Financial Armageddon!!

[Perry]

I suppose the real question might be, did they:

• just crank up the printing presses

or

• relax the capital adequacy ratios

and / or such like?

• Something else?

As I see it, the very first question the common man
asks: where did the $US700 billion suddenly come
(materialise) from? With the following concomitant
questions: Where was 'it,' up to that point?
Why was 'it' wherever it was, anyway?

Someone else may ask, is it real money?
Just more relaxation of credit/debt ratios?
Something else?

[muppet]

EU leaders make vows not plans in face of crisis

EU leaders make vows not plans in face of crisis
Europe's economies to coordinate responses to help ailing banks

The global financial crisis forced European leaders to gather for an emergency summit in Paris.

Michel Spingler / AP

updated 8:18 p.m. ET Oct. 4, 2008

PARIS - Europe's four major powers vowed Saturday to do all they could to prevent Wall Street's turmoil from destabilizing their banking systems — even as a $48 billion plan to save a German lender fell apart.

But aside from vague statements of intent and calls for tighter regulation, the leaders of Germany, France, Britain and Italy shied away from the sort of massive bailout passed by the U.S. Congress on Friday.

Europe's four largest economies pledged to coordinate national responses to help banks in distress, but their failure to agree an EU-wide plan reflects divisions in Europe on how to deal with the crisis washing up on the continent's shores from the United States.
Story continues below ↓advertisement

France had mooted a multibillion-dollar EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

The EU's failure during the past week to pull together on dealing with the crisis has caused worry. Both Ireland and Greece angered their EU neighbors by acting independently and guaranteeing to protect all savings.

The Saturday afternoon summit was arranged hastily with the aim of reassuring jittery markets and investors. A day earlier, U.S. legislators approved a $700 billion government plan to buy up bad debt from banks and help unfreeze lending.

The four leaders — French President Nicolas Sarkozy, British Prime Minister Gordon Brown, German Chancellor Angela Merkel and Italian Premier Silvio Berlusconi — vowed to ensure the soundness and stability of Europe's banking and financial system, but they gave few specifics.

Instead, they took a swipe at European subsidy rules designed to ensure fair competition by preventing governments propping up failing companies.

Given the "exceptional circumstances," they said, EU regulators should be flexible on laws that restrict how much governments can give companies in trouble.

European states have pumped billions of dollars into banks to keep them afloat over the last week, trying to assure savers that their money was safe and avert a panic that has frozen lending across the world.

Bank bailout fails
The latest institution to run into trouble was Germany's No. 2 commercial property lender, Hypo Real Estate Holding AG, which said its $48 billion rescue plan had unraveled Saturday when private banks pulled out. They said they did not want to provide the bank with credit.

The European leaders also demanded more room for maneuver on EU economy rules as European growth slows sharply. A statement distributed after the meeting said guidelines for EU nations to keep budget deficits under 3 percent of GDP "should reflect the current exceptional circumstances."

France's deficit is veering near the limit, and other euro nations may also come close or exceed the maximum — reversing recent efforts for the 15 nations that share the currency to reduce debt and deficits.

Easier for the leaders to target were the "golden parachutes" that allow chief executives of failing firms to walk away with millions in leaving bonuses.

Sarkozy, the summit host, said all four nations "pledged that in cases of public support to banks in difficulty, the managers will be punished, and shareholders as well will bear some of the consequences."

They pledged to help small companies seeking credit by speeding up the release of $41.5 billion in European Investment Bank loans.

Sarkozy suggested that, with the United States focused on its November presidential election, it was important that Europe act to reshape a more responsible global economy.

"We want to put down the foundations of a capitalism of the entrepreneur and not of the speculator. We want transparency, we want moralization. We want the creation of value. We want people to have confidence," he said.

But he recognized the need for global cooperation, calling for a summit of world leaders to tighten control over hedge funds and other high-risk investment funds that don't currently face all the same rules as banks and insurers.

http://www.msnbc.msn.com/id/27023957

[Bob Kane]

My idle question for anyone who's following all this:
Will Russia and China be caught up in this credit crunch/melt down?

Initially it was just the States in trouble. Then Britain. Today the news involves Germany, France, Italy as well as Britain.

I suspect a few socialists will say Russia and China will be immune to this because of their political systems. I'm not so sure.
And if Russia and China do come under pressure, how will they handle it?
I guess a bullet beats a gold bar every time but will it come down to that?
One outcome might be that the current Russia oligarchs get wiped out.

[Austrokiwi]

My idle question for anyone who's following all this:
Will Russia and China be caught up in this credit crunch/melt down?

