Ecomonic News of the Day

Keeping tabs on the economy.

Saturday, May 3, 2008

Rice price overshadows SE Asian trade meeting

By Kevin Yao and Gde Anugrah Arka, Reuters

NUSA DUA, Indonesia -- Southeast Asian trade ministers met on Friday for talks on how to respond to soaring rice prices, after U.S. President George W. Bush proposed US$770 million in new U.S. food aid to stave off a global food crisis.

The weekend gathering of the 10-member Association of Southeast Asian Nations (ASEAN) on the resort island of Bali, famed for its shimmering green rice terraces, also discussed efforts to build momentum for long-delayed world trade talks.

"Our minister will talk about the rice price. We share the general concern," said an official from the Philippines, which is the world's top rice importer, buying about 10 percent of its annual needs from overseas.

Asian rice prices have almost trebled this year and prices on the Chicago Board of Trade have risen more than 80 percent.

The World Food Programme issued an emergency appeal in late February for an extra US$500 million to help feed 73 million hungry people in 80 countries. Last month, a spokeswoman said soaring rice prices has pushed the emergency appeal to US$756 million. At the Bali talks, which conclude on Sunday and were also involving representatives from Australia, New Zealand, India and the United States, Malaysian trade minister Muhyiddin Yassin said he would press for the "hot topic" of food security to be higher on the agenda.


full article
http://www.chinapost.com.tw/asia/indonesia/2008/05/03/154655/Rice%2Dprice.htm

The Gulf Region Keluhkan Lambannya Respons RI on Monday, May 5 2008 - 13:21 WIB
Lamtiur Kristin Natalia Malau - Okezone

Jakarta - the Government of Gulf Region countries (GCC) that is Saudi Arabia, Qatar, Uni of the Arabian Emirate, Oman, and Kuwait cheer on slow him the response and various co-operation of the help offer that were put forward by him to the Indonesian government.
Various complaints were explained by President's Special Envoy to Middle East Alwi Sihab, ended joined the meeting of the GCC ambassadors in Vice President's Palace, Street Medan Merdeka Selatan, Jakarta, on Monday (5/5/2008).
Alwi told, how this complaint varied from the help offer of the control of bird flu to the offer of investment of the economic field.

Saudi Arabia emphasised, they wanted even more investment to Indonesia.
Hoped the visit from the businessman and the official from Kadin more was increased.
The Kuwaiti government also hoped that relations between Indonesia and Kuwait in the economic field could be increased.

The union of the Arabian Emirate stated, that they sent the letter to the Department of the Health and were ready to help dealt with bird flu, polio and the other illness.
"But possibly because the activity" of the "minister or apparatus for the Department of Health did not yet get the fast response," said Alwi ended
Another with the Oman Government.
They asked for the realisation of the Embassy's Indonesian opening in Oman in order to be able to be speeded up.

The Oman side also said that after being announced will be opened by the embassy in Oman, they will send the letter to the Foreign Affairs Department to invite delegation to discuss further the matter of various co-operation.
However till at this time still not received the response.
"So in fact their side came to the" Vice" President "delivered that they were ready to mobilise all the strengths so that Indonesia-GCC relations especially in the economic field could be increased," stated Alwi.

It was related that these complaints according to Alwi Vice President promised immediately to take the step to respond to the GCC government request?
This.
(rhs) the News of Terkait
Indonesia-GCC Diusulkan Dilembagakan

http://economy.okezone.com/index.php/ReadStory/2008/05/05/19/106541/kawasan-teluk-keluhkan-lambannya-respons-ri

05/05/08 15:02
Malaysia mulls cross-border rice ban to prevent price spikeKuala Lumpur (ANTARA News)

http://www.antara.co.id/en/arc/2008/5/5/malaysia-mulls-cross-border-rice-ban-to-prevent-price-spike/

Malaysia is considering blocking the movement of rice across its borders, a minister said Monday in a move aimed at ensuring supply of the subsidised commodity and keeping prices low.

The measure comes as the cost of rice, a staple food for the country's 27 million people, continues to surge. A popular brand shot up to 29.39 ringgit (9.50 dollars) for a 10 kilo bag this week from about 20 ringgit in January."The price of rice in Malaysia is lower by at least three ringgit per kilogramme compared to Thailand and Indonesia, and much lower compared to Singapore," Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad said."Rice is being taken out of the country because it is cheap since it is a subsidised commodity.

