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The doomsday cycle
Over the last 30 years, the US financial system has grown to proportions threatening the global economic order.
This column suggests a ‘doomsday cycle’ has infiltrated the economic system and could lead to disaster after the next financial crisis.
Peter Boone, Simon Johnson, 22 February 2010
Very Important Aritcle
Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House,
Paul Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, FT February 12 2010
Nine European banks have balance sheets that are larger than the GDP of their country.
Eurointelligence 28/1 2010
The Volcker rule – that deposit-taking banks would not be able to engage in proprietary trading, or to own hedge funds or private equity firms – is the first time any government has proposed a sensible structural remedy for the problems created by bailing out banks in 2008.
John Gapper FT January 27 2010
Bankerna är ett oligopol som tjänar enorma pengar på att ge dyra lån till företagen.
Hans företag tvingas betala 5-6 procent medan hushållen med rörlig ränta bara betalar drygt 1 procent.
Problemets kärna är bankernas kapitaltäckningsregler
PR-firman Kreabs grundare Peje Emilsson SvD/E24 2010-02-05
Baselkommittén
Dåliga nyheter för SEB, Swedbank, Handelsbanken och Nordea.
De svenska bankerna har väldigt bra kvalitet på sina tillgångar, exempelvis mycket bostadsutlåning.
Men det får man alltså inte tillgodoräkna sig i det nya måttet.
SvD/e24 2009-12-18
– De svenska bankernas skuldsättning kommer framstå som enormt hög.
Jag skulle tro att de svenska storbankerna hamnar på en skuldkvot kring 40 eller mer.
Jämför det med snittet i övriga Europa, som kanske ligger kring 20–30, säger Finansinspektionens chefsekonom Lars Frisell, som själv sitter med i Baselkommittén .
We need to learn from those countries that evidently did it right. And leading that list is our neighbor to the north. Right now,
Canada is a very important role model.
PAUL KRUGMAN January 31, 2010
Bank of England provided almost 62 billion pounds (USD 102.9 billion) in emergency loans
to Royal Bank of Scotland and HBOS at the height of the credit crisis last year.
The money was repaid in full by January this year
A spokesman for the prime minister said it was "a powerful reminder" of how the banking system had nearly collapsed.
CNBC and BBC 24 Nov 2009
As a result of Lehman’s bankruptcy, millions of people have needlessly lost their jobs, hundreds of thousands of homes have been needlessly repossessed and trillions of dollars, pounds and euros have been needlessly added to the debt burdens of governments around the world.
I repeat that word needlessly because most of these losses would not have happened if Lehman had been supported or wound down in an orderly way.
Anatole Kaletsky, The Times, September 18, 2009
Why a Lehman deal would not have saved us
Niall Ferguson, FT September 14 2009
There was a common ingredient in most /Bank/ failures:
an over-reliance on wholesale borrowing.
As the Western banking system has expanded over the past two decades
its assets have grown to about 2.5 times its deposits
The Economist print, September 3rd 2009
Bear Stearns and Northern Rock, largely reliant on short-term borrowing, faced the modern version of a “run” when their counterparties refused to roll over debts. Most other banks suffered some loss of confidence, forcing them to turn to funding from the state.
In America, the euro zone and Britain, central-bank lending and public guarantees of bank bonds have reached about $2.7 trillion.
In contemporary banks, leverage of 30 to one is normal.
Higher leverage is not rare.
Reform of regulation has to start by altering incentives
Banks central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state.
This is a licence to gamble with taxpayers’ money. The mystery is that crises erupt so rarely.
Martin Wolf, Financial Times, June 23 2009
The collapse of Lehman Brothers has shown the havoc that can ensue when large, interconnected banks implode.
Quite apart from the fact that the world is littered with banks which are too big to fail (but too costly to keep saving),
the world also has banks that are too big to manage.
Gillian Tett, Financial Times June 18 2009
After the US, the country with the biggest banking problem is probably Germany.
a bank can apply to set up its own bad bank
It buys the structured securities from the bank at 90 per cent of book value, guaranteed by the government
Wolfgang Münchau, Financial Times May 17 2009
The Bank of England is examining whether Britain's biggest banks should
formally separate their investment banking and retail banking operations
The Times April 9, 2009
News that such a move is under discussion at such a high level will send fresh shudders through the UK banking sector, still reeling from the fallout of toxic debt and the credit crunch.
