Perspectives on the global economic meltdown

vsudhir
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Re: Perspectives on the global economic meltdown

Postby vsudhir » 02 Jan 2009 00:12

Trade finance - the oil of the global economy - is slowing and causing predictable problems.

Link

American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping, in contrast to the usual 30 to 45 days, forcing their suppliers to try to borrow more money to cover the difference. Some Chinese suppliers who cannot raise the money — many already operate on thin margins — are going out of business.

At the same time, retailers are demanding that exporters show that they have strong balance sheets and will not go bankrupt before completing orders. Exporters, worried the retailers will fail before paying for their purchases, are reluctant to let goods be loaded on ships. And banks, for the same reason, have cut back on guaranteeing retailers’ payments to exporters.

“Trade finance is collapsing,” said Victor K. Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. “We’ve got orders we can’t ship right now.”


Meanwhile, outlook for export dependent economies isn't bright going into 2009.

Government statistics show that Chinese exports slipped 2.2 percent in November when calculated in dollars, after seven years of rapid growth. But figures in dollars do not come to close to capturing the real depth of the downturn.

Convert the export figures into China’s own currency, a much better measure of the effect on China’s economy, and exports plunged 9.6 percent last month. Factor in inflation over the last year and the plunge was 11.4 percent.

Indications are that the December data will be even worse.


So yes, unless the big western banks are forced to open their books to general scrutiny, account for and write-off their NPAs and other losses, nobody (esp other banks) can trust their books and the credit taps (starting with interbank lending) will likely remain shut. That in turn seriously impacts trade finance at the retail level compounding the problem.
Seems like bad karma is at work here.

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Re: Perspectives on the global economic meltdown

Postby paramu » 07 Jan 2009 04:48

What happened to the thoughts of the person who originated this discussion? Did he disappear?

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 07 Jan 2009 07:31

paramu wrote:What happened to the thoughts of the person who originated this discussion? Did he disappear?


It appears that both he and his principal opposing interlocutor have trolled each other out of the forum :(( :((

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 15 Jan 2009 20:27

Looks like this thread has been left orphaned onlee.

Shall take it over then. The Global Economy is also there but is too general to deal specifically with the contours of the impact of the finbanking meltdown.

OECD warns over growth in China, Germany and Russia as downturn goes global

China, Germany and Russia are showing the fastest pace of deterioration among large economies as the entire global system succumbs to a "deep slowdown", according to the Organisation for Economic Co-operation and Development.

The warning came as China's Banking Commission said it would prove "exceptionally difficult" to meet the country's 8pc growth target for 2009, the level seen as crucial to prevent unemployment from rising and setting off civic unrest. "The downside risk to the Chinese economy is even worse than expected," said the chief regulator, Liu Mingkang.

The OECD's gauge of "Leading Indicators" – which gives warning of trend changes a few months in advance – shows an abrupt rupture in Asia and among commodity producers, with the most damage surfacing in countries with an export surplus that depend on sending goods abroad.


Will post more and attempt a link up with some analysis.

Gtg rite now. Will be back soon.

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Re: Perspectives on the global economic meltdown

Postby Raghav K » 16 Jan 2009 09:45

Depression ahead, prepare for stock rout-SocGen

http://www.guardian.co.uk/business/feedarticle/8260101

LONDON, Jan 15 (Reuters) - Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.
In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.
He predicted that the S&P 500 index of U.S. stocks could be set for a fall of nearly 70 percent from recent levels.
Edwards also raised the danger of a global trade war with China.
"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.
"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."
Edwards has long been one of the most bearish analysts in London, first with Dresdner Kleinwort and then with SocGen.
But he called in October for clients to increase their exposure to equities, which he said were due a rebound.
"We believe that the market is (now) set to quickly slide sharply towards our 500 target for the S&P," he said.
The S&P 500 <.SPX> stock index is currently at 842, up about 14 percent since hitting a low in November.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 16 Jan 2009 23:46

Circuit city to liquidate, sink 30,000 jobs

Retail in yamrika is almost like agriculture in Yindia - a vast reservoir that absorbs surplus labor and keeps them employed at slightly better than subsistence level and off the streets. This timke retail is hurting bigtime and cutting down like never before. The effects are disproportionately felt on those who have/had little safety net (health insurance, housing etc) to start with.

http://www.businessweek.com/ap/financialnews/D95O9G2G0.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

The empire that sandy weill's hubris built comes crashing down. Pandit, who himself helped himself generously to Citi's monies (Pandit was bought out for $800 mill by citi last year!) has no choice but to dismantle the ex-fin monolith.

TARP: the sequel

Now, the debate over how to spend the second $350 billion of the government rescue program. This time, distressed homeowners may get help


For a change, taxpayer monies will directly bail themselves out.

Vital Signs: More Bad Earnings News to Come?

We're nowhere near the bottom yet.

