[Archived] The End Of Global Capitalism?

[philipl]

There will be no new bail out package passed before Saturday- that is for certain.

So we have a nervous week in which the central banks and the markets need to hold their nerve and the fact that the market falls thus far today are relatively small indicates there is a view that the American problem can be contained. Whether this is hubris we will know soon enough.

Anatole Kaletski writing in the Times has been a solo voice calling Paulson a total incompetent comparing him with Cheney, Rumsfeld and the New Orleans guy. It seems that his view is gaining ground.

Certainly, Paulson's initial plan would have saved the hides of rich bankers (and his own) at massive cost to all others. I was very struck by the analysis of the 40 or so national banking crises which have happened in the past 30 years and that Paulson has chosen the most expensive and least effective way of resolving it judging by others' experiences.

The most successful way has been for central government directly to buy new equity in banks that need re-capitalising. Then sell at a profit when times are appropriate.

As things stand there has been a massive destruction in wealth for holders of shares and bonds in banks. About a trillion has gone in Fannie, Freddy, AIG and Lehman Brothers alone. Much of that was held by non-US investors, particularly foreign governments encouraged/pressed to put their money in when the begging bowl went round last winter.

Another reason for America to fear that the Chinese, Japanese and Gulf states will be more active in protecting their financial interests within the USA in future and start dictating terms.

I anticipate and hope that in the ineregnum waiting for the new deal that there will be a round of interest rate cuts. Inflation is not a concern for now.

[jim mk2]

I anticipate and hope that in the ineregnum waiting for the new deal that there will be a round of interest rate cuts. Inflation is not a concern for now.

Letting inflation off the leash just to soothe markets in the short term is a recipe for disaster. A worldwide recession is inevitable anyway and keeping inflation in check now will pay off in 2 or 3 years time. There's going to economic pain and there's no way of avoiding it, not least by knee-jerk reactions such as cutting interest rates.

[philipl]

The problem in the '30s was global deflation.

We have got to get from here to Saturday so I would certainly cut interest rates in the USA, UK and Euroland by a quarter per cent this week. Such a co-ordinated move would not stoke inflation but would send a very clear signal.

[jim mk2]

Such a co-ordinated move would not stoke inflation but would send a very clear signal.

Alan Greenspan made the same mistake after the dot-com bust - triggering the seven-year global credit boom that has just ended in another (far more serious) bust !

[philipl]

Alan Greenspan made the same mistake after the dot-com bust - triggering the seven-year global credit boom that has just ended in another (far more serious) bust !

The difference right now is the cost of borrowing is escalating anyway as banks price in higher risk margins and the cost of the spread on interbank money.

A reduction in official rates would hopefully put a cap on the spiralling cost of money and help keep good projects in funds.

[philipl]

Michael Moore on great form

[grizfoot]

The Interback lending rate in pound sterling is at 6.3%, which is just crazy when you think about it. I don't think an interest rate cut of a quarter will do anything to help really. The banks are running scared at the moment and I'd very much doubt whether they'd even react to the change.

Must admit that I was a bit shocked when it was announced that the US financial sector bail-out packagae wasn't passed. I can see the logic in not wanting to let these banks 'off the hook' by using taxpayer money or maybe it's just a case of if George Bush says turn left, then i'll go right. Then again if some sort of revised bill isn't passed it's claimed by some experts that we could be in for armageddon. That might just be scaremongering but they'll almost certainly be some serious implications if they don't get some sort of bail-out plan passed.

But by passing a bail-out package it's almost like admiting that the capitailism model is flawed.

[AussieinUk]

What is the mood like where you are working now?

Personally, I should be ok (as I am attached to project management), but generally, people are very worried. Most are too scared to move.

RBS shares in freefall ; 20 per cent yesterday and another 9 per cent this morning. Even without short-sellers investors are showing that this could be the next HBOS.

Anyone with NatWest savings might like to consider their options - and soon.

You have no inside information on RBS nor knowledge of their operations.. I'd be surpirsed that you can actually 'pick your nose', let alone picking the next bank that will collaspe..

Your the type of fool, that casues panic in these situations.. 'Pull your money out of Natwest' - Stop talking out your ar$e!

Next, I'll here you spouting rubbish on.. 'I lived through forty years of blah, blah, blah - so I know more'...

[AussieinUk]

But by passing a bail-out package it's almost like admiting that the capitailism model is flawed.

I wouldn't go that far..