It seems that hedge funds have been designated for ritual sacrifice, even though they played no more than a cameo role in the genesis of this crisis.
It was not they who took on extreme debt leverage: it was the banks
– up to 30 times in the US and nearer 60 times for some in Europe that used off-books "conduits" to increase their bets.
Ambrose Evans-Pritchard, Daily Telegraph April 2009
/Bank/ Nationalisation carries risks, but
it may still be the best way to deal with American banking’s undead
The Economist print Feb 26th 2009
As The Economist went to press, the government was in talks with Citigroup over what would in essence be partial nationalisation: the conversion into common equity of a chunk of its preferred stock, obtained in return for pumping capital into Citi last year. This would give it a stake of up to 40%—eight times the holding of Prince Alwaleed bin Talal, the most influential existing shareholder—and voting power to match.
"As president Ronald Reagan’s secretary of the Treasury, I abhor the idea of government ownership. Unfortunately, we may have no choice.
US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency.
Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.
James Baker, Financial Times March 1 2009
Beginning in 1990, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency. Rather than follow America’s tough recommendation – and close or recapitalise these banks – Japan took an easier approach. It kept banks marginally functional through explicit or implicit guarantees and piecemeal government bail-outs.
The resulting “zombie banks” – neither alive nor dead – could not support economic growth
US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.
As president Ronald Reagan’s secretary of the Treasury, I abhor the idea of government ownership – either partial or full – even if only temporary. Unfortunately, we may have no choice. But we must be very careful.
The statement that systemic breakdowns are surprisingly rare
in the free-wheeling Anglo-Saxon model is false.
Martin Wolf February 9, 2009
The true balance sheet of US Investment banks
There are two sides of the balance sheet: the left side and the right side.
On the left side, there is nothing right.
And on the right side, there is nothing left.
Unknown originator, somewhere on the internet, october ? 2008
John McCain: (not Naomi Klein)
"Wall Street has betrayed us.
They've broken the social contract between capitalism and the average citizen"
John McCain, September 16, 2008
Dutch insurer Aegon said it may buy a small U.S. thrift company
to qualify for potentially more than $1 billion in U.S. government support
CNBC 18/11 2008
We're All Banks Now
Is there any financial institution that does not want to become a bank or a bank holding company?
Mish 16/11 2008
American Express to Be Bank Holding Company
GMAC may become a bank holding company
Raymond James To Become Holding Company
CIT seeks bank status, TARP funds
The end of American capitalism as we knew it
There is a long-standing argument that "there is no real case for private ownership of deposit-taking banking institutions
Willem Buiter, Financial Times September 17, 2008
Do We Still Need Commercial Banks?
Raghuram G. Rajan
Rajan is Director of the NBER’s Program on Corporate Finance and the
Joseph L. Gidwitz Professor at the University of Chicago’s Graduate School of Business.
Låneboomen förvärrades av ett beslut 2004 från den amerikanska finansinspektionen, SEC, att låta de fem investmentbankerna låna ut 40 gånger volymen av det egna kapitalet (mot tidigare 12).
Hans Bergström, kolumn DN 2008-10-09
Detta regleringsbeslut var katastrofalt. Tre av de fem har nu gått omkull och utlöst en total förtroendekollaps. (Inom parentes kan noteras att John McCain har varit en ledande reformförespråkare rörande såväl SEC som Fannie och Freddie, medan Barack Obama är den senator som fått störst kampanjbidrag från F&F).
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers.
Russel Roberts, Wall Street Journal 3/10 2008
How we have learned the limits to free markets – the hard way
The real economy is engineering plus social organisation. Finance is applied mathematics, mixed with human nature.
It has recently become clear what a combustible mixture the latter is.
Roger Bootle, Daily Telegraph, 21 Sep 2008
The truth is that absolutely free markets and high finance don't mix. Unrestricted financial markets become a machine for blowing bubbles which endanger the stability of the economic system – and threaten capitalism itself. The economics of the corner shop are not the same as the economics of complex derivatives.
Banking is too important to be left to the bankers.
How U.S. banks sold home equity loans
International Herald Tribune, August 15, 2008
Credit crunch a year on: The losers
However you look at them, the figures remain startling.
BBC 3 August 2008
Total bank exposure to the US sub-prime mortgage market, whose collapse infected wider credit markets and triggered an almost overnight liquidity drought, is still far from clear.
