Iceland's Nordic neighbors and the International Monetary Fund (IMF) have agreed loans of over two billion euros to keep the North Atlantic island nation afloat after the credit crunch laid waste to its banking sector. The executive board of the IMF approved a two-year $2.1 billion (1.6 billion-euro) loan to Iceland to "restore confidence and stabilize the economy," the IMF announced on Wednesday, Nov. 19. The fund said it approved the stand-by arrangement -- structured so that Iceland can immediately draw about $827 million, with the rest in eight installments of about $155 million -- to stabilize a "banking crisis of extraordinary proportions." The global financial crisis sparked the collapse of three of Iceland's major banks and a rapid depreciation of the crown and the nation is facing a severe recession through 2010, the fund said in a statement.
The executive board of the IMF approved a two-year $2.1 billion (1.6 billion-euro) loan to Iceland to "restore confidence and stabilize the economy," the IMF announced on Wednesday, Nov. 19.
The fund said it approved the stand-by arrangement -- structured so that Iceland can immediately draw about $827 million, with the rest in eight installments of about $155 million -- to stabilize a "banking crisis of extraordinary proportions."
The global financial crisis sparked the collapse of three of Iceland's major banks and a rapid depreciation of the crown and the nation is facing a severe recession through 2010, the fund said in a statement.
The global financial crisis could present the international community with the chance to lay aside the recent tensions that have emerged with Russia, World Bank chief Robert Zoellick said in a speech delivered in Berlin. "Relations with Russia have been strained in recent years," Zoellick told an audience at Berlin's Humboldt University on Wednesday, Nov. 19. "Today's financial crisis could be an opportunity to develop sounder economic relations that might be a foundation, with Russia's help, to build co-operation in solving common problems," said Zoellick. The World Bank chief also stepped up his call for the international community to take action to recognize the growing economic power of the world's leading emerging economies such as Russia and China.
"Relations with Russia have been strained in recent years," Zoellick told an audience at Berlin's Humboldt University on Wednesday, Nov. 19.
"Today's financial crisis could be an opportunity to develop sounder economic relations that might be a foundation, with Russia's help, to build co-operation in solving common problems," said Zoellick.
The World Bank chief also stepped up his call for the international community to take action to recognize the growing economic power of the world's leading emerging economies such as Russia and China.
MOSCOW: Russian Prime Minister Vladimir Putin promised Thursday the country would emerge stronger from a world economic crisis he said had been triggered by U.S. recklessness. Putin said the global financial system had made the crisis "impossible to avert." "Cheap money doping and mortgage troubles in the United States have caused a real chain reaction, paralyzed the global financial system and brought global distrust to the market," Putin said, addressing a meeting of United Russia, the dominant pro-Kremlin party he leads. The prime minister said Russia had prepared for the crisis in advance through economic growth and abundant currency reserves -- benefits of the oil-driven economic boom during his eight-year presidency. But he acknowledged that "low diversification of the national economy, its low efficiency and the insufficient development of the financial system" made Russia's economy "extremely dependent on global factors."
MOSCOW: Russian Prime Minister Vladimir Putin promised Thursday the country would emerge stronger from a world economic crisis he said had been triggered by U.S. recklessness.
Putin said the global financial system had made the crisis "impossible to avert."
"Cheap money doping and mortgage troubles in the United States have caused a real chain reaction, paralyzed the global financial system and brought global distrust to the market," Putin said, addressing a meeting of United Russia, the dominant pro-Kremlin party he leads.
The prime minister said Russia had prepared for the crisis in advance through economic growth and abundant currency reserves -- benefits of the oil-driven economic boom during his eight-year presidency.
But he acknowledged that "low diversification of the national economy, its low efficiency and the insufficient development of the financial system" made Russia's economy "extremely dependent on global factors."
Prime Minister Vladimir Putin's speech to a congress of the United Russia party surely surprised many members of the commentariat. Putin went into great detail about how the global financial crisis is impacting Russia. Of course, the commentariat tells you the Russian government is afraid to do this and bars media from saying otherwise. In his wide ranging speech, Putin covered in great detail the main economic and financial problems facing the country and what the government was doing about it. As things stand now, Russia is in for at least two lean years to come. However, Russia is far better prepared to deal with this crisis than most countries. There will be no shortage of pain, but this time round the state has the political will and resources to cushion the blow.
As things stand now, Russia is in for at least two lean years to come. However, Russia is far better prepared to deal with this crisis than most countries. There will be no shortage of pain, but this time round the state has the political will and resources to cushion the blow.
The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more. As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers -- many of them the very sorts of firms that helped create the current financial crisis -- are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means. You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy. Foreclosures have spiked in the wake of the subprime crisis, leading to a number of businesses, like this one in Rio Vista, CA, having to close. For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100-percent-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.
