. Moi got confused with 88 Fulton St which is the address for SDRE 'Tandoor Palace'.
ain't it?
A 2003 article by Michael Hudson in Southern Exposure of captures it all:
Citigroup looks the way it does today because Weill bought a middling-sized subprime finance company and used it as a vehicle to acquire other companies and create a behemoth that put him in position to win the biggest prize of all: Citi. The 1998 merger was, at the time, the largest in history, uniting Citicorp, Travelers Insurance, Primerica, Commercial Credit, and Salomon Smith Barney.
Hudson's article details the rise of Sandy Weill which began with his 1986 purchase of subprime lender Commercial Credit. In short, Citigroup--which essentially engineered the repeal of Glass-Steagall--had its beginnings in a subprime lender. But more on that later.
The important point is that since the mainstream media and those with more economic expertise than I possess refuse to connect the dots and fill in the picture, the situation demands a follow-up that specifically details the role of the repeal of Glass-Steagall in the current financial crisis.
The two key questions that need to be asked are: 1) If Bill Clinton had not repealed Glass-Steagall would the current crisis not have occurred or been less severe? and, 2) Do we need to bring back Glass-Steagall? To understand the answers to both questions you need to know exactly what Glass-Steagall prohibited and how the bill that repealed it changed those prohibitions. In short, You need to know a bit of history.
NEW YORK/LONDON (Reuters) - Shares of Wall Street firms Morgan Stanley and Goldman Sachs plummeted on Wednesday and the UK's biggest mortgage lender, HBOS Plc, looked set to be bought in the latest signs of financial industry distress.
Tuesday's $85 billion rescue of insurer American International Group (AIG.N) by the U.S. Federal Reserve did little to calm investor nerves.
The move capped a week of bailouts, a bankruptcy on Wall Street, and central banks around the world flooding the financial system with money to prevent it from seizing up.
The result: a seismic shift in the financial industry, with some of Wall Street's biggest names disappearing overnight.
But investors remained spooked, and U.S. stocks dropped as much as 3 percent in morning trading.
"The fear is who is next," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say who is the next likely target that we can put a short on, and that spreads continuous fear."
In the latest sign of regulatory anxiety, the U.S. Securities and Exchange Commission tightened enforcement of rules against abusive short-selling, or investor bets on declining share prices.
Shares of Morgan Stanley (MS.N) and larger rival Goldman (GS.N) and fell as much as 42 percent and 22 percent, respectively, even after both reported better-than-expected quarterly earnings on Tuesday.
"I'm assuming that Goldman Sachs and Morgan Stanley are lining up dancing partners. They don't want to be ... this week's victim," said William Larkin, fixed income manager at Cabot Money Management in Salem, Massachusetts.
The cost of protecting their debt spiked, reflecting investor fears that their debt issues are no safer than junk bonds. Both are currently rated investment grade.
"The credit crunch and credit contraction is intensifying," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "The action in Morgan Stanley in light of what was better-than-expected numbers last night is disconcerting."
Other signs of distress had emerged earlier: The cost of borrowing overnight dollars spiked above 10 percent, indicating a deep lack of trust spooking the inter-bank lending market in Europe.
And Bank of Ireland (BKIR.I) became the latest bank to cut its dividend, causing a sell-off in Irish banking shares.
PROPPING UP THE SYSTEM
British bank Lloyds TSB (LLOY.L) was in advanced talks to buy domestic rival HBOS Plc (HBOS.L) to create a 28 billion pound ($50 billion) mortgage giant, marking another chapter in a dramatic financial industry shake-up.
The talks underscore how quickly authorities around the world are ditching long-held beliefs about free markets and competition as they seek to counter the credit crunch.
Lloyds, for example, was previously blocked from buying a smaller mortgage bank.
Then there was the shock British government decision in February take over troubled bank Northern Rock -- the first major nationalization in Britain since the 1970s.
U.S. authorities also have moved to prop up the financial system.
The AIG rescue comes just over a week after the bailout of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), and six months after the Fed brokered the sale of failed investment bank Bear Stearns to JPMorgan Chase (JPM.N)
AIG's bailout brings to about $900 billion the total of U.S. rescue efforts to stabilize the financial system and housing market. Authorities may get much of that money back -- if asset prices don't slide further.
The week already saw two legendary firms bite the dust, with Lehman Brothers Holdings Inc's (LEH.N) filing for bankruptcy and Merrill Lynch (MER.N) throwing itself into the arms of Bank of America (BAC.N).
British bank Barclays Plc (BARC.L) gave Wall Street a small boost on Tuesday by agreeing to buy Lehman's Manhattan headquarters and investment bank for $1.75 billion and taking aboard 10,000 staff.
