The Credit Crunch

[Kellydandodi]

To all appearances it is eye-popping that Lehman Bros. et al have gone under - what could be the agenda, if any, at work here?

 

[Analogue Boy]

There's a whole thread 'collapse of the US economy imminent' a few pages back.
It probably deserves a bump.

 

[rynner2]

There's a whole thread 'collapse of the US economy imminent' a few pages back.
It probably deserves a bump.

But this financial meltdown will affect the whole world, even if it was a few snake-oil salesmen in the US that started it.

Prices are soaring, jobs are being lost, banks can't be relied on...

The great depression was before our time (for most of us, ie, nearly 80 years ago), but it looks like we might be starting another one.

All the papers have in-depth articles about it, far too many to quote here.

What with this and Global Warming, we may have bitten off more than we can chew this time...

We're doomed, Mr. Mainwaring! :shock:

 

[Ravenstone]

I think it's all media led. They've been telling us for nearly two years that we're heading for negative equity and spending too much money. They've just scared people into not moving house, spending less, which is putting up prices.

Look at what's happened recently. The XL fiasco - apparently due to the 'credit crunch' and rising fuel costs. Except the auditors over two years ago wanted to investigate what they considered to be dodgy financial practices, but were called off. The current Lehman crisis, apparently more to do with the owner awarding himself pay rises the company couldn't afford, and him refusing to sell the company for a reasonable figure, because he wanted more money.

So, nothing to do with the credit crunch, and pretty much everything to do with greedy financial wrong-doings. Which should be far more newsworthy, but Gods forbid the newspapers should start report actual news when they can just make it up.

 

[rynner2]

I think it's all media led.
.......
The current Lehman crisis, apparently more to do with the owner awarding himself pay rises the company couldn't afford, and him refusing to sell the company for a reasonable figure, because he wanted more money.

So the media led us to the Lehman crisis?! :shock:

I don't think so!

Q&A: Lehman Brothers bank collapse

Wall Street bank Lehman Brothers has filed for chapter 11 bankruptcy protection, rival Merrill Lynch has sought refuge by selling itself to Bank of America, and insurance giant AIG needs emergency funding.

The collapse of Lehman has triggered turmoil in global financial markets, but the repercussions go much wider.

How does it affect me?

Nobody has a Lehman Brothers cheque book or current account. The company is an investment bank that specialises in big and complex deals and investments.

Despite this, Lehman's collapse and the troubles of other financial institutions will probably be felt by millions of people around the world - at least indirectly.

Most of our banks and pension funds have dealings with Lehman, or with firms like hedge funds that traded extensively with Lehman.

Unwinding Lehman's complex deals will take months if not years. During that time the global financial system will be snarled up. Many banks won't know for sure how much they are exposed to Lehman, and will have difficulty freeing up the money in those deals.

This in turn is likely to intensify the credit crunch, with potentially dire consequences for businesses and consumers.

And the dramatic collapse of Lehman Brothers has also shaken the financial markets, with share prices slumping around the world.

You will feel the impact even if you are not a banker or shareholder.

Your pension fund may have a wobble. Your employer may find it more difficult to do business. And you yourself may have more difficulty getting a personal loan or mortgage.

Are any other firms in trouble?

Well, for starters there is Merrill Lynch. US authorities and many bankers feared that after Lehman's demise the attention of investors and speculators would have moved to Merrill.

The bank hopes to find safety under the roof of banking giant Bank of America.

The biggest worry, though, is insurance giant AIG. The company is running out of cash to cover its losses and has asked the government for an emergency bridging loan, reportedly to the tune of $40bn.

If AIG is in trouble, it would directly affect millions of consumers and companies around the world. It would also hurt the whole financial system, because AIG is in the centre of a web of complex financial deals.

And compared with AIG, the crisis surrounding Lehman is small beer.

Why did Lehman fail?

Lehman Brothers was the fourth-largest investment bank in the United States.

It was considered one of Wall Street's biggest dealers in fixed-interest trading and was heavily invested in securities linked to the US sub-prime mortgage market.

With these investments now shunned as high risk, analysts say it was inevitable that confidence in Lehman Brothers would likely be hit - particularly after the collapse of Bear Stearns earlier this year.

etc.....

http://news.bbc.co.uk/1/hi/business/7615974.stm

 

[Ravenstone]

So the media led us to the Lehman crisis?! :shock:

I don't think so!

No - the Credit Crunch.

Lehman, according to one report I heard, was due to the owner awarding himself the massive pay rises the company couldn't support, and refusing to sell the company for a realistic figure, choosing rather to hold out for a figure far higher than the company was worth.

 

[rynner2]

So the media led us to the Lehman crisis?! :shock:

I don't think so!

No - the Credit Crunch.

The Credit Crunch came from too many banks, etc, investing in US sub-prime mortgages. (see above). This left many of them holding millions in effectively worthless stock, and those that were most exposed (eg, Lehman) went to the wall.

Other banks (eg HBOS in the UK) are also coming under serious pressure now.

Anyone not worried about the credit crunch doesn't really understand it.

My savings are divided between two big institutions, neither of which seems very vulnerable at present, but I'm keeping my fingers crossed...

Luckily for me I do not need to buy or sell a house, raise a loan, or look for a job, but there are millions who do, and they will be affected very seriously.

 

[Abendstern]

What I wonder about is those two building Societies, Cheshire and Derbyshire being 'rescued' by the Nationwide after apparent pressure from the government (or so suggested Moneybox on R4 last Saturday). The presenter was suggesting that the government was anxious to avoid another N.Rock-type sitch, but I wonder how they could actually manage to persuade the NW to do this, given that there are EU rules about state aid.

