Big changes are in store for European banks after the latest round of bailouts were announced. In the long term, it could mean more EU-wide regulation. Recent days have seen European governments galloping to the rescue of struggling banks, approving mergers and announcing billion-euro bailouts. In the process, they've threatened to ride roughshod over the European Union's strict limits on state aid to the private sector. That is the view of Neelie Kroes, the commissioner in charge of competition for the EU, who used the Wild West analogy in a sharply-worded speech in Brussels on Monday, Oct. 13. An anything-goes atmosphere would be a "recipe for chaos," Kroes warned. Yet it's unlikely that Europe's financial crisis will turn into a Spaghetti Western. In the long run, the banking crisis will likely mean more unity in Europe's financial sector, say leading economists and EU banking experts.
Recent days have seen European governments galloping to the rescue of struggling banks, approving mergers and announcing billion-euro bailouts. In the process, they've threatened to ride roughshod over the European Union's strict limits on state aid to the private sector.
That is the view of Neelie Kroes, the commissioner in charge of competition for the EU, who used the Wild West analogy in a sharply-worded speech in Brussels on Monday, Oct. 13. An anything-goes atmosphere would be a "recipe for chaos," Kroes warned.
Yet it's unlikely that Europe's financial crisis will turn into a Spaghetti Western. In the long run, the banking crisis will likely mean more unity in Europe's financial sector, say leading economists and EU banking experts.
EUOBSERVER / BRUSSELS - As EU governments put aside hundreds of billions of euros in rescue plans to shore up their financial sector, the European Commission has tabled fresh guidelines so that the union's economy does not "descend into chaos." According to the rulebook published on Monday (13 October), the commission recognises that member states may consider it necessary to adopt appropriate measures to safeguard the stability of the financial system. Competition rules are needed even in time of crisis, the commission says But such measures, it says, may not result in unnecessary distortions of competition between financial institutions operating in the market or negative spillover effects on other member states. "A jungle is what we would get if we suspended or abandoned competition policy," EU competition commissioner Neelie Kroes said on Monday, according to Reuters.
EUOBSERVER / BRUSSELS - As EU governments put aside hundreds of billions of euros in rescue plans to shore up their financial sector, the European Commission has tabled fresh guidelines so that the union's economy does not "descend into chaos."
According to the rulebook published on Monday (13 October), the commission recognises that member states may consider it necessary to adopt appropriate measures to safeguard the stability of the financial system.
Competition rules are needed even in time of crisis, the commission says
But such measures, it says, may not result in unnecessary distortions of competition between financial institutions operating in the market or negative spillover effects on other member states.
"A jungle is what we would get if we suspended or abandoned competition policy," EU competition commissioner Neelie Kroes said on Monday, according to Reuters.
In a violent swerve away from the laissez-faire capitalism that has underpinned Western society for the past three decades, EU states on Monday (13 October) outlined the details of a historic state bail-out of Europe's financial sector. The total size of the rescue promise remains fuzzy, with newspapers across the continent totting up the the mind-boggling sums announced in slightly different ways. The sums come close to the annual budgets of some countries But Europe has so far announced the release of around €2 trillion to save banks from collapse in the biggest government intervention in markets since the creation of the post-war welfare state. On Monday afternoon, the governments of Austria, France, Germany, the Netherlands and Spain unveiled bail-out packages that hovered near the annual public spending budgets of the countries involved.
In a violent swerve away from the laissez-faire capitalism that has underpinned Western society for the past three decades, EU states on Monday (13 October) outlined the details of a historic state bail-out of Europe's financial sector.
The total size of the rescue promise remains fuzzy, with newspapers across the continent totting up the the mind-boggling sums announced in slightly different ways.
The sums come close to the annual budgets of some countries
But Europe has so far announced the release of around €2 trillion to save banks from collapse in the biggest government intervention in markets since the creation of the post-war welfare state.
On Monday afternoon, the governments of Austria, France, Germany, the Netherlands and Spain unveiled bail-out packages that hovered near the annual public spending budgets of the countries involved.