Leverage and lack of regulation has caused these recent problems.. The new buzz word in banking at the moment is 'deleveraging'

[philipl]

Will Hutton with some frightening words about British banking prospects

The size of the inter-bank rates are frightening and telling us that lending has seized up. There is a price at which lending would resume which is why I would signal the intention to get there by cutting rates now- this week, today.

The other thing which would help given that markets have ceased to operate is to get rid of the mark-to-market rule of valuing assets. That simple accounting device is creating a vicious spiral driving everything to oblivion. There is a real economy out there which reflects the underlying value of real financial assets.

Hedge Funds are the next set of institutions to start dropping like a pack of dominoes.

Finally, bully for the Irish in guarranteeing bank deposits. The flood of money into Dublin will be massive.

[dave birch]

It really is about the time that people started to stop spreading the panic.

It is not as bad as they would want it to be.

[AussieinUk]

The other thing which would help given that markets have ceased to operate is to get rid of the mark-to-market rule of valuing assets. That simple accounting device is creating a vicious spiral driving everything to oblivion. There is a real economy out there which reflects the underlying value of real financial assets.

Hedge Funds are the next set of institutions to start dropping like a pack of dominoes.

You raise some good points philip, especially on the MTM issue. I can't see it being removed though, as it would cause some nightmares for asset managment groups, particulary those based in LIFE and pension vehicles. There is also the question - if not daily MTM then when?... weekly, monthly or quarterly? You also have the issue of 'Fair Value' under FAS 157, that came into effect last year

EDIT: Just to add that many hedge fund groups have already dropped off the financial map already. In fact, around 15% have been liquidated in the first half of 2008, compared to that of 2007, according to a consultancy firm, Hedge fund research.

[grizfoot]

Finally, bully for the Irish in guarranteeing bank deposits. The flood of money into Dublin will be massive.

Well the European Commission are now investigating whether this move by the Irish is against EU competition laws.

Ireland has grown as an economy in recent times mainly due to the low rate of corporation tax which they have set. Guaranting bank deposists in the six largest Irish banks is only going to be make it an even more attractive country for potential investors/businesses.

[blue phil]

Rubbish - Do not agree with you at all. You're a complete muppet and your amateurish analysis is second to none!

You have no inside information on RBS nor knowledge of their operations.. I'd be surpirsed that you can actually 'pick your nose', let alone picking the next bank that will collaspe..

Your the type of fool, that casues panic in these situations.. 'Pull your money out of Natwest' - Stop talking out your ar$e!

Next, I'll here you spouting rubbish on.. 'I lived through forty years of blah, blah, blah - so I know more'...

A little unkind about our jim there .

All true , of course ..........but a little unkind .....

[Paul]

It really is about the time that people started to stop spreading the panic.

It is not as bad as they would want it to be.

Been saying the same myself since January dave but good news doesn't make headlines. In some respects the media have to take a proportion of the blame, and I'd put the BBC high on that list, for the increasingly hysterical reporting of the crisis.

[dave birch]

Tell me about it Paul.

I'm in the situation where I'm "available" for retirement, not that I want to.

My Super portfolio is very aggressive, and as such has taken a knock, fortunately our property has gone gangbusters, and with other things we are well ahead, but the press, both TV and print, go hysterical about things.

It really is about time the Press (worldwide) started to report truth, rather than sensationalist crap. Companies come and go, thems the breaks.

At the moment, we are looking to get into the market, with a view of a 5- 10 year period. I can foresee some good gains to be made.

[jim mk2]

Been saying the same myself since January dave but good news doesn't make headlines. In some respects the media have to take a proportion of the blame, and I'd put the BBC high on that list, for the increasingly hysterical reporting of the crisis.

What is the media supposed to do - ignore the biggest worldwide financial crisis for 70 years ? Stick their head in the sand and pretend it's not really happening because it might upset a few people ? Shooting the messenger is just a brainless response.

The BBC reporting of the crisis has been very good and I don't know you can say it is "hysterical". Please explain. The reporting in the national press has also been very good - even the Mail - while the Financial Times as you would expect has excelled itself.

[Billy Castell]

Will Hutton with some frightening words about British banking prospects

The size of the inter-bank rates are frightening and telling us that lending has seized up. There is a price at which lending would resume which is why I would signal the intention to get there by cutting rates now- this week, today.

The other thing which would help given that markets have ceased to operate is to get rid of the mark-to-market rule of valuing assets. That simple accounting device is creating a vicious spiral driving everything to oblivion. There is a real economy out there which reflects the underlying value of real financial assets.