The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more.
As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers -- many of them the very sorts of firms that helped create the current financial crisis -- are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means.
You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy.
Foreclosures have spiked in the wake of the subprime crisis, leading to a number of businesses, like this one in Rio Vista, CA, having to close. For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100-percent-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.
Michael Hudson on Paulson's task and motives and on the scope of the problem CounterPunch Nov. 17, 2008 Speaking on Thursday, November 13, before the Manhattan Institute, a lobbying organization for finance and real estate, President Bush repeated the myth that foreign countries recycle so many dollars to America because of our "strong economy" and free markets. The reality is quite different. There is no such thing as a "free market." For a few days after announcement of the $700 billion giveaway, some knee-jerk opponents of government spending accused this of being "socialism," but they quickly discovered that not all government spending is socialist. Regardless of what economic system is followed, all markets are planned, and have been ever since calendars were developed back in the Ice Age. Most market structures throughout history have been organized in a way that provides the vested interests with a free lunch. This remains the essence of post-feudal capitalism - or as some have expressed it, corporativism. What happens in practice is that foreign central banks recycle the dollars that their exporters and asset sellers receive because (as noted above) their currencies would rise if they failed to do this. That would price their exports out of world markets, leading to unemployment. Foreign countries thus are in a dollar trap. They send their savings to finance the domestic U.S. Government budget deficit instead of helping their own domestic economics, because they have not been able to create an alternative to the dollar. Next to Treasury debt, real estate mortgages are the only category large enough to absorb the excess dollars being thrown off by the U.S. payments deficit - thrown off, that is, by U.S. military spending abroad, consumer spending to swell the trade deficit, and investment outflows as investors here and abroad diversified their holdings outside of the United States. The upshot is that world monetary reserves have come to consist of central bank loans to finance the U.S. bubble economy. But the knee-jerk deregulatory philosophy of the Clinton and Bush eras has killed the U.S. investment market. -Skip- Nobody has found a "market-oriented" solution to this problem. That is what doomed the G-20 meetings this weekend to failure, just as there could be no agreement at the G7 meetings a few weeks ago. In the face of U.S. Treasury dreams of re-inflating the mortgage market, Europe is trying to draw the line at financing a losing proposition. But now that gold no longer is the means of settling balance-of-payments deficits, foreign central banks lack an alternative to the U.S. dollar to hold their monetary reserves. This leaves them with (1) U.S. Treasury securities, and (2) U.S. mortgage securities. Recent years have seen a further diversification via "sovereign wealth funds" into (3) direct ownership of mineral resources, industrial companies, privatized national infrastructure and other equity investment rather than debt. But rather than welcoming this, the U.S. Government seeks to limit foreign central banks to buying junk mortgages, junk bonds and other financial garbage. To call this "market equilibrium" is to indulge in the feel-good argot that fogs today's international financial dialogue. To put matters bluntly, the issue at the G-20 meetings is mistrust of the unregulated U.S. banking system and, behind it, government "regulators" who refuse to regulate. China and other foreign dollar recipients have been treating the dollar like a hot potato, trying to spend it on buying foreign minerals, fuels and other assets from any country that will accept payment in dollars. Most of the takers are third world countries still committed to paying the heavy dollarized debts owed to the World Bank and other global creditors. The price of their remaining in the Bretton Woods system is to sacrifice their public domain in a kind of pre-bankruptcy sale rather than repudiating their debts under the "odious debt" and "fraudulent conveyance" escape valves. What is needed is not to "reform" the World Bank and IMF, but to replace them. But that is another story, one that other countries dared not even bring up at the November 15-16 meetings.
Speaking on Thursday, November 13, before the Manhattan Institute, a lobbying organization for finance and real estate, President Bush repeated the myth that foreign countries recycle so many dollars to America because of our "strong economy" and free markets.
The reality is quite different. There is no such thing as a "free market." For a few days after announcement of the $700 billion giveaway, some knee-jerk opponents of government spending accused this of being "socialism," but they quickly discovered that not all government spending is socialist. Regardless of what economic system is followed, all markets are planned, and have been ever since calendars were developed back in the Ice Age. Most market structures throughout history have been organized in a way that provides the vested interests with a free lunch. This remains the essence of post-feudal capitalism - or as some have expressed it, corporativism.
What happens in practice is that foreign central banks recycle the dollars that their exporters and asset sellers receive because (as noted above) their currencies would rise if they failed to do this. That would price their exports out of world markets, leading to unemployment. Foreign countries thus are in a dollar trap. They send their savings to finance the domestic U.S. Government budget deficit instead of helping their own domestic economics, because they have not been able to create an alternative to the dollar. Next to Treasury debt, real estate mortgages are the only category large enough to absorb the excess dollars being thrown off by the U.S. payments deficit - thrown off, that is, by U.S. military spending abroad, consumer spending to swell the trade deficit, and investment outflows as investors here and abroad diversified their holdings outside of the United States. The upshot is that world monetary reserves have come to consist of central bank loans to finance the U.S. bubble economy. But the knee-jerk deregulatory philosophy of the Clinton and Bush eras has killed the U.S. investment market.