Oh no, here comes DoDo. I see this one coming a mile away. In the end, might makes right. Nothing has changed since the caveman.
Are the banks safe? A lot safer than they were. The state owns Bradford & Bingley and Northern Rock, partially owns the Royal Bank of Scotland and the soon-to-be-merged Lloyds TSB/HBOS group. They should be more confident about lending to each other. Will it be easier to get a mortgage now? it ought to be. The part-nationalised banks are committed to returning to 2007 levels of lending. New mortgages are at only 30 per cent of last year's levels, so something had to be done. We'll see big cuts in interest rates too. What will it mean for staff? It is hard to see the Government pushing for redundancies to cut costs. Some jobs may be lost anyway but in a slow, orderly fashion. What about the fat cats? No bonuses this year and future bonuses will be paid in shares. Packages for traders and top execs should be restructured to align them with the consequences of their actions.
Are the banks safe?
A lot safer than they were. The state owns Bradford & Bingley and Northern Rock, partially owns the Royal Bank of Scotland and the soon-to-be-merged Lloyds TSB/HBOS group. They should be more confident about lending to each other.
Will it be easier to get a mortgage now?
it ought to be. The part-nationalised banks are committed to returning to 2007 levels of lending. New mortgages are at only 30 per cent of last year's levels, so something had to be done. We'll see big cuts in interest rates too.
What will it mean for staff?
It is hard to see the Government pushing for redundancies to cut costs. Some jobs may be lost anyway but in a slow, orderly fashion.
What about the fat cats?
No bonuses this year and future bonuses will be paid in shares. Packages for traders and top execs should be restructured to align them with the consequences of their actions.
To calm the financial panic, the British government has stepped in to save three major banks. So far, the markets like the news. British Prime Minister Gordon Brown's reputation has improved through his handling of the financial crisis. Hoping to stem financial meltdown and avoid a deep recession, the British government on Oct. 13 moved to take stakes in three of the five largest British banks at a cost of $62.5 billion (€45.7 billion). So far, Royal Bank of Scotland, Lloyds TSB, and HBOS have agreed to take government funding, while Barclays continues to resist. The move was part of a three-point British plan that also includes a $338 billion Bank of England facility to boost liquidity and up to $422 billion in possible guarantees for interbank lending. At this point the news has been well-received by the markets, which had been under relentless selling pressure. The benchmark FTSE 100 index ended the day up nearly 8.3 percent, though shares of the three banks opting for government ownership were all down. HBOS was hardest hit, falling about 27 percent on news that Lloyds TSB would be lowering an outstanding offering price to take over the mortgage lender.
To calm the financial panic, the British government has stepped in to save three major banks. So far, the markets like the news.
British Prime Minister Gordon Brown's reputation has improved through his handling of the financial crisis. Hoping to stem financial meltdown and avoid a deep recession, the British government on Oct. 13 moved to take stakes in three of the five largest British banks at a cost of $62.5 billion (€45.7 billion). So far, Royal Bank of Scotland, Lloyds TSB, and HBOS have agreed to take government funding, while Barclays continues to resist. The move was part of a three-point British plan that also includes a $338 billion Bank of England facility to boost liquidity and up to $422 billion in possible guarantees for interbank lending.
At this point the news has been well-received by the markets, which had been under relentless selling pressure. The benchmark FTSE 100 index ended the day up nearly 8.3 percent, though shares of the three banks opting for government ownership were all down. HBOS was hardest hit, falling about 27 percent on news that Lloyds TSB would be lowering an outstanding offering price to take over the mortgage lender.
