issued guidance emphasising the flexibility companies have to depart from mark-to-market accounting in situations when markets are illiquid. The SEC move does not suspend mark-to-market rules, but goes some of the way to address criticism of the accounting regime that critics – including many conservative Republicans – say has fuelled a downward spiral in credit markets.
Derivatives market faces biggest test The $54,000bn credit derivatives market faces its biggest test in October as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. Highlighting the opacity of this market, it is still not clear how many contracts have to be settled, and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions. According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts.
The Great Bank Robbery of 2008 The Paulson bailout failed in the House. If it isn't a death blow to the plan, it should be. This is not an economic plan: it is a heist. It will go down as The Great Bank Robbery of 2008. The economics behind it are nonsense. This is a money and power grab, pure and simple. Paulson's proposal — made in broad daylight and on national TV! — is almost naked in its audacity.
Socialist "Bailout" Could Spark Collapse While many of the talking heads and pundits on TV have been providing calming words of reassurance about proposed federal intervention in the financial system, analyst Peter Schiff of Euro Pacific Capital has been accurately warning for years about a financial meltdown and says that the worst, if Congress eventually passes the "bailout" bill, is yet to come . . . . Many commentators, Schiff said, are telling people that if the bailout doesn't go forward, there will be an economic crisis. However, "if we do it, there will be a bigger crisis," he predicts. . . . ."The politicians want to make believe we can avoid paying the piper if we pass these bailouts," he said. "It's just not true. It's going to collapse the currency. It's going to make a worse economic crisis because the money they’re printing is not going to buy anything."
Wall Street rally hinders attempts to save bailout A frantic behind-the-scenes effort to cajole, arm-twist and beg enough congressmen to resurrect the White House’s stricken $700 billion financial rescue package consumed Washington yesterday, as an enfeebled President Bush pleaded with Congress to pass the plan after its stunning defeat on Monday. Stepping before the cameras for the second time in 24 hours to implore the House of Representatives to back the Bill — a sign of how his influence has all but vanished in the waning months of his presidency — Mr Bush repeated his warnings that a failure to approve the package would trigger dire economic consequences. . . . Their efforts were not helped by a rally on Wall Street after its record one-day points plunge on Monday, making the calls of urgency seem overwrought to some congressmen.
Lesson From a Crisis: When Trust Vanishes, Worry In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right. A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again. Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.
The hoi polloi vents its discontent This week, the American people rebelled against their elite. That is the big political story behind Congress’s surprise rejection on Monday of the financial rescue plan that had been laboriously – but, we were told, victoriously – patched together over the sleepless weekend. No one was thrilled by the final proposal. Wall Street’s action-man financiers would have preferred a sleeker plan that simply gave Hank Paulson a lot of ammunition and trusted him to shoot at the right targets. Academic economists leaned towards solutions that would more directly address the solvency problems in the banking system by taking equity stakes. Ideologues on both the right and left were dismayed by a package that simultaneously increased the power of government and bailed out the financial plutocracy
Main Street prepares to pay for 'greed' Dale Plumer lets out an incredulous laugh when asked if he supports the US government’s $700bn bail-out of Wall Street. "We're probably like all the other middle-income people," says Mr Plumer, a merchandiser at JBS United, a grain elevator company in Griggsville, a small town in south-western Illinois. "We don’t think we should have to bail them out." His view reflects the mood across much of middle America, where taxpayers are concerned about both the federal government’s massive intervention in the economy and how they will be affected. Like many on Main Street USA, he admits he has a poor grasp of the difficulties faced by the financial sector. "I don’t know what the ramifications are of just letting those companies fail. But it sure seems like somebody was too greedy and let it get the best of them
Congress approval rating just 10% as Bush goes from 'lame to dead duck' The controversy over the failure of the Bush administration's unpopular financial bail-out is infecting every aspect of government and the presidential election campaign. Eminent reputations lie in ruins; the august institutions of Congress, the treasury, the Federal Reserve tremble; the presidency itself is shaken. In America's year of living dangerously, few will emerge unscathed. The consensus view, if there is one in so divided a nation, is that the US has suffered a calamitous, across-the-board failure of leadership. The bankruptcy is political as well as economic. This conclusion is widely held among both supporters and opponents of the bail-out. "Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage," snarled a Wall Street Journal editorial yesterday. Black Monday's shambles marked a "historic abdication".