Initially it was just the States in trouble. Then Britain. Today the news involves Germany, France, Italy as well as Britain.

I suspect a few socialists will say Russia and China will be immune to this because of their political systems. I'm not so sure.
And if Russia and China do come under pressure, how will they handle it?
I guess a bullet beats a gold bar every time but will it come down to that?
One outcome might be that the current Russia oligarchs get wiped out.

Russia wasn't immune to the economic pressures that led to the dissolution of the USSR and I don't think they will be immune now. I think the olicharchs will survive, well at least the ones that do what their told.

China with a massive trade imbalance in its favour over the last few years had been effectively funding the American consumers credit binge, by using the surplus cash it had to buy US treasuries. This is why the US only made feeble complaints about the way the Chinese currency is valued against other currencies, and why nothing was done in a more substantive fashion. China has been investing solidly in African countries ( where no western capitalist would dare to go) developing mines,etc with supporting infrastructure ( in one case a complete railway so the ore could be transported to the nearest port. ( NOte: China has reasonable relations with Iran ( like Russia).

However if the US$ melts down the Chinese bank balance will take a huge hit, I don't know what that will mean.

If it goes as many expect America is going to return to a pre World war II status in the world economy. {As an aside I have read that some some say the US did so well out of the 20th century as it used the Marshal plan to sell the myth of the American dream to European consumers}.

Your question I suspect should include one other economic power: India. You will have read that India now has a nuclear agreement ( That I believe {perhaps incorrectly} NZ gave in to US pressure to agree to). No other country in modern history has gained such support ( It seems to be against the spirit of the non proliferation treaty), so I believe economics in particular US economic fragility drove the agreement for India to develop its Nuclear technology further. Not a big deal you might think? I hope not because India's neighbour is a nuclear power ( with very effective firecrackers) and with the farce in Afganistan ( due to the focus on Iraq), Pakistan seems to becoming more and more unstable. I am sure you can see the potential risk of Indian gaining more Nuclear technology and Pakistan becomming less stable.


As far as India goes I would love to hear some one who knows about that countries exposure to the current crisis.

[Perry]

Phake Phinance Phix?

THANKS BUT NO THANKS:
WHAT LINCOLN WOULD HAVE SAID TO
PAULSON'S $700 BILLION RANSOM

Ellen Brown, September 28, 2008

https://www.webofdebt.com/articles/lincoln_and_paulson.php

"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

In July, Treasury Secretary Henry Paulson said of his
massive underwriting scheme for Fannie Mae and Freddie
Mac, "If you have a bazooka in your pocket and people
know it, you probably won't have to use it." On September
7, Paulson pulled out his bazooka and fired, effectively
nationalizing the mortgage giants. Last week, Paulson pulled
out the bazooka again and held it to Congress's head.
"Seven hundred billion dollars or your credit system will
collapse!" Seven hundred billion dollars is more than the
country currently pays annually for Social Security; and for
what do we owe this ransom? To bail out bankers from their
own folly in speculating in a giant derivative Ponzi scheme
that is now imploding. But policymakers justify rewarding
the guilty parties at the expense of the taxpayers by arguing
that "we have to do it to save the banking system."

Abraham Lincoln was faced with a similar situation when he
stepped into the Presidency in 1861. The country was
suddenly in a civil war, and there was insufficient money to
fund it. The British bankers, knowing they had him over a
barrel, agreed to lend him money only at 24 to 36% interest,
highly usurious rates that would have bankrupted the North.
Our fearless forefather said, "Thanks but no thanks, I'll print
my own." Issuing the national currency is the sovereign
right of governments. A government does not need to
borrow its national currency from bankers "merely
pretending to have money." That was the phrase used by
Thomas Jefferson when he realized the bankers' "fractional
reserve" lending scheme meant that they were lending the
same "reserves" many times over.

The federal dollars issued by Lincoln were called U.S. Notes
or Greenbacks. They allowed the North not only to win the
Civil War but to create the greatest industrial giant the world
had ever seen. Lincoln's government launched the steel
industry, created a continental railroad system, promoted a
new era of farm machinery and cheap tools, established free
higher education, provided government support to all
branches of science, organized the Bureau of Mines,
increased labor productivity by 50 to 75 percent. The
Greenback was not the only currency used to fund these
achievements; but they could not have been accomplished
without it, and they could not have been accomplished on
money borrowed at 30% interest.

There are other historical examples. In the 1930s, Australia
and New Zealand avoided the Depression conditions
suffered elsewhere by drawing on a national credit card
issued by publicly-owned central banks. The governments of
the island states of Guernsey and Jersey have been issuing
their own money for two centuries, creating thriving
economies without carrying federal debt.

