Perspectives on the global economic meltdown

shaardula · Post by **shaardula** » 06 Mar 2009 06:34

gurus here should advice.

i am convinced that my 50 cents of penny pinching sdre savings is all toast. when i hear that the true value of AIG is a measly 10bill. I doubt my 50 has any value.

between fdic and other nonsense, i still assume that in the worst case i will be able to count those 2.50$ but that amount is not going be worth anything. am i right?

or is a run on the banks that makes even fdic go belly up possible?

svinayak · Post by **svinayak** » 06 Mar 2009 06:39

How do you believe that President Obama's 'Buy American' campaign will affect global trade

Rather than answering the question - I don't know if I could state more than the obvious expectations - I think we should ask in addition to this: How does his "Buy American" campaign conflict with his discussion with PM Gordon Brown... After reading the text below, I wonder if the stimulus package is enough to bring manufacturing back into the U.S., because we would need that to some degree.

Obama: "Globalization can be an enormous force for good. And one of the things that we've talked about repeatedly is that countries in this crisis cannot start turning inward and try to erect protectionist barriers. We should encourage trade. The fact that we have a global capital system allows money to flow to areas that previously couldn't get capital. That allows them to develop and to grow. That can grow the economy worldwide, increase trade, and that potentially benefits everybody.

But what is also true is, is that when you've got trillions of dollars that can now move at the speed of light, when you've got a whole series of unregulated pools of dollars outside of the banking system, but we still have a 1930s regulatory system in place in most countries designed from the last great crisis, that we've got to update our institutions, our regulatory frameworks, so that the power of globalization is channeled for the benefit of ordinary men and women, so that they have jobs, they can purchase a home, they can send their children to college, and prosper and thrive; and that the benefits of globalization aren't just for a small handful of people who are not accountable."

KarthikSan · Post by **KarthikSan** » 06 Mar 2009 08:52

My 20 minutes of Zen

The stock market doesn't like Obama's performance, and Joe Nocera talks about AIG's scam.

The part where he calls Maria Bartiromo as someone who makes nice to CEOs aka a word that rhymes with "bore"....touche!!!

Singha · Post by **Singha** » 06 Mar 2009 09:10

This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs.

AoA...no more baksheesh to various Munna elements. with cuts like that,
quality of life will be at par equal-equal everywhere.

the milk and honey concept has run its course

Najunamar · Post by **Najunamar** » 06 Mar 2009 10:28

Turns out Michigan has come up with another record unemployment statistic 11.1% for Jan 2009 provisional figure which level was last seen in 1984 under the Gipper! Yep, we have got 25 Yrs of stagnation for a good 10M strong populace (~3.5% of the nation). Nice going by Jennifer Granholm - she added 200 jobs at the State Unemployment office

Singha · Post by **Singha** » 06 Mar 2009 12:44

is it true california schools are scaling back the bus system?

vsudhir · Post by **vsudhir** » 06 Mar 2009 19:01

BOE’s King ‘Groping in the Dark’ as U.K. Expands Money Supply

Bank of England Governor Mervyn King, criticized for his initial response to the credit crisis, is now embarking on one of the biggest risks in British economic history.

The central bank yesterday won authority to print as much as 150 billion pounds ($212 billion) and pump it into an economy facing its worst recession since World War II, after cutting interest rates close to zero. With markets clogged and economic activity shriveling, King can’t be sure the gamble will work. {Lezsee if Moody's will jump into action and cut Ukstan's sovereign rating now, eh?}

“We’re groping in the dark,” said Willem Buiter, a former Bank of England policy maker and now a professor at the London School of Economics. “Ultimately, we’ll know it works if the economy turns around, and that we won’t know for a couple of years.”

I sincerely wish UKstan everything it deserves. Jai-Ho.

Meanwhile, following the blazing trail UKstan is setting for the rest of us laggards to take up, the PBoC has jumped into action.

Zhou Pledges Fast, Heavy-handed Policies to Restore Confidence

“If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence,” Zhou said at briefing in Beijing. The central bank has “ample room” to fine-tune monetary policy after a record surge in lending in January, he said.{But doesn't CCP control confidence by fiat in PRC? Not anymore, you say?}

“This isn’t the time to be cautious with the measures you roll out, it’s time to overdo it,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The outlook for the global economy has deteriorated dramatically.”