The $55 trillion question The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster? If Hieronymus Bosch were alive today to paint a triptych called "The Garden of Mortgage Delights," we'd recognize most of the characters in the bacchanalia and its hellish aftermath. Looming largest, of course, would be the Luciferian figures of Greed and Excessive Debt. Scurrying throughout would be the Wall Street bankers who turned these burgeoning debts into exotic securities with tangled structures and soporific acronyms - CDO, MBS, ABS - that concealed the dangers within. Needless to say, we'd see the smooth-tongued emissaries of the credit-rating agencies assuring people that assets of lead could indeed be transformed into investments of gold. Finally, somewhere past the feckless Fannie Mae executives and the dozing politicians, one final figure would lurk in the shadows: a hulking and barely recognizable monster known as Credit Default Swaps.
FDIC asks to boost deposit limits The federal agency that guarantees bank deposits is asking Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts. Federal Deposit Insurance Corp. Chairman Sheila Bair put out a statement late Tuesday afternoon asking that Congress allow her agency to increase the $100,000 limit per account that has been in place since 1980. "Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace," Bair said. "To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits."
More bank failures expected (video) The FDIC has a list of 117 troubled banks, but analysts say the bailout could affect even more.
Wondering which bank is next Analysts brace for more bank failures after Wachovia sells out banking assets to Citi; bank stocks plunge after House rejects bailout bill. Following Citigroup's takeover of Wachovia, the collapse of Washington Mutual and the House's rejection of the bank bailout bill, Wall Street is wondering who's next. "Clearly we're going to see more bank failures, probably none on the size of whatever we've seen the last couple of days, but we'll see a lot more of them," said Sean Ryan, analyst for Sterne, Agee & Leach. Ryan said regional banks in the Rust Belt of the upper Midwest - with the exception of TCF Financial Corp. (TCB) because of its strong fundamentals - and banks with heavy mortgage-related investments in the hard-hit areas of California and Florida are vulnerable.
Shares of regional banks soar Shares of regional banks soared Tuesday as investors flooded the market in search of bargains, following one of the biggest selloffs in years the day before. Stocks plummeted Monday after the government's proposed $700 billion financial rescue package failed to win approval in the House of Representatives, heightening concerns on Wall Street about the stability of the financial system. Without a bailout plan in place, questions lingered about how ailing banks are going to handle mounting losses tied to bad mortgage debt. The proposal would have allowed the government to buy bad mortgages and other deficient assets held by troubled financial institutions.
Bush warns on failure to agree bail-out President George W. Bush warned on Tuesday that damage to the US economy would be “painful and lasting” if Congress did not pass his admininstration’s financial bail-out plan. The president maintained that “much if not all” of the $700bn cost of the plan would be eventually returned to taxplayers. "I realise this is a difficult vote for members of Congress," Mr Bush said at the White House. “But the reality is that we’re in an urgent situation and the consequences will grow worse each day’’ that Congress does not act. His comments follow the worst one-day fall in US stocks since the 1987 crash on Monday, after the House of Representatives shocked investors by voting to reject the plan.
The new bailout pitch: It's NOT a bailout The Bush administration is searching for a new way to sell its financial rescue plan after acknowledging some blunders and missteps in presenting it the first time around. One big key: Insist it's not a Wall Street "bailout." Now it's not about financial institutions. The focus has switched to everyday Americans. And it's not an expenditure of taxpayer money, it's an "investment." This was clearly evident in Bush's grim warnings on Tuesday of "economic hardship for millions" if the plan can't be revived. He declared, "For the financial security of every American, Congress must act." This emphasis was echoed on the presidential campaign trail. "Let's not call it a bailout. Let's call it a rescue," said Republican John McCain.
Failure to lead fuels Main Street backlash This week's bail-out debacle was widely criticised on Tuesday as marking a failure of US leadership on a grand scale – one that carried worrying overtones of political dysfunction in past economic crises in Japan and many emerging economies. "The entire superstructure of American political leadership failed. They couldn’t deliver," said Larry Sabato, director of the Center for Politics at the University of Virginia. The House’s rejection of the bail-out on Monday could ultimately be reversed. But it raised parallels with the early 1930s and the early 1980s – when the US was beset by economic crises during the lame-duck presidencies of Herbert Hoover and Jimmy Carter.