The first world has to maintain the facade that all is well and solvent and that debts made to them will be repaid onlee. The pretence is shown to be likely false in the case of europe and russia. The results of this pretence breaking down is terrible to contemplate.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 16 Jan 2009 23:52

Meanwhile, the shox continue to roil the unwashed third world as well.

Fitcvh foresees hard landing in China

The chinese economic miracle will be decosntructed in thenext few yrs, IMO.

From Bloomberg
China faces an economic “hard landing” and the risk of social unrest with growth slowing to 6 percent or less this year, the weakest pace since 1990, Fitch Ratings said...

That would be less than half of the 13 percent pace that pushed China past Germany to become the world’s third-biggest economy in 2007, according to revised statistics released this week. As many as 4 million migrant workers lost their jobs last year as factories closed and that figure may jump by another 5 million in 2009, according to Credit Suisse AG...

The key one-year lending rate may fall to about 3 percent from 5.31 percent by the middle of the year and the government may also hasten spending, McCormack said....

China faces its biggest “employment adjustment” since reforms of state-owned enterprises in the 1990s, so social stability “is clearly an issue,” McCormack said. “There is a question of how easy it is to redeploy millions or tens of millions of unemployed factory workers to infrastructure construction products that may be located elsewhere in the country.”

Waning exports have led to protests by fired employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong last year, and an urban unemployment rate estimated at more than 9 percent by the Chinese Academy of Social Sciences...

Central bank Governor Zhou Xiaochuan and Liu Mingkang, the chairman of the China Banking Regulatory Commission, both acknowledged this week that the government risks missing its 8 percent target for creating jobs and maintaining social stability.


Will China lead the world into depression?

The thesis is that by trying to push exports even in the current scenario, PRC could resurrect competitively protectionist tendencies elsewhere and kickstart the journey down the drain.

Mr Edwards said investors have a "touching faith" that China's authorities are in control of events.

"Could the economic situation in China become so bad that it threatens the regime itself? Of course it could. But before being swept away in a tidal wave of worker unrest it has one key tool in its economic armoury it has used before. MEGA-DEVALUATION. China has a track record of such things. At the end of 1993 the authorities devalued the yuan by 33pc."

A replay would be the surest root to a Smoot-Hawley II.

"Amid confidence that the ongoing, massive, monetary and fiscal stimulus will prevent a repeat of the Great Depression, will it instead be competitive devaluation and implosion of world trade that we should watch out for."


Things are getting scary indeed.

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Re: Perspectives on the global economic meltdown

Postby svinayak » 17 Jan 2009 01:10

Image

Suraj
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Re: Perspectives on the global economic meltdown

Postby Suraj » 17 Jan 2009 01:24

The Chinese are resorting to dumping because of massive overcapacity and inventory buildup. Sooner or later it will lead to Smoot-Hawley redux as other nations respond with punitive protectionist tariffs, which will trigger the spiral into depression, as it did in 1930.

There was an adage on the lines of 'If you owe the bank Rs.10000, they own you, but if you owe them Rs.1,00,00,000 , you own them. How about another version of it - if you have $500,000,000,000+ worth of excess goods as vastly more installed capacity, and the buyer's money is increasingly worthless, while at the same time you hold $1,200,000,000,000 of that same currency, who owns whom ?

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 17 Jan 2009 07:18

Layoffs express.... frightful , I daresay.

WSJ: Circuit City to Liquidate, Meaning 30,000 Job Losses

Bloomberg: GE Capital May Cut as Many as 11,000 Jobs This Year

WSJ: Pfizer to Cut Up to 2,400 Jobs

WSJ: Google Plans 100 Layoffs of Recruiters

AP: AMD to cut 1,100 workers, 9 pct of staff

Reuters: Hertz to cut more than 4,000 jobs

Bloomberg: WellPoint Cuts 1,500 Jobs, Blames ‘State of Economy’

AP: Blue Cross Blue Shield to cut up to 1,000 jobs

Tampa Bay Business Journal: Report: Layoffs looming at Clear Channel

I'm sure I missed a few ...


Link

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 17 Jan 2009 23:39

Arabs lost $2.5 trillion from credit crunch:Kuwait

Hallelujah.

For once, I applaud the decline in capability to wage financial jihad against us kuffr by spon-sore-ing wahabi maadar-saas in kuffr lands (apart from pure land, of course).

GoI needs to look closely at any and all monies going into the coffers of all religious charities regardless of denomination onlee....

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 05:30

That holy cow - sarkari salaries and pensions - are next in line for some brutal reality-checks. After CA and FL - where spectacular crashes in the housing mkts have already set the tune, the next worst-off state is probably OH, for reasons other than housing. Overgenerous and underfunded pay, pensions and benefits are about to collide with emptying coffers. Fasten your seatbelts.