The Federal Reserve has put the cost to the bottom line of banks and other lenders of their sub-prime misadventures at $100bn.
Taking into account other failed mortgage loans, devalued mortgage-backed securities and general bad debts, the International Monetary Fund said potential losses could top $945bn.
It is almost exactly a year since the European Central Bank was forced to inject €95bn into the eurozone banking system
Financial Times
Banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players.
We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking
Paul Krugman 28/7 2008
I Danmark tvingas nu Nationalbanken, alltså landets riksbank, att ingripa för att hindra Roskilde Bank att gå omkull.
Ekot 25/8 2008
: Nationalbanken och en bankorganisation, bildad för att just ta hand om banker i svårigheter, tar över. Det kommer att kosta omkring 5,5 miljarder kronor.
Affären har godkänts av finansministeriet och en stor del av notan får dom danska skattebetalarna stå för. Bankens aktieägare kommer sannolikt att förlora sina pengar, men dess omkring 100 000 kunder, kommer att hållas skadeslösa.
Bankernas problem har bland annat sin bakgrund i den negativa utvecklingen på den danska fastighetsmarknaden där huspriserna stadigt är på väg neråt och har varit så en längre tid. Det tillsammans med dålig kreditvärdering ger bankerna förluster.
Nu befarar man att fler av de regionala bankerna i Danmark kan råka illa ut och bankaktierna faller på måndagen på den danska börsen.
De nordiska bankerna har tillsammans en utlåning på 450 miljarder kronor i Baltikum.
Störst utlåning har Swedbank och SEB med 182 miljarder kronor respektive 139 miljarder kronor
DN 2008-07-03
Misslyckat försök göra en pudel
The world’s leading banks – represented by the Institute of International Finance – concurred with a conclusion long ago reached by the rest of the world:
they screwed up, the credit crisis is largely their fault, and everybody else is suffering for their errors.
The admission may not be enough to prevent a dangerous backlash.
Financial Times editorial April 11 2008
Most people have noticed that when the music stopped – as Chuck Prince might have put it – some of the dance partners left the floor with their pockets stuffed with cash, while others went home to lock up the houses they no longer owned and post the keys back to the bankers.
By accepting much of the blame and proposing various measures to get its house in order, the banking industry hopes to avoid further regulation. It will not succeed. The political atmosphere has become too febrile for that: the mob is at the gates baying for justice.
Fed bailout of Bear Stearns
Remember Friday March 14 2008
it was the day the dream of global free-market capitalism died.
Martin Wolf, Financial Times, March 26 2008
Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression.
What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.
This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.
As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.
To grasp the problem, you need to understand what banks do.
Paul Krugman, New York Times 21/3 2008
Mr. Bernanke and his colleagues at the Fed are doing all they can to end that vicious circle. We can only hope that they succeed. Otherwise, the next few years will be very unpleasant — not another Great Depression, hopefully, but surely the worst slump we’ve seen in decades.
Even if Mr. Bernanke pulls it off, however, this is no way to run an economy. It’s time to relearn the lessons of the 1930s, and get the financial system back under control.
The financial system is a subsidiary of the state.
A creditworthy government can and will mount a rescue.
That is both the advantage – and the drawback – of contemporary financial
capitalism.
Martin Wolf, Financial Times February 26 2008
Highly recommended
Banks are machines for taking liquidity risk.
It is what they do: borrow short-term deposits and make long-term loans.
That makes adequate regulation of bank liquidity crucial
Financial Times editorial, February 13 2008
Like a 1930s bank run
There are now plans to split up the companies
that insure bonds and derivatives based on mortgages and buyout loans.
Jim Jubak 22/2 2008
Bankers, like gangs, just get carried away
“So long as the music is playing, you’ve got to keep dancing. We’re still dancing.”
Chuck Prince, former chairman and chief executive of Citigroup, was interviewed by this paper only a month before the music stopped.
A few weeks later he was out of a job.
With these comments, he got to the heart of the banking crisis.
John Kay, FT February 12 2008 18:15
Groups routinely demonstrate behaviour that few if any members would choose to adopt as individuals. Look at teenage gangs, soccer hooligans, religious zealot
Before the mysteries of structured credit there were the mysteries of witchcraft; before investment banks used initial public offerings to turn dotcom concepts into billions of dollars alchemists claimed to turn base metals into gold.