'I blame Bush ... all they cared about was the fat cats' On a clear day you can see the soaring skyline of downtown Manhattan from the Yonkers waterfront. But this city on the banks of the Hudson river feels a world away from the gleaming concrete canyons of Wall Street. It is a gritty town, struggling with the loss of the heavy industry that once saw it thrive, and only slowly witnessing a renovation of its scruffy Main Street. Fancy new restaurants stand amid rows of closed shopfronts and bargain-basement thrift stores. In many ways that mix makes Yonkers a typical American city. But now Yonkers residents are preparing grimly for hard times ahead. The effects of the credit crunch, the failed bail-out plan and the seemingly endless news about collapsing banks, has people on Yonkers' Main Street deeply fearful for the future.
Bill v. Barack on Banks $$ Clinton instructs Obama on finance and Phil Gramm. A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better. In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.
Prudent Bear's David Tice Says Dow Average May Plunge to 5,000 The Dow Jones Industrial Average may plunge another 5,300 points because the economy is slowing, according to David Tice, whose Prudent Bear Fund has advanced 13 percent in 2008 even as the stock market dropped. Tice told Bloomberg Television that the Dow average, which closed at 10,365.45 yesterday, might sink to 5,000 or 6,000. That implies a drop of as much as 52 percent. "We don't believe that the pain is over," said Tice, who oversees $1.08 billion in Dallas. "The market hasn't even fallen that far yet and we're already throwing trillions of dollars at this."
Dow Under 8,400 a Real Possibility Stock guru Jim Cramer says problems abroad and at home could lead the Dow to a shocking new low, as far down as below Dow 8,400 — if a bailout doesn’t emerge from Congress soon. "There is so much going wrong. The credit markets are vanishing, the earnings are vanishing, and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again," Cramer writes on TheStreet.com. A lot of America’s problems can be traced directly to big problems in the markets of its biggest foreign customers, like Brazil, Russia, India, and China, he says.
How bad is our economy? Robert Kuttner says the failed bailout bill would have helped the wrong people. J.D. Foster says the U.S. faces a fiscal crisis far greater than Wall Street's current malaise. Now that Congress blocked the compromise bailout worked out by House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson, it's time for it to get things right. Taxpayers are right to be outraged over bailing out Wall Street investors, but the right-wing Republican "private market" alternative is a joke. If it takes government insurance and government tax credits to unload bad bonds, what we have is hardly a private market.
As risk grows, resources strained at Fed, FDIC If the House vote against the $700-billion financial rescue proposal stands, Americans may be in for a test of free-market economics the likes of which the country hasn't seen since the early 1930s. With the Treasury Department hobbled by the rejection of its plan, the Federal Reserve and Federal Deposit Insurance Corp. are the chief government institutions standing between the nation and the brutally Darwinian process that could unfold if the panicky financial markets are left to sort their problems out alone.
Congress decides it is worth risking depression It is just over three score years and ten since the Great Depression. Judged by its rejection of the plan put forward by Hank Paulson, US Treasury secretary, Congress believes it is time to risk another one. That slump was, arguably, the greatest catastrophe of the 20th century: it was, among other things, responsible for the events that led to the second world war – not least Hitler’s rise. One can only imagine what horrors a depression might bring now? Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com Such forebodings must seem exaggerated. So, I expect, they will be. But that dire outcome is no longer impossible, not because a slump is inevitable, far from it, but because action is needed to prevent one. We are watching the disintegration of the financial system. Finance is the web of intermediation binding economic agents to one another, across both space and time. Without it, no modern economy can survive.
Congress repeats 1930s errors with bailout vote In the 1930s, the US Congress did more than its fair share in helping to turn a financial crisis into a global depression. Yesterday it looked as though it was auditioning to assume that role again. Back then, Congress’s vote for protectionist legislation, the infamous Smoot-Hawley Tariff Act, which erected trade walls around America, almost brought to a halt the free movement of goods and services vital to the efficient functioning of the global economy. Yesterday, in rejecting a plan to help to rescue the US financial system that had been constructed and reconstructed by the Bush Administration in collaboration with the Democratic and Republican leaderships, the House of Representatives dealt a hammer-blow to an already almost immobilised global financial system.
America must seek aid for a global credit line The US Congress has refused to pass the $700bn bail-out plan. That may turn out to be appropriate. The question, however, is not whether the matter should be left to the market or whether the government should rescue those who might lose their home to foreclosure. The imperative now is to provide liquidity to the market, particularly to failing financial institutions. From Japan’s experience in the 1990s, it is clear that the US financial crisis is following a familiar pattern. However, US leaders do not seem to know what lessons to draw from history.
