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Wall Street Bubbles Banks...The doomsday cycle 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, Nine European banks have balance sheets that are larger than the GDP of their country. 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. Bankerna är ett oligopol som tjänar enorma pengar på att ge dyra lån till företagen. Baselkommittén – De svenska bankernas skuldsättning kommer framstå som enormt hög. We need to learn from those countries that evidently did it right. And leading that list is our neighbor to the north. Right now, Bank of England provided almost 62 billion pounds (USD 102.9 billion) in emergency loans 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. Why a Lehman deal would not have saved us There was a common ingredient in most /Bank/ failures: 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. The collapse of Lehman Brothers has shown the havoc that can ensue when large, interconnected banks implode. After the US, the country with the biggest banking problem is probably Germany.
The Bank of England is examining whether Britain's biggest banks should 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.
/Bank/ Nationalisation carries risks, but
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. 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. 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 The true balance sheet of US Investment banks John McCain: (not Naomi Klein) Dutch insurer Aegon said it may buy a small U.S. thrift company We're All Banks Now American Express to Be Bank Holding Company The end of American capitalism as we knew it Do We Still Need Commercial Banks? 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). 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. How we have learned the limits to free markets – the hard way 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. How U.S. banks sold home equity loans Credit crunch a year on: The losers 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 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.
I Danmark tvingas nu Nationalbanken, alltså landets riksbank, att ingripa för att hindra Roskilde Bank att gå omkull. : 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. 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.
De nordiska bankerna har tillsammans en utlåning på 450 miljarder kronor i Baltikum. Misslyckat försök göra en pudel 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 Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. 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.
The financial system is a subsidiary of the state. Banks are machines for taking liquidity risk. Like a 1930s bank run Bankers, like gangs, just get carried away 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. Människan är ett flockdjur. Det förklarar kanske vårt intresse för Paris Hilton? The Rising Risk of a Systemic Financial Meltdown: A fundamental question arises: 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. Rogue Trader (Paperback)by Nick Leeson - Amazon Nobody wants to see a repeat of the 1930s when bank failures ushered in the Depression. While the authorities are happy to leave banks alone when times are good, they are quick to intervene at the first hint of crisis. 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: 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. 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 Anders Borg kräver omedelbara reduceringar av bolåneräntorna. Interest rate cuts work their way through to the real economy by a number of transmission channels. 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 How to solve the financial crisis? 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; *
Transmission channels Wall Street bonuses fell to $33.2bn, the New York state comptroller said. De fem största amerikanska investmentbankerna har betalat bonusar om totalt 39 miljarder dollar, 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. 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 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, S&P downgrades Ambac, MBIA If September 11, 2001 was the day that we had to reassess our ideas about America's role in world politics, Lehman bondholders could lose $110bn Why the Fannie and Freddie bail out should not be repeated in Britain 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 Lehman Bros files for bankruptcy What if Lehman files for bankruptcy and nothing much happens? Street Prepares for Worst As Lehman Deal Stalls 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. Lehman Brothers' stock, which fell another 13.5% Friday, is down 94% so far this year. Lehman Brothers 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 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.
Lehman Brothers plunged 45% - its shares ended down $6.36 to $7.79 Can Lehman raise the capital it needs?
Lehman Brothers is raising $6bn, expects a $2.8bn loss 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 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. 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. UBS seeks $15.1B in new capital 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 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. This isn't just a mortgage or housing crisis. What we are witnessing is essentially the breakdown of our modern day banking system, Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year.
Why Do Financial Firms Take Too Much Risk? The Next Dominos: Banks Gone Wild 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. Washington Mutual 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 - What the heck's happening to our financial system? 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.
What we saw this summer is something we've seen before and will undoubtedly see again. The sell-off was predictable and avoidable. A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent. 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?” 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? 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. Mervyn King, governor of the Bank of England, The “Minsky moment” in financial markets – the point where credit supply starts to dry up, The decision to guarantee deposits raises large questions.
Mervyn King, governor of the Bank of England, For decisions on how to intervene in markets, however, Mr King bears responsibility.
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. 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 Do We Still Need Commercial Banks?
Raghuram G. Rajan |