Of course, whilst we SDREs merely do things, the SF?Es within the great wall st overdo things, but naturally onlee.

vsudhir · Post by **vsudhir** » 06 Mar 2009 19:08

New 'safe' bed allows savers to safely store their cash under the mattress

You have to give to yankistani ingenuity.... they're as creative as the bakis are ijlamic.

Bed manufacturer Feather & Black is offering savers who have lost faith in the banks somewhere to keep their money safely – under the mattress in a concealed safe.

The company admitted it was a 'tongue-in-cheek product' but added that it was a serious proposition.

A small safe with a sturdy lock the compact box is big enough to store a stack of notes, securities or valuable belonging like jewellery. Covered with a valance or chunky throw the safe will remain hidden from prying eyes, the company said.

Sounds godfatherish, eh Lets 'take to the mattresses'!

Tanaji · Post by **Tanaji** » 06 Mar 2009 19:17

Beyond the usual "it will cause inflation or deflation or both at the same time", what is the impact of the Bank of England printing £150 Billion? what does it really mean? Or do the economists dont know either, but are so desperate that they will try anything? They say it hasnt been done in 150 years, so there must be a reason for it?

Used to think lawyers are the scum of the earth, but "investment bankers" and YeemBeeYaay types are rapidly surpassing them ...

Singha · Post by **Singha** » 06 Mar 2009 19:29

I just advised my sis-in-law to move all their savings out of UK into indian FDs after reading it.

if anything goes {kaboom} you want to be behind a wall - Yindia

not sitting exposed out there

vsudhir · Post by **vsudhir** » 07 Mar 2009 01:01

Employment Report: 651K Jobs Lost, 8.1% Unemployment Rate

Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.

Year over year employment is strongly negative (there were 4.2 million fewer Americans employed in Feb 2009 than in Feb 2008). This is another extremely weak employment report ...

Good news is that it could have been much worse. There are signs the decline is slowing. Nowhere close to reversing yet but getting there eventually.

Meanwhile, more alarmingly,
Senate Bill Seeks $500 Billion for FDIC

The FDIC effectively guarantees your bank deposits in khanland. That they need a half trillion USD bailout can't be good.

John Snow · Post by **John Snow** » 07 Mar 2009 01:22

Hillary and John Mcain are all chuckles that they lost election, they PM each other often I am told

Bade · Post by **Bade** » 07 Mar 2009 02:08

Like all recent elections this one was also like the baki one...except that masses were mass hypnotized to elect the fall guy.

I also feel that Jindal saw through the charade being a chair seeker himself and did his 'wing it' tv appearance for his friends. Almost seems like no one is interested in being the leader of the free world anymore.

vsudhir · Post by **vsudhir** » 07 Mar 2009 06:33

WSJ: £250 Billion Asset-protection Scheme for Lloyds

Lloyds Banking Group PLC and the U.K. government have struck a deal in which the government would both insure more than £250 billion ($353 billion) in Lloyds assets and increase its stake in the bank to as much as 75% ... The new agreement could be announced late Friday in London

Rumor is rife that UKstan may well be unkil's guinea pig in the egregious (as % of GDP) bank bailout and currency printing excesses spree.

vsudhir · Post by **vsudhir** » 07 Mar 2009 07:09

Folks, Paul Keating is an unusually astute reader of geoeconomic trends. I've posted another of his brilliant interviews a pages up this thread.

Here's another treat from the cannon.

Former Australian Prime Minister Savages Geithner's Performance in the Asian Crisis

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner's record in handling the Asian crisis: "Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis."

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power."

Worse, Keating argued, Geithner's misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: "The IMF is the gun that can't shoot straight. They've been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose."

China, in particular, drew hard conclusions from the IMF's mishandling of the Asian crisis. It decided that it would never allow itself to be dependent on the IMF, or the US, or the West generally, for its international solvency. Instead, it would build the biggest war chest the world had ever seen.

Keating continued: "This has all been noted inside the State Council of China and by the Politburo. And it's one of the reasons, perhaps the principal reason, why convertibility of the renminbi remains off the agenda for China, and it's why through a series of exchange-rate interventions each day that they've built these massive reserves....

Is this some flight of Keatingesque fancy? The former deputy governor of the Reserve Bank of Australia, Stephen Grenville, doesn't think so: "After the Asian crisis, the countries of east Asia decided that they would never go to the IMF again. The IMF is taboo in east Asia. Look at the evidence. The revealed preference of the region is that no one has gone to the IMF since, even when they needed the money."