I am asking my officers to study if we can stop the movement of rice across the border just like one cannot take out subsidised cooking oil," he was quoted by AFP as telling told reporters.Shahrir said the aim of the ban was to ensure there was sufficient rice supply in the country and to prevent prices from spiking.Malaysia has already announced a list of 10 controlled items which must not cross borders: sugar, flour, cooking oil, petrol, diesel and gas -- which are all subsidised -- as well as steel, cement, chicken and fertilizer.

Earlier this year there were severe shortages of flour and cooking oil caused by price-hike rumours which triggered panic buying.Malaysia, which imports about 30 percent of its rice needs, heavily subsidises more than 20 daily food items including milk and salt.World rice prices have soared this year, a trend blamed on higher energy and fertiliser costs, greater global demand, droughts, the loss of rice farmland to biofuel plantations, and price speculation. (*)

Mogadishu rocked by food demonstrations

MOGADISHU (Reuters) - Thousands of Somalis protested in Mogadishu's streets on Monday, angry at food traders refusing to take old currency notes that have been blamed for spiraling inflation, witnesses said.

"The whole city is up in smoke," protestor Hussein Abdikadir told Reuters while rolling a tire he said he was planning to burn in the Buulahubey neighborhood of southern Mogadishu.

"Traders have refused to take old notes. Food prices are high and we have nothing to eat. We will protest until the traders agree to take the notes and sell us food," he said.

full article
http://news.yahoo.com/s/nm/20080505/wl_nm/food_prices_somalia_dc

UN Bantu Atasi Krisis Pangan Dunia


http://economy.okezone.com/index.php/ReadStory/2008/05/08/213/107465/pbb-bantu-atasi-krisis-pangan-dunia

ToggleText translation

Kamis, 8 Mei 2008 - 10:21 wib
Washington - Secretary General Perserikatan of nations (the UN) Ban Ki-Moon said the UN will intervene against the crisis of world food.
The UN will give the long-term solution for the problem root that caused this situation.

Let me give the step offer" in the "emergency as the urgent response," said the Tyre after coming back from his trip to Africa and Europe.
Here, the price increase of food became the main topic of his discussions with the local government.

He said, the UN must reduce the global food crisis as soon as possible.
As his first step will be to hold the meeting the following Monday.
His task of being to study the main cause of the food crisis afterwards gave the long-term solution.

This solution will be proposed in the meeting about food in Rome next month in the hope that the other world leaders also give the fresh idea.

Ban Ki-Moon appointed the secretary for the human affair, John Holmes, to coordinate the step in PBB. John co-operated with his representative, David Nabarro, the UN leader who handled bird flu.

Asia Development Bank (ADB) stated that more than one billion people will in Asia become poor without having the production of the addition for the price of the requirement that increased.

The tyre also stated that this crisis caused the disturbance in developing countries.
"If poverty was not handled, this crisis will give the impact on the trade, the disturbance in developing countries," he said.
(Rahma Regina/Sindo/hsp

US rice prices rise as supply worries linger The Times Of India

SEOUL: US rice futures soared 4 percent in early Asian trading on Friday as a larger-than-expected purchase of rice by Malaysia and prospects of reduced output from cyclone-devastated Myanmar raised supply concerns. Other grains were slightly higher, led by corn, as slow US...


Rice futures jump on worries over Myanmar supply; Oil falls
The News & Observer
NEW YORK - Rice futures surged Thursday on worries that devastation to Myanmar's rice-growing heartland could lead to widespread shortages, worsening the global food crisis. Other commodities traded mostly...

