Fed Pledges to Supply Cash
Friday March 14, 1:53 pm ET
By Martin Crutsinger, AP Economics Writer
Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System
WASHINGTON (AP) -- The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."
The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. Federal Reserve Chairman Ben Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.
"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.
Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.
"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fasting moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."
The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.
Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.
This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.
In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.
However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.
"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.
Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.
"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.
Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."
The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.
It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.
JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.
The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.
"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.
Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.
| 2008/3/14 14:58||Profile|
JPMorgan acquires troubled Bear
The deal values Bear Stearns at just $2 a share. Regulators hope purchase will stave off wider chaos in financial markets.
NEW YORK (CNNMoney.com) -- JPMorgan Chase & Co. said Sunday that it would acquire troubled Wall Street firm Bear Stearns for a mere fraction of what it was once worth amid deepening fears about further erosion of the world's financial markets.
The rock-bottom price left investors feeling queasy. Asian markets tumbled, with Japan's benchmark Nikkei index finishing Monday's session nearly 4% lower. U.S. stock futures plunged, indicating a miserable start for Wall Street.
The all-stock deal values Bear Stearns at $236 million, or just $2 a share. The company's stock had closed at $30 on Friday, down a staggering 47% for the day.
Regulators support the deal and the Federal Reserve provided $30 billion in funding: With the global credit crisis worsening, the Fed has been taking dramatic action to help banks and prevent widespread panic.
Over the past three days, roughly 200 JPMorgan staffers were working on the deal, assessing the strengths of Bear Stearns' different businesses and its exposure to toxic mortgage securities, JPMorgan executives said during a conference call held Sunday night.
They noted that the offering price, which comes at a steep discount to Bear Stearns book value price of $84 per share, was to provide a cushion to protect JPMorgan in turbulent times and would provide the company "margin for error."
The fire-sale price raises questions about the value of other investment banks.
"A $2 per share price will send a shudder through every investment bank investor in the world," said James Ellman, head of San Francisco-based Seacliff Capital, a hedge fund specializing in financial services. "Many will say that stand-alone investment banks' days are numbered."
That could spell trouble for firms such as Lehman Brothers and Jefferies Group, which, like Bear Stearns, don't have large asset or wealth-management businesses for support. These divisions are helping prop up firms such as Morgan Stanley during these tough times on Wall Street.
Bear Stearns was on the brink of financial collapse Friday when JPMorgan (JPM, Fortune 500) and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt.
Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.
The fast-track deal, which is expected to close by the end of June pending shareholder approval, is expected to generate roughly $1 billion in after-tax earnings for JPMorgan over the next 12 to 18 months.
(end of article)
In the old days this event was called a "run on the bank." There is speculation that Lehman Brothers and Merril Lynch are next...
| 2008/3/17 6:10||Profile|
Auction-Bond Failures Deplete New Hampshire Universities Fund
By Michael McDonald
March 17 (Bloomberg) -- The fallout from the collapse of the auction-rate bond market has infected New Hampshire, where the state college and university system was forced to tap its reserves to cover more than $1 million in extra borrowing costs.
``It hurts,'' Ken Cody, associate vice chancellor of finance for New Hampshire's state college and university system, said in a phone interview. ``We have very limited resources.''
Yields on the system's bonds rose to as high as 7.8 percent last month from 3.9 percent in January after auctions run by Wall Street firms failed, depleting funds for campus maintenance, Cody said. The system converted $84.3 million of the debt to bonds with fixed payments and plans to bid at an auction of its remaining $63.6 million of securities this week to reduce rates, he said.
New Hampshire is among municipal borrowers that are likely to offer to buy their own securities after the U.S. Securities and Exchange Commission said March 14 that the bids wouldn't run afoul of laws against market manipulation. Lehman Brothers Holdings Inc., which managed the auctions, prevented the system from bidding last month, Cody said.
The $330 billion market for auction-rate securities imploded in February after dealers who supported it for more than two decades stopped bidding for bonds investors didn't want, pushing interest costs to as high as 20 percent. Since then, almost 70 percent of the auctions for debt sold by cities, colleges, student lenders and closed-end funds have failed each week, according to data compiled by Bloomberg.
Auction-rate bonds have interest rates determined through bidding run by dealers every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and rates are set at a predetermined level set in documents when the bonds were issued.