YARD SALE AT AIG
AIG's newly appointed chief, former Allstate (ALL.N) CEO Edward Liddy, was poised to hold a big yard sale to pay off the $85 billion loan from the Fed. There are plenty of interested bidders, AIG's main regulator told business television channel CNBC.
AIG, which has businesses ranging from life insurance to airplane leasing in 130 countries, has a big incentive to raise cash: It is currently paying more than 11.4 percent interest on the loan.
Japan's cash rich insurers and Australia's top player are seen as potential buyers are among the potential; buyers analysts and fund managers said.
"Its a no-brainer," said CLSA analyst Yuin Lim in Hong Kong. "If you have a non-growing mature market, excessive capital, you have a big war chest there."
AIG faced a cash crunch after $18 billion of losses over three quarters, largely because of complex securities that are tied to mortgages, and which plunged in value as the nation's housing crisis deepened.
AIG's lifeline was meant to prevent a deepening of the credit crisis and sooth investors. The rescue kept AIG from surpassing Lehman as the largest corporate failure ever.
"Thank God," exclaimed Daniel Fuss, an influential bond manager who oversees more than $100 billion at Loomis, Sayles & Co in Boston late Tuesday. "AIG is interwoven with so many people and touches many companies around the world."
(Additional reporting by Jeffrey Hodgson and Kevin Plumberg; Editing by Ted Kerr and John Wallace)
Who controls global monetary affairs? The BIS! Based in Basle, Switzerland, the BIS is central bank to central banks. The BIS has greater immunity than a sovereign nation, is accountable to no one, runs global monetary affairs and is privately owned. This is a must-read report to understand the globalization process.
If its a joint a/c with another person say spouse or kid then the total amount insured by FDIC directly is $200KSwamyG wrote:If you are planning to return to desh, then consider taking a small portion of money from savings and start your investments in India; based on your priorities and schedule. It is not bad to keep money in both the currencies. If you have more than 100K sitting in ING Savings, then split the amount and ensure you have less 100K in a savings account. FDIC insurance is for 100K onlee.archan wrote:Guru log,
I do not understand this finance and bijnis stuff...being a bone headed science wallah. Can someone explain in aam abdul's terms what it means to me? all of my tiny savings of my stay in unkil's land is in an ING savings a/c. Koi khatra hai? should i look into moving part of it elsewhere?
It also makes one think about times, during marriages when vessels - silver, gold and ithyadi were exchanged. Some of these were new, but some of them were old. In cases of jewelery, mothers tend to recreate newer jewelery from existing ones. They just transformed shape/design and changed hands. The cash in dowry was not hugely significant.Manu wrote:Makes you think about the old fashioned Uncles and Auntys in India. They only view Gold and Real Estate as the 'real' Hedge, all else is maya. Maybe they are right.
PARIS — Is the United States no longer the global beacon of unfettered, free-market capitalism?
In extending a last-minute $85 billion lifeline to A.I.G., the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, it has also likely undercut future American efforts to promote such policies abroad.
“I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”
While they acknowledge the shock of the collapse of Lehman Brothers, the bailout package for A.I.G. on top of earlier government support for Bear Stearns, Fannie Mae, and Freddie Mac has stunned even European policy makers accustomed to government intervention in the economy.
“For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States negates its fundamental principles in its behavior.”
Mr. Monti noted that past financial crises in Asia, Russia, and Mexico brought government to the fore, “but this is the first time it’s in the heart of capitalism, which is enormously more damaging in terms of the credibility of the market economy.”
In France, where the government has long supported the creation of national champions and worked actively to protect select companies from the threat of foreign takeover, politicians were quick to point out the paradox of what is essentially the nationalization of the largest American insurance company.
“Today the actions of American policy makers illustrate the need for economic patriotism,” said Bernard Carayon, a lawmaker of President Nicolas Sarkozy’s center-right governing party, UMP. “I congratulate them.”
For the “evangelists of the market this is a painful lesson,” he added.
We’re entering “an era where we have much more regulation and where the public and the private sector will mix much more.”
In Asia, the Washington-led bailouts have stirred bitter memories of the very different approach the United States government and the International Monetary Fund pushed during the economic crises there a decade ago.
When the I.M.F. pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out, recalls Yung Chul Park, a professor of economics at Korea University in Seoul who was deeply involved in the negotiations with the I.M.F.
While Mr. Park says the current crisis is different — it’s global rather than restricted to one region like Asia — “Washington is following a different script this time.”
“I understand why they do it,” he added. “But they’ve lost credibility to some extent in pushing for opening up overseas markets to foreign competition and liberalizing economies.”