Ohio Governor Asks For Across The Board Union Pay Cuts

The state has asked workers in its largest labor union to accept a 5 percent across-the-board pay cut, a shorter work week and unpaid holidays to help balance the state's troubled budget, according to a document obtained by The Plain Dealer.

The list of cuts and changes Gov. Ted Strickland's administration has asked the workers to accept, which also includes mandatory furloughs and paying more for their health insurance, would amount to $250 million in concessions, according to a members-only e-mail from Ohio Civil Service Employees Association president Eddie L. Parks.

Parks said "the union has also been told that even if concessions are made, there will be no guarantee that layoffs won't happen."


Of course, helps that polls are now 2 yrs away. Good timing to visit bad news on the powerful voting blocs comprising unions, teachers, public services and the like.

Mish shedlock sheds some great light in the subject:

I am going to face the wrath of unions for those statements but it is no longer possible to pay union salaries and pension benefits balanced on the back of taxpayers. Government wages, benefits, and pensions, simply must be brought in line with that of the private sector. There is no other way out.

Something has to give, so something will give. It's as simple as that. I am pleased to see Strickland face at least some sense of reality.


Well spoken. Here's one gr8 suggestion to bring down unproductive public 'services'

A better idea would be to fire them all and privatize everything. Of course drug laws should be revised first and anyone in for minor drug violations should simply be released. That would eliminate the need for many of the jobs right off the top.


Great idea. Frees up lots of enforcement jobs, judicial and jury burden as well as prison space. Anyways, after all this finbanking meltdown madness really sinks in, expect many in amchi amrika to seek refuge in potheadism. So much for taking a leaf outta escapist bollywood.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 05:53

oh, in case there's any doubt on how deep a hole has been dug for the banking sys, kindly check on the tenuous situ of ordinary bank deposits:

YOu know the banking system is unsound when....

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.


Would've been funny if hadn't been so serious.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 06:17

The first sign that timkes are hardening is when soverign rated debt is not finding buyers in the bond market.

The effects of this upcoming mess in European finances are visible across the markets already. Standard & Poor's downgraded Greece by one notch on Wednesday (January 14) and signified more pain to come in the next few months. Meanwhile, the first few auctions of government debt in Europe last week proved quite difficult to sell; indeed, Germany had the dubious distinction of opening the year with a failed bund auction, when its 6 billion euros (US$8 billion) in debt
offering attracted only around 4 billion euros of demand.

Going forward, various other countries including Spain and Italy are likely to face investor resistance when they attempt to borrow excessively in the European bond markets. Even as the European Central Bank pushes interest rates to zero, we could well see borrowing costs for European governments rising sharply over the course of this year.


Germany had trouble finding buyers for sovereign debt last week. This means, borrowing rates for countries goes up. It also means, countries on the margin will face downgrades.

And when these countries happen to be in the euro-bloc, the entire bloc gets threatened.

In a series of ratings announcements since last week, the much-maligned agencies have made it clear that a whole raft of European countries - Ireland, Greece, Spain and Portugal - will likely be downgraded over the next few months. Others such as Italy are living on borrowed time in any event; leaving for the moment only Germany and France as stable members of the trading bloc. On Wednesday (January 14), Ireland announced that a continued worsening of the economy would push it to call the International Monetary Fund for assistance: the country nationalized its banking system last year and faces a significant downturn as its tax-efficient Dublin financial center is hollowed out by investment losses.

Even Germany and France appear imperiled by the decline in their banking systems; as well as the first shots of economic stimulus - Germany declared a 50 billion euro (US$66 billion) stimulus package last weekend - are applied to counteract the scary economic decline. French President Nicolas Sarkozy was apparently too busy playing geopolitics over the course of 2008 and will now have to rush various stimulus efforts.


What does it all mean? In a nutshell:

With all the talk of stimulus and intervention, the bald facts are that taxpayers in the G-7 have neither the current income nor the expectation of sufficient future income to actually repay all of the new debt being raised to pay for government intervention. There is unlikely to be adequate profit generation from these activities to broaden the economic slate or even generate extra cash flow that can be used later on to repay debt.


And that last one, ladies and gentlemen, is the money quote.

I expect things to get far, far worse before they get better. Brace up for hard times. Rampant overcapacity in sector after sector the world over during the bubble times of easy credit means that the decline will be particularly sharp and brutal. Good case in the point is the auto industry. Janta doesn;t need as many cars and trucks as are/were produced yoy. The inevitable shall result.

The argument is that a government that sends a couple of trillion dollars towards Wall Street can certainly afford a $100 billion bailout of Detroit. As evidence, these interventionists point to the auto industries of Europe and Japan, which continue to survive due to heavy government subsidization and intervention.

Once again though, they have mistaken cause with effect. The travails of American automakers can be laid at their own doors rather than at those of the governments in Europe and Japan; which is not to suggest that the latter group is blameless but that the former group did not function as capitalists should.