The United States is expected to announce Tuesday it will invest in top banks and thousands of others in a partial nationalization of the finance sector that mirrors British Prime Minister Gordon Brown's plan. Meanwhile, European governments are moving forward with similar bailouts. Washington is now hopping on the European bandwagon by partially nationalizing banks to rescue Wall Street. Henry Paulson is first expected to announce his new plan to solve the credit crisis on Tuesday, but details that the United States Treasury Secretary is planning to shift his strategy to combat the financial crisis began leaking on Monday night. According to reports in the Washington Post and Wall Street Journal, the Bush administration is planning to use much of the money provided in the first tranche of the Congressional bailout package to make direct government investments in US banks. According to the papers, Washington is planning to invest $250 billion in the banks, forcing nine of the country's biggest banks to accept Treasury Department stakes. The Wall Street Journal reports that stakes in "possibly thousands of other banks" are expected. The paper also claims that "some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure" from Paulson. The "extreme steps," the paper writes, would "intertwine the banking sector with the federal government for years to come."
The United States is expected to announce Tuesday it will invest in top banks and thousands of others in a partial nationalization of the finance sector that mirrors British Prime Minister Gordon Brown's plan. Meanwhile, European governments are moving forward with similar bailouts.
Washington is now hopping on the European bandwagon by partially nationalizing banks to rescue Wall Street.
Henry Paulson is first expected to announce his new plan to solve the credit crisis on Tuesday, but details that the United States Treasury Secretary is planning to shift his strategy to combat the financial crisis began leaking on Monday night. According to reports in the Washington Post and Wall Street Journal, the Bush administration is planning to use much of the money provided in the first tranche of the Congressional bailout package to make direct government investments in US banks.
According to the papers, Washington is planning to invest $250 billion in the banks, forcing nine of the country's biggest banks to accept Treasury Department stakes. The Wall Street Journal reports that stakes in "possibly thousands of other banks" are expected. The paper also claims that "some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure" from Paulson. The "extreme steps," the paper writes, would "intertwine the banking sector with the federal government for years to come."
U.S. Treasury Said to Invest in Nine Major U.S. Banks | Bloomberg | 13 Oct 2008
Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said. The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment. [...] None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person. The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said. The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment. [...] None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person. The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
FFIEC Diversity is the key to economic and political evolution.
President Bush today confirmed a $250 billion plan for the US Government to buy shares in America's largest banks, insisting that the move was "not intended to take over the free market but to preseve it". Following a model first adopted in Britain last week and copied across the rest of Europe, the partial nationalisation will be accompanied by a series of measures designed to break the credit logjam paralysing lenders. The $250 billion (£142 billion) will come from a $700 billion bailout package already agreed by Congress. "This is an essential short-term measure to ensure the viability of America's banking system," Mr Bush said in a statement from the lawn of the White House. The initial plan for the bailout, negotiated by Hank Paulson, the Treasury Secretary, was for the money to be used to purchase "toxic" sub-prime assets from lenders to allow them to clear up their balance sheets. It quickly became apparent, however, that that might not be enough to end the credit crunch.
President Bush today confirmed a $250 billion plan for the US Government to buy shares in America's largest banks, insisting that the move was "not intended to take over the free market but to preseve it".
Following a model first adopted in Britain last week and copied across the rest of Europe, the partial nationalisation will be accompanied by a series of measures designed to break the credit logjam paralysing lenders.
The $250 billion (£142 billion) will come from a $700 billion bailout package already agreed by Congress. "This is an essential short-term measure to ensure the viability of America's banking system," Mr Bush said in a statement from the lawn of the White House.
The initial plan for the bailout, negotiated by Hank Paulson, the Treasury Secretary, was for the money to be used to purchase "toxic" sub-prime assets from lenders to allow them to clear up their balance sheets. It quickly became apparent, however, that that might not be enough to end the credit crunch.
Germany's state-owned banks are emerging as winners from the financial tumult that has rocked Europe's largest economy and its neighbours in the last two weeks.Sparkasse savings bank and other state-run banks like it are awash in new business since late September, as Germans rush to deposit money where they perceive it will be safest.According to a survey conducted by Bild, deposits at Germany's 16,000 branches of Sparkasse have increased by more than 1bn euros since the financial crisis unfolded two weeks ago. Meanwhile, Haspa, Germany´s biggest savings bank in Hamburg, has recorded fresh deposits of 500m euros.As Chancellor Angela Merkel prepared to announce a 480bn euro rescue package for German banks with around 80bn in fresh capital and 400bn slated as loan guarantees the trend being seized upon by the average German investor was clear."A while ago banks could not be international enough. The only ones that were 'modern' were those that were active on international markets," Michaela Roth, spokesperson for the German Savings Bank Association said.