The ramifications of the rescue of A.I.G. will be felt for years within the United States, too, not just abroad.
That’s because it was a very different kind of company than Fannie Mae or Freddie Mac, which enjoyed government sponsorship as mortgage finance providers, or Bear Stearns, which was regulated by the federal government.
“This was an insurance company that wasn’t federally regulated,” said Gary Gensler, who served as a top official in the Treasury Department during the Clinton administration. Nor did A.I.G. have access to Federal Reserve funds or deposit insurance, like a commercial bank.
“We’re in new territory,” Mr. Gensler added. “This is a paradigm shift.”
A.I.G. is also in a different league both by virtue of the breadth of its businesses and its extensive overseas operations, especially in Asia.
What’s more, it fell into something of a regulatory gap under the current rules.
While the company, based in New York, is better known for selling conventional products like insurance policies and annuities overseen by state regulators in the United States, it is also deeply involved in the risky, opaque market for derivatives and other complicated financial instruments, which operates largely outside any regulation.
Along with the threat to the plain-vanilla insurance policies held by millions of ordinary consumers, it was the looming threat posed by these arcane financial instruments that prompted Washington to act and bailout A.I.G.
Mr. Chernow, who has written extensively about the efforts of J. P. Morgan to steady the economy in 1907 before the creation of the Federal Reserve, echoed Mr. Gensler’s conclusion.
“It’s pure crisis management,” Mr. Chernow said. “It’s the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They’re afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight.”
http://online.wsj.com/article/SB1221568 ... b_page_one
* SEPTEMBER 17, 2008
Lending Among Banks Freezes
By CARRICK MOLLENKAMP, MARK WHITEHOUSE and NEIL SHAH
Banks abruptly stopped lending to each other or charged exorbitantly high rates Tuesday, threatening to spread the troubles of American International Group Inc. and Lehman Brothers Holdings Inc. to a broad range of financial institutions and the global economy.
The breakdown came despite efforts by central bankers to keep money flowing. Central banks in the U.S., Europe and Japan pumped tens of billions of dollars each into the banking system. The Federal Reserve, while declining to lower its benchmark interest rate at a regular meeting Tuesday, said it will "act as needed" to combat ills including tight credit and the still-declining housing market.
In one stark sign of waning confidence, the overnight London interbank offered rate, or Libor, a benchmark reflecting the rates at which banks lend to one another, more than doubled, in its sharpest spike on record. Longer-term Libor rates also rose sharply. If sustained, that move will push up payments on billions of dollars in mortgages and corporate loans that are linked to Libor.
The tensions reverberated around the world on a day of sharp gyrations in stock and bond markets. The Dow Jones Industrial Average, which was down more than 100 points during the day, ended up 141.51, or 1.3%, to 11059.02 as investors welcomed news that the Fed was weighing a plan to support AIG.
Individual financial shares were all over the map, as investors tried to sort out who will survive the market turmoil. Commercial banks, seen as more stable because they can tap consumer deposits for funding, were up sharply. Bank of America Corp. rose 11.3% and Wachovia Corp. was up 9%. The investment bank Morgan Stanley was down 10.8%, prompting it to rush out its better-than-expected financial results a day early.
Prices of government bonds, a traditional safe-haven investment, rose sharply. It was "a nausea-inducing rollercoaster ride," wrote Benjamin Cheng, a strategist at UBS.
From Russia to Switzerland, officials were at times forced to suspend trading as stock prices plunged. Both major Russian stock exchanges halted trading for an hour late in the day, the first time they had both done so since Russia's 1998 financial crisis.
As rumors spread about their funding, some banks took the rare step of denying problems. Switzerland's UBS AG, refuting an analyst report on its potential exposure to Lehman-related losses and countering a 17% drop in its stock price, said its total loss exposure to Lehman wouldn't exceed a manageable $300 million. Belgian-Dutch bank Fortis, which saw its shares fall more than 10%, denied in a statement that it was seeking a capital injection. In the U.K., HBOS PLC, a big mortgage lender that depends heavily on market funding, said it had a strong capital position as its share price fell 22%.
Demand Exceeding Supply
The European Central Bank provided €70 billion ($99 billion) in one-day loans, more than double its Monday injection of €30 billion. The Bank of England offered £20 billion ($35.66 billion) in extra two-day loans, atop Monday's £5 billion in three-day loans. In recent days, demand for such central-bank funding has far exceeded supply.
Before the Fed's midafternoon rate decision, the Federal Reserve Bank of New York injected $50 billion into the banking system, and added an additional $20 billion later Tuesday.