And Asian capitals know that they have no real influence over the IMF - while European governments enjoy 40 per cent of the voting power on the IMF, Japan, China and the rest of east Asia put together have only about 16 per cent....

Keating urges that the fund should be decapitated, with control passing to the governments of the Group of 20 countries whose leaders are to meet in London on April 2. The summit, which is to include China, India and Indonesia as well as Australia, is meeting to consider solutions to the global crisis.

Read it all.

vsudhir · Post by **vsudhir** » 07 Mar 2009 08:18

Its out fonally!

WSJ got hold of names of the beneficiaries of the AIG largesse that at last count swelled to upto $173 billion .... yup all 'em usual suspects are there.

Top U.S., European Banks Got AIG Aid

The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA.

More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document.

The names of all of AIG's derivative counterparties and the money they have received from taxpayers still isn't known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.

Bravo, wsj! Only cnn-ibn and tehelka.com are above you in the investigative journalism department!

Singha · Post by **Singha** » 07 Mar 2009 08:28

Almost seems like no one is interested in being the leader of the free world anymore.

well Newt Gingrich did float the idea of 2012 yesterday.

AoA..even
well settled PIOs might have to consider a relocation if the Newt regime takes charge after Messiah fails in the game that was designed to fail.

but who knows , often in history astute moves can turn the hunted into the hunter. Messiah needs to carefully channelize the public rage into other things.

Raghav K · Post by **Raghav K** » 07 Mar 2009 10:11

Even Worse Than the Great Depression.

Over the last couple years I loved to ridicule all the scaremongers who always said this, that or the other thing is “the worst since the Great Depression.” I stand by my ridicule, for the most part -- those prophets of doom were mostly broken clocks who look right now just by sheer luck. But there's no question now that things have gotten quite bad in the economy and the markets.

So let me do the preachers of Armageddon one better. Today's stock market isn't just the “worst since the Great Depression,” like they're so fond of saying. No, it's even worse than the Great Depression.

Take a look at the chart, below. It shows the daily progress of the S&P 500 in terms of percentage change from the very top. The brown line is the change from the recent all-time highs on October 9, 2007. The blue line is the change from the all-time highs just before the Great Depression, September 6, 1929.

As of yesterday's close (Thursday, March 5), the S&P 500 has lost 56.4% from its all-time highs 513 days ago. At the same point in the bear market associated with the Great Depression, that is at the 513 day mark, the S&P 500 had only lost -- only! -- 49%.

In other words, to be no worse than the catastrophe that happened to stocks in the Great Depression, the S&P 500 today would have to rally 17%.

Looking forward, if stocks are going to continue along the same bleak path they followed during the Great Depression, then I have good news and bad news. The good news is that we're halfway through it. In the Great Depression, the bear market lasted 997 days. We passed that halfway mark two weeks ago. Maybe that's what Barack Obama meant when he said, as he signed the so-called “stimulus” bill, that this was “the beginning of the end.”

He signed that bill on Friday the 13th, by the way. Which brings me to the bad news. By the time the bear market was over in the Great Depression, on that 997th day, the S&P 500 had lost 86.2% from the top. To match that, we'd have to fall another 68.3% from here. Hmmm…maybe that's what the president meant when he said this was “the beginning of the end.”

We can't blame President Obama for the mess he inherited. But we can definitely blame him for making it worse. Stocks are off 28.4% since his election, 15.2% since his inauguration, and 17.2% since his so-called “stimulus” bill was enacted. To say the very least, whatever he's doing, it ain't working.

I have to say I'm a little surprised. I didn't support Obama in the campaign, but I had expected that the wave of good feelings from the election of such a charismatic man would help lift the economy and the markets out of their doldrums. And while I don't agree at all with his liberal orientation in economic policy, at least I thought he was generally a centrist who wouldn't muck things up too much or too quickly. I even hoped his so-called “stimulus” bill would at least have a placebo effect.
http://www.smartmoney.com/Investing/Eco ... /?cid=1034

Singha · Post by **Singha** » 07 Mar 2009 10:19

seems to indicate Dow could again lose 50% from where it is now before it bottoms out. in sympathetic sync, the rest of world indices will probably mirror this shaped curve.

Sensex is 8300 now...we could see 4200 levels...something in 2003 I think?

between 1997 - 2004 nearly 7 years the sensex stagnated around the 4000
mark. we could be heading for such a run....onree thing is what is the fulcrum point this time 8k or 4k?

markos · Post by **markos** » 07 Mar 2009 13:06

KarthikSan wrote:My 20 minutes of Zen

The stock market doesn't like Obama's performance, and Joe Nocera talks about AIG's scam.