Sparkasse savings bank and other state-run banks like it are awash in new business since late September, as Germans rush to deposit money where they perceive it will be safest.
According to a survey conducted by Bild, deposits at Germany's 16,000 branches of Sparkasse have increased by more than 1bn euros since the financial crisis unfolded two weeks ago. Meanwhile, Haspa, Germany´s biggest savings bank in Hamburg, has recorded fresh deposits of 500m euros.
As Chancellor Angela Merkel prepared to announce a 480bn euro rescue package for German banks with around 80bn in fresh capital and 400bn slated as loan guarantees the trend being seized upon by the average German investor was clear.
"A while ago banks could not be international enough. The only ones that were 'modern' were those that were active on international markets," Michaela Roth, spokesperson for the German Savings Bank Association said.
I've never understood this desire by 'normal' banks to rush for this model (I understand bankers pushing for it: the bonuses were wild) In the long run, we're all dead. John Maynard Keynes
Sparkasse savings bank and other state-run banks
Except they're not state run.
Sparkassen and Landesbanken (and statutory health insurers and public broadcasters) are so-called "corporations under public law": publicly chartered companies that autonomously perform a public mission. The supervisory boards (quite properly) include representatives from the appropriate level of government, but the organizations are all managed by trained professionals (in Germany, there exists a vocational qualification and a degree program especially for the Sparkassen).
The state has no role in their management.
Also, the Sparkassen are not "state" so much as "municipal" - cities and counties.
It is worth emphasizing that the reason the public-law banking sector has come through the credit crunch largely unscathed is because they have adhered to their mission of providing credit and savings opportunities to small savers and businesses, respectively general economic development in the case of the Landesbanken. The exceptions like WestLB screwed themselves by trying to be high flyers. The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
The German bailout package, presented by Chancellor Angela Merkel on Monday, was unprecedented in size. And, so far at least, it seems to be working. German commentators, though, are skeptical about its long-term prospects. German Chancellor Angela Merkel hopes her bailout plan will nip the financial crisis in the bud. On Monday, Chancellor Angela Merkel unveiled the German contribution to the world wide bailout of financial institutions: €500 billion ($679 billion) in total, including €400 billion in loan guarantees for the country's ailing banks. Underlining the gravity of the crisis, Merkel signalled that she would request that the German parliament expedite its passage of the plan. But, cautious optimism was the order of the day. "We're taking rigorous action to ensure that what we have experienced doesn't get repeated," Chancellor Angela Merkel told reporters. The markets took her at her word: the German blue-chip index, DAX, closed Monday with gains of over 11 percent and on Tuesday saw continued growth. Merkel's bailout plan also elicited an immediate reply from German commentators, who likewise welcomed the news, if with slightly more hesitation than the stock market.
The German bailout package, presented by Chancellor Angela Merkel on Monday, was unprecedented in size. And, so far at least, it seems to be working. German commentators, though, are skeptical about its long-term prospects.
German Chancellor Angela Merkel hopes her bailout plan will nip the financial crisis in the bud. On Monday, Chancellor Angela Merkel unveiled the German contribution to the world wide bailout of financial institutions: €500 billion ($679 billion) in total, including €400 billion in loan guarantees for the country's ailing banks. Underlining the gravity of the crisis, Merkel signalled that she would request that the German parliament expedite its passage of the plan.
But, cautious optimism was the order of the day. "We're taking rigorous action to ensure that what we have experienced doesn't get repeated," Chancellor Angela Merkel told reporters.
The markets took her at her word: the German blue-chip index, DAX, closed Monday with gains of over 11 percent and on Tuesday saw continued growth.