Auction rates on debt that reset every seven days jumped to 6.73 percent this month from an average 3.94 percent in the previous year, according to a Securities Industry and Financial Markets Association index. Bondholders who wanted to sell are left holding securities.
Zurich-based UBS AG, Europe's biggest bank by assets, was sued on March 14 by a client for investing in auction-rate bonds. UBS marketed the securities as being ``just as good as cash,'' according to the complaint filed in Manhattan federal court. A UBS spokeswoman, Kris Kagel, said in an e-mailed statement that the bank is ``working with clients on a case-by- case basis, to restore their immediate liquidity needs.''
Paying 20 Percent
Issuers from Cleveland to Chicago's school system to Jefferson County, Alabama, which was downgraded to below investment grade as a result of the higher auction costs, face resets on their debt this week.
The Port Authority of New York and New Jersey, owner of bridges, tunnels and airports around New York City, sold $700 million of bonds March 12 to refinance auction securities after rates on its debt soared to 20 percent Feb. 12 from 4.3 percent the week before. California's Department of Water Resources sold $1 billion of bonds backed by electric fees to repay auction debt.
State and local governments sold more than $20 billion of bonds the past two weeks, about the same amount for all of February, data compiled by Bloomberg show. About $4.2 billion of bonds are scheduled to be offered this week.
As issuers rush to get out of auction debt, the new bonds they sell are weighing on the municipal market. Long-term tax- exempt municipals fell last week, pushing 30-year yields 5 basis points higher to 4.88 percent, Municipal Market Advisors data show. A basis point is 0.01 percentage point.
The bonds, which are tax-exempt, yield more than Treasuries, whose interest is taxable. The 30-year Treasury bond yielded 4.36 percent on March 14.
Bond Insurer Woes
The University System of New Hampshire converted two series of its auction-rate securities last week to one-year bonds yielding 3 percent, according to Cody. The $84.3 million in debt is insured by Ambac Assurance Corp.
Ambac, a unit of New York-based Ambac Financial Group Inc., was cut to AA from AAA by Fitch Ratings in January. It's still rated AAA by Standard & Poor's and Moody's Investors Service. Concern that the creditworthiness of bond insurers may deteriorate amid writedowns on debt tied to subprime mortgages led investors to shun auction-rate securities backed by the guarantees.
New Hampshire's university system has $63.6 million in auction debt outstanding insured by XL Capital Assurance, which was downgraded from AAA by all three rating companies. It will convert that debt to variable-rate demand bonds this month, Cody said.
``It's worse than worthless,'' he said, about the XL insurance. The system is also converting $97.3 million in variable-rate demand bonds insured by XL, which is a unit of Hamilton, Bermuda-based Security Capital Assurance Ltd.
(end of article)
Many many local governments are beginning to see increased burdens on their debts.
| 2008/3/17 8:27||Profile|
| Re: The Dynamics of the 8/9/07 Stock Market Panic ... continue ...|
Author of the above article said
municipal borrowers that are likely to offer to buy their own securities after the U.S. Securities and Exchange Commission said March 14 that the bids wouldn't run afoul of laws against market manipulation.
Quote:'According to Devvy Kidd, "Why A Bankrupt America?" The Federal Reserve pays the Bureau of Engraving & Printing approximately $23 for each 1,000 notes printed. 10,000 $100 notes (one million dollars) would thus cost the Federal Reserve $230. They then secure a pledge of collateral equal to the face value from the U.S. government. [b]The collateral is our land, labor, and assets... collected by their agents, the IRS[/b].
Many many local governments are beginning to see increased burdens on their debts.
By authorizing the Fed to regulate and create money (and thus inflation), Congress gave private banks power to create profits at will.
As Lindberg put it: "The new law will create inflation whenever the trusts want inflation...they can unload the stocks on the people at high prices during the excitement and then bring on a panic and buy them back at low prices...the day of reckoning is only a few years removed." That day came in 1929, with the Stock Market crash and Great Depression.
One of the most important powers given to the Fed was the right to buy and sell government securities, and provide loans to member banks so they might also purchase them. [b]This provided another built-in mechanism for profit to the banks, if government debt was increased. All that was needed was a method to pay off the debt. This was accomplished through the passage of the income tax[/b] in 1913...