Chicago rice hits new record high above $25
The Boston Globe
TOKYO/PARIS (Reuters) - U.S. rice futures struck a new lifetime peak above $25 in Asian trading on Thursday, as worries about possible supply shortages continued to plague the world's second-biggest food grain...


all these articles cans be viewed here
http://article.wn.com/view/2008/05/09/US_rice_prices_rise_as_supply_worries_linger/

Wednesday, May 14, 2008

Protests spread in Indonesia over fuel prices


By Chris Brummitt, AP

JAKARTA, Indonesia -- Students and hard-line Muslims angry over impending fuel price increases protested in Indonesia on Tuesday, showing the risks for the government as it tries to cut subsidies amid soaring world oil prices

The protests in at least 10 towns or cities were small and peaceful, but the government was watching them anxiously: earlier price hikes sparked riots and contributed to the downfall of ex-dictator Suharto in 1998.

http://www.chinapost.com.tw/asia/indonesia/2008/05/14/156348/Protests%2Dspread.htm

Farm bill full of goodies for both rich and poor

By MARY CLARE JALONICK, Associated Press Writer

WASHINGTON - A $300 billion farm bill contains a little something for everyone, including tax breaks for Kentucky racehorse owners, extra help for farmers in Hawaii and Alaska, dollars for salmon farmers in the Pacific Northwest and more food stamps for the needy.

Supporters of the bill are hoping that such goodies will bring in enough votes to send the White House a strong message when the House and Senate consider the bill's final version this week. President Bush has threatened to veto the five-year bill, saying it is too expensive and too generous to wealthy farmers.

The House is expected to take up the politically popular, bipartisan legislation Wednesday and the Senate should follow by the end of the week, when current farm law expires. A two-thirds majority in both chambers — a harder feat in the more urban House — would neutralize the administration's threat.

full article
http://news.yahoo.com/s/ap/20080514/ap_on_go_co/farm_bill;_ylt=AvT1zAD24y5uKzC1MBJkGnms0NUE

The muddle-through approach

Jul 14th 2008 - Economist.com

America’s government tries a quick fix for the intractable problems of Fannie Mae and Freddie Mac


"FANNIE MAE and Freddie Mac, the two government-supported mortgage giants at the centre of America’s housing market, pose a particularly acute problem for the Bush administration. Not only are they too big to fail. They are almost too big to rescue.

They hold or guarantee some $5.2 trillion of the nation’s $12 trillion of mortgages, backed by the thinnest wafer of capital, meaning their collapse would imperil the already paralysed American housing market. Yet as Joshua Rosner, an analyst at Graham Fisher, a research firm, points out, nationalising them, a stark choice for the government since their shares tumbled last week, would “result in a doubling of the federal deficit, a further collapse of the dollar and unthinkable implications for the Treasury’s cost of funding in the debt markets.”

Those two unpalatable options—failure or rescue—led the Treasury on Sunday July 13th to announce several stopgap measures aimed at restoring confidence in the two institutions, although it fell short of fundamentally reshaping them. The measures may buy a bit of time, but they are unlikely to put to rest highly sensitive questions about the future of Fannie and Freddie, leaving a large cloud looming over global financial markets.

Mr Paulson’s announcement, made overnight on the steps of the Treasury just before Asian financial markets opened, gave some support to the dollar, which had wobbled last week as the share prices of Fannie and Freddie halved. As Mr Paulson made clear, part of the problem with the two institutions is that their debt is held by investors around the world. That includes many central banks. The fear is that a sudden collapse of either institution might pose a threat to the dollar and the global economy.

he Paulson plan is aimed at ensuring that both institutions have enough liquidity to conduct their day-to-day businesses of buying mortgages. It came on the eve of a $3 billion debt-auction by Freddie Mac on Monday, which the government will be eager to succeed, to show that the GSEs are still able to raise money in the capital markets.

Less clear is the status of shareholders in Fannie and Freddie. The two firms are considered “the odd couple” in American finance because they are owned by shareholders, yet investors have always believed in that implicit government backing. Now that support has become explicit, shareholders must be worried about the price they will have to pay. They may have to provide more capital to Fannie or Freddie, or risk losing their stakes to the government. As double-or-quits bets go, there cannot be many worse than that—not least because a system that provides privatised profits with socialised losses cannot be allowed to persist."

http://www.economist.com/finance/displaystory.cfm?story_id=11735141

Agencies' problems could deepen impact of credit woes in Asia

July 14/08 - Wall Street Journal

"For much of the world, the greatest effects felt from the crisis over Fannie Mae and Freddie Mac may be further deterioration of confidence in global capital markets and in the belief that the U.S. economy or the dollar will rebound strongly anytime soon.