For their part, NW are painting it as an act of kindness, but being a former Portman customer (let's just say I'd happliy give the windfall back if they de-merged!) I'm not so sure. The merger/acquisition seems to have been cleared by the competition commission although the number of Building Societies appears to be constantly decreasing.

The Financial Services Authority has activated rarely-used powers to allow the Nationwide Building Society quickly to push through its mergers with the smaller Cheshire and Derbyshire building societies without seeking approval from their members.

The mergers, announced on Monday, will see both the Cheshire and the Derbyshire absorbed by the Nationwide by the end of the year, much faster than typical mergers between building societies. Both mergers are making use of special powers in the Building Societies Act that enable the FSA to approve a building society merger without a vote by members if the watchdog feels the deal is in their best interests.

Graham Beale, Nationwide’s chief executive, said the Cheshire and the Derbyshire had approached the lender about a possible merger after the boards of both societies separately concluded they were likely to face continuing financial difficulties from the housing slump and credit market turmoil.

“This has been driven by the boards of those two organisations,” he said. “The FSA have been aware of the dialogue and we needed their support in terms of approving the structure of the transaction.”

The deals are evidence of the difficulties that the credit crunch has caused among building societies, which are facing a squeeze due to the increased cost of raising funding in the wholesale markets, intense competition for retail deposits, and the slowdown in the housing market which is leading to rising bad debts. Unlike publicly traded banks, building societies are owned by their members and can find it harder to raise fresh capital to cover losses.

The enlarged Nationwide will have assets of £191bn, retail deposits of £122bn, 1,000 branches and 15m members. It plans to keep the Cheshire and Derbyshire brands and branch networks, though will absorb the staff of both head offices over time, potentially leading to job losses. The Derbyshire employs 470 people at its head office, while the Cheshire employs 356.

The Derbyshire’s approach to the Nationwide was triggered by the society’s realisation that it was likely to record a loss of £17m in the first half of the year, and that further losses were likely unless conditions in the markets improved. The Cheshire, which recorded a £10.5m pre-tax loss in the first half after a commercial property loan went bad, also concluded that a merger with a larger lender was in its best interests.

Nationwide said the mergers reduce its core Tier 1 capital ratio – a key measure of balance sheet strength – by 34 basis points, but that it expected to rebuild its capital reserves by the end of the year through the retained profits of the enlarged group.

Mr Beale said the Nationwide had not received approaches from any other building societies, and was not in talks with any other lender. “It’s important that Nationwide is not the lender of last resort in the sector,” he said. “But we do think in the current climate it’s responsible to maintain a strong and healthy building society sector.”

Under the Building Societies Act, passed in 2001, the FSA is allowed to give its approval to a deal that is already under discussion without a vote by members. The watchdog has only once before used those powers, to approve the merger between the Gainsborough and Yorkshire building societies, which was already under way when the FSA was created.

The members of Cheshire and Derbyshire will not receive any cash distribution as a result of the deal.

http://www.ft.com/cms/s/0/1d66b916-7d82 ... ck_check=1

 

[Cavynaut]

So the chickens are finally coming home to roost, and we are finally realising that greed isn't good. It just seems so wrong that it's ordinary people who will have to pay the price.

Hopefully the current fiasco will finally nail the myth that the market is always right, and the state is always wrong.

 

[rynner2]

US government rescues insurer AIG

The US Federal Reserve has announced an $85bn (£48bn) rescue package for AIG, the country's biggest insurance company, to save it from bankruptcy.

AIG will get an $85bn loan, in return for an 80% public stake in the firm.

The rescue follows the collapse of US investment giant Lehman Brothers, which caused share prices to plummet across the world's financial markets.

Meanwhile, Barclays said it had reached a deal to buy Lehman's US investment banking and capital markets businesses.

The $250m deal, which is subject to approval from the bankruptcy court, will make the British bank the third biggest investment bank in the US.

Barclays will also purchase Lehman's New York headquarters and its two data centres in New Jersey for $1.5bn.

.....

http://news.bbc.co.uk/1/hi/business/7620127.stm

The trouble is with government 'rescues' is that they cost money. And where do governments get this money? Often, from loans from investment banks like Lehman's! (The Labour government in Britain is often criticized for its high level of borrowing.)

So we could descend into a whirling maelstrom of debt, until the world's financial system finally disappears up its own fundament! :shock:

The world's banks have always played a game of robbing Peter to pay Paul - the big problem now is that national governments are getting increasingly sucked in too....

No money for wages, property worthless - the world could revert back to barter, plunder, and warfare before things get better....

(I do love a good doomsday scenario, me! 8) )

 

[rynner2]

More doom and gloom:

Financial turmoil: AIG and HBOS woes are tip of the Titanic iceberg - commentary
By Ross Clark
Last Updated: 9:23pm BST 16/09/2008

In a year's time, consumers may look back on the past 48 hours as a bit like the first few minutes after the Titanic struck the iceberg, when high-spirited passengers played snowballs unaware of the danger they were in.

The sight of highly-paid bankers being escorted off their premises with boxes full of possessions seems remote from our everyday lives - and for some people may even provoke feelings of satisfaction, a deserved comeuppance after a decade of City greed.

Those who own shares, either directly or through pension funds, will already be less than amused. Others will be rapidly sobered up if they attempt to renew their mortgages over the coming months.

Since July there seems to have been a slight easing in the mortgage market, with several lenders reducing their fixed rates to below 6.5 per cent compared with over 7 per cent in the early summer.

This led to some speculation that the worst of the credit crunch might be over. No one will be saying that now.