There are three principles you need to observe in a financial crisis. First, treat it as a systemic failure and do not act on individual cases. Second, know the sequence of events so that you solve the right problem at the right time. Third, then construct a universal system to avoid problems recurring. The US government is violating each of these principles and mixing up the sequence of events. In doing so, it is aggravating an already bad situation.
Bailout stall threatens to bring down banks throughout the West European leaders are pleading with America's lawmakers to reach an agreement on a financial rescue package "for the sake of the world" after a string of banks on this side of the Atlantic had to be saved. Financial institutions in Iceland, France, Germany and the Low Countries have become the latest victims of the contagion spreading throughout the global economy. They include Fortis, the Benelux giant which has more assets than the entire Belgian state, and Iceland's third largest bank, Glitnir, with very real fears that other banks will follow if Congress does not reverse its decision to reject a $700 billion bail-out of US banks. Johannes Laitenberger, spokesman for the European Commission, summed up the mood when he said: "The US must take its responsibility in this situation, must show statesmanship for the sake of their own companies and for the sake of the world."
This is the way the world ends This is the way the world ends This is the way the world ends Not with a bang but a whimper.
-- T.S. Eliot"The Hollow Men" (1925)
The world is not ending. Despite the wrenching turmoil in global financial markets and morbid allusions to the death throes of capitalism, it ain't over. Not until people quit believing in themselves, not until people quit believing in a better future. But the whimpering is real, and justified, because it hurts to have your world come crashing down. And global financial markets are definitely crashing, even when the impact is momentarily softened through massive injections of artificial money -- "artificial" because the fiat money does not represent a store of genuine value but rather an airy government claim to future wealth yet to be created.
Triple blow spurs central banks The world’s central banks scrambled on Tuesday to address three simultaneous crises in money markets that led to violent jumps in interest rates as the financial system remained under severe stress. The unpleasant trio were the enormous uncertainty created by the failure of the US administration’s plan to purchase toxic assets from banks, a severe shortage of US dollars in banks outside the US at the end of the quarter, and the breakdown of trust in money markets that has led to a drought of funds for those banks needing to borrow. The stress was evident in a widening gap between unsecured interest rates for bank borrowing and risk-free borrowing at maturities of three months and above.
Sales Decline at Ford and G.M. The Ford Motor Company said Wednesday that sales in the United States dropped 34 percent in September, as volatility in the financial markets compounded ongoing misery for the auto industry. But sales were better than expected at General Motors, which reported a 12 percent decline and estimated that its market share rose to the highest level in more than three years. "We are looking at a very fragile economy," Emily Kolinski-Morris, Ford’s chief economist, said on a conference call with analysts and reporters. "I don’t think anyone can say where the bottom might be."
Sallie Mae Credit Swaps Jump to Record Amid Turmoil The cost to protect against a default by SLM Corp., the biggest U.S. educational lender, reached a record as short-term corporate borrowing rates soared amid the worst financial crisis since the Great Depression. Credit-default swaps on the Reston, Virginia-based company's bonds climbed deeper into distressed levels before recovering somewhat as rates on commercial paper backed by assets such as student loans and credit card debt soared. The company, known as Sallie Mae, makes money by lending at rates that are higher than its borrowing costs.
SEC, FASB Resist Calls to Suspend Fair-Value Rules The U.S. Securities and Exchange Commission probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis, people familiar with the matter said. The SEC and Financial Accounting Standards Board today issued "clarifications" on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.
Embattled Paulson regroups his forces An embattled Hank Paulson was on Tuesday seeking to regroup his forces and salvage his $700bn economic rescue plan following its defeat in the House of Representatives on Monday. The Treasury secretary believes the House vote was dangerous and potentially puts the stability of the financial system and the economy at risk. But he is being forced to walk a fine line between publicly warning Congress about the risks while not triggering a market panic that could cause a further wave of bank failures.
FDIC to Ask for Authority to Raise Deposit-Insurance Limits The Federal Deposit Insurance Corp. will ask Congress for permission to increase deposit insurance limits, House Financial Services Committee Chairman Barney Frank said in a memorandum to members of his panel. "Sheila Bair, chairman of the FDIC, notified me that they will be requesting authority to increase deposit insurance limits. We will provide additional details as we have them," Frank said in the memo. The FDIC currently provides $100,000 of insurance for individual bank deposits. The memo didn't specify what new level was being requested by the agency.
