Bharat Rakshak

paramu wrote:Britain's Brown wants new global financial order

... international movements of capital to be transparent," Brown said.

... including increased transparency, regulation,

... new global financial order founded on transparency, not opacity,

The success of the pending rescue of the U.S. financial system probably depends as much on the central banks of China and the Middle East as on Congress and the Federal Reserve.
The U.S. is turning to foreign governments and other overseas investors to buy a good chunk of what could total $700 billion in Treasury debt expected to finance the bailout.

China, Saudi Arabia and other big foreign holders are unlikely to take antidollar measures precisely because they own so much U.S. debt. To the extent the dollar declines, so does the value of those nations' holdings. Mr. Summers calls this situation "the financial balance of terror."

SwamyG wrote:Citigroup buys Wachovia's banking business.

I don't like the way things are shaping - 3 banks JP Morgan, CitiGroup and BoA now have lots of deposits - Monopoly. Some thing happens to one, others will be impacted. Yeah, let us just keep putting all eggs in few baskets. Good idea.

Rumors are that Indian IT is getting affected. Salaries are coming down, real estate prices are coming down. But the chaval and dal will remain high.

U.S. Stocks Plunge After House Votes Against Bailout Plan

By Eric Martin

Sept. 29 (Bloomberg) -- U.S. stocks plunged and the Standard & Poor's 500 Index tumbled the most since 1987 after the House of Representatives voted down a $700 billion plan to rescue the financial system.

Sovereign Bancorp Inc. tumbled 66 percent and National City Corp. slid 52 percent, leading financial shares in the S&P 500 to an 11 percent slide. The MSCI World Index of 23 developed markets sank 6 percent, the most since its creation in 1970.

``It's pretty much a nightmare,'' said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. ``This is the worst we've seen it since the credit mess started. Until we know exactly why they didn't pass it, we're going to be selling off for a while.''

The S&P 500 sank as much as 87.02 points, or 7.2 percent, to 1,125.99. The Dow Jones Industrial Average slid 631.13, or 5.6 percent, to 10,512 at 2:09 p.m. The Nasdaq Composite Index declined 148.4, or 6.8 percent, to 2,034.94.

House Rejects Bailout; Stocks Plummet

09/29/08 - 02:42 PM EDT

Updated from 2:08 p.m. EDT

Stocks on Wall Street took a blood bath Monday afternoon after the Treasury Department's proposed aid package for the financial sector failed to pass the House of Representatives.

The Dow Jones Industrial Average, which fell as much as 705 points, was lately down 448 points to 10,695, and the S&P 500 lost 66 points to 1147. The Nasdaq plummeted 134 points to 2050. The Dow was taking swings of more than 100 points in the minutes immediately following the vote.

The $700 billion proposal, formally presented last week by Treasury Secretary Henry Paulson, failed to garner sufficient votes to make it through the House of Representatives. The package, which would have set up a facility to use government money to buy troubled assets from financial firms, was voted down with an initial tally of 205 votes for the bill to 228 against. The controversial piece of legislation had earlier been expected to make it through. A total of 218 votes were required to pass the bill.

The sharp decline in the major indices is "strictly in response to Congress not passing the TARP," said Michael Strauss, chief economist and strategist at Commonfund. "The question is, are they going to get back together and try to get something through?" Strauss said the general expectation is that Congress will have to reconvene and try to pass some legislation to help the credit markets.

"This is a wholesale dumping of stocks," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The Street is trying to indirectly send a message that if this thing doesn't get passed, you'll be faced with a wholesale market selloff, anything across the board."

Corporate America has just lost a chunk of its value the size of the Indian economy.

AshokS wrote:Saw the video, too much rhetoric and America bashing. He misses the point on why countries invest in t-bills vs other options. Less economics and more polemics in my opinion.

SK Mody wrote:

AshokS wrote:Saw the video, too much rhetoric and America bashing. He misses the point on why countries invest in t-bills vs other options. Less economics and more polemics in my opinion.

For us common abdul's, it was a bit of welcome plain talk.

Thomas L. Friedman: Rescue the rescue
By Thomas L. Friedman
Wednesday, October 1, 2008

http://www.iht.com/bin/printfriendly.php?id=16613898

I was channel surfing on Monday, following the stock market's nearly 800-point collapse, when a commentator on CNBC caught my attention. He was being asked to give advice to viewers as to what were the best positions to be in to ride out the market storm. Without missing a beat, he answered: "Cash and fetal."

I'm in both - because I know an unprecedented moment when I see one. I've been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis; in 1963, with the assassination of JFK; on Sept. 11, 2001; and on Monday, when the House Republicans brought down the bipartisan rescue package.

But this moment is the scariest of all for me because the previous three were all driven by real or potential attacks on the U.S. system by outsiders. This time, we are doing it to ourselves. This time, it's our own failure to regulate our own financial system and to legislate the proper remedy that is doing us in.