Although US investment banks do not offer mortgages directly to British homebuyers they have been important players in the mortgage securitisation market - the process by which a mortgage in Britain can be bundled up with other mortgages and sold to bond investors around the world.

With the collapse of Lehman Brothers huge volumes of mortgage-backed securities will now be dumped on world markets, making it much harder for lenders to offer mortgages at competitive rates.

....

Governor Mervyn King reiterated yesterday that the consumer price index, now standing at 4.7 per cent, more than twice the government's target rate, will carry on rising until into next year.

Demands for interest rates to be slashed are unlikely to be heeded - at least this side of Christmas. There is little good news for savers either. With inflation at 4.7 per cent it is now all but impossible to find a savings account which, after tax, will offer savers a real rate of return.

To compound the misery the Government earlier this year slashed the rates it pays on inflation-linked National Savings certificates - one of the few ways in which savers have managed to preserve their capital over the past 12 months. Although Lehman Brothers and Merrill Lynch were US banks they had significant operations in Britain: Lehman alone employed 4,500 people in London.

The loss of banking jobs will inevitably have a knock-on effect on the rest of the economy, and not just for the army of nannies, dog-walkers, car dealers and tradesmen who service bankers' lifestyles.

A shrinking financial services sector, one of our biggest export industries, will add to downward pressure on the pound, driving up the cost of imports and impacting further on consumer prices.

The one bright development this week has been the effect of the crisis on global oil prices, which have slumped from their peak earlier in the summer.

The falls should be felt at the pumps over the next few days. But it should not be seen as a harbinger of better times: the reason prices are falling is that global demand for oil is predicted to slump as the global economy slows.

Slightly cheaper motoring will come as little relief for motorists who no longer have a job to drive off to.

http://www.telegraph.co.uk/money/main.j ... tviewedbox

 

[rynner2]

Interesting POV:

Wall Street is a financial Head-Smashed-In, where ego carries the hordes over the precipice
Carl Mortished: World business briefing

Head-Smashed-In is a buffalo jump in Alberta, Canada, a communal kill site where the Plains Indians drove herds of North American bison off the edge of a cliff. Over thousands of years, the Plains tribes developed the skill of goading buffalo towards a precipice. As the animals thundered towards the drop, those in front would try to stop but the sheer weight of the stampeding herd pressing from behind would force the buffalo over the edge.

Unesco has designated the buffalo killing ground a World Heritage Site. It seems odd to venerate a place that played a part in the near-extinction of those glorious animals. It is right to do so, however, because it tells us how the Plains Indians once lived in periods of food abundance, just as the abandoned trading floors at Lehman Brothers tell us how extravagant Americans and Britons lived by the reckless accumulation of debt in the early years of the 21st century.

Wall Street is as worthy of World Heritage Status as the bison boneyard at Head-Smashed-In. America’s financial centre is not yet extinct, but people are calling time on the investment banks. Two have failed – Bear Stearns and Lehman – and a third, Merrill Lynch, has been swallowed up by an old-fashioned lender, Bank of America, which fancied owning a big stockbroker.

In a matter of days, it has become the fashion to say that the investment bank model is dead. These free-standing institutions that combine corporate advice, lending, stock trading, underwriting and wealth management lack the comfort of millions of retail depositors – the advantage of Bank of America.

They must, therefore, borrow from other banks and, when credit markets stall, their elaborate gaming strategies in complex financial instruments become unsustainable. Soon, the oracles predict, the remaining investment banks Morgan Stanley and Goldman Sachs will disappear into the giant maws of dull high street lenders.

The regular supply of cash is a problem for investment banks, but it is not the root of the problem. The ownership of Merrill Lynch by Bank of America won’t insure against a further outbreak of excess. It will simply shift the risk of excess to the shareholders of Bank of America, who may not have bargained for it.

We can see the tensions between retail lending and fancy investment banking at UBS, which let its own tribe of pinstripes loose to play in the mortgage derivative markets, with catastrophic results.

We now know that the sub-prime securitised mortgage market was little more than a giant pyramid selling scheme in which simple transactions, loans to buy homes, were packaged, bundled, sold, refinanced and the credit risk insured by myriad institutions. None of the bankers who grabbed the passing parcels had any means of ascertaining the solvency of the ultimate borrowers, nor any idea of the true value of the bricks and mortar that underpinned the loans.

If we want to know why some bankers behave like bison racing to the cliff-edge, we need to remember where they came from. The guts of an investment bank is the broker-dealer model, the merging of two types of business: brokers – people who act as agents for investors, buying and selling securities on their behalf – and dealers – who act as principal, trading securities for their own account.

Three decades ago, brokers and dealers (the latter were known as stock jobbers in Britain) were separate partnerships, owned by the management whose personal wealth was on the line every day, in every trade. I remember visiting a jobber’s pitch in 1985 on the floor of the London Stock Exchange, where a lad barely out of school scribbled entries into a large, black ledger. He could mentally tot up his long or short position at feverish speed from a page of buy and sell orders.

Today, the books are electronic and the positions algorithmic, but the point is not a sentimental one. Today’s broker-dealers have no skin in the game – they are staff and the bosses are staff. Their rewards in shares are a bonus, never a liability.

The Big Bang in London in the mid-Eighties and the earlier deregulation in New York transformed a business made up of ruthless individuals joined together by a merchant’s compact into a tower of corporate ego. Merchant banks, such as SG Warburg and Morgan Stanley, bought brokers and jobbers and the culture of personal ownership and personal risk quietly vanished.