The part where he calls Maria Bartiromo as someone who makes nice to CEOs aka a word that rhymes with "bore"....touche!!!

Thank God for Jon Stewart!!

Probably Sick Santelli and CNBC didn't realize whom they were playing with. Finally they came up with some sort of idiotic explanation on friday (may be because Stewart is off-air on friday, can't wait for monday)

"If only I'd followed CNBC's advice, I'd have a million dollars, provided I'd started with a hundred million dollars." - Priceless!!

The best explanation for CNBC's pathetic existence

Singha · Post by **Singha** » 07 Mar 2009 13:31

back in 1998, the co I worked for in florida had a large projection TV in its staff canteen and used to pipe in CNBC during the entire day.

squawk box, maria bartiromo with dark shadows under eyes (wild partying?), kudlow and cramer, cramer going ballistic with a baseball bat, the three stooges on Foxnews, bill o reilly and his anti-dem rants, Lou Dobbs....I wish I had recorded it all on a HDD and brought it here.. *sniff sniff* I miss Massa TV

here I suffer the idiotic NDTV and CNN-IBN with their "secular" pretentions and anti national posturing.

Raja Bose · Post by **Raja Bose** » 07 Mar 2009 13:38

Singha,

Where were you working in FL (city/gaon)?!

markos · Post by **markos** » 07 Mar 2009 13:46

Singha wrote:maria bartiromo with dark shadows under eyes (wild partying?).

I think she once flew with Citibank CFO from Hongkong to New york. To make room for her, Citi CFO kicked out other bankers from the corporate jet (this was before corporate jets became an issue as it is today). I believe the CFO got fired, but later news came out that his office would have given a stiff competition to John Thain

http://en.wikipedia.org/wiki/Maria_Bartiromo

In 2007, controversy arose over the nature of Bartiromo's relationship with Todd Thomson, former chief of Citigroup's wealth management unit. Thomson at one point flew with a group of employees to China, then left the employees to make their own arrangements for the trip back while he took the corporate jet back to the U.S. with Bartiromo.[10] In another instance, Thomson spent $5 million for the sponsorship of programming on the Sundance Channel that Bartiromo was tapped to host.[11] Thomson was eventually ousted by Citigroup for reasons including his contact with Bartiromo.[10] CNBC has stood by Bartiromo, claiming that her relationship with Thomson was a case of "legitimate business assignments".[11]

Singha · Post by **Singha** » 07 Mar 2009 13:51

OMG...she always did look like having long nights when she came on the morning squawk box....hard at 'work' meeting 'business leaders' lol

Raja, - paradyne, largo, FL. it was HQ but we worked from another state, visited a few days for new hire induction. got to stay in the nice sheraton in clearwater beach. visited there twice with wife later and was amazed by "tfta" stuff like epcot and sunshine skyway bridge

truly the gulf coast is heaven if you are rich and retired. the drive down the
keys to key west must rate as one of the good drives...better than big sur imo because rice, fish and alcohol is more easily available. I have driven entire big sure up from san luis obispo...didnt want to compromise...

Raja Bose · Post by **Raja Bose** » 07 Mar 2009 14:01

True there are a lot of rich enclaves along the ocean sides in FL esp. on the gulf side....the interiors are equally wretched. But all-in-all FL is a great place to live (weather, COL-wise and no state income tax!) but unfortunately very few ITvity related stuff there.

I actually recently went by the big sur to san simeon, 2 weeks back. Decided to do it since I was in Monterey anyways.....had been there once back in '05....I would say each drive is unique and stunningly beautiful in different ways.

Singha · Post by **Singha** » 07 Mar 2009 14:11

FL also has high density of PYTs whether tourists or residents. and the weather being hot, "flesh" show is much more.

Raja Bose · Post by **Raja Bose** » 07 Mar 2009 14:16

Singha wrote:FL also has high density of PYTs whether tourists or residents. and the weather being hot, "flesh" show is much more.

I will give you that 400% onlee! Once I had an TFTA Ayesha come to the class I was teaching wearing nothing under a skimpy crocheted top (the Ayesha, not me!). Needless to say the whole class was a wreck!

Anyhow I better go to bed and hide now before adminullahs fire salvo of hellphyrs for such OT posts in a serious thread where world economy's fate is being decided.

