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Topic: Global financial crisis
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| UGoGirl | Posted – 12/16/2007 9:44:52 AM | show profile In my opinion, not enough attention is being paid to the global unwinding financial crisis. At least not in the U.S. This article in the UK telegraph highlights the enormity of the issue... **** World bankers resort to firebreak Desperate times call for drastic action, but in a double-edged battle, liquidity lubrication has its limit, writes Ambrose Evans-Pritchard Never before have the central banks of North America, Europe, and Britain, acted together as such a unified phalanx, but never before have transatlantic credit markets seized up with such violent effect. "This is a drastic action. The central banks want to place a fire-break to stop credit tensions spilling over into the broader markets and becoming the catalyst for a global economic crunch," said Ian Stannard, an economist at BNP Paribas. ... "A co-ordinated move like this has the 'wow factor'," said Paul Mackel, currency strategist at HSBC. "But there's a lot of scepticism over whether this will be enough medicine to end the credit crisis. Is it already too late?" Ben Bernanke, chairman of the US Federal Reserve, made his academic name studying the "credit channel" causes of depressions. He must have watched with growing alarm as the debt markets limped from one mini-crisis to another, failing to recover from their August heart attack despite three emergency rate cuts. ...The Fed is now spreading the net wider by allowing all US banks to use the Term Auction Facility, which offers secrecy and allows them to hand in a much wider set of investments as collateral to raise money, including mortgage securities. Perhaps some credit will at last reach those in urgent need. ..."There's a real danger that this may not work. Both the Fed and the ECB have injected a lot of liquidity before, but the banks are hoarding it. We're still seeing all the signs of stress with Libor and the VIX [fear gauge] at very elevated levels. The reason is that people still don't know where the bodies are buried," he said. Julian Jessop, chief economist at Capital Economics, said the move was stop-gap measure. "These measures should tide the markets through the potentially awkward New Year period but do not and cannot address the underlying imbalances threatening the world economy. Risk premiums are likely to remain permanently higher after the excesses of the last few years, and it will still be harder to obtain credit," he said. ...They forget that central banks are having to fight two battles at once: against the credit crunch and against inflation. The liquidity rescue has its limits. UK Telegraph |
| UGoGirl | Posted – 12/16/2007 9:58:32 AM | show profile Ho Ho Ho!!! And a commentary from the UK Guardian: *** Beware those who would bail us out of this chaos Governments in Asia and the Middle East are buying stakes in our beleaguered banks. A crisis could see us lose control The 1920s and 2000s are eerily similar decades. Both were characterised by extravagant wealth, extraordinarily cavalier lending by banks and hubristic over-optimism that the world had changed. The 1920s boom transmuted into slump when the American banking system collapsed. The question is whether a similar fate awaits us today. I offer the question because it's being posed by the West's most senior central bankers. ...It is the outward signal of their profound private concern, as I have learned from those making the decisions. ...The growing fear among central bankers is that the system has over-reached itself, rather as the US banks did in the 1920s. ...Make no mistake, there are banks fighting for their lives. To find capital, they are turning to the only organisations with sufficient funds - the state investment companies in the Gulf and Asia fattened by high oil prices and vast foreign exchange reserves. Last week Citigroup, the world's biggest bank, sold a share stake to the Abu Dhabi government to raise desperately needed funds; Barclays has sold a stake to the Chinese government; the Swiss bank UBS a stake to the Singapore government. They are the first of many. The financial crisis could prompt the partial takeover of the western banking system by Arab and Asian governments. ...Unless the western interbank markets start functioning again soon, the question will arise as to which governments are going to bail the western banks out of their foolishness. Will it be our own - or that of Mr Hu Jintao and the potentates of various oil producing Arab states? UK Guardian |
| UGoGirl | Posted – 12/16/2007 10:51:55 AM | show profile Well, one journalist in the mainstream US media gets it, but it's an economist and I suspect no one is really listening... ***** Paul Krugman, NY Times After the Money?s Gone ...What?s going on in the markets isn't an irrational panic. It's a wholly rational panic, because there?s a lot of bad debt out there, and you don't know how much of that bad debt is held by the guy who wants to borrow your money. How will it all end? Markets won't start functioning normally until investors are reasonably sure that they know where the bodies - I mean, the bad debts - are buried. And that probably won't happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years. Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed. ***** Innovating Our Way to Financial Crisis The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance. How bad is it? Well, I've never seen financial insiders this spooked - not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world. This time, market players seem truly horrified - because they've suddenly realized that they don't understand the complex financial system they created. |