It’s difficult to imagine the boy on the exchange floor behaving like Jérôme Kerviel, the Société Générale trader who set fire to his bank’s balance sheet, and it is not just a question of scale or computers. It is about the corporate mindset that makes risk political, a struggle between managerial egos rather than a simple balance of good bets versus dangerous gambles. It is the difference between directors’ service agreements – with generous severance terms – and joint and several liability.

Partnerships are run by people who know that their home is at risk if they get it wrong, but for Dick Fuld, the chief executive of Lehman, no such danger threatened. His greatest fear was losing face. Ego, not greed was what drove Lehman off the cliff and ego will put paid to Wall Street, too.

http://business.timesonline.co.uk/tol/b ... 769532.ece

 

[wembley8]

Lehman, according to one report I heard, was due to the owner awarding himself the massive pay rises the company couldn't support, and refusing to sell the company for a realistic figure, choosing rather to hold out for a figure far higher than the company was worth.

Lehman is quoted on the stock exchange - it doesn't have "an owner."
Shareholders get dividends rather than pay (and they don't set the leve anywayl).

Your source sounds like a simplistic "it's all caused by the greedy bankers" urban myth.

 

[ted_bloody_maul]

I'd have thought that the amount the CEO paid to himself, although unjustifiable, would be small beer compared to the overall amount of cash transacted in the name of Lehman Bros. I have heard him taking flak for holding out for a higher figure, though.

 

[rynner2]

I'd have thought that the amount the CEO paid to himself, although unjustifiable, would be small beer compared to the overall amount of cash transacted in the name of Lehman Bros. I have heard him taking flak for holding out for a higher figure, though.

That's the 'ego' thing again.

The main point is that the bank only had to be sold because of the credit crunch.

But lesser vultures are also about, looking for what pickings they can get:

Merged banks' names cybersquatted

Internet addresses corresponding to recent bank mergers are already being hoarded and sold online.

In "cybersquatting", likely addresses are bought cheaply in the hope of selling to the businesses involved, or as a medium for advertising.

Domain names for the merged Bank of America/Merrill Lynch as well as for Lloyds TSB/HBOS have been snapped up.

In one case, the domain name has already been listed on eBay, with the site directing visitors to the auction.

As reports of Lehman Brothers' intent to sell itself first surfaced last Friday, cybersquatters had already spotted Barclay's, HSBC and Bank of America as potential buyers.

Accordingly, barclayslehman.com, hsbclehman.com, hsbclehmanbrothers.com and bofalehman.com had been acquired.

With the acquisition of Merrill Lynch by Bank of America this week, cybersquatters registered bankofamericamerrilllynch.com and bofaml.com.

In the UK, speculation surrounding the merger of Lloyds TSB with HBOS prompted yet more cybersquatting, so that now lloydstsbhbos.com and hboslloydstsb.com are owned.

"It shows how there are opportunists out there waiting to pounce on any event," says Jonathan Robinson, chief operating officer of NetNames.

"We've seen it in the case of celebrity with David Beckham going to LA Galaxy, we've seen it in the case of tragedy, with Princess Diana's death. There's a subtle twist on the whole thing now, which is the anticipation of the event."

'Click-through value'

Many cybersquatters have pay-per-click ads as revenue generators while awaiting potential buyers.

"Back in the mists of time, these names had a capital value and could be exchanged for cash," says Mr Robinson.

"There's another value they have nowadays and that's a click-through value, a cash flow that they generate in the whole world of online advertising.

"There's even automated software that will populate a website with relevant content."

The speculative HSBC/Lehman site, for example, looks like a news site about the myriad mergers and movements but features Google adverts along the margins.

In the case of bankofamericamerrilllynch.com, the object is more apparent; a visit to the site directs visitors to an eBay auction in which the domain name is for sale.

"The lesson has been there for a while for anyone working in the mergers and acquisitions area that this is a key area to focus on in the due diligence process," Mr Robinson says.

"One can't wait until after the deal is announced or the product is launched."

http://news.bbc.co.uk/1/hi/technology/7621647.stm

 

[rynner2]

If this fails, it will take down all Britain's banks
If the Lloyd's-HBOS merger does not protect shareholders' interests, wholesale nationalisation of banks is inevitable
Anatole Kaletsky

The wonder of financial crises is how events can move straight from impossible to inevitable, without ever passing through improbable. :shock:

Two weeks ago nobody would have imagined that, before the end of the month, the Bush Administration would have nationalised the world's biggest insurance company, that two of the four biggest global investment banks would be out of business and that the US Government would take responsibility for three quarters of the country's new mortgage loans.

Sadly, the events of the past two weeks may be only the prelude, not the climax, of this amazing crisis. Even the apparent rescue of Halifax Bank of Scotland may result in a bigger crisis, if the drowning HBOS drags down its rescuer, Lloyds TSB. If this happens, every big bank in Britain, except possibly HSBC, will have to be nationalised, Northern Rock-style.

The same would become inevitable in the US if market speculators who have been richly rewarded by the US Government for taking down Fannie Mae, Lehman Brothers and AIG, turn their attention to the next group of stumbling financial institutions in the firing line: Washington Mutual, Wachovia, Bank of America, Morgan Stanley and Citibank. If any of these wounded giants collapses, the others will fall like dominoes and the entire US financial system will have to be nationalised. In a financial crisis, the impossible can become inevitable in one day, as we saw in Britain on Black Wednesday.

But the operative word here is “can”. To understand what could still be done to prevent this crisis turning into a true disaster, we must look dispassionately at the unintended consequences on the markets of recent government actions. This means moving away from the moralistic slogans about “greed” or “bailing out reckless bankers”.