As presented to the American people it seemed reasonable enough: income tax on only one percent of income under $20,000, with the assurance that it would never increase.
Since it was graduated, the tax would "soak the rich", ...[b]but the rich had other plans[/b], already devising a method of protecting wealth ... described by Gary Allen in his 1976 book "The Rockefeller File," ...
[b]Exchanging ownership for control of wealth[/b], foundations are also a handy means for promoting interests that benefit the wealthy. Millions of foundation dollars have been "donated" to causes such as promoting the use of drugs, while degrading preventive medicine. Since many drugs are made from coal tar derivatives, both oil companies and drug manufacturing concerns ... are the main beneficiaries.
[color=6633FF][b]With the means to loan enormous sums to the government (the Federal Reserve), a method to repay the debt (income tax), and an escape from taxation for the wealthy, (foundations), all that remained was an excuse to borrow money. By some happy "coincidence," in 1914 World War I began, and after American participation national debt rose from $1 billion to $25 billion.'[/b][/color]
[url=http://www.sermonindex.net/modules/newbb/viewtopic.php?topic_id=21873&forum=48&14]By William Blase (extracted from doctoral thesis)[/url]
I realise the above extract is only part of the story, and probably is technically out of date now, on some legal details, but it is the most useful thing I have ever read to explain how notional money is turned into money in the pockets of the wealthy.
A system with the same meaning, is in operation over here, and the government is getting bolder in the way it is mixing economic models, to keep the tax-payer paying for stuff it already owns by a previous way of reckoning.
| 2008/3/17 9:49|
Money-Market Rates Rise, Defy Central Bank Measures (Update4)
By Gavin Finch
March 25 (Bloomberg) -- The cost of borrowing in dollars, euros and pounds for three months or less rose as efforts by policy makers to revive lending failed to stop banks from hoarding cash.
The three-month London interbank offered rate, or Libor, for dollars increased 5 basis points to 2.66 percent, the highest level since March 14, the British Bankers' Association said today. The comparable euro rate climbed 2 basis points to 4.70 percent, the highest since Dec. 27.
``There's really only a handful of banks that are offering cash,'' said Ronald Tharun, a money-market trader at a unit of Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``Everyone is just waiting for the next bank to go down. There is no trust in the market. They're very afraid.''
Banks are unwilling to lend to all but the safest borrowers after at least $200 billion in losses and writedowns since the start of 2007. Bear Stearns Cos. had to be rescued by JPMorgan Chase & Co. last week after a run on the bank. Central banks agreed this month to inject $240 billion into the banking system to counter the credit squeeze.
Credit losses linked to the collapse of the U.S. subprime- mortgage market will probably swell to $460 billion, Andrew Tilton, New York-based senior economist at Goldman Sachs Group Inc., wrote in a report yesterday.
Central Bank Loans
The difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate showed a decline in the availability of cash today. The so-called Libor- OIS spread widened 7 basis points to 64 basis points. It averaged 8 basis points in the first half of 2007.
The cost of borrowing in euros rose even after the European Central Bank provided 216 billion euros ($336.5 billion) of cash to banks today, 50 billion euros more than it estimated was needed. The marginal rate was 4.23 percent, up from 4.16 percent last week.
The ECB also said it loaned banks $15 billion for 28 days in a separate dollar auction with the Federal Reserve. The Fed said it received 88 bidders at its auction of $50 billion of loans yesterday.
``There's still a lot of uncertainty in the market,'' said Jan Misch, money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart. ``Banks are hesitant to lend among each other and nervous due to the closing of the quarter.''
The three-month rate for pounds climbed 1 basis point to 6 percent, its 11th straight increase, according to the BBA. The Bank of England injected an extra 5 billion pounds ($10 billion) in loans last week.
Concerted central bank action announced Dec. 12 temporarily eased the credit shortage at the end of last year. Still, money- market rates began rising again this month, prompting a second round of emergency lending.
``Institutions still have written off less than half of the losses associated with the bursting of the credit bubble,'' Goldman Sachs's Tilton wrote. ``There is light at the end of the tunnel, but it's still rather dim.''
Merrill Lynch & Co. fell for the first time in three days today after JPMorgan cut its 2008 profit estimate for the third- largest U.S. securities firm by 45 percent on concern that further writedowns may reduce earnings.