In none of these models has government-issued money
created dangerous price inflation. Price inflation results
either when the supply of money goes up but the supply of
goods doesn't, or when speculators crash currencies by
massive short selling, as in those cases of Latin American
hyperinflation when printing-press money was used to pay
off foreign debt. When new money is used to produce new
goods and services, price inflation does not result because
supply and demand rise together. Prices increased during the
American Civil War, but this was attributed to the scarcity
of goods common in wartime. War produces weapons rather
than consumer goods.

Today in most countries, money is created privately by
banks when they make loans; but the banks create only the
principal, not the interest necessary to pay the loans back.
The interest must be borrowed into existence, continually
increasing the money supply, in a Ponzi scheme that has
reached its mathematical limits. The latest desperate
proposal for propping up this collapsing system is to deliver
$700 billion of taxpayer money to ex-Goldman Sachs CEO
Henry Paulson to buy unmarketable derivative paper from
the banks, shifting the loss on this dodgy paper from the
banks to the taxpayers. Seven hundred billion is just the
opening figure; losses on the imploding derivatives pyramid
could wind up being in the trillions. And where will this
money come from? It will no doubt be borrowed into
existence from the banking system. We the people will be in
the anomalous position of paying interest on a debt to the
banks to bail out the banks! At the very least, doesn't it seem
that the banks should be paying interest on the $700 billion
to us?

Rather than propping up an unsustainable system with
taxpayer money, it may be time to let the private money-
making scheme collapse and replace it with something
better. Banks that have thrived in an unregulated free market
should be left to work out their fates in that market. If they
go bankrupt, they can be put into receivership and
reorganized in return for an equity interest in the banks, as
was done recently with AIG. The government would then
own a string of banks, which could issue "the full faith and
credit of the United States" directly, returning the country to
productivity and prosperity just as Lincoln did.

As for the derivatives mess, there may be some derivatives
that serve useful market functions, but most of them should
be declared an illegal form of gambling and void. Neither
party would owe on the deal; the bets would cancel each
other out. True, dodgy assets transformed into "triple-A"
investments by fake derivative insurance would lose that
rating; but they aren't triple-A investments, and the pension
funds now holding them should dump them. The
downgrades could wreak havoc on the balance sheets of
some banks, but that's the free market. If they go bankrupt
and we the people have to bail them out, we should do it
only in return for adequate quid pro quo in the form of their
stock. Like Lincoln, we should say "Thanks but no thanks"
to Paulson's $700 billion ransom.

[muppet]

News regarding the financial situation in Russia.

A measure of financial stocks on Russia's benchmark Micex Index fell 25 percent last month as credit markets seized up, pushing the MosPrime rate on overnight loans between Russian banks to a record 11.08 percent on Sept. 17. The collapse in shares led the government to pledge more than $100 billion in emergency funding after closing the stock market for two days.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ah6Vfv6yOCdM

[muppet]

And more.

Russia's RTS Index Has Worst Week in Nine Years on Commodities

By William Mauldin

Oct. 3 (Bloomberg) -- Russia's RTS Index tumbled to its worst week in nine years, forcing the exchange to halt trading, as the biggest slump in commodity prices in a half century sent raw-material producers lower.

OAO GMK Norilsk Nickel, Russia's biggest mining company, had a record loss on the Micex after saying first-half profit sank 33 percent. OAO Gazprom dropped the most since Sept. 16.

The dollar-denominated RTS plunged 7.1 percent to 1,070.98, bringing its weekly drop to 17 percent, the biggest since 1999. Trading was halted three times this week on the RTS exchange, Russia's second-biggest bourse, because of stock declines. The ruble-denominated Micex Index lost 5.3 percent to 924.55 today.

Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 10 percent this week, the most since at least 1956. Crude oil has fallen 11 percent so far this week on declining U.S. demand and economic growth concerns.

``U.S. consumers are using about a million barrels less of oil a day than they were 18 months ago, and the U.S. financial sector is also bringing money back home, taking a lot of cash out of emerging markets and commodities,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.

Norilsk Nickel plunged 18 percent to 2,757.57 rubles, its biggest decline since listing on the Micex last year. The world's largest producer of refined nickel said first-half profit fell to $2.7 billion from $4 billion a year earlier on lower nickel prices and higher costs.

OAO Uralkali, Russia's second-biggest potash producer, sank 8.2 percent to 117.83 rubles after dropping 11 percent yesterday.

Third-Quarter Decline

The 50-stock RTS sank 47 percent in the third quarter, the second-worst among 88 national benchmarks tracked by Bloomberg. Russia suspended trading for two days and pledged more than $150 billion in emergency funding last month as the seizure in capital markets, falling oil prices and a five-day war with Georgia in August drove away investors. About $58.9 billion has left Russian since Aug. 8, BNP Paribas SA said.