Hedge Funds are the next set of institutions to start dropping like a pack of dominoes.

Finally, bully for the Irish in guarranteeing bank deposits. The flood of money into Dublin will be massive.

Isn't the Glazer family involved with these hedge funds from their purchase of Man Utd?

I know I am probably getting it totally wrong here, but what is the difference between the reckless nonsense that set all this off, an Nick Leeson's activities that led him to jail? All I understand is that both had been playing a high risk game that has blown up in their faces. I'd love to see as many of these greedy pigs go under and end up on the treets as possible.

[AussieinUk]

I know I am probably getting it totally wrong here, but what is the difference between the reckless nonsense that set all this off, an Nick Leeson's activities that led him to jail?

Simply put.

Nick leeson's activites wasn't legal, by any stretch of the imagination.

Nick Leeson's gambit is similar to Jerome Kerviel's (Société Générale) gamble this year

[philipl]

Isn't the Glazer family involved with these hedge funds from their purchase of Man Utd?

YES and one Hedge Fund has the right to take full control of Man U in April 2010 if they are not paid off- current bill for principle + interest £250m leaving Man U still a mere £700m in debt.

I know I am probably getting it totally wrong here, but what is the difference between the reckless nonsense that set all this off, an Nick Leeson's activities that led him to jail? All I understand is that both had been playing a high risk game that has blown up in their faces. I'd love to see as many of these greedy pigs go under and end up on the treets as possible.

Good question and the answer is Nick did it on his own and all the others had board resolutions to support them. Otherwise with the benefit on 2 Oct 2008 hindsight, they are identical- they all bust the bank.

This is why 2010/2011 in the US law courts is going to make the Enron and Worldcom trials look like an amuse de bouche. The clever ones will be at the IRS and the FBI negotiating their immunities and freedoms now.

[thenodrog]

Been saying the same myself since January dave but good news doesn't make headlines. In some respects the media have to take a proportion of the blame, and I'd put the BBC high on that list, for the increasingly hysterical reporting of the crisis.

Crisis what crisis? Now whose making a crisis out of a drama Paul?

[grizfoot]

Been saying the same myself since January dave but good news doesn't make headlines. In some respects the media have to take a proportion of the blame, and I'd put the BBC high on that list, for the increasingly hysterical reporting of the crisis.

The media are only reporting on what is happening out their. But they do sometimes go a bit over the top, is there really any need to begin every news show with the words 'financial crisis' in the background?

Although I think the news coverage on these recent economic troubles as been on the whole very good.

[sijoco]

The media are only reporting on what is happening out their. But they do sometimes go a bit over the top, is there really any need to begin every news show with the words 'financial crisis' in the background?

Although I think the news coverage on these recent economic troubles as been on the whole very good.

Very good? There speaks a financial expert (of which l'm not before you take a swipe) Credit Crunch? Own a house? Not me l just "Squat and Go".

Seriously, "The media are only reporting on what is happening out their. But they do sometimes go a bit over the top" hahaha, do they ? Never !!! You need to speak to Thenodrog and Colin and tell them. They seem to think the BBC is gospel. Apart from MOTD obviously.

[Billy Castell]

So when can we expect the Glazer's hedge funds to destroy Man Utd? And what is a hedge fund (in simple terms)?

[AussieinUk]

It looks like Fortis is wobbling.

Latest news on Fortis - Not only have state authorities bailed out Fortis to a degree, it looks as though BNP, have now started to pick the bones.. BNP will acquire 75% of Fortis Bank Belgium from the government for (USD $11.3 billion) in stock, and purchase the Belgian insurance operations. BNP Paribas will also acquire 66% of Fortis's bank in Luxembourg.

In Germany, HRE (Hypo Real Estate) has now attained a sizeable (USD $68 billion) rescue package, after an earlier bailout, failed late last week. Germany's financial industry agreed to double a credit line for HRE. The Bundesbank have said that HRE, (Germany's second-biggest property lender), is 'too big to fail'. Comments made, stated that the failure to provide this rescue package, may have triggered unpredictable consequences for the German financial and economic system, similar to that of Lehman Brothers.

Finally, in Iceland, the government is considering a USD $14 billion injection, into the financial system. This is after having already bailed out Glitnir last week (Iceland third largest bank).

Overall, this is not looking good on global equity markets, opening in a few hours (both European and US). Could be another day of pain...

Btw - Indicative index futures are already down by quite a margin.