Shared values and beliefs create a group identity. No matter that the beliefs may be absurd or the values contemptible: that Salem was not besieged by witches, the US was not threatened by communist infiltration, that greed is not good and that suicide bombers will not be greeted in paradise by 71 virgins. The very improbability of the belief, the unacceptability of the values, reinforces their social function; these factors distinguish the real members of the group from the less committed.
It is only halfway through November but I think we can already declare the winner of the 2007 Quote of the Year competition.
It is Chuck Prince, the former chairman and chief executive of Citigroup.
As Mr Prince departs, however, it should be noted that his statement was not, as history will record it, idiotic.
His offence was not that he misunderstood or misstated how banks have operated over the past few years but that he blurted out the truth rather too openly.
Note that he did not say “if” the music stops but “when”.
He recognised then – as did others – that the period of extraordinarily easy money that had prevailed since 2002 was bound to end.
John Gapper, FT November 14 2007
Människan är ett flockdjur. Det förklarar kanske vårt intresse för Paris Hilton?
Rolf Englund blog 2008-01-09
Med länk till Hans Zetterberg mm
The Rising Risk of a Systemic Financial Meltdown:
The Twelve Steps to Financial Disaster
by Nouriel Roubini, February 11, 2008
at John Mauldin
A fundamental question arises:
is the financial system broken, corrupt and in need of reform;
or is the system sound, yet subject to external pressures, notably heavy monetary stimulation,
with which it could not easily cope?
On that diagnosis rests the future of our highly liberalised financial markets.
Financial Times editorial January 25 2008
If the US suffers a recession in 2008 or 2009 it will not be due to an industrial decline or an oil price shock. It will be a recession that began in the financial system. The response of the general public is confusion, tinged with horror, at how intangible finance can impinge on their daily lives.
The rogue trader who cost SocGen €5bn - FT
Bankerna har uppträtt vårdslöst de senaste tio åren och har riskerat allas välfärd. Vem som helst kunde få vilket lån de ville så sent som för tre år sedan.
Jag återvände från Singapore 1999, ansvarig för de förluster på 862 miljoner pund som knäckte Storbritanniens äldsta investeringsbank, personligen dömd som ansvarig för 100 miljoner pund, och fick ändå inom loppet av en vecka erbjudande om fem olika kreditkort.
Nick Leeson, SvD Brännpunkt 21/9 2008
Rogue Trader (Paperback)by Nick Leeson - Amazon
Nobody wants to see a repeat of the 1930s when bank failures ushered in the Depression.
However, the bargain that was made in the 1930s has been broken.
If commercial banks were to be protected, they should not be allowed to gamble in the securities markets.
The Economist print, Jan 31st 2008
While the authorities are happy to leave banks alone when times are good, they are quick to intervene at the first hint of crisis.
This has been shown by the rescue of Northern Rock, steep interest-rate cuts by the Federal Reserve, the European Central Bank's enormous intervention in the money markets last year
The moral hazard is clear; it is not just rogue traders, such as Jérôme Kerviel at Société Générale, who are given huge incentives to take risk. Their bosses are too. One might well describe investment banks as hedge funds backed by an implicit government guarantee.
Two points shine out about the financial system over the past three decades:
its ability to generate crises, and the mismatch between public risk and private reward.
Martin Wolf, FT February 5 2008
The bigger point still, however, concerns macro-prudential regulation. As William White of the Bank for International Settlement has noted, banks almost always get into trouble together.
Making Macroprudential Concerns Operational, 2004, www.bis.org
The most recent cycle of mad lending, followed by panic and revulsion, is a paradigmatic example.
Central banks create an upward-sloping yield curve whenever banks are decapitalised, thereby offering a direct transfer to any institution able to borrow at the low rate and lend at the higher one.
A financial sector that generates vast rewards for insiders and repeated crises for hundreds of millions of innocent bystanders is, I would argue, politically unacceptable in the long run.
Förra året tjänade de fyra storbankerna drygt 91 miljarder kronor
på att ge bankkunderna lägre ränta än utlåningsräntan. Det är en rekordsiffra.
DN 28/2 2008
Anders Borg kräver omedelbara reduceringar av bolåneräntorna.
"Godisskålen är inte till för att bankerna ska vara där och nalla", säger
Anders Borg (m) efter att Riksbanken meddelat sin sänkning av reporäntan till 2 procent.