Merkel's bailout plan also elicited an immediate reply from German commentators, who likewise welcomed the news, if with slightly more hesitation than the stock market.
I wonder to what extent it is hers rather than Steinbrück's. *Lunatic*, n. One whose delusions are out of fashion.
Dexia denies market rumour of nationalisation PARIS (Reuters) - Dexia (DEXI.BR: Quote, Profile, Research, Stock Buzz), the multinational bank that received support from the French, Belgian and Luxembourg states earlier this month, on Tuesday denied a market rumour that Belgium was set to nationalise the bank completely. "The chairman of the board and the chief executive deny formally any rumour about nationalisation of the bank by the state of Belgium," a spokesman told Reuters. (...) "Maybe investors are fearing a Fortis-style scenario, but with Dexia its's an entirely different investor community. There are a lot of public bodies with holdings, so they can't just leave them dry. There are a lot of political issues that you cannot put aside," a Brussels-based trader said.
PARIS (Reuters) - Dexia (DEXI.BR: Quote, Profile, Research, Stock Buzz), the multinational bank that received support from the French, Belgian and Luxembourg states earlier this month, on Tuesday denied a market rumour that Belgium was set to nationalise the bank completely.
"The chairman of the board and the chief executive deny formally any rumour about nationalisation of the bank by the state of Belgium," a spokesman told Reuters.
(...)
"Maybe investors are fearing a Fortis-style scenario, but with Dexia its's an entirely different investor community. There are a lot of public bodies with holdings, so they can't just leave them dry. There are a lot of political issues that you cannot put aside," a Brussels-based trader said.
orrowing costs remain high The costs for banks to borrow money from each other remain at highly elevated levels in spite of the global government action taken to cure the paralysis at the heart of the financial system. Stubbornly high interbank lending rates indicate that tensions remain in the money markets even though the US, UK and various European governments have pledged to inject capital directly into banks and guarantee many types of bank debt. Analysts said that while stock markets had rallied and the cost of protecting bank debt against default had tumbled by record amounts in the US, it would take time for the reduced costs of what is in effect government-sponsored funding to show through. Three-month Libor, the most important interbank lending rate that is used to price loans, derivatives and many other kinds of financial products, has barely moved in sterling markets, which have had full details of the UK government guarantee since Monday morning.
The costs for banks to borrow money from each other remain at highly elevated levels in spite of the global government action taken to cure the paralysis at the heart of the financial system.
Stubbornly high interbank lending rates indicate that tensions remain in the money markets even though the US, UK and various European governments have pledged to inject capital directly into banks and guarantee many types of bank debt.
Analysts said that while stock markets had rallied and the cost of protecting bank debt against default had tumbled by record amounts in the US, it would take time for the reduced costs of what is in effect government-sponsored funding to show through.
Three-month Libor, the most important interbank lending rate that is used to price loans, derivatives and many other kinds of financial products, has barely moved in sterling markets, which have had full details of the UK government guarantee since Monday morning.
banks now have the interesting PR challenge of persuading the average shmoe that though they don't trust each other, we should still trust them, at the same time as our hard won savings are tanking...
crank up the lie-factory, bernays to the rescue!
well the scam worked great so far...paulson still has his skin, and if the banks want more, well, we'll have to give it them, because we wouldn't want the apocalypse, would we now, hint hint nudge nudge..
'politicians, we pay you to face the crowds...that's why we're bankers after all, we leave the spotlight to you who love power but are too dumb to be bankers, like us, heh heh, _do collect as money as possible as you pass GO, cigars all round.