Normally banks can rely on each other for cash to meet daily needs. The interest rates are usually low relative to other market rates, reflecting confidence that fellow financial institutions will pay each other back. But that confidence broke down in August 2007, and has never been fully restored.
The central banks' efforts Tuesday were just the latest in a long string of emergency maneuvers since the crunch began. Those efforts have failed to get money circulating normally, putting central bankers in the uncomfortable position of propping up banks for periods longer than they had ever intended.
Tuesday's turmoil reflects the impact a failure of AIG could have on banks and financial markets. The U.S. insurer is a major player in the $62 trillion credit-default-swap market, where banks and others buy and sell insurance against defaults on corporate bonds. AIG has sold insurance on hundreds of billions of dollars in debt to European banks alone. That insurance could prove worthless in the event of an AIG bankruptcy filing, precipitating billions of dollars in fresh losses for banks.
Because the insurance is sold in the form of private contracts, not even policy makers know exactly how much there is or who will end up taking the losses. "These things are invisible to everybody," says Howard Simons, a bond strategist at Bianco Research in Chicago.
Even more, the downfall of the once rock-solid insurer has underscored to financial institutions that no one is free of risk.
The worries about AIG are making the outcome markets fear more likely. For one, they have caused the cost of default insurance to rise sharply. That forces sellers of insurance, which include AIG, to put up added cash as collateral to guarantee they'll be able to pay in the event of a default. The added demand for cash exacerbates the money-market strains.
The Libor Soars
The depth of the money-market problems became clear at lunchtime in London, when the British Bankers' Association published Tuesday's Libor borrowing costs. Every day, 16 banks report what it would cost them to borrow at certain maturities and currencies. Overnight dollar Libor soared to 6.4375% from 3.10625%, the largest jump on record. Three-month dollar Libor rose to 2.876% from 2.816%. Big global banks such as Bank of America, Credit Suisse Group, UBS, Royal Bank of Scotland Group PLC and others reported overnight borrowing costs of 6% or higher in dollars, compared with 3% just a day earlier.
In another sign of policy makers' concerns about banks' access to cash, the Bank of England is expected this week to propose a new permanent emergency-financing facility for troubled banks. The program will likely be designed to allow the central bank to help banks secretly, making short-term loans against collateral that would include hard-to-sell assets such as mortgage securities, say traders and analysts.
Private Borrowing Pool
The banking industry is also working to create a separate, private borrowing pool, though details are still being ironed out. Under the guidance of the New York Fed, 10 of the world's biggest banks have committed to chip in $7 billion each to the fund, dubbed the Primary Dealer Liquidity Facility. Any of the member banks can borrow up to one-third of the total fund.
The structure seems intended largely as a confidence-building measure to assure jittery investors that major banks won't run out of cash. Banks won't actually fund the facility unless one of its 10 members needs to borrow from it.
On Monday, representatives of the banks and law firm Davis Polk & Wardwell, which the New York Fed hired to provide advice, met to discuss issues such as what kind of assets banks can pledge as collateral when they borrow from the facility. The banks are also drawing up a list of specific circumstances in which banks can tap the fund, such as if they have lost access to the commercial-paper market, where banks and other companies issue short-term IOUs.
More meetings are expected to take place in coming days. One of the outstanding goals is to enlist at least a few more banks to join the facility, which was originally intended to have about $100 billion coming from 15 different lenders.
The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers, or companies that trade securities for customers as well as their own accounts. It requires that firms value all of their tradable assets at market prices, and then it applies a haircut, or a discount, to account for the assets' market risk. So equities, for example, have a haircut of 15%, while a 30-year Treasury bill, because it is less risky, has a 6% haircut.
The net capital rule also requires that broker dealers limit their debt-to-net capital ratio to 12-to-1, although they must issue an early warning if they begin approaching this limit, and are forced to stop trading if they exceed it, so broker dealers often keep their debt-to-net capital ratios much lower.
Note:The red highlight and addition is mineThe Problem of Falling Home Prices
But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why.
Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts.
The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans,{Cause 1:} is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments.
Those securities paid better rates than other types of assets during the boom years. {Cause 2:}So many investors from around the globe poured as much money as they could into those securities.
{Cause 3:}Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income.
When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit.
But once prices topped out and began falling, {Consequence 1:}loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. {Consequence 2:}This created problems not just for subprime borrowers but even for those with good credit and income.
{Consequence 3:}When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, {Consequence 4:}causing huge losses up and down Wall Street. {Consequence 5:}It also made banks less eager to extend credit because of the risks involved.
A Downward Spiral
{Consequence 6:}This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop.
"A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out."
Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money.