Di 2008-12-04
Interest rate cuts work their way through to the real economy by a number of transmission channels.
Cui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork.
So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008
The first, second and third beneficiaries of the Federal Reserve’s pending helicopter drop of cash will be banks, not ordinary people or companies.
Cui bono
("To whose benefit?", literally "[being] good for whom?") is a Latin adage that is used either to suggest a hidden motive or to indicate that the party responsible for a thing may not be who it appears at first to be.
Wikipedia
How to solve the financial crisis?
Let me tell you a little secret, folks.
Play for time. A few years of nice profits will help offset the big losses from past blunders
Allan Sloan, senior editor CNN, August 18, 2008
The gap between short-term interest rates and long-term bond yields is extraordinarily high.
That allows banks, in particular, to borrow at low rates from the central banks and invest the proceeds in government debt;
the same trick was used to rebuild bank profits in the early 1990s.
The Economist print Jan 7th 2010
Transmission channels
(Portal)
Wall Street bonuses fell to $33.2bn, the New York state comptroller said.
Financial firms have written off about $100bn as a result of the crisis.
BBC with good links
De fem största amerikanska investmentbankerna har betalat bonusar om totalt 39 miljarder dollar,
motsvarande 256 miljarder kronor, för 2007.
Det rapporterar Bloomberg News som utifrån bolagens bokslut har tagit fram uppgifterna.
DI 2008-01-17
This huge monetary expansion perpetrated by the Federal Reserve has contributed to the biggest speculation in every conceivable asset category and has been accompanied by unprecedented hubris, greed and outright fraud.
This will be punished. The punishment is likely to fit the crime.
Ian Gordon, Economic Forecaster and Interpreter of Kondratieff Cycle
In 2007 there was one economic event of such overwhelming significance that it dwarfed all the others - the credit crunch. - Who was to blame?, Roger Bootle
The collapse of the modern day banking system, Mike Whitney
Most estimates put the eventual tally for defaults by America’s subprime borrowers at $200 billion-300 billion, The Economist
Foreign funds lead $21bn US bank rescue
FT January 15 2008
Citigroup and Merrill Lynch turned to foreign investors for an unprecedented bail-out on Tuesday, saying they would raise a total of $21.1bn in fresh capital – mainly from outside the US – to shore up balance sheets devastated by the subprime mortgage crisis.
Citigroup also unnerved investors by warning of losses to come from consumer loans as it revealed a 40 per cent dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages.
Citi, Merrill Lynch and UBS could face $10 billion in further writedowns tied to last week’s downgrade of bond insurers Ambac and MBIA,
the Financial Times reports.
Fortune June 11 2008
S&P downgrades Ambac, MBIA
CNN/Fortune June 5, 2008
If September 11, 2001 was the day that we had to reassess our ideas about America's role in world politics,
September 15, 2008, the day Lehman Brothers went bankrupt, may well be remembered as the day we had to reassess our ideas about America's role in the world economy.
Anne Applebaum, Daily Telegraph, 28/9 2008
Lehman bondholders could lose $110bn
FT September 22 2008
Why the Fannie and Freddie bail out should not be repeated in Britain
"No one told us we could do that!" This was the response of a Labour Cabinet minister in 1931 when Britain left the Gold Standard after years of painfully trying to stay on it, involving enforced wage cuts, strikes, cuts in public spending and a split in the Labour Party.
Roger Bootle, Daily Telegraph 14/9 2008
With one bound, they were free. The pound plunged, interest rates dropped - and the roof did not fall in.
Last week, as the British Government floundered and the credit crunch ground on, the US government effectively nationalised 50pc of the mortgage market and in the process increased the US government debt by 40pc of gross domestic product. And the markets did not blink - or rather, they smiled.
Nightmare on Wall Street
Even by the standards of the worst financial crisis for at least a generation, the events of Sunday September 14th and the day before were extraordinary.
The Economist Sep 15th 2008
Lehman Bros files for bankruptcy
BBC 15 September 2008
What if Lehman files for bankruptcy and nothing much happens?
Willem Buiter, September 15, 2008
Street Prepares for Worst As Lehman Deal Stalls
In a sign that Wall Street is preparing for the worst — a possible bankruptcy filing by Lehman Brothers brokers Sunday afternoon were streaming into their offices and a special trading session for credit default swaps was called.