Merrill slipped 93 cents, or 1.9 percent, to $47.45 by 11:26 a.m. in New York Stock Exchange composite trading. The stock has fallen 44 percent over the past year, compared with a 27
| 2008/3/25 12:18||Profile|
'...the Bank of England's figures show that there was a record increase in other types of loans to individuals, excluding mortgages and credit card borrowing.
They rose by [u]£2bn in the month[/u], but the Bank said it thought this was largely due to students having to borrow more from the Student Loans Company because of an increase in tuition fees in the current academic year....'
I am appalled that governments are this willing to dump this level of financial pressure on the young of our country, when there is nothing to say either those so laden or the governments themselves, will ever be able to repay what has been borrowed. Is this sheer wickedness? Is such knowledge (as our kids will gain at universities) worth this kind of psychological sacrifice?
Is this not more reason than ever, for our young people to be intent on doing only God's will, and to get into this kind of financial dilemma only with His great strength undergirding them?
[url=http://news.bbc.co.uk/1/hi/business/7326000.stm]BBC Business news: Mortgage approvals at 13 year low - full article[/url]
"[b]The continuing decline in activity in the UK property market has been underlined by the latest Bank of England figures on mortgage lending. [/b]
The number of new mortgages approved for house purchase fell slightly in February to just 73,000, said the Bank.
That was a 39% drop on the same month a year ago, and leaves prospective mortgage lending still at its lowest level for 13 years.
Housing equity withdrawal also slumped in the last quarter of 2007 to £7.3bn.
| 2008/4/2 7:44|
IMF Cuts Global Forecast on Worst Crisis Since 1930s (Update2)
By Shamim Adam
April 2 (Bloomberg) -- The International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.
The world economy will expand 3.7 percent in 2008, the slowest pace since 2002, according to a document obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. In January the fund projected growth of 4.1 percent.
The reduction is the third by the Washington-based lender since last July, when it predicted the world economy would cope with the U.S. credit squeeze and grow 5.2 percent this year. Central banks will need to conduct policy ``as flexibly'' as the circumstances warrant, the statement said, adding that the European Central Bank has room to lower borrowing costs.
``The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,'' the statement said. ``The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression.''
The world's biggest financial companies have reported about $232 billion in credit losses and writedowns since the start of 2007, data compiled by Bloomberg show. UBS AG said yesterday it will have $19 billion more writedowns on assets related to mortgage assets, and Deutsche Bank AG reported $3.9 billion of further value reductions.
That's prompting banks to stop lending to all but the safest borrower, undermining consumer spending and business investment.
``The IMF's forecast is now below the world economy's longer- term trend so there is certainly some significance in what it is now seeing,'' said Andy Cates, a global economist at UBS in London. ``The world economy is slowing quite considerably and will be very different from what we've become accustomed to.''
The IMF gave a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009, a pace the fund described as equivalent to a world recession. The last time that happened was in 2001.
U.S. European Growth
The fund lowered its forecast for U.S. economic growth to 0.5 percent this year, according to the document, below a 1.5 percent prediction made in January. The world's biggest economy will expand 0.6 percent in 2009, it said.
The euro region will expand 1.3 percent in 2008, the document said, down from the fund's 1.6 percent projection in January.
``Growth in the U.S. and Europe is slowing sharply,'' the IMF document said. ``The ECB can now afford some easing of the policy stance.''
The ECB has left its benchmark rate at a six-year high of 4 percent as inflation runs at 3.5 percent, above its goal of 2 percent and almost the fastest pace in 16 years.
``The greatest risk comes from the still-unfolding events in financial markets, particularly the potential that deep losses on structured credits related to the U.S. subprime mortgage market and other sectors would seriously impair financial-system capital and initiate a global de-leveraging that would turn the current credit squeeze into a full-blown credit crunch,'' the statement said.
Japan's economy, the world's second largest, will grow 1.4 percent in 2008, less than the 1.5 percent the IMF predicted in January, according to the statement. China will grow 9.3 percent this year, slower than the 10 percent projection made in January, the statement said.
The Asian Development Bank today lowered its forecasts for Asia, and said central banks in the region would pursue policies to quell inflation rather than spur economic growth. The World Bank earlier this week also warned of the threat of rising energy and food prices.