``At least half of the market's fall is attributable to domestic causes,'' Andrei Illarionov, a former Kremlin economic adviser, said in an opinion piece in the Moscow Times today.

Russian stocks today fell along with other emerging markets, and the MSCI Emerging Markets Index was headed for its worst weekly drop since July 2002, when oil declined on a report that Nigeria would pull out of OPEC and boost crude production.

Gazprom, VTB Group

Gazprom, the stock with the biggest weighting in the emerging-markets benchmark, fell 5.1 percent to 180.97 rubles. OAO Rosneft, Russia's biggest oil producer, sank 7 percent to 143.22 rubles, the seventh day of declines.

``Clearly the lower oil prices are exacting downward pressure on markets,'' said Yaroslav Lissovolik, chief economist at Deutsche Bank AG's Moscow office.

VTB Group, Russia's second-biggest bank, fell 5.5 percent to 4.57 kopeks. The bank said its Russia corporate unit lost 9.31 billion rubles ($360 million) in September due to ``negative market dynamics.'' The shares have retreated 66 percent since the bank's initial public offering, the world's biggest last year.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=acFL6FI3lTBo

[Badger]

I suppose the real question might be, did they:

• just crank up the printing presses

or

• relax the capital adequacy ratios

and / or such like?

• Something else?

As I see it, the very first question the common man
asks: where did the $US700 billion suddenly come
(materialise) from? With the following concomitant
questions: Where was 'it,' up to that point?
Why was 'it' wherever it was, anyway?

Someone else may ask, is it real money?
Just more relaxation of credit/debt ratios?
Something else?

The money comes from fresh air!

Its about as real as monopoly money!

The only "relaxation" any one will see is Paulsons mates at GoldmanSacK's and JPMorgan and any other of there axis club of privaledge!

[Commercial Dan]

The bailout is a disaster, the fed are going to try and inflate their way out of trouble which will be an even bigger disaster.

Potential hyperinflation on its way in the US.

Unfortunately they do not produce much anymore, all they do is spend, spend and consume, consume!

The US has a huge deficit and it has come home to roost, once the Chinese start pulling their cash out of the US they are done for. This will happen at some point as China grows wealthier and realises it does not need the US when they have a billion people at home to produce for.

China is more economically free than the US, try and start a business in the US and you will find out the meaning of regulation, try and start a business in China and you can start with no hassle whatsoever.

Big GOVT is inflationery, the Fed is inflationery, they have a license to print cash when they bloody want and there are no hard assets to back this up now.

Further disaster is well on its way!

[princess]

China is more economically free than the US

Brilliant.

After all the star spangled banner fades, the best definition of freedom is in a "communist" state.

Excellent!

Oh and before anyone jumps, i know about human rights rah rah rah.. so do the guys at Guantanemo Bay.

[Commercial Dan]

Brilliant.

After all the star spangled banner fades, the best definition of freedom is in a "communist" state.

Excellent!

Oh and before anyone jumps, i know about human rights rah rah rah.. so do the guys at Guantanemo Bay.

I agree, how can you be a democracy and not be economically democratic? A country's economy is its lifeblood whether we like it or now.

Remember the key thing is that Government intervention is inflationery, think about it!

[Jumpin]

China is more economically free than the US, try and start a business in the US and you will find out the meaning of regulation, try and start a business in China and you can start with no hassle whatsoever.
!

You think the US is restrictive, try Europe. Regulation will come in China, they just dont need any more Fonterras screwing up. It will be harder from now on watch and learn.

[Commercial Dan]

Yeah, but the reason the USA was the land of 'opportunity' back in the late 1800s was because there was no regulation. They had to entice people to come over from Europe and the rest of the world, it is now heavily regulated and overtaxed.....Govt is inflationery!!!!! If we reduce the size of government we free up our economies and everything theoratically will become cheeper.

Those who have subdivided know the costs involved for development. If we lowered these obsessive costs housing would be cheeper for all!!!!

[princess]

Hear Hear CD - fees alone on a single site subdivision - approx $35k so far. Then the poor bugger that buys it faces another round of beaurocracy to get consent to build a house on it.

NB I have just been in Rarotonga, much less regulated but the buildings are solid. They'll disappear in the next cyclone if they're not. PLUS everyone knows the builders and a reputation actually counts for something!

[princess]

Jumpin - lets not drag Fonterra in, as a naive minority shareholder of a fraudulent, self-focused and murderous chinese company.