Treasuries Plummet on Speculation Rescue Plan Will Be Salvaged Treasuries fell, paring the biggest monthly gain since January, as speculation lawmakers will salvage financial-rescue legislation eased concern that capital markets will deteriorate further. Traders pushed up yields on two-year notes by the most in more than a week, erasing the bulk of yesterday's 44-basis-point rally, as an advance in stocks damped demand for government debt. A gauge of expectations for Treasury volatility surged to the highest in at least 20 years. Senate leaders vowed to act this week on the $700 billion rescue package, which the House rejected yesterday.
US bail-out: What will happen if the deal is not implemented For weeks, the powerful politicians and bankers grappling with a global financial crisis have pinned their hopes on a piece of legislation that would authorise the US Treasury to stake up to $700 billion relieving US banks of risky loans that threaten their future and the entire financial system. But the Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets now hangs in the balance, with no guarantee that it will win Congressional approval. So what happens if the biggest bail-out in history is not implemented? The global financial system is based on banks freely and frequently lending each other huge sums of money, money that is then lent on and on again. At the heart of the financial crisis is banks' confidence in the ability of their competitors to pay back money that they borrow. With almost every bank exposed to the risk that people and businesses to whom they have lent money will not pay it back, no one knows which banks are able to stay in business and which will be wiped out by huge losses from bad loans.
Hedge funds face worst year since 1990 Hedge funds on Tuesday closed out one of their worst-ever quarters as US managers braced for an extension of the short-selling clampdown which has robbed them of one of their most popular strategies. The hedge fund business has been left reeling by the combined forces of greater regulation – including the banning of short selling on certain financial stocks by the US Securities and Exchange Commission and other regulators across the world – the threat of investor withdrawals, a flight from risk and a squeeze on leverage.
Why the credit crunch is about more than Wall Street I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis. No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans. I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business. Here goes. If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch.
And then there were none What the death of the investment bank means for Wall Street THE radical overhaul of the City of London in 1986 was dubbed the Big Bang. The brutal reshaping of Wall Street might be better described as the Big Implosion. The “bulge-bracket” brokerage model—the envy of moneymen everywhere before the crunch—has collapsed in on itself. Even more humiliating for the Green Berets of the markets, the new force in finance is the government.
Crude Oil Rises on Signs U.S. Will Revive Bank Bailout Plan Crude oil rose, rebounding from its biggest drop in seven years, after U.S. lawmakers said they intend to salvage a $700 billion bank-rescue package that may avert an economic slowdown. Oil fell more than $10 yesterday and global stock markets were battered after the House of Representatives failed to pass a rescue bill and European governments bailed out three banks. The U.S. Senate will try to revive the financial package tomorrow. "The market is being totally driven by what is happening in Washington," said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. "What happens to oil prices depends completely on whether the rescue package is approved or not."
What Goes Before a Fall? On Wall Street, Reassurance "Jim, we have a great future as an independent company,” Robert K. Steel, Wachovia’s chief executive, told James Cramer on CNBC’s “Mad Money." "We’re also focused on very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia." That interview wasn’t last month or last year — it took place, amazingly, two weeks ago. Wachovia’s shares closed at $10.71 that day. On Monday, Citigroup bought the company for $1 a share. What was Mr. Steel thinking? Did he think he could "spin" his way to survival?
Bush Approves Loans for Auto Makers $$ President Bush on Tuesday signed into law a low-interest loan package to aid U.S. auto makers, but those struggling companies will still have to wait months to find out how and when they can tap the $25 billion designated to smooth their transition to building more fuel-efficient vehicles. The loan package was approved last year as a way to help auto makers and their suppliers meet fuel-economy standards set by the federal government. But the funding for the package wasn't passed by Congress until this year. One estimate put the total cost to auto makers at $100 billion to meet stricter efficiency standards that require vehicles to reach 35 miles per gallon by 2020.