An industry rife with overcapacity is most likely to have significant share-price discounts applied on its valuations even as credit spreads remain at broadly elevated levels signifying omnipresent default threats. Overcapacity simply means that the balance of power lies with buyers of products rather than sellers; in turn meaning that every new product launch is fraught with risk of failure.


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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 08:25

There, finally it comes out. Exactly what it is that the traditionally pro-market Republicans are so scared of:

I'm not worried about "change" so much as creep. The Obama administration doesn't have to do anything terribly transformative – overnight socialization of health care, etc. In fact, it doesn't have to do anything at all. It could just sit there, and America would still drift remorselessly, incrementally left, inch by inch. Eventually, you reach a tipping point: At some point in the next four years, we will reach a situation where the majority of Americans pay no federal income tax but are able to vote themselves more goodies from those who do. The most basic of conservative principles is that if you reward bad behavior you get more of it. We now have a government offering trillion-dollar rewards for bad behavior to the financial system, to the housing market, to the auto unions and to individual voters. And the heirs to those Connecticut town meetings that Tocqueville regarded as the best form of government ever devised by man now underbudget their snow-removal costs, secure in the knowledge that the Feds will pick up the tab.

We're now told that the problem with the last New Deal is that it was too small, so Obama's new New Deal has to be even bigger. That's like telling New Orleans that the problem is they're not far enough below sea level so they need to dig deeper. If Washington is now a federal disaster area, it would be nice to think of Barney Frank and the gang waving from the roof of the Capitol until they can be evacuated somewhere safe, like one of the outlying South Sandwich Islands or Charley Rangel's vacation property in the Dominican Republic. But, alas, Washington is one of those disaster relief cases, where they get the relief, and the rest of us get the disaster. As the incoming president has said, this is the worst crisis since …oh, at least the great Vernon, Conn., snowfall of 1996. To facilitate the stimulus, I urge him to declare every American his own individual federal disaster area.


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Re: Perspectives on the global economic meltdown

Postby SriKumar » 19 Jan 2009 10:01

vsudhir wrote:There, finally it comes out. Exactly what it is that the traditionally pro-market Republicans are so scared of:
The most basic of conservative principles is that if you reward bad behavior you get more of it.
So, I take it this conservative was not in favor of bailing out the Wall street fat cats. Funny how 150+ republicans voted for the bailout bill. Wonders never cease, even the republicans are socialist now. And if Bush was such a principled republican, he should have vetoed the bill. I call these republicans 'capitalists of convenience', they are avowedly capitalist when the going is good, but when the sword of capitalism starts to draw blood (which is exactly how it is supposed to work) in the aftermath of rash decisions, they support spending tax money rather than let the companies go under. (If a company is 'too big to fail', it does not deserve to get that big in the first place; and if they should be allowed to get big, then they should be allowed to fail).

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Re: Perspectives on the global economic meltdown

Postby svinayak » 19 Jan 2009 13:25

* JANUARY 17, 2009

Mugging Bank of America
No good financial deed goes unpunished.



So much for being a good corporate citizen. Bank of America CEO Ken Lewis earned kudos last year for stepping into the breach when the mortgage market and Wall Street cratered. BofA's purchase of Countrywide Financial and its September agreement to buy Merrill Lynch offered a welcome dose of optimism and private capital amid the panic.

In December, Mr. Lewis realized that he had been too optimistic. And when he considered breaking off the Merrill engagement, Washington arranged a shotgun wedding. After BofA shareholders approved the Merrill purchase on December 5, Mr. Lewis saw Merrill's assets plunge in value and began to explore a way out. At least he wanted a better price given the erosion in Merrill's real estate and corporate portfolio.
The Opinion Journal Widget

Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page.

Mr. Lewis's effort to protect his common shareholders was vetoed by his most important shareholder, the feds. In October the U.S. Treasury had insisted on investing $15 billion in his bank. Come December, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke told him that Merrill had to be saved, and that BofA had to be the savior. Mr. Lewis said yesterday that the government was "firmly of the view" that canceling or delaying the Merrill deal might result in "serious systemic harm."

In other words, the feds believe that the way to calm financial markets is to force the nation's largest, and a heretofore healthy, bank to swallow toxic assets it didn't want. In return, yesterday the Treasury agreed to invest $20 billion in BofA, for which the government will receive preferred shares paying 8%. Treasury, the FDIC and the Fed will also partially insure $118 billion in troubled assets -- mostly Merrill's. In return for this downside protection, BofA will have to render unto Caesar another $4 billion of preferred stock plus warrants.

These preferreds will also pay 8%, but private shareholders are not so fortunate. The agreement limits quarterly common stock dividends to a penny a share. The Charlotte bank will also have to accept new executive compensation limits. And the bank will need to submit for government approval a plan to modify troubled mortgages.

