Financial Crisis - 2008-2010

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Frantic day on Wall Street as banks fall

By Andrew Ross Sorkin
Published: September 15, 2008



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In one of the most dramatic two days in Wall Street's history, Merrill Lynch agreed to sell itself to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for Chapter 11 bankruptcy protection.
The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of tens of billions of dollars in losses because of bad mortgage finance and real estate investments.
They culminated a weekend of frantic around-the-clock negotiations, as Wall Street bankers huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.
"My goodness. I've been in the business 35 years, and these are the most extraordinary events I've ever seen," said Peter Peterson, co-founder of the private equity firm the Blackstone Group, who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration.
It remains to be seen whether the sale of Merrill, which was worth more than $100 billion during the last year, and the controlled demise of Lehman will be enough to finally turn the tide in the yearlong financial crisis that has crippled Wall Street. The market took a strong turn down Monday, reacting to Lehman's plan to wind down its trading operations. Questions remain whether other companies may still falter, like the American International Group, the large insurer, and Washington Mutual, the nation's largest savings and loan. Both companies' stocks fell precipitously last week.
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Live blog: Floyd Norris on Lehman, Merrill and the Markets
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Graphic: Lehman's decline
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Managing Globalization: Turning a crisis into change
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A proud company falters
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Though the government took control of the troubled mortgage finance companies Fannie Mae and Freddie Mac only a week ago, investors have become increasingly nervous about the difficulties of major financial institutions to recover from their losses.
How things play out could affect the broader economy, which has been weakening steadily as the financial crisis has deepened over the last year, with unemployment increasing as the nation's growth rate has slowed.
What will happen to Merrill's 60,000 employees or Lehman's 25,000 employees remains unclear. Worried about the unfolding crisis and its potential impact on New York City's economy, Mayor Michael Bloomberg canceled a trip to California to meet with Governor Arnold Schwarzenegger. Instead, aides said, Bloomberg spent much of the weekend working the phones, talking to federal officials and bank executives in an effort to gauge the severity of the crisis.
The weekend that humbled Lehman and Merrill Lynch and rewarded Bank of America, based in Charlotte, North Carolina, began at 6 p.m. Friday in the first of a series of emergency meetings at the Federal Reserve building in Downtown New York.
The meeting was called by Fed officials, with Treasury Secretary Henry M. Paulson Jr. in attendance, and it included top bankers. The Treasury and Federal Reserve had already stepped in on several occasions to rescue the financial system, forcing a shotgun marriage between Bear Stearns and JPMorgan Chase this year and backstopping $29 billion worth of troubled assets — and then agreeing to bail out Fannie Mae and Freddie Mac.
The bankers were told that the government would not bail out Lehman and that it was up to Wall Street to solve its problems. Lehman's stock tumbled sharply last week as concerns about its financial condition grew and other firms started to pull back from doing business with it, threatening its viability.
Without government backing, Lehman began trying to find a buyer, focusing on Barclays, the big British bank, and Bank of America. At the same time, other Wall Street executives grew more concerned about their own precarious situation.
The fates of Merrill Lynch and Lehman Brothers would not seem to be linked; Merrill has the nation's largest brokerage force and its name is known in towns across America, while Lehman's main customers are big institutions. But during the credit boom both firms piled into risky real estate and ended up severely weakened, with inadequate capital and toxic assets.
Knowing that investors were worried about Merrill, John Thain, its chief executive and an alumnus of Goldman Sachs and the New York Stock Exchange, and Kenneth Lewis, Bank of America's chief executive, began negotiations. One person briefed on the negotiations said Bank of America had approached Merrill earlier in the summer but Thain had rebuffed the offer. Now, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, the two parties proceeded with discussions.


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Black Monday: Global markets tumble after collapse of Wall Street giant Lehman Brothers

By Nicola Boden and Karl West
Last updated at 4:36 PM on 15th September 2008

• U.S. bank Lehman Brothers files for bankruptcy
• Merrill Lynch in $50bn takeover deal
• FTSE 100 Index falls more than five per cent
• Bank of England injects £5bn into money markets
• Lehman forced to sack all 5,000 British workers

Global markets plunged today with the London Stock Exchange falling 200 points and the Dow Jones down a massive 300 after the collapse of U.S. bank, Lehman Brothers.
Shares in Britain's biggest mortgage lender, Halifax Bank of Scotland, fell by more than a third after the Wall Street investment giant filed for bankruptcy.
Its larger rival, Merrill Lynch, compounded the financial uncertainty by announcing it had agreed a $50bn takeover to avoid becoming the next credit crunch victim.
The Bank of England pumped an extra £5bn into money markets in a bit to stem the tide as markets tumbled. Its funds were immediately five times oversubscribed.
The European Central Bank also made 30bn euros (£23.8bn) available to banks to stem growing panic as the London Stock Exchange fell more than 280 points.