CNBC 14 Sep 2008 01:26 PM ET
Still others can't believe there won't be a last minute compromise. One person with knowledge of Sunday's deliberation's called it "a big game of chicken" with all sides digging in their heels.
Barclays has pulled out of talks to buy most of Lehman Brothers, the BBC has learned.
The decision, which a source close to the talks said was unlikely to change, is a setback for the rescue effort.
BBC Sunday, 14 September 2008 19:35 UK
Lehman Brothers' stock, which fell another 13.5% Friday, is down 94% so far this year.
CNN
Lehman Brothers
One Wall Street executive involved in the meetings put it this way:
"I'm thinking logically; if they do nothing it's Armageddon. That means they do a deal.
It will be announced at 6 p.m. (ET) Sunday."
CNBC 13/9 2008
Barclays was last night considering a direct plea from Hank Paulson, the US Treasury Secretary, to assemble a cut-price rescue bid for Lehman Brothers
Daily Telgraph 14/9 2008
Paulson, the former head of Goldman Sachs, has urged Barclays and a number of other large financial institutions to intervene in the Lehman crisis, which is threatening the future of one of Wall Street's most venerated businesses.
US officials are concerned that the collapse of Lehman will prompt a fresh contagion among investors worried about the security of institutions such as Merrill Lynch and AIG, the insurance group.
Lehman Brothers plunged 45% - its shares ended down $6.36 to $7.79
The fall sparked a wider sell-off on Wall Street, Dow Jones falling 280 points
This removed almost all of the gains it had enjoyed on Monday.
BBC, Tuesday, 9 September 2008
Can Lehman raise the capital it needs?
CNN September 9, 2008
Lehman Brothers is raising $6bn, expects a $2.8bn loss
BBC 9 June 2008
The bank's public offering of common stock and convertible preferred stock will be aimed at mainly US investors, analysts said.
- UBS balansomslutning är nästan fem gånger så stor som Schweiz BNP
DN/TT 16/10 2008
UBS tillhör den grupp banker som gjort de allra största förlusterna på bolånekrisen i USA. Och banken har tentakler i hela det globala finanssystemet, vilket gör att en kollaps skulle få stora konsekvenser överallt, även i Sverige.
UBS will raise 6bn Swiss francs ($5.3bn) from the Swiss government.
It will also be able to transfer up to $60bn of toxic assets to a fund supported by the Swiss central bank.
BBC 16 October 2008
Credit Suisse also said that the Qatar Investment Authority was among the group of global investors that had helped the bank to shore up its finances.
UBS reported a loss of $329m for the April to June period, despite hopes it might break even in the quarter.
The bank's sub-prime debt write-downs in the quarter totalled $5.1bn.
BBC 12/8 2008
UBS seeks $15.1B in new capital
Switzerland's largest bank, expects writedowns of $19 billion
just as Deutsche Bank AG, Germany's largest bank, announced similar writedowns of about $4 billion.
CNN 1/4 2008
UBS writedowns have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date.
Switzerland's Federal Banking Commission (EBK) is to investigate how UBS became one of the banking sector's worst victims of the credit crunch, BBC
UBS faces rebellion over fund injection, FT
How foreigners are buying up our banks
The fallout from Western bankers' reckless real-estate investments could usher in
an era of 'reverse colonization,' a turning point in the world's financial history.
Jon Markman, CNBC 2007-12-13
It's not too harsh to conclude now, in fact, that bankers essentially threw away their families' life savings on reckless real-estate gambles and that with their shares down 50%-plus and their capital bases in tatters, they're now lying in the proverbial gutter begging for a hand from passers-by. Brother, can you spare a billion?
The purchases were made via convertible securities that pay stunning yields of 9% and 11%, which essentially classify UBS and Citigroup as junk-bond-level credits.
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
Click here
This isn't just a mortgage or housing crisis.
At the center of this still-unfolding disaster is the collateralized debt obligation, or CDO.
Steven Pearlstein, Washington Post, December 10, 2007
What we are witnessing is essentially the breakdown of our modern day banking system,
a complex of levered lending so hard to understand
that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.
Bill Gross, December 2007
Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year.
Even so, Goldman went on to package and sell more than $6 billion of new securities
backed by subprime mortgages during the first nine months of this year.