Asian central banks and financial institutions are major holders of U.S. debt and are believed to own substantial portions of debt for Fannie Mae and Freddie Mac. According to the U.S. Treasury Department's latest data, foreigners owned 21.4%, or $1.3 trillion, of the total outstanding long-term debt issued by U.S. government agencies as of June 2007."

- excerpt

http://online.wsj.com/article/SB121598704250349223.html?mod=googlenews_wsj

Analysts Say More Banks Will Fail

by Louise Story
Monday, July 14, 2008

As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?”

Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.

Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry.

rest of story
http://finance.yahoo.com/banking-budgeting/article/105391/Analysts-Say-More-Banks-Will-Fail

U.S. SEC issues emergency rule to curb short selling

July 16/08 - Hot News Turkey.com

"The Securities and Exchange Commission is adopting an emergency rule that will limit the ability of traders to bet on a drop in the shares of brokerage firms, the agency said in a statement on Tuesday. The rule, which will go into effect on Monday, July 21, and last through July 29, is the latest effort by the United States Securities and Exchange Commission to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March.

The SEC will require traders to hold the shares of the two mortgage buyers and the brokerages before they execute a short sale. The emergency order, to be in effect for 30 days, will bar a practice known as naked short selling, in which traders bet that the share prices will fall. The SEC said that a loss of confidence in markets can lead to panic selling, which may be further exacerbated by certain types of short selling.

"As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process," the SEC said. "If significant financial institutions are involved, this chain of events can threaten disruption of our markets." The emergency rule applies to 19 financial firms including Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc."

http://www.hurriyet.com.tr/english/finance/9451367.asp?scr=1

Dollar Optimism Dissipates as Confidence in Fed, Treasury Ebbs

July 16 (Bloomberg) -- "The U.S. dollar will weaken against the euro, yen, Brazilian real and Swiss franc in the next six months as confidence in Federal Reserve and Treasury efforts to keep the economy out of a recession fades, a survey of Bloomberg users showed." - excerpt

http://www.bloomberg.com/apps/news?pid=20601087&sid=alSZFf4DnQ7g&refer=home

Workers laid off by governor eligible to apply for jobless benefits

By Capitol Weekly Staff (published Friday, August 01, 2008)

What the government takes away with one hand it makes up for with the other.

"The 10,000 seasonal and part-time state workers laid off by Gov. Arnold Schwarzenegger's executive order can apply for unemployment benefits through the state's Economic Development Department. Weekly benefits range from $50 to $450.*

"Anybody who is laid off or terminated is eligible to file for unemployment benefits," said Vicki Bradshaw, Schwarzenegger's secretary of Labor and Workforce Development. The state first determines eligibility, and then there is a one-week waiting period until the payments actually begin, Bradshaw said.

The Republican governor said the layoffs, which went into effect immediately on Thursday, would save the state $100 million per month. The state faces a $15 billion shortage over two years, and the 2008-09 budget, which was supposed to be signed by the beginning of the new fiscal year on July 1, has yet to be approved.

The money for the jobless benefits comes from the federal government. Money is paid by California employers into a federal fund that is tapped as needed for jobless workers. The number of people unemployed in California was 1,278,000 - up by 19,000 over the month, and up by 310,000 compared with June of last year."

http://tinyurl.com/66ztp6

Geeze, are any of us surprised?

Doctor Doom

Great Recession

Nouriel Roubini 09.18.08, 12:00 AM ET

Dear Forbes.com readers:

"This will turn out to be the worst financial crisis since the Great Depression and the worst U.S. recession in decades.

I first said so in August and, since I wrote those words, financial and economic conditions have deteriorated further--and severely. Stock prices are sharply down and there is a risk of a market crack. Interbank and credit spreads are wider than ever since the beginning of this crisis, Lehman Brothers and Merrill Lynchare gone, and soon enough Morgan Stanley and Goldman Sachs will need to find a larger partner with deep pockets or they risk getting into severe trouble.

The biggest insurer in the world--American International Group --is teetering near bankruptcy and has been bailed out by the taxpayer at an astronomical expense. The biggest U.S. savings and loan, Washington Mutual, is effectively insolvent and close to going bust, while dozens of other banks are near bankruptcy.