Turmoil: The FTSE plunged today after the world's fourth biggest investment firm Lehman Brothers said it was filing for bankruptcy
Lehman, which employs 5,000 workers in Britain, filed for bankruptcy at just before 6am. Workers at its London headquarters arrived to be told the company had folded.
They were not officially laid off but many were in no doubt about their fate and started packing up their belongings and heading home.
Thousands more jobs are in doubt after its neighbour Merrill Lynch announced its takeover deal with the Bank of America.
More...

• Tears and hugs as 5,000 bankers in Britain told to clear their desks after Lehman falls
• Lehman Brothers: The venerable giant which survived the 1929 Crash - but couldn't weather the credit crunch
• Now Manchester United's £56m shirt sponsor is on the verge of going bust
• Britain IS in recession and 500,000 will lose their job by the end of the year, CBI warns
• ALEX BRUMMER: Brace yourselves, the crisis is coming

Both forms, two of the biggest investment banks in the world, were forced to act after losing billions in investments on the U.S. mortgage market.
U.S. experts were ominously calling the events its worst financial crisis since the 1929 crash which ushered in the Great Depression.
Peter Peterson, co-founded of private equity firm The Blackstone Group who was head of Lehman in the 70s, said: 'My goodness. I've been in the business for 35 years and these are the most extraordinary events I've ever seen.'

Out: A banker carries his belongings out of the office in London after being told it had gone bankrupt
The dramatic events sent shock waves through the world's markets, with the FTSE falling 5.3 per cent to 5132,4 by midday.
Banks were the hardest hit. HBOS fell 36 per cent at one point. Barclays was down 17 per cent and Royal Bank of Scotland dropping nearly 16 per cent.
Asian and European markets were also pounded and the Dow Jones immediately slumped by 2.8 per cent on opening this afternoon.
By 4pm, the FTSE had risen again to around 170 points and the Dow Jones was down 199.2.
The meltdown has sharply increased fears a major recession is round the corner. The price of a barrel of crude oil fell by more than $6 to $91.36 because of falling demand from the rapidly slowing global economy.
The Bank of England's cash injection is the first time it has intervened since the bailout of fellow investment bank Bear Stearns in March.
It came after last-ditch talks failed to save Lehman and the U.S. Treasury refused to step in. The firm has posted losses of $613bn in what is thought to be the biggest bankruptcy in history.


Despondent: Stunned workers emerging from the Lehman Brothers' building in London after being told they are all out of a job
Another huge American financial institution and the world's largest insurer, American International Group (AIG) sparked further fears by asking the Federal Reserve for help.
Its unprecedented request for short-term financing was part of an emergency strategic plan after its shares fell nearly 50 per cent last week amid talk of a liquidity crisis.
Only last week The U.S. Treasury stepped in to rescue its two biggest mortgage companies, Fannie Mae and Freddie Mac, to avoid economic disaster.
One source described today's situation as 'Armageddon', predicting it could wipe up to 1,000 points off the value of the main U.S. stock exchange, the Dow Jones, later today.
Gordon Brown's spokesman said the Bank of England, Treasury and Financial Services were working with the U.S. financial authorities to contain the damage.
'The tripartite authorities are in very close contact with their U.S. counterpart and their international counterparts.
;What the events of this weekend show is that these are challenges affecting financial markets in every country across the world. These are clearly challenging global market conditions.'
Liberal Democrat Treasury spokesman Vince Cable warned more American intervention in the markets was likely given Merrill and Lehman's extensive securities.
They 'hold the security to trillions of dollars worth of derivatives, swaps, futures, options,' he said.
'If this pack of cards collapses, then the whole of the international financial system goes down with it so they are not going to be allowed to let it go bust. There will be an intervention.'