IHT 6/12 2007
Why Do Financial Firms Take Too Much Risk?
The principal/agent problem
John H. Makin, American Enterprise Institute, November 20, 2007
The Next Dominos:
Junk Bond And Counterparty Risk
one of the more important editions of Outside the Box this year. This is a must read. You absolutely need to understand the nature of the systemic risk we are facing, and Ted does a great job of explaining in very clear terms the nature of the risks that we have created in our modern markets.
Ted Seides at John Mauldin 26/11 2007
Banks Gone Wild
PAUL KRUGMAN NYT November 23, 2007
It is only halfway through November but I think we can already declare the winner of the 2007 Quote of the Year competition. It is Chuck Prince, the former chairman and chief executive of Citigroup.
As Mr Prince departs, however, it should be noted that his statement was not, as history will record it, idiotic.
His offence was not that he misunderstood or misstated how banks have operated over the past few years but that he blurted out the truth rather too openly.
Note that he did not say “if” the music stops but “when”.
John Gapper, FT November 14 2007
Washington Mutual
US officials assumed control of WaMu after its shares lost nearly all their value
This after all is an industry-leading bank with over $320 billion in assets.
September 25 2008 22:33
JPMorgan Chase will acquire deposits and some branches
Under the government take-over, the value of WaMu’s common equity and preferred shares would be wiped out
Under the deal, which was shepherded by federal banking regulators, JPMorgan Chase will acquire all the banking operations of the Seattle-based WaMu, as well as its assets and financial contracts.
The Office of Thrift Supervision shut down the bank on Thursday and named the FDIC as receiver. WaMu is the 13th bank to fail so far this year.
WaMu är en S&L - en släkting till Swedbank
Washington Mutual
Shares of WaMu were down more than 20% in afternoon trading,
suggesting that the endgame for the embattled savings and loan may be rapidly approaching
following ratings agency downgrades
CNN September 25, 2008
- What the heck's happening to our financial system?
That will be a question many people will be asking after shares plunged 17 percent in a single day.
This after all is an industry-leading bank with over $320 billion in assets.
CNN Fortune 2007-11-08
The most sobering thought about the credit crunch so far is that it's happened without anything approaching a recession. Difficulties in the financial system could slow the economy and that in turn that would create new losses at the banks.
If it wanted to, the Federal Reserve could just cut interest rates and cheaper borrowing costs would help the banks and spark economic activity. But with the threat of inflation and the weak dollar, the Fed doesn't have much room to maneuver.
Sorry, but we're only just moving into the second act of the credit crunch.
What we saw this summer is something we've seen before and will undoubtedly see again. The sell-off was predictable and avoidable.
Some people were apparently shocked to learn that gambling was occurring at Rick's Cabaret.
Speech by Michael E. Lewitt, made at the The Bank Credit Analyst Conference
Mauldin's Outside The Box 2007-11-05
A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
Michael Shedlock, November 01, 2007
The US subprime lending fiasco and its repercussions on Northern Rock have brought back questions about the banking system - questions such as “What is a bank?” and “What is money?”
Samuel Brittan, FT October 25 2007
The US subprime lending fiasco and its repercussions on Northern Rock and international credit markets in general have brought back questions about the banking system that most macroeconomists had hoped were over and long forgotten. The confidence of what are called, rather disdainfully, “retail depositors” is not the only problem of the world monetary system, but it is still the bedrock on which everything else stands. Outside the US, deposit insurance is rarely complete and there are usually delays before reliable cheques denominated in central bank money duly arrive. In the UK it is only since October 1 this year that the Financial Services Compensation Scheme has been extended to cover eligible deposits of up to £35,000 and the new official discussion paper leaves open the possibility of raising the amount. But the implications of sweeping guarantees have not been digested. They have the dubious feature of bringing questions such as “What is a bank?” and “What is money?” into practical politics.
In fact, the fractional reserve system was severely queried by some US economists in the aftermath of the Great Depression when one-quarter of the US money stock disappeared almost overnight – a more important event than the better-known 1929 stock exchange crash.
Henry Simons, author of A Positive Program for Laissez Faire, proposed the creation of pure deposit-taking institutions holding 100 per cent reserves whose assets had to be held in currency or Federal Reserve deposits. So, barring a break-up of the US or similar disasters, a depositor could always get his or her money back and quickly. Other financial institutions, whether or not called banks, would carry on paying interest and looking for more profitable investments. But the ordinary citizen would know that he was on his own if he invested in them and learn that higher returns came with higher risk.