Mr. Lewis doesn't seem thrilled that the government has a larger piece of his business. When asked yesterday when the bank might escape federal ownership, he replied, "I wish I knew," and then added, "clearly as soon as possible." Bank of America investors, who've taken a beating since the Journal reported on Merrill's latest troubles and the government "rescue," would surely agree. BofA shares fell 14% yesterday. If the feds really want to attract private capital to the banking system, this isn't the way to do it.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 16:21

So, I take it this conservative was not in favor of bailing out the Wall street fat cats. Funny how 150+ republicans voted for the bailout bill. Wonders never cease, even the republicans are socialist now. And if Bush was such a principled republican, he should have vetoed the bill. I call these republicans 'capitalists of convenience', they are avowedly capitalist when the going is good, but when the sword of capitalism starts to draw blood (which is exactly how it is supposed to work) in the aftermath of rash decisions, they support spending tax money rather than let the companies go under. (If a company is 'too big to fail', it does not deserve to get that big in the first place; and if they should be allowed to get big, then they should be allowed to fail).


Yeah, whatever dude. I'm not here to defend the GOP. The last time you had capitalists of inconvenience run govt (Herbert Hoover admin that attempted to balance the budgets through 1929-1933) you had the great depression, competitive protectionism and beggar-thy-neighbor policies that created the right conditions for the rise of Herr Fuhrer and WWII. That turned out well for us coz Britain got kicked and licked enough to leave India all the while making virtue outta necessity.

Don;t get me wrong. Moi was an avowed free-marketer onlee till the other day. Just that I no longer believe markets know best or even that markets intend best. And I remain hardline anti-commie and anti-soclaism knowing well what it wrouoght India in the first 40 yrs since 1947. The middle way is the way out, IMO.

If the current sole superpower weakens enough in this economic meltdown to not have surplus cash to channel into various EJ ponzi schemes and TSP kinda jihad support, that it is selling to the people of the unwashed third world as manna from heaven, I won't mourn that outcome.

/Have a nice day.

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 19 Jan 2009 21:45

Lehman Rescue Failed on Trading Guarantees, NY Fed Counsel Says
By Jennifer Ryan

Jan. 19 (Bloomberg) -- Lehman Brothers Holdings Inc.’s rescue failed when U.S. officials couldn’t find a bank to provide the same trading guarantees that Bear Stearns Cos. received, the New York Federal Reserve’s general counsel said.

“Plan A was to prepare a Bear Stearns-style rescue, plan B was the alternative case,” Thomas Baxter, who attended the discussions to save the bank, told a conference in London today. “The problem with plan A was the problem with guarantees” and “if you don’t have that guarantee and a strong hand, market confidence in a weaker member is going to continue to erode.”

Lehman’s failure in September led to the biggest bankruptcy filing in history and prompted an escalation in the financial crisis which threatened to undermine banks around the world. Barclays Plc, a contender to acquire Lehman before the collapse, then bought its North American trading and investment banking division.

“The facts are often that people conclude that we let Lehman fail, and that factual predicate is not accurate, that the government let Lehman fail,” Baxter said. “The problem we encountered on Sunday, Sept. 14, is Barclays wasn’t in a position to give a similar guarantee of the trading obligations of Lehman” as JPMorgan Chase & Co. gave to Bear.

Bank of America Corp and Barclays were the only two potential suitors for Lehman when officials met before the bankruptcy filing on Sept. 15., said Baxter, speaking at a conference organized by the Financial Markets Group of the London School of Economics.

‘Cast of Characters’

“When we started into Lehman weekend on Friday, Sept. 12, we gathered at the New York Fed,” he said. “The cast of characters were the secretary of the Treasury, Hank Paulson, my president, Tim Geithner, the chairman of the SEC,” Christopher Cox, and the heads of as many as 14 financial institutions.

“It soon became clear that Bank of America was not so much interested in Lehman, but something else. That was Merrill.” Baxter said. “So we lost Bank of America. That left Barclays.” - This is in contradiction to other news report that said BoA wasn't interested in Merill but was forced into

The group of bankers and officials was trying to repeat the Bear rescue on Lehman, except that this time officials told lenders that “unlike with Bear, you all are going to finance the assets that are taken to facilitate the acquisition. That was plan A,” Baxter said.

“The problem with plan A was not an absence of financing” because the bankers in the room did agree on a deal, Baxter said. “They had the money and they were willing to put it out.”

‘More Technical’

The hitch was “much more technical,” Baxter said.

“The problem for plan A relates to, what do you do in the period between the announcement of a merger and the actual closing of the merger?” Baxter said. He said plan A failed because Barclays couldn’t guarantee the trading obligations.