Collapse: Staff at the Lehman Brothers' building in New York leave with their belongings in boxes under the watchful eyes of security guards
Announcing it had gone bust this morning, Lehman said in a statement: 'The board of directors of Lehman Brothers Holdings International authorised the filing of the Chapter 11 petition in order to protect its assets and maximise value.'
Administrators of its UK arm, PriceWaterhouseCoopers, pledged to wind it up in 'as orderly a manner as possible'.
PWC partner Tony Lomas said: 'Because the group managed its funding on a global basis, the UK trading operation found itself unable to meet its obligations when the flow of funds dried up last night.
'Our priority now is to work with management and trading counterparties to agree the manner in which the assets and liabilities will be handled.'
Staff arrived for work at the company's UK headquarters in Canary Wharf, London, today, were unsure what awaited them but the worst was soon confirmed.
Koen Thijssen was the first employee back out of the building carrying a box of belongings but said there would be more behind him. 'This is it. I think it's going to be all of us,' he said.


Uncertain future: The Merrill Lynch building in New York today
The firm's demise could also affect millions of other Britons once the impact has filtered through to pensions. It will also increase the credit crunch squeeze on mortgages and could even derail the Government's attempts to relaunch the economy.
`I've been on Wall Street for many years, and I've never seen a weekend like this one,' said Michael Holland, 64, chairman and founder of New York-based Holland & Co.
'We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporized as we speak, unfortunately with the stock price of a number of companies involved in it.'
Alan Greenspan, the former chairman of the U.S. Federal Reserve, warned that he believes ‘we will see other major firms fail’.
He added: ‘We shouldn’t try to protect every single institution. The ordinary course of financial change has winners and losers.’
Enlarge
He described the current banking crisis as possibly the worst in a century – including the 1929 Wall Street Crash.
In a bid to offset further financial turmoil today, 10 investment and commercial banks launched a $70bn (£39bn) credit line to lend to firms struggling to finance their assets.
The Merrill Lynch deal was also a clear attempt to stem further economic problems.
Peter Goldman, portfolio manager at Front Barnett Associates in Chicago, said: 'What they are doing is shoring up the next domino. They are putting Merrill in as safe hands as possible to halt the downward spiral.'
Barclays and Bank of America were scared off from ‘writing a blank cheque’ for Lehman after the U.S. authorities refused to provide guarantees to protect them against potential losses from the stricken investment bank.
Barclays said today: 'We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders.'
The firm was put up for sale as concerns about its long term financial viability hammered the group’s shares. It reported a $3.9billion (£2.2billion) quarterly loss last week.
Increasingly desperate talks to save the bank continued late into the night, but came to nothing.
U.S. treasury secretary Hank Paulson had stepped in at the weekend to summon the bosses of rival Wall Street banks - Goldman Sachs, Merrill Lynch, Citigroup, and JP Morgan Chase - to emergency rescue talks.
They were asked to contribute to a fund that would buy Lehman’s £15bn-plus of ‘toxic’ investments in commercial property and mortgage-related assets.
This would have helped the authorities to clean up the troubled bank’s balance sheet and make it more appealing to those interested in buying the rest of it.
However, the Wall Street chiefs objected to being railroaded into taking on all of Lehman’s risky investments, while BoA and Barclays were offered the good bits on the cheap.
The involvement of the U.S. authorities follows the decision to ‘nationalise’ Fannie Mae and Freddie-Mac, but Mr Paulson was adamant that no taxpayer funds will be used to sort out Lehman.
This is because the authorities do not want to be accused of excessive risk-taking by bailing out yet another ‘irresponsible’ investment bank that took too many bad bets on the property market.

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AIG shares plummet as investors await rescue plan