The main response to this crisis has been a furious argument over who allowed the banks to get into this mess in the first place and how such imprudence could be stopped. This is analogous to the heated debate among French politicians, as German Panzers rolled into Paris, over who had the stupid idea of building the Maginot Line. There will be a time for apportioning blame and inflicting punishments and reforming regulatory structures. But right now the only question is how to avoid a catastrophe in the next few weeks.

etc.....

http://www.timesonline.co.uk/tol/commen ... 776149.ece

 

[rynner2]

Are you baffled by the Credit Crunch? You're not the only one!

I know that this black hole is eating up our jobs, shares and pensions. I wish I knew why
Valentine Low: Commentary

Some time between the collapse of Lehman Brothers and the US Government’s bailout of AIG I began asking myself: where’s Professor Stephen Hawking when you need him?

Last week, when the opening of the Large Hadron Collider at CERN had the more excitable among us wondering if we were all about to disappear into a large black hole, the Lucasian Professor of Mathematics at the University of Cambridge was a very useful fellow to have around, patiently explaining that the black holes were only very small and that we really shouldn’t worry ourselves.

This week we face being destroyed by another black hole. The global financial crisis is swallowing up banks, insurance giants, pensions and a host of financial instruments that I wouldn’t recognise if they popped up on the next desk, and all I want is for some reassuring boffin to explain what’s going on and tell us that it’s all going to be all right.

It is one thing having a crisis; quite another having a crisis when you don’t have the foggiest idea what it’s all about. Last week set the bar for perplexing news stories: even the more scientifically literate among us (I’ve got physics O level, you know) developed a dull headache as we tried to grapple with proton beams, dark matter and, of course, the Higgs boson. Now, just as we have got over that one, along comes the impending collapse of the world’s banking system. It certainly matches the CERN story for brain-numbing complexity. What is short-selling? Who thought it was a good idea to give mortgages to people who were never going to pay them back? And if Lehman has lost billions of dollars, where has the money gone?

The more I understand, the more I realise I don’t understand. Take securitisation, for instance. I looked it up: apparently it’s when you package up a whole number of mortgages, then sell the debt to someone else. Why would anyone want to do that? :shock:

There are crucial difference between the Large Hadron Collider and the banking crisis. They are both the province of people who speak a language that no one else understands. But in the case of the CERN brigade, we don’t hate them. We don’t hate them because they don’t spend their bonuses on a second Maserati, we don’t hate them because they don’t go round exuding insufferable superiority, and most of all we don’t hate them because they haven’t brought about the collapse of the whole tottering edifice by their own greed.

The other difference is that while both phenomena are immensely important, the financial meltdown has an immediacy that CERN could never manage. If all those scientists discover the secrets of the big bang, or work out the fundamental nature of matter, well I dare say we would all be the better off for it. But my pension is going up in smoke, the few shares I own are worthless and thousands of people are wondering whether they will have a job next week.

I wish I knew why.

http://business.timesonline.co.uk/tol/b ... 776440.ece

 

[rynner2]

Never fear, Ol' Petrol Head will explain all, in his usual pithy style:

Jeremy Clarkson

Over the years, we’ve been told by solemn-faced experts that life as we know it is about to end. Strange to report, then, that we’ve managed to survive communism, particle accelerators, fascism, asteroids, Cuba, bird flu, global warming, terrorism, nuclear war, various tsunamis and Aids, and now we are going to be finished off by Fannie Mae.

I don’t even know what Fannie Mae is. Apparently, it’s not a bank and it’s not a building society, but it seems to have been buying mortgages and debts from various institutions. And then, one day, it appears to have woken up and thought: “Oops.” Quite how it was allowed to get in this mess, I’m not sure. Did nobody think it odd that a mysterious organisation was stomping around the world buying debt? Did nobody stop for a moment and wonder if perhaps Fannie Mae was a home for mentals? I mean, we’re talking here about an operation named after the human bottom. How did it sign its deals? With crayons?

Seriously, if I set up a business called Arse and went around buying outstanding loans on the nation’s never-never-land three-piece suites, I wouldn’t get very far before someone with a soothing voice and a corduroy jacket put me in a padded room for the rest of time.

Whatever. We have now arrived at a point where the world is going bankrupt. Politicians keep explaining that Britain is well placed to face the future, but we’re not. Not when the food in our fridge is worth more than the contents of our jewellery box and we’re scared witless that the Bradford & Bingley is about to go belly-up with all our life savings.

The net result is that half the country can’t afford to buy anything and the other half daren’t. This means companies can’t sell anything, which means they can’t employ anyone, which means everyone will fail to pay their mortgages, which will increase the likelihood of Bradford & Bingley going bust, which will accelerate the downward spiral to such an extent that it will be spinning faster than the atom-basher in Geneva. :shock: In short, we are all on the Titanic. It is holed. It is a mathematical certainty that it will sink. And all Gordon Brown can do is offer the ship’s most elderly passengers a few extra winter logs as they drown in a sea of disease, debt and destitution.

http://www.timesonline.co.uk/tol/drivin ... 742406.ece

 

[Zilch5]

Never fear, Ol' Petrol Head will explain all, in his usual pithy style:

Jeremy Clarkson

Seriously, if I set up a business called Arse and went around buying outstanding loans on the nation’s never-never-land three-piece suites, I wouldn’t get very far before someone with a soothing voice and a corduroy jacket put me in a padded room for the rest of time.

http://www.timesonline.co.uk/tol/drivin ... 742406.ece

Well, Jeremy's political leanings aside, I've been pretty much asking the same question - how could this have ever worked? Answers, anyone?

 

[lupinwick]

I suspect that, given the nature of capitalism and the rampant greed of those involved, this kind of thing was bound to happen sooner or later.