Barclays agreed to acquire Lehman after a syndicate of banks consented to backstop a new entity that would take over $55 billion to $60 billion of Lehman’s troubled assets, according to people familiar with the negotiations. The deal fell apart when the U.K.’s Financial Services Authority refused to sign off on the Barclays purchase that day and U.S. officials refused to take further steps to save the deal. - Interesting perspective into what goes on between London/NY/W.DC

The New York Fed meeting then turned to discuss plan B, Baxter said.

“The best option was to put the parent of Lehman into bankruptcy, to continue an operation as broker-dealer at least in the U.S., and to continue a broker-dealer operation through Federal Reserve liquidity,” Baxter said. “That happened.”

In the week after the bankruptcy filing, the Fed loaned “big time” to keep the broker-dealer in business, with funds totaling as much as $50 billion, he said. Barclays then returned to the table and bought the division.

“If you go back and study the way we did Bear Stearns, you’ll see the importance of the guarantees,” Baxter said.

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Re: Perspectives on the global economic meltdown

Postby Singha » 19 Jan 2009 22:23

from a ex-nortelian:

The whole idea of the bankruptcy was to avoid interest payments and reduce
the workforce without severance packages

---end---

chap11 sounds like a good way to achieve the above...and get bailout $$

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Re: Perspectives on the global economic meltdown

Postby Singha » 19 Jan 2009 22:25

BW:-

Financier unseen; clients seethe over missing cash

SARASOTA, Fla.

Federal investigators are still trying to figure out what happened to the operator of a massive hedge fund -- and possibly millions of dollars managed by the missing man.

Seventy-five-year-old Arthur G. Nadel was reported missing by family members Wednesday. Police say he seemed "very distraught" in a note left for his family. His car was found Thursday in an airport parking lot.

It remains unclear exactly how much money had been invested or how much was missing, though one investor has said the fund was worth as much as $350 million.

Sarasota Police have received at least seven complaints from investors. Some say they lost more than $700,000.

Local authorities are working with the FBI and the Securities and Exchange Commission to find Nadel.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 19 Jan 2009 23:24

A call to share the pain in San Diego

Mayor sees cut in services, fee hikes, water rationing

San Diegans should expect shared pain in the form of scaled-back city services, higher fees and mandatory water rationing, Mayor Jerry Sanders said last night in his fourth State of the City address.

Sanders also said city employees face layoffs if five unions don't accept reduced retirement benefits during contract negotiations this year.

The audience of 1,100 applauded plenty, laughed a little and left the Balboa Theatre with some wondering if the mayor was laying the groundwork for a tax increase by exhorting everyone “to look for solutions on both sides of the balance sheet.”

The 39-minute speech was dominated by Sanders' request that residents befriend neighbors and become volunteers, because the city can't continue to provide services even at the diminished levels it has over seven years.


So it begins. The quaint, oversized living standards everyone and his unkil seemed to ensoi in the land of opportunity turned out to be built on rather reckless borrowings from future consumption. And the future is already here, at least in San Diego. The party's over.

“Before we have any chance to talk to San Diegans about revenue enhancement like taxes, we have to square away the pension system,” Sanders said.

He added that layoffs seem inevitable, even if labor concessions come, driving the point home harder than he had in his speech.

“We've got $54 million at least to cut in this next year's budget,” he said. “There's no way we can avoid laying off people. There's going to be some of that. That's one reason why we'd like to see other people step up and help us out. You can't close a gap like that without cutting personnel.”

Lorena Gonzalez, the head of the San Diego-Imperial Counties Labor Council, whose membership includes city safety and blue-collar workers, said it was “a little bit short of substance.”

“Clearly the plan has to be bigger than increasing volunteers and further cutting employee benefits,” Gonzalez said. “There's got to be more than that.”


A theme likely to recur in city after city, county after county across massaland. Privatization and outsourcing of many services currently govt run is all but inevitable. And expect deep cuts in pay, pensions, benefits of those still on the rolls.

I was in San Diego last August. The bestest climate I've seen in the continental US, mussay. A beautiful place but even then moi remembers thinking how those home valuations at those levels then were sustainable onlee.

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Re: Perspectives on the global economic meltdown

Postby Singha » 19 Jan 2009 23:29

smaller homes, smaller TVs, smaller dogs, smaller cars, more thrifty wives.

#1 and #5 are rather hard to change due to ample existing inventory that is 180' away from the desired.

its all the mind. people need to think small and thrifty like indians who never throw away or waste anything.

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Re: Perspectives on the global economic meltdown

Postby ramana » 19 Jan 2009 23:36

During WWII the Brits got shafted by US officials and were forced to liquidate their assets to pay for the war materail before Lend Lease Act was passed. So there is background to the Barcalys Bank taek over of Lehman.

Where did Henry Morgentheau work on Wall Street before he became Treasury Secy to FDR?

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Re: Perspectives on the global economic meltdown

Postby SriKumar » 20 Jan 2009 05:36

vsudhir wrote:
(If a company is 'too big to fail', it does not deserve to get that big in the first place; and if they should be allowed to get big, then they should be allowed to fail).