Mon Sep 15, 2008 12:13pm EDT


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By Lilla Zuill


NEW YORK (Reuters) - Shares of American International Group Inc plunged 53 percent on Monday as investors grew increasingly nervous after the insurer, once the world's most valuable insurer by market value, failed to deliver a rescue plan.
AIG, hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, worked feverishly to hatch a plan that would stave off rating downgrades, after Standard & Poor's threatened to cut the insurer's ratings on Friday.
Other major rating agencies have also put the New York-based firm's credit ratings on negative watch.
Rating downgrades could force AIG to post up to $14.5 billion more in collateral for credit default swaps that insured mortgage-linked derivatives, according to a regulatory filing last month.
Downgrades could also prove detrimental to AIG's insurance business, since policies often carry clauses that nullify a contract in the event of downgrades below a certain level.
HELPING HAND?
According to reports late Sunday, the insurer turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and rating downgrades, but by Monday morning no details had emerged on a potential AIG rescue plan, which is also expected to include asset sales.
AIG scrambled to secure a Fed lifeline on one of the worst-ever days on Wall Street, with Lehman Brothers Holdings Inc filing for bankruptcy protection and Bank of America Corp's agreeing to take over Merrill Lynch & Co Inc.
AIG shares dropped $6.44 to $5.70 on the New York Stock Exchange, where it fell as low as $5.82. The shares have fallen 80 percent this year and closed Friday at $12.14.
Protection costs on AIG debt also surged. The upfront cost of insuring $10 million of AIG debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.
AIG may have solicited eleventh-hour help from billionaire Warren Buffett, according to a report in U.K. trade publication, the Insurance Insider.
A call to Buffett's Berkshire Hathaway Inc was not immediately returned.
AIG officials did not return calls seeking comment.
'PRISONER'S DILEMMA'
Several analysts said in research reports on Monday that AIG would likely be a vastly changed company after the much-anticipated restructuring. AIG said it has been considering "a wide range of options," including selling off valuable assets.
"At the end of the day, it's a real prisoner's dilemma," Wachovia analysts wrote in a research note. "Capital options are plenty, but unfortunately AIG will have to likely cut into bone and sell good assets that are earning good returns to support the collateral needs of bad assets earning nothing.
"We don't see how AIG gets through the most recent concerns without raising capital."
AIG does business in 130 countries and territories around the world, selling insurance to 74 million customers worldwide.
It also has an aircraft leasing arm, an asset management business, and a financial products unit. The latter holds a credit default swap portfolio that has triggered the large mortgage losses.
(Reporting by Lilla Zuill, additional reporting by Karen Brettell; Editing by John Wallace/Jeffrey Benkoe)
© Thomson Reuters 2008 All rights reserved

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Ten banks commit to $70 billion borrowing facility

Mon Sep 15, 2008 8:41am EDT

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Lehman collapse hits global system
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NEW YORK (Reuters) - Ten of the world's biggest banks on Sunday committed to establish a $70 billion borrowing facility to bolster worldwide liquidity and reduce volatility in what they called an "extraordinary market environment."
Each bank has committed to fund $7 billion for the collateralized facility, and any one of the 10 banks would be permitted to borrow up to one-third of the total facility, the banks said in a joint statement. The financing may grow "as other banks are permitted to join," they said.
The 10 banks are Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), Barclays Plc (BARC.L: Quote, Profile, Research, Stock Buzz), Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), Credit Suisse Group (CSGN.VX: Quote, Profile, Research, Stock Buzz), Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz), Merrill Lynch & Co (MER.N: Quote, Profile, Research, Stock Buzz), Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz).
In addition, the banks said they are working together to arrange an "orderly resolution" of derivative exposures between the stricken investment bank Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) and its counterparties.
The 10 banks said their action will be enhanced by the U.S. Federal Reserve's decision to accept a wider array of collateral for emergency loans, including equities for the first time. The Fed also said it would broaden the collateral it would accept from investment banks for direct Fed loans.
Ben Bernanke, the central bank's chairman, in a statement said the Fed's actions, "along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to the markets."
Lehman is widely expected to file for bankruptcy protection after attempts to seek buyers or a bailout failed. Bank of America is expected to announce a $44 billion purchase of Merrill, a person briefed on the matter said.
(Reporting by Jonathan Stempel; Additional reporting by Glenn Somerville in Washington, D.C.
© Thomson Reuters 2008 All rights reserved

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Wilbur Ross: Possibly a Thousand Banks Will Close
Topics:Banking
Sectors:Financial Services | Banks
Companies:Bank of America Corp | Merrill Lynch & Co Inc | Lehman Brothers Holdings Inc
By CNBC.com | 15 Sep 2008 | 02:12 AM ET
In an exclusive interview with CNBC.com, Wilbur Ross, chairman and CEO of WL Ross & Co., says he sees possibly as many as a thousand bank closures in the coming months. And this will create opportunities for investors.
"I do think a lot of the regional ones will (close), just as they did in the last savings and loan crisis in the 1990s," Ross said. (Watch the full CNBC.com exclusive interview with Wilbur Ross on the left)
Ross says he will be looking to pick up smaller distressed institutions. "There will be opportunities, but we will need federal assistance in them, because what we're mainly looking for is stable sources of deposits, not so much the loan portfolio."
Ross feels that there will be too many people willing to provide capital to the large financials, which makes them less of a bargain than smaller banks.
When asked about his views on Bank of America's
purchase of Merrill Lynch, Ross said that he didn't think that Merrill was in that dire a position.
"I think people in general felt better about Merrill's situation than about Lehman. I think ever since John Thain came in, he's done a wonderful job trying to fix what was a very difficult situation," Ross said.
He also noted that this was really now the second successful turnaround for Thain. "He (Thain)saved Merrill, went into BoFA ... Temasek, for example, went into something like a $5 a share profit out of this. So it's not a tragic ending."
"It will be very interesting to see where Thain ends up in the Bank of America hierarchy," Ross added.
© 2008 CNBC.com

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Calling US Bonds Home!!!