Shivani · Post by **Shivani** » 07 Mar 2009 19:33

Raghav K wrote:
We can't blame President Obama for the mess he inherited. But we can definitely blame him for making it worse.

Hussein's problem is he is shying from the difficult decisions. Take the automobile sector. The credit bubble has burst, and there is surplus capacity of 8 million cars in US.

So they have to downsize. Common sense says that the weakest companies should be allowed to die or evolve into smaller player post bankruptcy. Yet, mindful of his democratic voting base in and around Detroit, Hussein continues to hand out billions of freshly printed currency to GM and Chrysler.

Funding these two 'darwin award' companies puts pressure on other manufacturers, to the point where fundamentally stronger companies like Toyota, Honda and Nissan are now seeking financial help from Japanese government.

Every action has a consequence. Hussein has:

Not accepted reality.
Is being isolated from the reality. Or presented distorted reality.
Knows the reality, but does not know how to break the bad news to public.
Is a delusional fool who has bought his own hype, and believes he can sweet-talk the economy to health.
All of the above.

He has to let the job losses increase in short term so that long term future can be secured. Which means killing/downsizing GM and Chrysler so that Ford can survive.

Likewise his energy policy and the green initiative. Whether it is the battery car or Ethanol. Ethanol is unsustainable gimmick to keep the agriculture lobby satisfied. The proven and sure way forward is to increase the tax on gasoline. Increase it in steps and bring the prices more in line with EU rates. But the mere suggestion of that idea causes convulsive fits in US citizens, and Hussein does not want to hurt his messiah image by doing something so 'treasonable'.

Hussein is trying to avoid amputation but all this delay is pushing the patient closer to death. Someone should whisper in his ears: "You are a one termer already. Do what is necessary and let history judge you, not the present generation."

PS: Kill the F-35 program too.

vsudhir · Post by **vsudhir** » 07 Mar 2009 22:08

Tent city outside Sacramento, CA

Well, the effect of the foreclosures shows up first in the worst hit and most broke states.

The effects of unemployment the crisis has induced in the interior will be felt in the coming months, IMO.

Tammy Day, who has recently become homeless, sits outside of her tent at a homeless tent city on March 5, 2009 in Sacramento, California. Sacramento's tent city is seeing an increase in population as the economy worsens with more people becoming unemployed and having their homes slip into foreclosure. (Justin Sullivan / Getty Images)

Is Shri Amitabh Bachchan up for a special game of who wants to be (rupee) millionaire open on a privileged basis for tent city dawgs in CA onlee?? Jus' wondering onlee...

ramana · Post by **ramana** » 07 Mar 2009 22:41

Shivani, Please edit your post as its a falme bait calling Obama by his middle name. If you dont consider yourself banned.

Singha · Post by **Singha** » 07 Mar 2009 22:42

astonishing sight. I never expected to see such a scene on outskirts of capital city of the richest state of the richest country. a tech cum agricultural cum tourism powerhouse. who f*ed up?

Nayak · Post by **Nayak** » 07 Mar 2009 23:17

Ugh!!! That is painful to watch. I guess in US things can go downhill pretty fast. Un 'fcuking' believable, these banking mafias and their MBA henchmen have managed to do what nooks and socialism couldn't do, bring massa to it's knees.

vsudhir · Post by **vsudhir** » 08 Mar 2009 02:43

IMF: Fifth of Britain's GDP spent so far on bailouts

Oh, but I don't see Moody's downgrading Ukstan's ratings anywhere... did moi miss something....

sanjaykumar · Post by **sanjaykumar** » 08 Mar 2009 02:50

Oh, but I don't see Moody's downgrading Ukstan's ratings anywhere... did moi miss something....

And you will never see this printed in the business section.

Not to worry Britain's got all the signs of an uncontrolled rentry into the world of Dickens. Being for the benefit of Moody's.

Satya_anveshi · Post by **Satya_anveshi** » 08 Mar 2009 03:28

Nayak wrote:That is painful to watch.

Why do YOU say it is painful? Get used to it as we got used to OUR fellow countrymen who are also humans and many of whom don't even have those tents. You can also bet those are all illegal immigrants from mexico. When you see that in the heartland and at least 2nd gen khan residents getting to this standard, then it is news worthy.

vera_k · Post by **vera_k** » 08 Mar 2009 04:01

Tent cities have been around since before this downturn. You never got to see or read about them unless you watched the local news or read the newspaper.

http://en.wikipedia.org/wiki/Tent_city

Ameet · Post by **Ameet** » 08 Mar 2009 04:02

Fascinating article on Iceland and its peoples quest to become world bankers despite having no qualifications and then their subsequent downfall.