-Skip-
Nobody has found a "market-oriented" solution to this problem. That is what doomed the G-20 meetings this weekend to failure, just as there could be no agreement at the G7 meetings a few weeks ago. In the face of U.S. Treasury dreams of re-inflating the mortgage market, Europe is trying to draw the line at financing a losing proposition. But now that gold no longer is the means of settling balance-of-payments deficits, foreign central banks lack an alternative to the U.S. dollar to hold their monetary reserves. This leaves them with (1) U.S. Treasury securities, and (2) U.S. mortgage securities. Recent years have seen a further diversification via "sovereign wealth funds" into (3) direct ownership of mineral resources, industrial companies, privatized national infrastructure and other equity investment rather than debt. But rather than welcoming this, the U.S. Government seeks to limit foreign central banks to buying junk mortgages, junk bonds and other financial garbage. To call this "market equilibrium" is to indulge in the feel-good argot that fogs today's international financial dialogue.
To put matters bluntly, the issue at the G-20 meetings is mistrust of the unregulated U.S. banking system and, behind it, government "regulators" who refuse to regulate. China and other foreign dollar recipients have been treating the dollar like a hot potato, trying to spend it on buying foreign minerals, fuels and other assets from any country that will accept payment in dollars. Most of the takers are third world countries still committed to paying the heavy dollarized debts owed to the World Bank and other global creditors. The price of their remaining in the Bretton Woods system is to sacrifice their public domain in a kind of pre-bankruptcy sale rather than repudiating their debts under the "odious debt" and "fraudulent conveyance" escape valves. What is needed is not to "reform" the World Bank and IMF, but to replace them. But that is another story, one that other countries dared not even bring up at the November 15-16 meetings.
Market weighs up Citi scenarios After another brutal day for Citigroup, the market is beginning to think through a host of unpalatable options. As Citi's shares lost another quarter of their value to close at $4.71 - a level not seen since 1994 - investors, regulators and employees were staring at the possibility that the US financial services group might need outside help. Some asset managers, pension funds and endowments adhere to internal standards that mean they cannot hold stocks with a value of less than $5. With the shares below that mark, some analysts suggested a further bout of selling might take place on Friday. (...) A government-aided deal with a relatively healthy regional bank like US Bancorp or Wells Fargo or a better placed New York bank like JPMorgan Chase, Goldman Sachs or even Morgan Stanley was also mooted. A break-up of Citi into its consumer, wholesale and corporate businesses, with different buyers for each piece, is also seen as a possibility. At Thursday's close, Goldman's market value was about $20bn, just $5bn shy of Citi's. (...) The US Treasury and the Federal Reserve - Citi's main regulator - are also watching. No action has yet been planned, but bankers on Thursday speculated that, if Citi's situation gets worse, the authorities might have to inject more capital on top of the $25bn they invested recently. The Fed could also extend a huge loan to Citi, as it did for AIG, in exchange for a large ownership stake. A government guarantee of all of Citi's debt and derivative contracts is also a possibility, especially if the cost of insuring the company's debt against a default and the interest rates on its bonds continue to rise.
After another brutal day for Citigroup, the market is beginning to think through a host of unpalatable options.
As Citi's shares lost another quarter of their value to close at $4.71 - a level not seen since 1994 - investors, regulators and employees were staring at the possibility that the US financial services group might need outside help.
Some asset managers, pension funds and endowments adhere to internal standards that mean they cannot hold stocks with a value of less than $5. With the shares below that mark, some analysts suggested a further bout of selling might take place on Friday.
(...)
A government-aided deal with a relatively healthy regional bank like US Bancorp or Wells Fargo or a better placed New York bank like JPMorgan Chase, Goldman Sachs or even Morgan Stanley was also mooted. A break-up of Citi into its consumer, wholesale and corporate businesses, with different buyers for each piece, is also seen as a possibility.
At Thursday's close, Goldman's market value was about $20bn, just $5bn shy of Citi's.
The US Treasury and the Federal Reserve - Citi's main regulator - are also watching. No action has yet been planned, but bankers on Thursday speculated that, if Citi's situation gets worse, the authorities might have to inject more capital on top of the $25bn they invested recently.
The Fed could also extend a huge loan to Citi, as it did for AIG, in exchange for a large ownership stake. A government guarantee of all of Citi's debt and derivative contracts is also a possibility, especially if the cost of insuring the company's debt against a default and the interest rates on its bonds continue to rise.