I've always believed that America's government was a unique political system - one designed by geniuses so that it could be run by idiots. I was wrong. No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it.

This is dangerous. We Americans have House members, many of whom I suspect can't balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don't understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can't deal with this crisis this way.

This is a credit crisis. It's all about confidence. What you can't see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy's assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.

Well, you say, "I don't own any stocks - let those greedy monsters on Wall Street suffer." You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by AIG, and your local municipality sold municipal bonds on Wall Street to finance your street's new sewer system, and your local car company depended on the credit marks to finance your auto loan - and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.

We're all connected. As others have pointed out, you can't save Main Street and punish Wall Street anymore than you can be in a row boat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We're all connected. "Decoupling" is pure fantasy.

I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don't deserve it. Otherwise, you're saying: I'm going to hold my breath until that Wall Street fat cat turns blue. But he's not going to turn blue - you are, or we all are. We have to get this right.

My rabbi told this story at Rosh Hashana services on Tuesday: A frail 80-year-old mother is celebrating her birthday and her three sons each give her a present. Harry gives her a new house. Harvey gives her a new car and driver. And Bernie gives her a huge parrot that can recite the entire Torah. A week later, she calls her three sons together and says: "Harry, thanks for the nice house, but I only live in one room. Harvey, thanks for the nice car, but I can't stand the driver. Bernie, thanks for giving your mother something she could really enjoy. That chicken was delicious."

Message to Congress: Don't get cute. Don't give us something we don't need. Don't give us something designed to solve your political problems. Yes, Henry Paulson and Ben Bernanke need to accept strict oversights and the taxpayer must be guaranteed a share in the upside profits from all rescued banks. But other than that, give them the capital and the flexibility to put out this fire.

I always said to myself: Our government is so broken that it can only work in response to a huge crisis. But now we've had a huge crisis, and the system still doesn't seem to work. Our leaders, Republicans and Democrats, have gotten so out of practice of working together that even in the face of this system-threatening meltdown they could not agree on a rescue package, as if they lived on Mars and were just visiting us for the week, with no stake in the outcome.

The story cannot end here. If it does, assume the fetal position.

U.S. economy troubles hit a worry-free zone for the rich
By Robbie Brown
Wednesday, October 1, 2008

http://www.iht.com/bin/printfriendly.php?id=16608201

SEA ISLAND, Georgia: Four years ago, when President George W. Bush was the host of a summit meeting of world leaders on this tiny, privately owned resort island, bestowing prestige and bringing increased tourism, Sea Island seemed recession-proof.

So confident in the future were the owners of the high-priced resort that they poured $350 million into renovations. They opened upscale restaurants. They built waterfront suites costing $5,000 a night. They installed a 100-seat movie theater, a spa, a wine cellar, equestrian facilities and three new pools.

Business boomed, and superlatives accumulated: Condé Nast Traveler named Sea Island among the "World's Best Places to Stay," and Golf Digest called it the best golf resort in North America.

But those days seemed ancient last month when the resort's owner, the Sea Island Co., fired about 500 employees, nearly 25 percent of the workforce, to stanch its financial losses amid the national downturns in tourism and real estate. Those who were dismissed ranged from cabana waiters to senior executives.

To many residents, the island has become a cautionary tale.

If a falling tide lowers all boats, they say, then Sea Island's woes reveal the faltering economy's toll on even the wealthiest, best-protected regions of the United States.

"Now we know how Detroit feels," said Harry Aiken Jr., a bar operator on neighboring St. Simons Island. "Everybody knew Sea Island was overextended, but we thought they could always just sell more property."

In many ways, Sea Island still seems a breezy, worry-free Old South getaway. The cost of the islands' homes averages $3.2 million, according to the Sea Island Co. Brooks Brothers could stock its catalogue with Sea Island's bronzed, shapely (and almost exclusively white) bodies. And politicians, professional athletes and CEOs still dream of retiring to Sea Island and its manicured, oak-studded mansions, called cottages.

But the island has attracted fewer business conferences than usual this year, said Brian Young, the resort's general manager, although personal travel has remained relatively steady.

And although houses are selling, including one for more than $4 million this month, C. Allen Brown, the company's vice president for real estate, said he had "never seen this many potential buyers waiting on the sidelines."

Fifty of the 600 houses on Sea Island are for sale, Brown said, compared with fewer than 35 this time last year.

In the sun-baked towns that surround Sea Island and rely on its high-spending clientele, people have noticed a slump in business and want to know what caused it: the national economy, natural cycles in the life of a resort or poor financial decisions?

The economy was only one reason for the cutbacks, said the chief executive of the Sea Island Co., Bill Jones 3rd. Seasonal employees were dismissed as summer crowds died down, and many people hired during the renovation were no longer necessary, he said. But he acknowledged the economy's significant role.