To the outsider, the system seems to be insanely complex and not at all resilient to failure.

I quite like Mark Steel's take on this:

Thirty years we've had, of unfathomably wealthy bankers and dealers being justified as part of the free market.

So they boasted: "I've just got my summer bonus and spent part of it on a small African nation which I burnt down for a laugh," or went to restaurants that charged a thousand pounds for meals such as "asparagus boiled in panda's tears" or bought cars that ran on liquified diamonds, and it was all proof we lived in a free society in which we were paid what we were worth and couldn't rely on state handouts. Then the minute their scam falls apart, they're straight on to the Government squealing "Can we have a free state handout please, our bank's gone bust." They're like spoilt students who go back to their Dad for more money because they've blown a year's allowance in one week. But this soppy government will go "You already had fifty billion quid, what have you done with that? Well alright, here's another fifty billion we were saving for kidney machines, but this time be careful."

It's so obscene you get comments such as the one yesterday that went "The money men have made fools of us. In the years of their dominance they insisted the markets were the highest judges and must be left to rule. Now the markets are signalling their downfall, they're running sobbing to governments and taxpayers, begging for our money."

And that piece of class-hatred came from Max Hastings in the Daily Mail. Because the explanation for the current crash from people like that is they were right to demand an unregulated free market, as society could only be run efficiently if the world's finances were put in the hands of these bankers. But then it turned out these bankers were more interested in their private wealth than in the good of society as a whole – and fair's fair, no one could possibly have anticipated that.

So, as Gordon Brown has become so friendly with Thatcher, maybe he can put her to use. He should tell her she's about to make a speech at the Conservative conference, but fill the room with city executives, who'll be told "You can't go on paying yourselves more than you earn. We can't allow those who can't stand on their own two feet to sponge off the state."

Then they should all be sent down the job centre. At first they'll complain "There's nothing for me in there. I trained for two whole hours to get my qualifications as a parasite and there's no parasite jobs going at the moment anywhere." Then, just as people who claimed benefits when they were working have to pay the money back, all the bonuses they received for boosting their company's shares will have to be returned, now the shares are worthless. And if they haven't got it they should be herded into a new social category called "pension slaves", in which they spend the rest of their lives doing errands for all the people whose pensions they've ruined.

Instead the politicians and businessmen will all join together in saying: "It seems that everything we've been saying for 30 years has turned out to be shite. In these circumstances, it is imperative that those people who became immensely rich out of creating this shite should be compensated heavily. It is also of great importance than we pay no attention to anyone who warned us this was bound to end in shite, as the only people trustworthy to get us out of it are those that put us in it. Carry on everyone."

(Bolds mine)

Source

 

[Mythopoeika]

Expect crime to rise as more and more people use their mattresses to store money...

 

[wembley8]

Wow, Jeremy Clarkson is more impressively ignorant than usually. Not just ignorant mind - wilfully ignorant.

Fannie Mae is the popular name for the US Federal National Mortgage Association (from it's initials FNMA). It's been around since 1938 and the secondary mortgage market has been doing very nicely for the last 70 years. It's not a 'mysterious organisation'.

It's got nothing to do with Britain - except that it's another victim of the sub-prime mortgage disaster and we're all getting clobbered by the same effects.

The joke of course is on us - Clarkson probably wrote his column ion less time than it's taken me to write this, and will have been paid several thousand pounds for it. Now where's the econimic sense in that??

 

[rynner2]

The joke of course is on us - Clarkson probably wrote his column ion less time than it's taken me to write this, and will have been paid several thousand pounds for it. Now where's the econimic sense in that??

Clarkson's piece was just a humourous intro to a car review - you're not meant to take it seriously!

(Even so, he did sum the situation up in fewer words than most other columnists. 8) )

 

[Ginando]

I am confused. The price of oil went up to $140+ dollars a barrel and petrol prices went up straight away to mirror each increase. The price then drops to less than $100 per barrel, but petrol doesn't fall correspondingly, well a token drop of a couple of pence. The oil companies say this is because they had to buy stocks at the high price and while the dollar was strong so they have to carry on passing on the increased prices. Where I am confused is that the dollar has dropped, and the price of oil has gone up today to about $116 per barrel, but still well below the previous highs yet we are being told petrol prices will have to rise!!

The cynic in me wonders if we are being ripped off, but surely the oil companies and the government wouldn't do that.....would they?

 

[Stormkhan]

Yes, the petrol companies will happily increase their prices; the fluctuations of the price of crude is a traditional excuse.

They have shareholders to please ... which takes precedence over the "ordinary" consumer.

 

[ramonmercado]

Full text at link.

The great crash of 2008
by James Buchan

14 comments Print version Listen RSS The world's financial institutions are gripped by fear, yet policymakers can do nothing. They are ignorant of how banks now work and have to take poacher-turned-gamekeeper Henry Paulson at his word

Of all the phantoms conjured from the financial depths in the past ten days, the most ghastly appeared on the dark Wednesday, 17 September, when interest on the short-term obligations of the United States government, the one-month Treasury bill, turned negative and became a penalty. Such terror had overtaken the markets that they were willing to suffer a loss on their money in the hope that, in the deep bosom of the US Treasury, some of it would be kept safe.

Yet the terror of that day was not just to do with loss: money lost, job gone, wife fled, house foreclosed, sailboat beached. It was an elemental panic, such as overran the financial markets on 19 October 1987, the day the Dow Jones Industrial Average fell 23 per cent. It was a recognition that the world is not as we have been told and that the conception of value that lies at the root of modern society is, and has always been, a fiction.