charles, warm up the copter, we may have to make a rooftop escape tonight, when those suckers run out of bailout money there'll be no more bones to pick here, and it sure ain't our heads that will end up on pikes, cuz we're gone, like a warm bahamian breeze' ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
(counterfeit because the money was created through credit by skirting banking regulation and thus making the central banks lose control of monetary policy: it's money that should have never existed) A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Reinhart Cotton Losses May Force Sale After Trading Cash Crunch By Yi Tian Oct. 14 (Bloomberg) -- Paul Reinhart Inc., one of the biggest U.S. cotton merchants, told farmers last month it faced a ``severe liquidity crisis'' after suffering ``significant losses'' when futures prices jumped to a 12-year high in March. An ``unexpected, historic run-up'' in cotton led to margin calls on futures contracts, stripping the company of ``virtually all available cash,'' R. Dale Grounds, president of Richardson, Texas-based Reinhart, said in a Sept. 23 letter sent to farmers. In the six days ended March 5, cotton jumped 15 percent, prompting a government probe of potential market manipulation. -Skip- Cotton traded on ICE Futures U.S. jumped as high as 92.86 cents a pound on March 5, the highest for a most-active contract since September 1995. U.S. Commodity Futures Trading Commission Chairman Walt Lukken said June 3 the agency was investigating the surge. -Skip- The dispute involves more than 400,000 bales of cotton to be harvested this year in Arkansas, Mississippi and Missouri, and may lead to $60 million in market-value losses, Ward said in a telephone interview on Oct. 6. Reinhart agreed to buy about 300,000 bales of the cotton for about 85 cents a pound under sales booked from December 2007 to February 2008, Ward said. Cotton closed Oct. 10 at 49.44 cents on ICE Futures in New York. Reinhart failed to make the payment after producers in South Texas submitted invoices and made the delivery, Jonathan Rowe, a vice president at East Cotton, alleged.
Oct. 14 (Bloomberg) -- Paul Reinhart Inc., one of the biggest U.S. cotton merchants, told farmers last month it faced a ``severe liquidity crisis'' after suffering ``significant losses'' when futures prices jumped to a 12-year high in March.
An ``unexpected, historic run-up'' in cotton led to margin calls on futures contracts, stripping the company of ``virtually all available cash,'' R. Dale Grounds, president of Richardson, Texas-based Reinhart, said in a Sept. 23 letter sent to farmers. In the six days ended March 5, cotton jumped 15 percent, prompting a government probe of potential market manipulation.
-Skip-
Cotton traded on ICE Futures U.S. jumped as high as 92.86 cents a pound on March 5, the highest for a most-active contract since September 1995. U.S. Commodity Futures Trading Commission Chairman Walt Lukken said June 3 the agency was investigating the surge.
The dispute involves more than 400,000 bales of cotton to be harvested this year in Arkansas, Mississippi and Missouri, and may lead to $60 million in market-value losses, Ward said in a telephone interview on Oct. 6. Reinhart agreed to buy about 300,000 bales of the cotton for about 85 cents a pound under sales booked from December 2007 to February 2008, Ward said. Cotton closed Oct. 10 at 49.44 cents on ICE Futures in New York.
Reinhart failed to make the payment after producers in South Texas submitted invoices and made the delivery, Jonathan Rowe, a vice president at East Cotton, alleged.
Will they be held responsible: No.
Brokers chasing CFTC returns | NYT | 5 June 2008
"Farmland can be a bubble just like Florida real estate," said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. "The cycle of getting in and out would be very volatile and disruptive." By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. "I just wonder if they need some sheep's clothing to put on," Mr. Hainline said. Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. "It is important to ask whether these financial investors want to actually operate the means of production -- or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation," he said. Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities. When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market. "It's a huge disadvantage to not be able to trade the physical commodity," said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis. Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain. "We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors," he said. The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers. "The world is asking for more food, more energy. You see a huge demand," said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments. "What this new investment will buy is more technology," Mr. Hinsch said. "We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply." Financial investors also can provide grain elevator operators the money they need to weather today's more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports. Maintaining these essential services "helps bring costs down to the farmers," Mr. Duryea said. "That has to help mitigate the price increases for crops." Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially. "It is not in our best interests for anyone to be negatively affected by what we do," he said.
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. "I just wonder if they need some sheep's clothing to put on," Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. "It is important to ask whether these financial investors want to actually operate the means of production -- or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation," he said.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
"It's a huge disadvantage to not be able to trade the physical commodity," said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.