Asia excluding Japan is predicted to expand 7.6 percent this year, less than a September estimate of 8.2 percent, the Manila- based ADB said in a report today.
``The divergence between advanced and emerging economies is expected to continue, with growth in advanced economies generally expected to fall well below potential,'' the IMF document said.
Roger Nightingale, global strategist at Pointon York Ltd. in London, said the IMF had been slow in spotting the slowdown.
``The IMF only really forecasts these things after they've begun,'' he told Bloomberg Television. ``You've got America, Italy and several other European countries and one or two Asian countries, actually in or very close to recession, and yet the IMF just now begins to talk about this phenomenon.''
The IMF statement said world inflation would remain elevated in the first half of 2008.
The U.S. dollar is strong relative to fundamentals and China's yuan remains ``substantially undervalued,'' the document said.
``The main counterpart of the dollar's depreciation since August has been the appreciation of freely floating currencies, notably the Canadian dollar and the euro, with the latter now being on the strong side relative to fundamentals,'' the statement said.
| 2008/4/2 8:16||Profile|
Bernanke Defends Bear Stearns Rescue
Thursday April 3, 2:31 pm ET
By Martin Crutsinger, AP Economics Writer
Bernanke, Other Government Officials Defend Bear Stearns Rescue to Protect US Financial System
WASHINGTON (AP) -- The Federal Reserve moved to assist a Wall Street investment bank on the brink of bankruptcy to prevent a failure that could have dealt serious consequences to the U.S. economy, Federal Reserve Chairman Ben Bernanke said Thursday.
"Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," Bernanke told the Senate Banking Committee.
Bernanke was the top witness at a hearing called to examine whether the Fed was justified in providing up to $30 billion to facilitate the sale of Bear Stearns Cos. to JP Morgan Chase & Co.
The nation's fifth largest investment bank became the biggest victim of a severe credit crunch that has roiled markets since last August and made it harder for consumers and businesses to get credit.
Democrats on the Senate Banking Committee said they wanted to find out what pressures the Bush administration had brought to close the sale and whether big investment banks were getting preferential treatment over millions of Americans in danger of defaulting on their mortgages.
"Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?" Senate Banking Committee Chairman Christopher Dodd asked at the beginning of the hearing.
Dodd said he planned to focus on a period of 96 hours including the weekend of March 15-16, in which the federal government took unprecedented actions to "stabilize our markets, to infuse them with liquidity and to prevent additional firms from being swept under the riptide of panic that threatened to have taken hold."
While members of the panel were generally supportive of the decisions, Sen. Jim Bunning, R-Ky., asked, "How big do you have to be to be too big to fail? ... Who let our financial system become so fragile that one failure jeopardizes the health of the entire system?"
Bernanke said that if Bear Stearns had been allowed to fail, it would have led to a "chaotic unwinding" of Bear Stearns investments held by individuals and other financial institutions.
"Moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability," Bernanke said.
Bernanke testified on a panel that also included Treasury Undersecretary Robert Steel, Christopher Cox, chairman of the Securities and Exchange Commission, and Timothy Geithner, the head of the Fed's New York Regional Bank.
Also appearing before the committee were Alan Schwartz, the head of Bear Stearns, and Jamie Dimon, the head of JP Morgan, who described marathon sessions at both firms as executives searched for the best way out of the Bear Stearns liquidity crisis.
Schwartz told the panel that Bear Stearns was brought down by "unfounded" market rumors that led to what was essentially a "run on the bank" as Bear Stearns creditors began demanding payment out of fears the company was about to collapse.
"Facing the dire choice of bankruptcy or a forced sale under exigent circumstances, we salvaged what we could to avoid wiping out our shareholders, bondholders and 14,000 employees," Schwartz told the panel.
Dimon took issue with reports that the Fed had taken Bear Stearns' riskiest securities as collateral for the $30 billion loan the central bank made to facilitate the sale. He also maintained that a Bear Stearns bankruptcy would have been "disastrous" for the financial system.
"A Bear Stearns bankruptcy could well have touched off a chain reaction at other major financial institutions. that would have shaken confidence in credit markets that already have been battered," Dimon said in his testimony.
Steel said the Bush administration supported the Fed's actions.
"The failure of a firm that was connected to so many corners of our markets would have caused financial disruptions beyond Wall Street," Steel said in his testimony.