In this panic, there is no reality in the sense of actual existence to prices and Lehman Brothers Holdings can be worth $15bn on Monday and nothing at the weekend. The world is held together only by instances of agreement between two or more people. It is an education that everybody should pass through, and my generation has done so twice, in 1987 and 2008. It is as if the gods of financial markets have been reading Hegel, and learnt that "through repetition, that which at the beginning appeared as merely accidental or possible, is confirmed as a reality".

http://www.newstatesman.com/business/20 ... son-public

 

[rynner2]

Credit crunch banker leaps to his death in front of express train
By Christopher Leake
Last updated at 11:06 PM on 27th September 2008

The City was in shock last night after the apparent suicide of a millionaire financier haunted by the pressures of dealing with the credit crunch.

Kirk Stephenson, who was married with an eight-year-old son, died in the path of a 100mph express train at Taplow railway station, Berkshire.
Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world’s financial markets went into meltdown.

The death of the respected 47-year-old City figure evokes memories of the 1929 Wall Street crash in America and comes as:
• Bradford & Bingley teeters on the brink of nationalisation after a dramatic share price slump.
• David Cameron faced embarrassment on the eve of the Tory conference after members of a secretive club of Conservative donors were linked to the ‘short-selling’ of Bradford & Bingley.
• Gordon Brown was wrongfooted by Shadow Chancellor George Osborne, who announced plans to set up an independent watchdog to police the Treasury and strip it of key powers if the Conservatives win the next Election.

New Zealand-born Mr Stephenson, who owned a £3.6million, five-storey house in Chelsea and a retreat in the West Country, was chief operating officer of Olivant Advisers.
Last year, the private equity firm tried to buy a 15 per cent stake worth almost £1billion in Northern Rock before the bank was nationalised, bidding against Virgin boss Sir Richard Branson.

http://www.dailymail.co.uk/news/article ... train.html

 

[rynner2]

Democracy in action - even if the two main parties have different agendas...

House votes down bail-out package

The lower house of the US Congress has voted down a $700bn (£380bn) plan aimed at bailing out Wall Street.

The rescue plan, a result of tense talks between the government and lawmakers, was rejected by 228 to 205 votes in the House of Representatives.

About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Shares on Wall Street plunged within seconds of the announcement, after earlier falls on global markets.

A White House spokesman said that President George W Bush was "very disappointed" by the result.

He would meet members of his team in the coming days to "determine next steps", spokesman Tony Fratto said.

The BBC's Adam Brookes, in Washington, said Democratic leaders in the House were likely to try and convince a number of their members who voted against the bill to change their minds in coming days.

Speaking after the vote, Republican leaders in the House of Representatives suggested the Democrats were to blame, accusing them of failing to mobilise their majority in the chamber.

Democratic presidential candidate Barack Obama spoke shortly after the vote, saying it was an outrage that ordinary people were being asked to clean up Wall Street's mess.

Impassioned debate

Speaking ahead of the vote, Mr Bush had argued that the bail-out plan was a "bold" one which he was confident would restore strength and confidence to the US economy.

But after a several hours of impassioned debate, the bill's opponents - the majority of whom were from the Republican Party - got their way.

They had raised concerns about both the content of the plan and the speed with which they were being asked to pass it.

Some agreement on issues such as oversight, greater protection for taxpayers and curbs on executive bonuses had been reached in fraught weekend talks.

But these concessions ultimately failed to persuade many lawmakers that the plan was in the best interests of the nation.

The vote came as banks failed in the US, Europe and the UK.

The fourth largest US bank, Wachovia, is being bought by Citigroup after becoming the latest to hit problems.

In Europe, Benelux giant Fortis was bailed out by three governments, while in the UK the Bradford & Bingley bank was nationalised.

The US Federal Reserve, the European Central Bank and eight other central banks announced further moves to combat the crisis, by making a further $330bn available to provide liquidity to global money markets.

http://news.bbc.co.uk/1/hi/business/7641733.stm

 

[rynner2]

Why propping up banks will not rescue a debauched financial system
Confession time. As 228 Representatives in Congress voted against Hank Paulson’s bail-out plan on Monday, I was cheering them on.

By Jeff Randall
Last Updated: 4:28PM BST 01 Oct 2008

At last, there were public figures prepared to reject the political and financial blackmail of a debased White House-Wall Street elite.

This is an unfashionable view; it runs counter to The Daily Telegraph’s editorial line. But the hard-sell of President Bush and the US Treasury Secretary felt too much like the pressure patter of a door-to-door hawker. Their message was crude: “Trust us. You are in a terrible place. Only we can get you out of this mess. No need to check the details. Hurry now, or it will be too late. Here’s a pen. There’s the dotted line. Just sign.”

But with the President’s ratings so low, few would let him leave the House with anything more than small change. Congress asked, not unreasonably: “If you guys know so much about banking, how come we are in such trouble?” 8)

Having spent most of the year telling America, contrary to mounting evidence, that the US economy was just dandy, Mr Bush’s credibility is threadbare. When making statements, he’s beginning to look as if he doesn’t even believe himself. As for Mr Paulson, his long association with the jackpot culture of Goldman Sachs is, in the eyes of many outsiders, a gilded millstone.

Predictably, the refuseniks have been pilloried as ill-informed nihilists. They have been lambasted for failing to understand the consequences of their actions. They are, according to the Big Bail-out Brigade, condemning the rest of us to be buried alive in the rubble of a disintegrating banking system.

Try a different take. Yes, the West’s financial infrastructure is in severe distress. Yes, more banks are going to crumble. Yes, there will be a recession. But allocating $700bn (it would almost certainly turn out to be more) to a clean-up programme for toxic assets, in effect socialising the poison of private greed, has no merit other than to delay the inevitable. No amount of federal cash can rewind the X-rated horror video.