No one's clean in this mess Democrats and Republicans must share the blame for the failure to pass a $700-billion bailout plan. On Sunday evening, Republican House Minority Leader John A. Boehner explained his considered opinion on the $700-billion Wall Street bailout plan: It's a "crap sandwich," he said, but he was going to eat it. Well, it turned out he couldn't shove it down his colleagues' throats. The bill failed on a bipartisan basis, but it was the Republicans who failed to deliver the votes they promised. Some complained that Democratic Speaker Nancy Pelosi drove some of them to switch their votes with her needlessly partisan floor speech on the subject. Of course Pelosi's needlessly partisan. This is news?
Banks in miser mode send borrowing rates soaring Bank-to-bank lending rates jump after House vote against bailout; T-bill demand eases slightly Bank-to-bank lending rates jumped Tuesday and Treasury bill demand eased only slightly, a day after Congress' rejection of the bank bailout plan cast an even deeper freeze over the barely operational credit markets. After the House's vote against the Bush administration's plan, investors pulled their money out of stocks and commodities Monday, sending the Dow plummeting 778 points and crude down more than $10 a barrel. That money got shoveled into Treasury bills, short-term debt issued by the U.S. government that's considered the safest investment around. On Tuesday, the yield on the 3-month T-bill recovered to 0.90 percent from 0.14 percent late Monday as the Dow Jones industrial average rebounded by more than 260 points in midday trading. The T-bill yield is still very low by historical measures, however -- particularly when compared to lending rates between financial institutions.
Jolted Congress Will Pass Bill, But Confidence Destroyed The silver lining of yesterday's market collapse: It may have woken Congress up to the severity of the economic crisis. Stocks have jumped on the hope that a slightly modified bailout bill will be passed later this week. Traders are also hoping for an emergency Fed rate cut. At the same time, the credit markets are still extremely tight, which will constrict companies' ability to do business. Our guest, Wall Street Journal Deputy Managing Editor Alan Murray, thinks Congress will eventually pass the bailout bill. He also thinks, however, that the events of the last several days have severely damaged the public's confidence in Washington's ability to deal with this crisis. Given that the crisis is really all about confidence -- banks are so scared they aren't lending to each other -- this could dampen the effect of the bailout when it's finally passed.
Global liquidity crisis runs on unabated Libor spikes; onus on central bankers as U.S. bailout stalls Massive liquidity injections haven't freed up crucial money markets, leaving the world's central bankers little choice but to try more radical measures in order to dampen the odds of a wider economic collapse, economists said Tuesday. Overnight borrowing rates and other key short-term interest rates and credit spreads rose sharply a day after the House of Representatives dramatically and unexpectedly rejected a $700 billion U.S. bank-bailout plan, roiling global financial markets and leaving Washington in a state of shock. Commercial banks have grown increasingly reluctant to provide each other with short-term loans, partly out of fear of further bank failures and concerns about the health of their own balance sheets.
France's Sarkozy battles fallout from financial crisis President Nicolas Sarkozy on Monday battled to contain fallout from the global financial crisis, moving ahead with plans for a world summit and calling a meeting of French banking and insurance chiefs. France will host a meeting of European officials to prepare a summit "in the coming weeks to establish the basis of a new international financial system," said Sarkozy, whose country holds the presidency of the European Union. Officials from Britain, France, Germany and Italy -- the EU members of the G8 -- will meet in Paris in the coming days to lay the groundwork, he said on the sidelines of an EU-India summit in the southern city of Marseille.
Chavez Says U.S. Slump Hits Like `Hundred Hurricanes' Venezuelan President Hugo Chavez said the turmoil in U.S. financial markets will stunt growth in Latin America and may send oil down to as low as $80 a barrel. "This is a hurricane, or more than one hurricane, it's a hundred hurricanes," Chavez told reporters after arriving in Manaus, Brazil for a meeting with Brazilian President Luiz Inacio Lula da Silva. "I'm in the group that believes this will be worse than the 1929 crash. No country can say it won't be affected." Oil prices should stabilize between $80 and $95 a barrel, Chavez said, adding the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.
TRAINING A SOCIALIST ARMY OF WORLD SERVERS Obama: “I will ask for your service and your active citizenship when I am president of the United States ... this will be a central cause of my presidency." Obama: "People of all ages, stations, and skills will be asked to serve.... I will set a goal for all American middle and high school students to perform 50 hours of service a year, and for all college students to perform 100 hours of service a year...." Saul Alinsky (Obama's Marxist mentor): "The disruption of the present organization is the first step toward community organization.... All change means disorganization of the old and organization of the new."
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