Wall Street on the Tundra

http://www.vanityfair.com/politics/feat ... ntPage=all

Raja Bose · Post by **Raja Bose** » 08 Mar 2009 04:08

Satya_anveshi wrote:[
Why do YOU say it is painful? Get used to it as we got used to OUR fellow countrymen who are also humans and many of whom don't even have those tents. You can also bet those are all illegal immigrants from mexico. When you see that in the heartland and at least 2nd gen khan residents getting to this standard, then it is news worthy.

Tent cities are not restricted to illegal immigrants and have a considerable low income white population. But your point is true....compared to what the poor and homeless endure in our country, the homeless in khanland live like kings! They atleast have clothes to wear and keep warm and food to eat, clean water to drink. From what little I have interacted with homeless in khan....some of them eat much better than a lot of our lower-middle class!

Raghav K · Post by **Raghav K** » 08 Mar 2009 04:36

'Run on UK' sees foreign investors pull $1 trillion out of the City.

A silent $1 trillion "Run on Britain" by foreign investors was revealed yesterday in the latest statistical releases from the Bank of England. The external liabilities of banks operating in the UK – that is monies held in the UK on behalf of foreign investors – fell by $1 trillion (£700bn) between the spring and the end of 2008, representing a huge loss of funds and of confidence in the City of London.

Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a "normal" quarter.

The revelation will fuel fears that the UK's reputation as a safe place to hold funds is being fatally comp-romised by the acute crisis in the banking system and a general trend to financial protectionism internat- ionally. This week, Lloyds became the latest bank to approach the Government for more assistance. A deal was agreed last night for the Government to insure about £260bn of assets in return for a stake of up to 75 per cent in the bank. The slide in sterling – it has shed a quarter of its value since mid-2007 – has been both cause and effect of the run on London, seemingly becoming a self-fulfilling phenomenon. The danger is that the heavy depreciation of the pound could become a rout if confidence completely evaporates.

Colin Ellis, an economist at Daiwa Securities, commented: "The outflow of overseas banks' UK holdings is not surprising – indeed foreign investors in general will still be smarting from the sharp fall in the exchange rate last year, as many UK liabilities are priced in sterling terms. That raises the question of what could possibly tempt overseas investors to return to the UK. Further heavy outflows of funds are probably a given."

The Bank of England said that there had been a large fall in deposits from the United States, Switzerland, offshore centres such as Jersey and the Cayman Islands, and from Russia.

Paranoia that the UK could follow Iceland into effective national insolvency and jibes about "Reykjavik on Thames" will find an unwelcome substantiation in these statistics – which also show that stricken British banks are having to repatriate similar sums back to Britain. This is scant consolation for the authorities, however, as it means the UK and sterling are, like some emerging markets and currencies, suffering from a flight of capital. By contrast some financial centres and currencies – notably the US dollar and the Swiss franc – are enjoying a boost as "safe havens" in a troubled world.

The sudden international trend towards financial deglobalisation and the flight of money to "home" bases has nonetheless been dramatic. The Prime Minister has already warned about this drift to "financial protectionism" – even though UK banks brought back almost $600bn in the last months of 2008, as they attempted to repair fragile balance sheets. Mr Ellis added: "These data are consistent with UK banks reducing their overseas holdings, at the same time as overseas banks scale back their presence in the UK. That is not surprising, given that governments around the world are having to prop up their banking sectors, and in turn demanding that national institutions focus on domestic markets. But it does run the risk of being financial protectionism by the back door."

Investment from the West into developing countries has fallen from the level of about $1 trillion a year seen earlier this decade to about $150bn last year. Economies in eastern Europe such as Hungary and the Baltic republics, some in Asia such as Pakistan and developed nations such as Iceland have been severely hit by the collapse in foreign investment.

Like Iceland, the UK has an unusually large banking sector in relation to her national income, with liabilities four times GDP. Should the UK taxpayer have to assume these debts it will represent, in relation to GDP, about double the national debt the nation bore at the end of the Second World War, a near unsustainable burden.
http://www.independent.co.uk/news/busin ... 39413.html

sanjaykumar · Post by **sanjaykumar** » 08 Mar 2009 05:04

Does Moody's know this?