Yeah, whatever dude. I'm not here to defend the GOP.
Relax dude, its OK...this is BR afterall. There is a fundamental intellectual argument that I do not see the mainstream republicans discussing- are the republicans just as socialist as the democrats when it comes to their own well-being? I think most people don't realize that the invisible hand of capitalism was cut off when the day the Senate voted for the bill (after rejecting it the first time). I saw only John McLaughlin on PBS comment on the end of capitalism- atleast for a while. Pat Buchannan asked him if he was joking- he did not get it. Like it or not, we are all in a socialist economy now.....the 'commanding heights' of the US economy (where did I hear that term before?) is controlled by the U.S. Govt, i.e. the reps and senators. Not a good situation, quite frankly.

As a general comment, the one take-away for me from this fiasco is the term 'too big to fail'. You heard wall-street financial experts brazenly say on TV that company xyz was too big to fail. Izzat so? Well, if it is 'too big to fail' that it needs tax money to sustain a *private* enterprise, that is the upper limit on its size- zimble marketnomics. As far as I am concerned, the size limit should be hard-coded into legislation; and if not, a bailout fund should be created from corporate money for future companies that might become, God forbid, 'too big to fail'.

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 20 Jan 2009 10:10

SriKumar wrote:I think most people don't realize that the invisible hand of capitalism was cut off when the day the Senate voted for the bill (after rejecting it the first time).


BRF member abhishekcc has mentioned this several weeks ago and has commented on interesting implications resulting from the said amputation of the invisible hand.

On the other hand, IMO the passage of the bill was institutional admission that the invisible hand was not only invisible but a non existent one, whose lie served short term interests of US. As public wise up, the magic of the magician needs to be more sophisticated and the same old tricks won't work. In this whole scam, suddenly the figure "trillions" started looking something trivial. Very soon, Forbes will need to start "World's List of Trillionairs" and even our Gandhis, Amar singhs, Mulayams and Lalos have something to look for.

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Re: Perspectives on the global economic meltdown

Postby Singha » 20 Jan 2009 14:41

spain gets credit downgrade. unemployment expected to be 16%

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 21 Jan 2009 00:53

UK faces 'possibility of national bankruptcy'

Make that inevitability. The numbers don't add up to anything else than insolvency. Might well be the end of the road for the high flying days of 'great' britain. Grope britain seems more like it.

And no, given their accumulated bad karma from having colonized and plundered mother India, I won't shed a tear for them, Milligand's refreshing earnestness notwithstanding.

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.


How bad are things? Well, consider this which makes little rock look little indeed.

It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those
liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of £1.8 trillion, three times annual UK government spending, against assets of £1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse.

Meanwhile, the assets are falling in value. This matters, because post-nationalisation these liabilities are now yours and
mine.

And they come piled on top of the rocketing national debt, charitably put at £630 billion, or 43 per cent of GDP. The true figure is much higher because the Government has used off-balance sheet accounting to hide commitments such as PFI projects.

Add to that record consumer indebtedness and Britain becomes extremely vulnerable. The markets have worked this out ahead of the politicians, as usual, and are wondering what to do next. If they decide our nation is a basket case, they will make it so.


No doubt for decades, great gamers and the like have been propping up a genuine all-weather basket-case TSP all the while trying their darnest best to consign India to the dustbin. Too bad, tables tend to turn every now and then, eh?
Last edited by vsudhir on 21 Jan 2009 01:00, edited 1 time in total.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 21 Jan 2009 00:56

Once again, the nimble and wealthy Singapore shows the way forward for struggling G7 giants outta the crisis.

Singapore cuts govt salaries as slump deepens

The top government salaries will fall 12 percent to 20 percent in 2009 and “may be subject to further adjustments given the volatility of the economy,” Teo Chee Hean, the defense minister who’s also in charge of the civil service, said in parliament today. The reductions are deeper than the pay cuts the government said it was planning in November.


Even more refreshing is the wisdom of the east that shines through - knowing the difference between what is controllable or doable and what is not.

Little can be done to mitigate the current slowdown, which has spread to all parts of the economy, Trade Minister Lim Hng Kiang said in parliament today. The nation is facing unprecedented conditions in this “sharp” recession, he said.

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 21 Jan 2009 01:12

vsudhir wrote:And no, given their accumulated bad karma from having colonized and plundered mother India, I won't shed a tear for them, Milligand's refreshing earnestness notwithstanding.


When I get Zahid Hamid type schizophrenic attacks, I pray to allah that if he at all exists, let there be a day in near future when an island goes missing of the map and the great ocean cleanses the planet Earth of the most virulent of all disease to ever infect. I will verily convert to Islam then.