We urgently need a more open approach than that of the City of London figures who oppose bail-outs and government support for all other industries but condemn the Bank of England for not doing secret deals to rescue threatened financial institutions.
How do the big banks differ from Northern Rock?
Richard Lim, Singapore, Letters FT 2007-10-23
Sir, I would like to thank the FT for your reports on the issues relating to the credit crunch and its potential impact on the global economy. In particular I was shocked to read about special investment vehicles (SIVs) and “SIV-lites”, off-balance-sheet vehicles used by big banks essentially to circumvent banking regulations on maintaining reserves against lendings, and sound liquidity management, such as not covering long-term commitments with short-term fundings, which everyone with a little bit of knowledge would know is risky to the survival of a bank. What is the difference between the big banks and Northern Rock?
Now a more shocking development is the talk about creating a seeming master SIV by the big banks endorsed by the US Treasury. How could the banks be allowed to perpetuate such self-destructive activities, which the SIVs and SIV-lites have proven to be?
The public sector subsidises the banks risk-taking. It does so because banks provide a utility.
What the banks give in return, however, is gung-ho speculation.
Martin Wolf, FT November 27 2007
Mervyn King, governor of the Bank of England,
is playing a game of chicken with the world’s most irresponsible industry.
Sadly, he is losing.
Martin Wolf, Financial Times 21/9 2007
The “Minsky moment” in financial markets – the point where credit supply starts to dry up,
systemic risk emerges and the central bank is obliged to intervene – has duly arrived.
George Magnus, Financial Times August 22 2007 19:14
The decision to guarantee deposits raises large questions.
Deposit liabilities are nationalised, while the financial system’s assets, albeit regulated, remain in private hands.
Martin Wolf, Financial Times September 19 2007
Mervyn King, governor of the Bank of England,
is playing a game of chicken with the world’s most irresponsible industry.
Sadly, he is losing.
Martin Wolf, Financial Times 21/9 2007
For decisions on how to intervene in markets, however, Mr King bears responsibility.
In the paper on the crisis submitted to the Treasury committee last week,
Turmoil in Financial Markets: What Can Central Banks Do?
he defended a line markedly different from that taken by the Federal Reserve and the European Central Bank.* “On the one hand, the provision of greater short-term liquidity against illiquid collateral might . . . reduce term market interest rates. But, on the other hand, the provision of such liquidity support . . . encourages excessive risk-taking, and sows the seeds of a future financial crisis.”
The only reason for intervening, then, would be “strong grounds for believing that the absence of ex post insurance would lead to economic costs on a scale sufficient to ignore the moral hazard in future.” Since then Mr King must have decided that the threat to the financial system posed by the unwillingness of banks to lend had become too dangerous. By advancing three-month money against mortgagecollateral,the Bank has, as a result, abandoned two of its principles for acting as lender of last resort.
Consider, not least, that banks exposed themselves to the risk of illiquidity from which they expect a public rescue, at no charge.
Mr King’s “mistake” – what critics call his “inflexibility” – was the view that banks should no more enjoy a rescue than other businesses. Fortunately, the Bank’s provision of liquidity is not yet free. Let Mr King stick to his guns on the penalty. If not, still more dangerous crises will come.
The decision to guarantee deposits raises large questions.
Deposit liabilities are nationalised, while the financial system’s assets, albeit regulated, remain in private hands.
Martin Wolf, Financial Times September 19 2007
If you do not understand the implications of that, you have not paid attention to what has been happening in the financial sector.
I must declare an interest: members of my immediate family had money in Northern Rock.
As an individual, therefore, I am pleased. As a hard-nosed commentator, I deplore it.
Yet there are other and wider questions. As long as governments cannot – or will not – let ordinary depositors suffer inconvenience, moral hazard runs rife. The answer must surely include tighter regulation: more capital, perhaps an obligation to obtain long-term subordinated debt and specific liquidity requirements.
Central banks should not rescue fools
Martin Wolf, Financial Times, August 29 2007
Do We Still Need Commercial Banks?
Raghuram G. Rajan
Rajan is Director of the NBER’s Program on Corporate Finance and the Joseph L. Gidwitz Professor at the University of Chicago’s Graduate School of Business.