There is the beginning of a silent bank run as depositors are nervous about their assets. The panic is mounting in the financial markets, and the credit default swap market is frozen because of the Lehman collapse and the state of affairs at AIG, WaMu and other financial institutions. Many hedge funds are now teetering as their losses mount. Investors in fixed income--including preferred stocks--have experienced massive losses and the financial turmoil is becoming global as stock markets all over the world plunge. Worst of all, policymakers are running out of bullets. Think Spaghetti Westerns and a parched desperado in a dry gulch.

The Lehman collapse is leading to the risk of a generalized run on the shadow banking system. The policy reaction is to try to build a new set of levees after the financial perfect storm of the century destroyed the first set. This reaction includes the following steps.

First: The Fed is accepting even more toxic collateral for the Term Securities Lending Facility (TSLF) and Primary Dealer Credit Facility (PDCF), including even equities. So now, after having nationalized the mortgage market via the takeover of Fannie Mae and Freddie Mac , the government is also starting to manipulate the stock market directly. This started with the SEC restrictions on naked short sales of primary dealers, so the process of turning the U.S. market system into a socialist system controlled by the government is now in full swing. By its effective purchase of equities, the Fed takes massive credit and market risks.

Second: ..."

Therefore, any rally from Fed actions will be short lived. When Bear Stearns was rescued, the financial market rally lasted two months. When the Fannie and Freddie legislation was proposed in July, the rally lasted a few weeks; when the actual nationalization of Fannie and Freddie occurred a week ago, the rally lasted only one day. The ability of policy authorities to prop up financial markets is rapidly eroding as market participants see that policy makers are desperate and running out of options.

At this point the perfect financial storm of the century cannot be contained." - excerpt

http://tinyurl.com/Great-Recession

What Just Happened with AIG, and what this Means for You

Sep 17 2008 - excerpts - Chris Laird

"First, let’s define the key problem. The entire financial and productive economy of the world is leveraged roughly 60 to 1. The securitization of all manner of credit made it extremely profitable for every financial institution to pile up the debt and leverage. As long as the party continued, no one questioned the danger (mostly no one). Computers and the Internet (I was an Oracle Systems engineer) made it possible to create fantastically complex financial instruments and asset backed securities and derivatives. This made immense amounts of money available for credit. Then, the internet made it possible for brokerages to get millions of people trading online, for next to nothing. Since there was very little or no incentive for stock brokers and financial geniuses to gain an income stream from commissions that dropped to pennies a trade, they naturally applied their financial genius to creating the biggest piles of money, securitized credit, which even at ridiculously low commissions, generated hundreds of billions of dollars in commissions a year for brokers and the financial cowboys.

Then, these geniuses figured out that they could make more money by creating a Credit Default Swap. This is merely an insurance policy that is bought against someone’s bonds, and for a very modest fee, someone like AIG would guarantee it against a default.

And, why did AIG not get any private money to bail them out this week? Because, they had issued an unfathomable $440 billion of these guarantees in recent years, and made lots of money signing all this up….
So, in this huge credit party, basically the entire wealth of the world is leveraged something like 20 times the entire worlds GDP of 60 trillion. Uhm, we have a serious problem here folks! ...we can say that cumulatively, since August of 07, the world central banks have put out roughly $2 trillion and counting if you add up everything they are doing, in essentially bailout out all this bad paper. There is only one problem. There is $1000 Trillion of it out there. And it’s going bad very fast. And, the central banks realize there is NOTHING they can do to stop this. Why do you think the Fed was resisting bailing out AIG so much, till they realized it’s either do that, or see a cascade of massive financial bankruptcies worldwide?

Now, another insoluble problem that presents itself, aside from $1000 Trillion of deleveraging, is the fact that these financial derivatives are all interlinked. That means that, unless one major player is bailed out, everyone else goes bankrupt, just like pulling on a big ball of string." Now, I don’t want to scare you, but the entire point here is that this deleveraging problem is insoluble. At some point, the end comes, and the Fed and ECB and BOJ and everyone else knows it. The party is about done. The only question is when.

