UK: Plan Would Allow Banks to Seek Emergency Funding in Secret
July 22nd, 2008Via: Telegraph:
The City watchdog has laid out plans to allow banks to tap the Bank of England for emergency funding without informing the market, in a move which might avoid a repeat of the run on the bank which led to the collapse of Northern Rock.
Under the European Union’s market abuse directive, regulated firms have to disclose price sensitive information. However, the Financial Services Authority yesterday said there were potentially situations where banks would be allowed to keep it secret if they had applied to the Bank.
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The main case for an exception would be if disclosure could panic investors and lead to fears for a bank’s solvency, the regulator said. The FSA laid out a series of proposals in a consultation document. It invited industry groups to respond by September 30.
Karadzic Arrested in Serbia
July 22nd, 2008Hmm. Will Bush have to wear a disguise to avoid arrest after he leaves office?
Via: Reuters:
Bosnian Serb wartime president Radovan Karadzic, indicted for genocide in the Bosnia war, was captured in disguise near Belgrade after 11 years on the run and had been working as a doctor, Serbian officials said on Tuesday.
The arrest on Monday of Karadzic, who is held responsible for the siege of Sarajevo and the massacre of 8,000 Muslims in the Bosnian town of Srebrenica in 1995, was a condition for Serbian progress towards European Union membership.
He is the most prominent Balkan war crimes suspect arrested since late Serbian President Slobodan Milosevic was sent to the U.N. war crimes tribunal in The Hague on genocide charges in 2001, leaving only two suspects at large.
The Serbian officials said Karadzic was caught while moving from one Belgrade suburb to another. They showed reporters a photograph of an unrecognizable Karadzic, now 63, looking thin, with a long, white beard, flowing hair and thick glasses.
“He happily, freely walked around the city,” Serbia’s war crimes prosecutor, Vladimir Vukcevic, told reporters. “Even his landlords were unaware of his identity.”
Karadzic had wanted Serb areas of Bosnia to be linked to Serbia and other areas dominated by Serbs at a time when Milosevic was fanning nationalism in Serbia.
The trained psychiatrist worked for a private clinic, posing as a specialist in alternative medicine under the assumed name of Dragan Dabic. His last known address was in New Belgrade, a sprawling suburb of concrete tower blocks.
Serbian officials said Karadzic had been served with an indictment and his lawyers had three days to appeal. He is expected to be transferred to The Hague shortly after.
Wachovia Has Record $8.9 Billion Loss
July 22nd, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
If Wachovia goes down, it would wipe out FDIC liquidity about 16 times over. That calculation is based on the following numbers: Wachovia’s assets, $808 billion, divided by $49 billion, which is roughly what the FDIC may or may not have on hand.
Do you still keep money in a U.S. bank account? Yeah, me too. I have about $89 in mine. * hint *
Via Bloomberg:
Wachovia Corp., the U.S. bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock fell as much as 12 percent in early New York trading.
The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss included a $6.1 billion charge tied to declining asset values.
The writedown, job cuts and second dividend reduction in three months reflect Steel’s response to the worst housing market since the Great Depression, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent in New York Stock Exchange composite trading since it spent $24 billion two years ago to buy Golden West Financial Corp. just as home prices were peaking.
Is America Too Big to Fail?
July 22nd, 2008Via: IHT:
In the narrative that has governed American commercial life for the last quarter-century, saving companies from their own mistakes was not supposed to be part of the government’s job description. Economic policymakers in the United States took swaggering pride in the cutthroat but lucrative form of capitalism that was supposedly indigenous to their frontier nation.
Through this uniquely American lens, saving businesses from collapse was the sort of thing that happened on other shores, where sentimental commitments to social welfare trumped sharp-edged competition. Weak-kneed European and Asian leaders were too frightened to endure the animal instincts of a real market, the story went. So they intervened time and again, using government largess to lift inefficient firms to safety, sparing jobs and limiting pain but keeping their economies from reaching full potential.
There have been recent interventions in America, of course – the taxpayer-backed bailout of Chrysler in 1979, and the savings and loan rescue of 1989. But the first happened under Jimmy Carter, a year before Americans embraced Ronald Reagan and his passion for unfettered markets. And the second was under George H.W. Bush, who did not share that passion.