"We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors," he said.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
"The world is asking for more food, more energy. You see a huge demand," said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
"What this new investment will buy is more technology," Mr. Hinsch said. "We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply."
Financial investors also can provide grain elevator operators the money they need to weather today's more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.
Maintaining these essential services "helps bring costs down to the farmers," Mr. Duryea said. "That has to help mitigate the price increases for crops."
Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially. "It is not in our best interests for anyone to be negatively affected by what we do," he said.
I saved it, because the news is a contra-cyclical benchmark. As institutionals' managers and speculators withdraw from futures, surplus capital will flow into intermediary assets --subject to profit maximizing expectations-- will contribute to increasing PPI in commodities. Much volatility in (real) CPI-U will result from competition to sell-off inventory, if the feds don't regulate producers' pools, i.e. price fixing.
Same as it ever was: Excess production (exaccerbated by agri-corp market share and E8-policy misallocation) demanding abnormal profit subsidy despite monopoly "scale efficiencies". Diversity is the key to economic and political evolution.
"It is important to ask whether these financial investors want to actually operate the means of production -- or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation," he said.
The euphoria that swept Wall Street on Monday gave way to a sober reality on Tuesday: a recession, perhaps the deepest one in decades, may be unavoidable. A day after the stock market staged one of its biggest rallies in history, buoyed by the government's plan to rescue banks, investors retreated once again. Worries about the economy came to the fore. Many people fear that corporations -- and by extension their workers and shareholders -- will face harder times in the months ahead. "Everything the government has done is not going to prevent further deterioration in the economy," said Stuart Hoffman, chief economist at PNC Bank. "At the end of all this, what matters is what the economy does."The flow of credit, which has been choked for weeks, began to trickle through the financial system on Tuesday. But the credit markets remained shut to many companies and municipalities. Home mortgage rates, which some had hoped might decline once the government's plans became clear, rose instead. The fear is that the financial rescue will add to an already-swelling federal budget deficit and force the Treasury to borrow heavily in the capital markets.
The euphoria that swept Wall Street on Monday gave way to a sober reality on Tuesday: a recession, perhaps the deepest one in decades, may be unavoidable.
A day after the stock market staged one of its biggest rallies in history, buoyed by the government's plan to rescue banks, investors retreated once again. Worries about the economy came to the fore. Many people fear that corporations -- and by extension their workers and shareholders -- will face harder times in the months ahead.
"Everything the government has done is not going to prevent further deterioration in the economy," said Stuart Hoffman, chief economist at PNC Bank. "At the end of all this, what matters is what the economy does."
The flow of credit, which has been choked for weeks, began to trickle through the financial system on Tuesday. But the credit markets remained shut to many companies and municipalities. Home mortgage rates, which some had hoped might decline once the government's plans became clear, rose instead. The fear is that the financial rescue will add to an already-swelling federal budget deficit and force the Treasury to borrow heavily in the capital markets.
I bet there was a secret meeting: "We can issue everyone a new credit card, everyone, and convince them to borrow on it up to 2,500 dollars or euros or pounds, perhaps even mandate it. The condition would be that the money could only be used to buy bank and security company stock...but a new issue of a new type of stock that has no voting rights, and no rights to any profit should any profit be left after the main stockholders (hereinafter known as TheGreedyFatBastards) sucked the new infusion dry...or, we can convince the governments to do the same without all the costs of sending out the cards and the papers and getting everyone to sign."
And now we are told by this amazingly sharp newspaper that nothing got fixed and therefore a recession is still imminent, and the war and the GreedyRatBastards are still sucking our CommonWealth away. This person deserves a Pulitzer. Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
Record deficits surpassing even the wildest mental drooling of his mentor Ronnie Raygun, he of the 10 billion a year never-working boondoggle named StarWars.
Together they killed an empire, but gave their financiers so, so much. They even figured out how to profit off the nickel cigars and the wars they threw as circuses.
I'd say, RIP, but I don't want to be snarky. Never underestimate their intelligence, always underestimate their knowledge.