The ONLY solution is to wipe out all debts worldwide and start over. And we know that lots of financial interests don’t want that to happen.Basically, when the central banks and each nation realize they are going insolvent too, they will raise taxes on those ‘tax deferred’ accounts by the time you want to pull out the money. So, I’m fairly sure that you’re going to pay a lot more taxes on that pile of money than you think. If the world economy was not collapsing, then that would not be the case. But it is the case. Ultimately, the USD will fall in value again, maybe even collapse, and if you have some gold (or silver ), you will at least have some money – whatever that price turns out to be. We might buy a place and pay it off to live in. Store some wealth there. Sure, the price of the home drops, but the home still has a use, and is valuable, even if the prices at the moment are falling. A home never should have been looked at as an ‘investment’ anyway. It’s shelter.

Then, if you survive the depression, living very frugally, when the currency ultimately does collapse, and a new one is created, you could sell the home for the new currency, or any real thing you managed to keep in the depression. A lot of people got wealthy in the Great Depression as they found great deals on everything, and bought the stuff at 10 cents on the dollar, and just waited the mess out. The trick is surviving with some real things paid off. But, unless you plan on emerging from the coming depression with NOTHING, you better plan on dealing with some taxation as the governments panic.

Another thing you can do is maybe have some variety of currencies in modest savings accounts. If they all don’t collapse, then you at least have that money. But, one problem here is that in these economic emergencies, foreign exchange restrictions are put in and your money is frozen where it is. And maybe they allow you to take a modest about out each month. But you ain’t moving no $100 K overseas in the midst of that emergency….The government does not want all the money fleeing the country in these crises. So, they sort of lock down accounts.*"

* Also known as "currency controls".

http://www.kitco.com/ind/Laird/sep172008.html

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

Bloomberg warns of possible 'next wave' crisis

By DEVLIN BARRETT, Associated Press Writer


WASHINGTON - New York Mayor Michael Bloomberg warned Wednesday a "next wave" of financial pain may come from overseas if foreign entities stop buying U.S. debt.

snip


rest of article
http://news.yahoo.com/s/ap/20080917/ap_on_bi_ge/economy_bloomberg

Panic grips credit markets
By Krishna Guha in Washington, Michael Mackenzie in New York and Gillian Tett in London

The panic in world credit markets reached historic intensity on Wednesday, prompting a flight to safety of the kind not seen since the second world war.

Barometers of financial stress hit record peaks across the world. Yields on short-term US Treasuries hit their lowest level since the London Blitz, while gold had its biggest one-day gain ever in dollar terms. Lending between banks, in effect, stopped.


Speculation mounted that the Federal Reserve, which refused to cut rates on Tuesday, could be forced into an embarrassing U-turn or might further expand its market liquidity operations.

The $85bn emergency Fed loan for the troubled insurance group AIG, announced on Tuesday night, failed to curb the surge in risk aversion. Instead, markets were hit by a fresh wave of anxiety.

One cause for fear came when shares in a supposedly safe money market mutual fund fell below par value – or “broke the buck” – owing to losses on debt in Lehman Brothers, which filed for bankruptcy protection on Monday. This raised the risk that retail investors in other such funds could panic and pull out their money.

All thought of profit was abandoned as traders piled in to the safety of short-term Treasuries, with the yield on three-month bills falling as low as 0.02 per cent – rates that characterised the “lost decade” in Japan. The last time US Treasuries were this low was January 1941.


Shares in the two largest independent US investment banks left standing – Morgan Stanley and Goldman Sachs – fell 24 per cent and 14 per cent, respectively, as the cost of insuring their debt soared, threatening their ability to finance themselves .

Morgan Stanley was holding preliminary merger talks with Wachovia, a troubled regional lender, and could approach other banks and look at other options in the coming days, people familiar with the situation said. Washington Mutual, another regional lender, has hired Goldman Sachs to contact potential buyers.


HBOS, a leading UK mortgage lender pressed into sales talks by the government after its share price halved this week, agreed to a £12bn takeover by Lloyds TSB.

A key measure of fear in the fixed-income markets - the so-called Ted spread, which tracks the difference between three-month Libor and Treasury bill rates - moved above 3 per cent, higher than the record close after the Black Monday stock market crash of 1987.