So it made for a strange spectacle last weekend as the current Bush administration, which does cast itself in the Reagan mold, hastily prepared a bailout package to offer the government-sponsored mortgage companies, Fannie Mae and Freddie Mac. The reasoning behind this rescue effort – like the reasoning behind the government-induced takeover of Bear Stearns by JPMorgan Chase just a month before – sounded no different from that offered in defense of many a bailout in Japan and Europe:
The mortgage giants were too big to be allowed to fail.
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The central banks of China and Japan are on the hook for hundreds of billions of dollars worth of Fannie’s and Freddie’s bonds – debts they took on assuming that the two companies enjoyed the backing of the American government, argues Brad Setser, an economist at the Council on Foreign Relations.
Commercial banks from South Korea to Sweden hold investments linked to American mortgages. Their losses would mount if American homeowners suddenly couldn’t borrow. The global financial system could find itself short of capital and paralyzed by fear, hobbling economic growth in many lands.
Nobody with a meaningful office in Washington was in the mood for any of that, so the rescue nets were readied. The U.S. Treasury secretary, Henry Paulson Jr., announced that the government was willing to use taxpayer funds to buy shares in Fannie and Freddie. The chairman of the Federal Reserve, Ben Bernanke, said the central bank would lend them money.
The details were up in the air as the week ended, but some sort of bailout offer was on the table – one that could ultimately cost hundreds of billions of dollars. Whatever the dent to national bravado, or to the free-enterprise ideology, the phrase “too big to fail” suddenly carried an American accent.
Economist: “America May Default On Its Debt”
July 22nd, 2008Via: Economist:
Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country’s mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.
After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.
The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.
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In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt.
The Global Economy Is at The Point of Maximum Danger
July 22nd, 2008Via: Telegraph:
It feels like the summer of 1931. The world’s two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.
The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a “chance of a global recession”. Plainly, the IMF cannot or will not offer any useful insights.
Its “mean-reversion” model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True “mean-reversion” would imply debt deflation on such a scale that would, if abrupt, threaten democracy.
The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.
The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc.
The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch.
No doubt the rescue of Fannie Mae and Freddie Mac – $5.3 trillion pillars of America’s mortgage market – stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists.
Thieves Stealing Brass Nuts from Fire Hydrants
July 22nd, 2008Via: AP:
Dogs aren’t the only ones casting a longing eye at fire hydrants these days. Fire departments across the country report that thieves are twisting the brass nuts off the tops and selling them for scrap, raising concerns that the hydrants won’t work when needed most.
Firefighters responding to an April house fire in Hesperia, Calif., found that the five closest hydrants were useless because thieves had taken the nuts needed to get to the water. They called in special equipment, but by the time they got the fire under control, the house was a total loss.
“It definitely delayed us. It’s become a real problem,” said Tracey Martinez, spokeswoman for the San Bernadino County Fire Department, whose firefighters now carry spare parts to access hydrants that have been tampered with, though using them can cost valuable time.
Brass parts are fetching higher prices at scrap recyclers, though a single hydrant nut is unlikely to be worth more than $10 even in the current inflated market.
Fire hydrants aren’t the only target — thieves have stolen brass ornaments from graves in Chicago and West Virginia, chrome-plated brass piping from men’s bathrooms at fast-food restaurants in Pennsylvania, and brass plaques from churches in Houston.
But the hydrant thefts raise unique safety concerns. Officials in Prince William County in northern Virginia recently found that nearly four dozen hydrants had been stripped of their brass nuts, rendering them inoperable.
“This is an extremely high priority concern because of the potential devastation it can cause,” said Assistant Fire Chief Hadden Culp, who has never seen such a problem. “We’re not used to pulling up to a hydrant and it not working.”
Given a Shovel, Americans Dig Deeper Into Debt
July 21st, 2008Via: New York Times:
Years of spending more than they earn have left a record number of Americans like Ms. McLeod standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.
While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.
It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders.
8,500 U.S. Banks; Many Will Die Soon
July 21st, 2008How bad is this going to get?
Bear Stearns got bailed out ‘cause they were highly visible (read: failure would have exposed aforementioned funny money to the average Joe), Freddie Mac and Fannie Mae are Government Sponsored Entities who now have their sickly balance sheets backstopped by the U.S. Treasury (read you & me), but all the commercial banks have is the Federal Deposit Insurance Corporation.
Great! All accounts are insured to $100,000! We’re saved!