Many economists believe the credit and housing problems already have pushed the country into a recession.
Bernanke, testifying before the congressional Joint Economic Committee on Wednesday, raised the prospect of a recession for the first time since the current slowdown began. He said it was possible that the overall economy may not grow at all during the first half of this year. However, he continued to predict that growth will resume in the second half of 2008.
In his testimony, Bernanke said the Fed and other government agencies were informed on March 13 that without help Bear Stearns would have to file for bankruptcy the next day.
(end of article)
"Schwartz told the panel that Bear Stearns was brought down by "unfounded" market rumors that led to what was essentially a "run on the bank" as Bear Stearns creditors began demanding payment out of fears the company was about to collapse."
Every week our government or the federal reserve does something else to "stabilize the markets." Why?
Is it because each week needs more financial engineering to meet new and growing threats?
These are interesting times we live in.
| 2008/4/3 14:54||Profile|
IMF Says Financial, Economic Losses May Swell to $945 Billion
By Christopher Swann
April 8 (Bloomberg) -- The International Monetary Fund said financial losses stemming from the U.S. mortgage crisis may approach $1 trillion, citing a ``collective failure'' to predict the breadth of the crisis.
Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released today in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.
The forecast signals the worst of the credit crunch may be yet to come, because banks and securities firms so far have posted $232 billion in asset writedowns and credit losses. Policy makers, concerned that lenders' deteriorating balance sheets will hobble economic growth, are pushing companies to raise capital.
``The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,'' the report said. The fund warned of the risk of ``a serious funding and confidence crisis that threatens to continue for a significant period.''
Today's report comes days before finance ministers and central bank governors from the IMF's 185 members gather in Washington for spring meetings of the fund and World Bank. Group of Seven policy makers meet April 11.
The fund, which predicted a year ago that any ripple effects from a subprime mortgage crisis would be limited, blamed lax regulations and a lack of understanding about the risks in structured financial products for the crisis.
Today's estimate exceeds those by other economists, including analysts at UBS AG, who projected in February that financial firms may lose $600 billion.
While financial innovations have brought some benefits, ``the events of the past eight months have also shown that there are costs,'' the IMF said. At the same time, the fund urged governments against a rush to increase regulation, especially changes that ``unduly stifle innovation or that could exacerbate the effects of the current credit squeeze.''
Banks should improve disclosure and take writedowns ``as soon as reasonable estimates of their size can be established,'' the fund said. It also urged stronger supervision of capital adequacy, and said policy makers should prepare for further disruptions, the IMF said.
``Authorities may wish to prepare contingency plans for dealing with large stocks of impaired assets if writedowns lead to disruptive dynamics and significant negative effects on the real economy,'' the report said.
The fund added that policy makers should ``stand ready to promptly address strains within troubled financial institutions.''
Federal Reserve officials prevented a disorderly failure of Bear Stearns Cos. last month by agreeing to lend against $30 billion of the company's assets, as part of a takeover agreement with JPMorgan Chase & Co.
The fund noted in the report that while ``risks to financial stability remain elevated'' worldwide, emerging market economies ``have been broadly resilient.'' Still, the lender highlighted the risk of faster inflation should the subprime rout cause the dollar's slump to accelerate.
``Further downward pressure on the dollar, particularly if it'' comes ``from subprime or similar shocks, could boost liquidity and lead to an intensification of inflationary pressures in some emerging markets,'' the fund said.
IMF Managing Director Dominique Strauss-Kahn, who took office in November, has conceded that the fund wasn't as vocal as it could have been about the risks that a subprime collapse posed for the global financial system.
In April 2007, the fund said there was little risk of a ``serious systemic threat.'' It also said that ``stress-tests conducted by investment banks show that, even under scenarios of nationwide house price declines that are historically unprecedented, most investors with exposure to subprime mortgages through securitization will not face losses.''
At least 14 banks and securities firms have sought cash from outside investors in the past year.
Since credit markets seized up in the U.S. in August, the Standard & Poor's 500 stock index is down about 7 percent, the trade-weighted dollar index has dropped more than 9 percent and the yield on two-year U.S. Treasury notes has fallen to 1.88 percent. Home prices tracked by S&P Case-Shiller have slumped in every month.