US authorities fired back with the Treasury announcing it was borrowing $40bn to give to the Fed to use for its emergency lending – in essence removing balance sheet constraints on the size of this assistance.

The Securities and Exchange Commission announced new curbs on short selling.

Some analysts have criticised US authorities for adopting an arbitrary approach to rescues - saving AIG, but not Lehman - that was impossible for investors to predict and therefore did not boost confidence.

The S&P 500 fell 4.7 per cent, led by a 8.9 per cent slump in financials. Equity volatility was near its highest level since March. The dollar fell against other major currencies.

Gold benefited from safe-haven buying, with prices rising 11.2 per cent to a three-week high of $866.47 a troy ounce.

Andrew Brenner, co-head of structured products and emerging markets at MF Global, said: “It feels like no one wants to take anyone’s credit...it feels like we are on a precipice.”
Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/8058d308-84d3-11dd-b148-0000779fd18c.html?nclick_check=1

Fasten your seatbealts folks. It's going to be a long bumpy ride!

HBOS - Lloyds TSB: Biggest rescue deal in British banking history

--------------------------------------------------------------------------------

HBOS - Lloyds TSB: Biggest rescue deal in British banking history
By Robert Winnett
Last Updated: 11:03pm BST 17/09/2008
http://www.telegraph.co.uk/money/mai...nsplash118.xml


The biggest rescue deal in British banking history was under way last night as the credit crisis reached new heights.

HBOS - Lloyds TSB: The biggest rescue deal in British banking history
The biggest rescue deal in British banking history

HBOS, the country's biggest mortgage lender, was poised to accept an emergency takeover from rival Lloyds TSB following the collapse of its share price.

Gordon Brown intervened to try to secure the deal in an attempt to prevent further market panic after three of the most tumultuous days witnessed on the stock market.

However, concerns were growing last night that the proposal may not be enough to quell the turmoil on the financial markets amid fears that other financial institutions could be vulnerable.

# Investors balk at HBOS rescue by Lloyds
# Lloyds and HBOS in talks over job losses
# HBOS was easy meat when the confidence ran out
# Scots in shock over crash of revered institution

As investors continued to show their lack of confidence in the economy, the FTSE-100 index of Britain's biggest companies fell again yesterday, closing below 5,000 at 4,912, its lowest level for three years.

The American stock market also recorded sharp falls despite the Federal Reserve effectively nationalising American International Group (AIG), the world's largest insurer, to prevent it going bankrupt.

The share prices of the Wall Street investment banks Goldman Sachs and Morgan Stanley fell by 26 per cent and 44 per cent respectively as US financial stocks hit their lowest level in five years.
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Shareholders have been warned to expect further upheaval on the stock market today.

And there were predictions that this week's chaos may just be the start of the crisis for ordinary consumers.

The bleak forecasts came as:

• Experts warned that the proposed takeover of HBOS would lead to higher mortgage costs;

• Staff at the bank were told that up to 40,000 employees could lose their jobs;

• Unemployment hit a 10-year high;

• The banking industry moved to reassure customers that their savings are safe.

Last night it emerged that the emergency deal had been put together after fears that HBOS customers would begin to take out their savings following the sudden drop in the bank's share price.

If completed the takeover would create Britain's biggest bank with assets of about £1?trillion which would control more than a quarter of the mortgage market.

In normal circumstances the so-called "super monopoly" would be outlawed by regulators fearful of the impact on consumers.
# Profile: Andy Hornby of HBOS
# Profile: Eric Daniels of Lloyds TSB

But the Prime Minister has agreed to rewrite competition laws to allow the deal to proceed. The Bank of England also announced that it would continue to offer tens of billions of pounds in government funds to mortgage lenders until at least next year.

City institutions may still attempt to block the deal while millions of shareholders have lost money on their holdings.

HBOS has 22 million customers and employs 74,000 people.

Over the past few days it has come under sustained attack from stockmarket speculators. Its share price has almost halved this week.

The bank and its regulators insisted that it was "solid" but yesterday it emerged that it has been locked in emergency takeover talks with Lloyds TSB.

Senior government officials feared that without help to secure a deal, HBOS might have run into difficulty - a problem that would far outstrip the crisis caused by the smaller Northern Rock.