"Folks are waiting for the market to bottom out," Jones said. "They say, 'Until we find out where this economy is going, we can't move down here,' and I don't blame them."

But some residents say local miscalculations, not the national economy, caused the layoffs. (Fired employees signed agreements with Sea Island not to publicly discuss the causes or conditions of their dismissals, several former employees said.)

From 1998 to 2006, Sea Island underwent a sweeping renovation, updating three golf courses and adding a 65,000-square-foot, or about 6,040 square-meter, spa and fitness center, a 2,000-bottle wine cellar and other costly accommodations. Then the economy turned sour.

"Rich as they were, there was a real naïveté about money," Nancy Thomason, the longtime owner of a second-hand bookstore on St. Simons, said of the Sea Island Co. "They were used to being millionaires and playing that game, but they didn't have the money."

Since its development in the 1920s, Sea Island has attracted a well-heeled and powerful clientele, including six U.S. presidents. In recent years, homeowners have included the former Attorney General Griffin B. Bell, the Atlanta Braves pitcher John Smoltz and the former CBS News anchor Bob Schieffer.

So the For Sale signs and staff cuts cabled a frightening message to other resort owners: If it can happen here, it can happen anywhere.

"I think everyone is tightening their belts," said Jim Sprouse, executive director of the Georgia Hotel and Lodging Association. "It's an industry-wide issue as people slow down their travel."

The greatest slump has been in real estate.

In the areas surrounding Sea Island, the average home sold for $17,000 less this year than it did last year and took three weeks longer to sell, said R. Frederick Stroud, a broker at Georgia Coast Realty.

The problem is not a lack of interest in buying houses on the Golden Isles, Stroud said. Instead, banks that would normally issue loans for second homes are tightening their standards amid the national financial crises. With fewer people qualifying for loans, only the wealthiest buyers can afford Sea Island homes.

Sea Island's defenders say the company deserves the community's support. The Jones family, which has owned the resort for 80 years, is "the backbone of the hospitality industry," said Woody Woodside, president of the local chamber of commerce.

"The jobs they've created, the taxes they've created, that's one thing," he said. "But the indirect impact - it reaches every corner of this island. The whole island is in support of a rally by Sea Island."

But the firings have worsened class rivalries in a region of great extremes of wealth.

"Down here, it's really rich people and it's poor people," said Aiken, the bar operator on St. Simons, gesturing toward Sea Island. "A lot of people over here are envious of people over there. And now Sea Island employees, who don't live there, are paying the price."

Investment guru proposes his own solution to the credit crisis after warning that the $700 billion bailout may not be large enough.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: October 2, 2008: 1:51 PM ET

(Fortune) -- Warren Buffett said Thursday the pricetag of the controversial $700 billion Wall Street bailout may have to rise, and suggested that Treasury team with private investors to buy the distressed mortgage assets at the center of the rescue plan.

Buffett, the chairman and CEO of Berkshire Hathaway (BRK.A), likened the recent turmoil in the markets to an "economic Pearl Harbor" and said that the economy needs a quicker response than Congress has provided.

"It will cost more to solve this problem today than it did two weeks ago," said Buffett, referring to when Treasury Secretary Henry Paulson's first proposed that Congress help rescue Wall Street, which has seen the collapse of Lehman Brothers and Bear Stearns and the sale of Merrill Lynch. "It's that bad. If we don't get it solved next week, I may go back to delivering papers."

He didn't estimate how much more money would be needed to buy enough toxic mortgage investments in order to create a more stable market and get credit flowing.

But Buffett described a plan he thought of Thursday morning on the way to the Summit that would allow Treasury and private investors to buy assets together. He said his proposal would quickly kickstart demand for mortgage-backed securities and help find a market price for these troubled assets.

"One easy way to do part of the program is to say to anybody - hedge fund operators, Wall Street firms, or anybody else - that the Treasury will lend you 80% of the purchase cost of a bunch of distressed assets," he said, explaining the concept of his proposal. The investors benefit from borrowing at lower rates, but Treasury would get first claim on the sale of those assets, which means it would get its loan back plus interest and possibly turn a profit.

"Now you have someone with 20% skin in the game," he explained. "Believe me, I won't be overpaying if I'm buying with that kind of leverage. And you have someone [the investors] to manage the assets to the extent they need to be managed."

Buffett said that the bill that passed the Senate Wednesday evening isn't perfect, but that it's crucial to prevent the global economy from grinding to a halt. He then warned it will take a while to work and that the economy is going to struggle even with its passage.

He said the problems now facing the economy are unprecedented, and likened the the crisis to a great athlete that has had a massive heart attack.

"We've never seen anything like this where perfectly credit-worthy companies can't get funds," he said.

"Anyone who thinks this bill is a panacea is [making] a mistake," he said. "Without it, it's a disaster."

I stopped watching when he came up with the silly idea that "rich people should lend to poor people". This is an idea that sounds intuitively correct, but has noi real rational or historical basis.