``There was a collective failure to appreciate the extent of leverage taken on by a wide range of institutions -- banks, monoline insurers, government-sponsored entities, hedge funds -- and the associated risks of a disorderly unwinding,'' the IMF concluded in the report.
(end of article)
In addition to this sum of money, we also have a 10 billion a month war to fund...
Isa 30:28 His breath is like an overflowing stream, Which reaches up to the neck, To sift the nations with the sieve of futility; And [there shall be] a bridle in the jaws of the people, Causing [them] to err.
| 2008/4/8 10:21||Profile|
Japan: Tackle crisis with U.S. public money
Cabinet minister says taxpayer bailout is needed before situation worsens
Shizuo Kambayashi / AP
Financial Services Minister Yoshimi Watanabe, one of Japan's most vocal proponents for economic reforms, has urged Washington to use public money to tackle the credit crisis.
Japan: Tackle crisis with U.S. public money
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TOKYO - Likening the U.S. credit crisis to a broken bathtub draining water, Japan's financial services minister urged Washington on Wednesday to inject public money to fix the problem before it gets worse.
Sounding almost alarmist, Yoshimi Watanabe used unusually blunt language to warn that drastic action was needed to address the crisis that has battered global markets.
"If there is a big hole in the bottom of the tub, no matter how much hot water you keep adding, you will never have enough hot water," Watanabe said in an interview with The Associated Press.
Fixing the leak requires "an overall package, including monetary policy and public money," he said.
As the subprime fallout grows, the idea of a public bailout isn't sounding as far-fetched as it once did.
In an interview with The Wall Street Journal last month, Senator Hillary Clinton, a candidate for the U.S. Democratic presidential nomination, said the U.S. government should be ready to buy troubled mortgages from investors and avoid a prolonged slowdown.
"We might be drifting into a Japanese-like situation," she was quoted as saying.
Biggest dilemma since 1930s?
Last month, the U.S. resorted to a public bailout of sorts for Bear Stearns, a major brokerage. The Federal Reserve allowed JPMorgan Chase & Co. to borrow from the Fed, and provide that funding to Bear Stearns. Fed officials said the procedure dates back to the Great Depression of the 1930s but has rarely been used since then.
But Watanabe said the looming global credit crisis, which started with the subprime mortgage woes that surfaced last year, was the biggest financial dilemma for the world, and Japan, since the 1930s.
Watanabe, head of the Financial Services Agency, said Japan has a lesson to share with the rest of the world in how it dealt with the bad debt problems of the 1990s and that the U.S. can learn from Japan's mistakes.
Japan acted too late, procrastinating for six years in tackling the piles of bad debts major banks had racked up during the excessive "bubble economy" years.
After wasting stimulus packages and other halfhearted efforts, Japan was forced to resort to billions of dollars of taxpayers' money to rescue the banks, said Watanabe.
He brushed off the differences in the historical backdrop between Japan's and U.S. problems. He insisted the basic result, lenders running out of capital, was exactly the same and would ultimately need the same fix.
Experts also said the U.S. credit problems were similar to those of Japan in the 1990s.
"There are parallels," said Eva Marikova Leeds, professor of economics at Temple University in Tokyo, pointing to the real estate bubble in both.
"The underlying problem was the assumption that housing prices would rise forever," she said. "Japanese regulators moved too late."
Watanabe, a lower house lawmaker who also oversees economic and administrative reforms, appeared convinced the U.S. government would use public money. He said that decision may not come during the presidential election because of the inevitable question about political accountability.
Watanabe also said he was worried about export-reliant Japan and its massive dollar holdings if the U.S. fails to wrest itself out of the credit crisis. Direct subprime exposure among financial organizations here is believed to be relatively small.
"Japan's recovery is dependent on U.S. economic health and so we could be in deep trouble," Watanabe said.
Iwan Azis, professor of professor of management and regional science at Cornell University in Ithaca, New York, said comparing the U.S. and Japanese lending fiascos weren't particularly useful because the causes and mechanisms were so different.
What the U.S. needs is more regulation, while Japan needs to do away with restrictions to open its markets to foreign investment and new businesses, he said in a telephone interview.
"There are too many regulations in Japan," Azis said.
(end of article)
Do the king's sons pay taxes?
But we and our children and their children will pay for our foolish leaders and princes.
| 2008/4/23 8:39||Profile|