Economic experts warned consumers to brace themselves for the financial fallout to reach the "real economy". Sir Alan Budd, the Treasury's former chief economic adviser and former founding member of the Bank of England's Monetary Policy Committee, said: "It is difficult to know what is going to happen next as people normally look at what happened last time. But when there isn't a last time what do you say?

"The big question now is whether consumers are going to lose confidence and stop spending."

Lord Lamont, who was the Conservative Party chancellor during the last serious economic crisis in the early 1990s, predicted that unemployment could rise by between 700,000 and 800,000. "I think it is a very serious situation," he said. "We are nearer the beginning than we are to anywhere else. This is like the early 1970s."

He added: "The causes of this are not all international; we have created our own bubble here. It has been obvious for three or four years that something like this was going to happen. I think we might now have a prolonged slowdown. People will struggle; it will be harder to get credit."

Alistair Darling, the Chancellor, said last night: "We are clearly going through a time of significant global turbulence in the banking system. The key thing is to maintain stability in the banking system banner. HBOS has 320 branches in Scotland.

The group has about 1,100 branches and employs 65,000 people across the UK, with a further 10,000 based abroad.

The union Unite warned that any merger could be "catastrophic" for the 17,000 HBOS staff in Scotland.

The attack on HBOS came on another day of turmoil as:

• The FTSE-100 index dipped below 5,000 for the first time since 2005.

• Inflation rose to 4.7 per cent — a 16-year high — as the Bank governor Mervyn King said it may increase to five per cent.

• Alistair Darling said he would act against people seeking to manipulate markets.

• Home owners were warned that mortgage rates may start rising again after lending rates between banks rose to the highest level for six years.

• A warning was sounded that 100,000 jobs in finance and banking could go.

• The Bank of England pumped a further £20 billion into the money markets to ensure banks continued lending to one another.

Russian stock market crashes, then closes...

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Russian bourses halt trading for second day

By Catherine Belton and Charles Clover in Moscow, Rachel Morarjee in London

Published: September 16 2008 15:07 | Last updated: September 17 2008 12:02

Russia’s two main bourses, RTS and MICEX, said on Wednesday they were suspending trade until further notice from the state’s main market regulator as shares continued to tumble one day after their steepest decline in more than a decade.

Russian stocks had continued to slide on Wednesday morning even as the government unveiled new anti-crisis measures to pump up to $29.5bn in extra budget funds into the three main state-controlled banks.

The dollar-denominated RTS was down 6.4 per cent and the rouble denominated MICEX was down 3.1 per cent when the suspension was enforced with the two main state-controlled banks, Sberbank and VTB leading the slide.

Analysts said state cash being pumped into state banks was not being filtered into the rest of the system, which is being hammered by a liquidity squeeze as domestic investors faced margin calls on loans collateralised by shares. ”Russia doesn’t have a liquidity problem. It has an intermediation problem,” said Roland Nash, head of research at Moscow investment bank, Renaissance Capital.

”You can’t borrow on the interbank market,” he said.

Brokers have been pulling credit lines amid widespread fears of defaults as local clients saw leveraged shareholdings wiped out by the market slide. One Moscow investment bank, KIT Finance, said on Tuesday night it had failed to meet payments on several financial obligations because clients had failed to meet payments to it. The bank said on Wednesday that it was in talks with a strategic investor on stake sale. One potential suitor, VTB, however declined to comment.

In a sign of how the liquidity crunch in Russia is exacerbating the problem on local bourses, Russian depositary receipts traded in London were up on Wednesday morning. ”They have access to funding,” Mr Nash said.

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.

Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.

The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest lvel since January 2006.

Interbank money market rates climbed to 11 per cent, their highest since a mini-banking crisis in summer 2004.

Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.

Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.

The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.

But market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.

It said: “In connection with the fact that a series of our clients did not meet their obligations to our bank, we have not met our obligations to our counterparties.

“We recognise our responsibility to our counter-parties and to the market and we are working intensively to resolve the situation.”

Andrei Sharonov, managing director of Troika Dialog, a Moscow investment bank, and a former deputy economic minister, said: “This is a vicious circle,” said , .

“It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”

Shares in Russia’s biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.

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