Way wrong. The FDIC is an insurance operation. They make an educated guess as to how many banks will fail and what the total exposure is, then they collect insurance premiums from them. They’ve got $51 billion … and Indymac alone sucked up 10% of that. If a big one lets go, like Washington Mutual or Wachovia, then the FDIC will look just like FEMA did facing down hurricane Katrina. Don’t go and look at the scoreboard on the Bank Implode-O-Meter unless you’ve got a very strong stomach. Oh, and do note that a good bit of those write downs are investment banks – the FDIC does not cover their activities.
OK, very scared now, so what do I do?
Run, don’t walk, to your bank and get the funds you have clear of this mess before it gets any worse. The safe deposit box … isn’t. There were rules during the Great Depression such that a treasury agent got to paw through any that were opened before the owner got to touch their stuff; gold, silver, and cash could easily be confiscated in an emergency.
So, what to do? Cash at home in the First Bank of Serta? A fire proof safe? Maybe cashier’s checks in your name and leave the receipts in the safe deposit box, thusly meeting the portability requirement with safety? Nope on that last one, cashier’s checks drawn on a dead bank are dead. Treasury Bills? Wow, look at the Fannie Mae and Freddie Mac bailout … they’ll not go *poof* instantly, but they’re going down in value bigtime. Swiss bank account? Hey, look at that first salvo in making sure dollars in the U.S. stay in the U.S.
OK, terrified, what do I do?
The GSEs, Freddie Mac and Fannie Mae are indeed “too big to fail” – they’d whack the whole U.S. economy if they went down hard. Ditto for Bear Stearns – had they not moved to conceal the troubles there the failure would have sucked all of the monoline bond insurers under. Monoline bond insurers? If you don’t know I’ve laid enough pain down in this diary – we’ll cover that mess another day. 8,500 commercial banks, putatively protected by the FDIC? Only a few are large enough to receive the “too big to fail” label. The government doesn’t dare touch the FDIC (yet) for fear of clearly communicating they expect the worst. A lot of folks got trimmed in the Indymac crash, with $BIGBUCKS reset to the $100,000 maximum and no recourse. Once this truly gets rolling there will be a reduction in the amounts covered and probably withdrawal limits even with solvent banks.
This can not be stopped. The losses have already occurred. It isn’t an “if”, it’s a “when” and I was expecting it around 4/1/2008, but they held it off for another quarter. It looks for all the world like July is the lucky month with the Indymac stuff coming down right next to Fannie and Freddie’s corpses hitting the mighty U.S. Treasury Reanimator. Someone, somewhere is going to pull a joker out of this house of cards – some innocuous bond sale somewhere will fail, a monoline insurer will get pushed over the edge, and then the rout will begin.
The Ginormous Banking Enema has begun with the first little squirt from Indymac Bancorp’s failure. It won’t end until we’re all up to our nostrils in an alphabet soup of make believe financial instruments and newly created federal agencies conceived to clean up the mess.
Stolen Semtex and Detonators Left Unguarded
July 21st, 2008The Semtex and the detonators were A) kept together and B) left unguarded. That’s an interesting Coincidence.
Via: BBC:
A depot in France from which a large quantity of powerful explosive went missing was poorly guarded, the regional head of security has said.
The storage of 28kg (61lb) of Semtex at the site near Lyon was “not usual and certainly not authorised”, Xavier de Fuerst also told the AFP news agency.
A search by anti-terrorist officers is under way, and the manager of the site has been suspended pending an inquiry.
Semtex has been favoured by terrorists for being very difficult to detect.
The depot, in a disused 19th Century fort at Corbas, is used by a civil defence unit charged with the job of blowing up bombs and ammunition left over from the two world wars.
Mr de Fuerst said the site had been bought by the interior ministry in 2005, and that existing security measures had fallen into disrepair.
He said that the storage of the explosives had not been authorised until work to replace security cameras and reinforce the entrances – scheduled for 2009 – was complete.
He said that neither the police nor local authorities were aware that the Semtex was being stored there.
The mayor of Corbas, Thierry Butin, told local media: “I am extremely surprised and angry that from one day to the next you can store products as dangerous as this, without any protection.”
‘Security failings’
Police said detonators were also missing and that they were treating the theft “very seriously”.
Police said the discovery that the Semtex was missing was made on Friday but admitted the explosives could have been taken up to a week ago.
In a statement released late on Friday the interior ministry said “security failings” had made the theft possible.
Semtex, which was first made in the Czech Republic, is used in mining and demolition work.
A bomb containing about half a kilogram of the explosive caused the blast which brought down Pan Am flight 103 over Lockerbie, Scotland, in 1988, killing 270 people.