There is a conspiracy of bankers and politicians whose self-interest is masquerading as sophisticated policy. They want us to believe that they have the keys to salvation. I have not seen a scrap of evidence to confirm this.

There will, of course, be a renewed effort in Washington to push through a package of national deliverance. Concessions will be made. The US taxpayer will be offered improved terms. And, having made their point, having stood up for “traditional American values”, some of the naysayers in the House of Representatives will cross over, enabling a deal to be done. Their consciences will be salved, but the crisis will not be solved.

Meanwhile, in Britain, the ban on short-selling bank shares has done nothing to make them more attractive to investors. Having blamed hedge funds for driving down the price of supposedly healthy businesses, officials must be at a loss to explain why bank shares keep falling.

Halifax-Bank of Scotland dropped another 14pc yesterday to 122p. There is now a yawning gap, about £3bn, between the offer made by Lloyds TSB and HBOS’s stock market capitalisation. This is the share price’s way of telling us that it doesn’t think the takeover is going to happen.

Both boards insist the deal will go ahead, but shareholders may have other ideas. Which is a shame, because the creation of Lloyds-TSB-HBOS would help perform the much-needed service of consolidating a bloated industry, clearing out thousands of unwanted bankers, and ridding our high streets of too many branches. It baffles me that we’re closing Post Offices (2,500 out of 14,000 to go) and yet we have a multiplicity of banks.

I recently visited Kingston-upon-Thames, where there is a blight of banks in the centre. On one street alone, there were five or six. I checked online and discovered that in this one wealthy town there are three Barclays, two HSBCs, plus branches of Royal Bank of Scotland, Halifax, Cheltenham & Gloucester, Alliance & Leicester, Northern Rock, Bradford & Bingley, Lloyds TSB, Co-operative Bank, Abbey, NatWest, Household Bank, and Beneficial Finance – I may have missed a couple.

This, perhaps, will surprise you, but traditional banking – collecting retail deposits and making loans to ordinary customers – is barely profitable. Compared with the potential gains from a day at the currency-swap races, or a night in the derivatives casino, current accounts are cold potatoes. That is why bonus-hungry executives, at what we used to think of as boring banks, were so keen to spin the red-hot wheel of fortune. :shock:

In these troubled times, protecting customers, especially depositors, is the right thing to do. The Government should extend the guarantee it has given to Northern Rock to all bank deposits. Beyond that, however, Britain’s over-banked economy needs a Malthusian cull.

http://www.telegraph.co.uk/finance/comm ... ystem.html

 

[rynner2]

Financial crisis: Iceland's dreams go up in smoke
What a difference a year makes. Only last November, Iceland's status as one of the most successful economies in the West was underlined when it was judged the best place to live in the world.

By Andrew Pierce
Last Updated: 10:54PM BST 06 Oct 2008

Iceland had ousted Norway from the head of the UN's league table of 177 countries that compared per-capita income, education, health care and life expectancy – which, at 80.55 years for males, was third highest in the world.

This was only one in a string of glowing assessments of a country (population 313,000) which had pulled off a modern-day economic miracle. No wonder they are also said to be the happiest people on the planet. The inhabitants of this newly discovered Utopia, with its much-admired free health and education systems, bought the most books, owned most mobile telephones per head, and included the highest proportion of working women in the world.

Iceland had also presided over the fastest expansion of a banking system anywhere in the world. Little did anyone know that the expansion once so admired would go on to saddle the country with liabilities in excess of $100 billion – liabilities that now dwarf its gross domestic product of $14 billion.

Iceland overreached itself in spectacular fashion, and the party is coming to a messy end.

Yesterday, trading in the shares of six major financial institutions was suspended as the government sought to avert meltdown.

Sigurdur Einarsson, Chairman, Kaupthing Bank, warned against people being too alarmist.

"Over the years we have built a strong and well-diversified bank. We have some of the strongest capital ratios in the European bank sector. We've got good asset quality and a highly diversified loan portfolio.

Kaupthing has and continues to manage its business prudently and, with our strong fundamentals, we are naturally concerned when we hear malicious rumours and sensationalism about Kaupthing being reflected irresponsibly. We ask people to look at the facts, not rumour and inuendo."

Meanwhile, Icelandic interest rates have been catapulted to 15.5 per cent, peaks not seen in Britain since Black Wednesday, in an attempt to rein in inflation. The krona's freefall on the international currency markets is surpassed only by the catastrophic failure of Zimbabwean currency. :shock:

One of the country's three banks, Glitnir, has been nationalised; another wants money from its customers. Foreign currency is running out as international banks refuse pleas to lend money.

No longer smiling, office workers hurry home wondering out loud if they will have jobs to go to by the end of the week. Car showrooms are deserted. Estate agents are closing early. There are few takers for the thousands of unsold houses on their books. An unexpected cold spell is keeping many people inside their homes, another reason why the shops, many of which have discount sales, are quiet.

The speed with which Iceland rose and then fell to earth has bewildered not just the islanders but also Geir Haarde, the Prime Minister who has spent the past four days locked away with his advisers in Reykjavik. He emerged on Monday to announce new powers for the country's financial regulator:

"We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy. The legislation is necessary to avoid that fate."

The dramatic change in Iceland, from the poor relation of Europe to one of its wealthiest and apparently most successful, and now back again, dates from the mid-1990s with the privatisation of the banks and the founding of the country's Stock Exchange.

etc...

http://www.telegraph.co.uk/finance/fina ... smoke.html