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Re: Perspectives on the global economic meltdown

Postby Singha » 21 Jan 2009 01:18

if the UK is forced to cut social spending and doles - the hardest hit are going to be the Ukpakis and bangaldeshis living in town council flats with huge families(more mouths to feed) ?

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 21 Jan 2009 01:24

Growing stocks of unsold cars around the world

Overcapacity is rife in an industry that a generation ago symbolized muscular industrialization onlee.

Image
Imported cars stored at Sheerness open storage area awaiting delivery to dealers
Photograph: David Goddard/Getty


Image
The build-up of imported cars at the port of Newark, New Jersey
Photograph: Mark Lennihan/AP


Dealerships will close at their fastest this year. Demand has simply vanished like it never existed whereas fresh investment and inventories piled up after yrs of make-believe growth fueled by easy credit backed by the housing bubble.

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Re: Perspectives on the global economic meltdown

Postby ramana » 21 Jan 2009 01:41

Vsudhir, Knowing that MMS gets his inspiration from UK is India safe?

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 21 Jan 2009 02:50

ramana wrote:Vsudhir, Knowing that MMS gets his inspiration from UK is India safe?


From the current malady causing the finbanking meltdown, yes, India is safe thanks to exemplary and visionary leadership/stewardship shown by YV Reddy at the RBI helm. Prevented Indian banks getting tainted with subprime mess.

No credit to MMS though.

IMVHO onlee.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 21 Jan 2009 04:28

Chinese Unemployment Jumps, May Hit 30 Year High

China’s official urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high...Registered unemployment rose to 4.2 percent as of Dec. 31, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security...It was 4 percent three months earlier.

A rate as high as the government’s 4.6 percent target for this year, which was announced by Yin today, would be the worst since 1980, official data show....

A separate survey of urban unemployment by the labor ministry, which covers the entire workforce, has been 1 percentage point higher than the registered rate since 2005, Yin said.


Which means the real figure, as opposed to the official one, is certainly higher. Also, the current number is only 'urban unemployment' and doesn't include the jobless folks forced back to the rural interiors.

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Re: Perspectives on the global economic meltdown

Postby Singha » 21 Jan 2009 08:57

question - when is the US and UK soverign credit ratings going to be
cut a few notches down from AAA ?

:mrgreen:

and whats likely to happen in that event?

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Re: Perspectives on the global economic meltdown

Postby AshokS » 21 Jan 2009 09:29

Not going to happen with the US... the UK who knows. The US T-bill is used as a risk free rate the world over, nothing out there is better. The yield spread between the t-bills and other investment assets will change (its crazy right now) but will not go away for a long time. Don't count on India or China, or Brazil, or Russia ever dethroning Amerika.... The Americans and Euros secretly laugh at that notion, especially India (which could be the most likely contender to rise, with the exception of a few issues).

Look up TFP if you are curious and want to understand, or read through the paper "I Just Ran Two Million Regressions" by a Columbia University Economist....

http://classshares.student.usp.ac.fj/EC ... Martin.pdf

There is a more updated one with 4 million regressions, haven't read that one. Provides overview of growth factors for countries, and therefore insight into structural issues within India that will prevent India from Shining...

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Re: Perspectives on the global economic meltdown

Postby pradeepe » 21 Jan 2009 10:02

Satya_anveshi wrote:
vsudhir wrote:And no, given their accumulated bad karma from having colonized and plundered mother India, I won't shed a tear for them, Milligand's refreshing earnestness notwithstanding.


When I get Zahid Hamid type schizophrenic attacks, I pray to allah that if he at all exists, let there be a day in near future when an island goes missing of the map and the great ocean cleanses the planet Earth of the most virulent of all disease to ever infect. I will verily convert to Islam then.


Forgiveness is in our blood though. They might still have a chance to invoke our warmth. But for that they need to accept the plunder and genocide that they let loose on our land and make arrangements for just compensation. Until then my wishes are exactly your sentiments. For that matter I still say all of oirope must be made to pay...

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Re: Perspectives on the global economic meltdown

Postby pradeepe » 21 Jan 2009 10:07

The auto industry meltdown will touch us too. Theres a huge consignment of A-star cars lined up for export to oirope. Unless they pull some magic on the pricing front I dont see how they will make it off the docks anymore.

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Re: Perspectives on the global economic meltdown

Postby ramana » 21 Jan 2009 10:19

vsudhir wrote:
ramana wrote:Vsudhir, Knowing that MMS gets his inspiration from UK is India safe?


From the current malady causing the finbanking meltdown, yes, India is safe thanks to exemplary and visionary leadership/stewardship shown by YV Reddy at the RBI helm. Prevented Indian banks getting tainted with subprime mess.

No credit to MMS though.

IMVHO onlee.



is sub-prime the only affliction hitting the West? I think there are other factors adding to the liquidity crisis. Today Montek was on TV saying he isnt done with package for 2009. All that earlier was for 2008. So maybe they are worried.


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