Saturday, September 13, 2008

Calling US Bonds Home!!!

More crucial than ever, observers must take the broader perspective that avoids overhearing the party on Wall Street. They know not what they celebrate. It is their demise. They rejoice over the collapse of mortgage bonds and now the mortgage centrifuge with a big fat fanny. They rejoice over collapse of Lehman Brothers. They rejoice over the disaster du jour offered at the financial lunch table. In the past two months, a remarkable sequence of events has taken place regarding US$-based bonds. They have been called home, a demand to be brought back to US shores. While Wall Street and the key financial USGovt ministries celebrate the rise in the USDollar that results immediately, few seem to realize that something much more important is happening. Imagine a company calling to the corporate laboratory all defective devices, in order to prevent them from exploding in customer faces. The lab sends the collection of destructive items into a remote abandoned field so they can explode safely. That is the analogy, except that the US financial arena cannot explode the USTreasury Bonds and USAgency mortgage bonds safely. As they crater, implode, or default, the system is killed.

In all likelihood the Bank For International Settlements in Basel Switzerland ordered the United States to call in USTreasurys and USAgencys, the bond instruments, the financial weapons of mass destruction. The BIS ordered the financial leadership to call their damaged risky debt securities home, so that they can explode on US soil, so that their greatest concentration rests on US soil, so that the maximum loss occurs to US institutions, so that the risk can be kept to a practical minimum for foreign nations. The benefits given to Americans are two-fold, one a bizarre paradox, the other an open door to steal.

THE BIZARRE USDOLLAR RALLY

When the USTreasury Bonds were purchased with powerful bids in a gigantic display by major global central banks (excluding Russia, China, Arabs), the USDollar broke through resistance levels easily. The volume was just too significant. The initial big move from 73 to 77 in the US$ DX index was powered by the unprecedented central bank purchase of USTBonds in July and August, as they tripled their usual volume pace. This is a vividly clear illicit market override. The latest big move from 77 to over 80 has been powered by the formal bailout of Fannie Mae & Freddie Mac. To call nationalization of this cratered corrupt colossus a positive for the USDollar is like calling the death of all your children a positive since it consolidates the family fortune. Take a close look at details of the bailout. Hidden from view is a giant severance package for Fannie Mae's CEO Daniel Mudd and Freddie Mac's CEO Richard Syron. They are to receive $14 million and $9.2 million respectively. They managed the corruption and slush funds well, supplying amply the USGovt friends and syndicate alike. Mission accomplished!



In truly perverse fashion, only in America, the USDollar is rallying as a prelude to a US financial system breakdown. Call it a blowoff top! The Wall Street carnival seems to celebrate anything to lift the USDollar, even recession and the death knell for USTreasurys. Nationalization is never a positive for financial prospects. A powerful reversal comes when intervention ammunition wanes and the reality of US bank system implosion returns. The rally could reach the 82 mark, if the reversal pattern reaches full completion. The three major factors pulling the US$ down are the bank losses, the housing decline, and the job loss situation. Nothing has changed with these factors, except they have worsened!

My position is unshakable. The financial structure of the Untied States is besieged by powerful bankrupt insolvencies. 1) USGovt federal deficits are exploding, from war, from handouts, from recession, from bailouts. 2) US trade deficits are chronic and have risen over $60 billion monthly, soon to worsen from the US$ rise rendering harm to exports. 3) US banks are insolvent, with congames the only force forestalling bankruptcy as they continue to distort their balance sheets, while showing inability to raise needed cash in their replenishment. 4) US homeowners are now increasingly living with loans that reflect negative equity, as the proportion sits around one third in such upside-down living rooms. In the next few months, all four wrecked pillars will worsen dramatically. Fundamentals drive the USDollar lower. An assault on the USTreasurys will put the US$ into No Man's Land.

The most dangerous reaction investors can make now is to believe the USDollar has begun a major new upleg. The second most dangerous reaction is to sell gold or silver into this climax of fraud, manipulation, bankruptcy, and protected larceny. The sun is soon to set on the Fascist Business Model network. Those who put leverage into their portfolios have forfeited their freedom to hold. The father of a friend down here in half sunny, half rainy Costa Rica just lost his $250k silver account. He had told me of his father's strong belief in silver and the wrecked US$ condition, but he was not even aware that his father had a silver futures account, not physical silver bullion or coins. He owned paper silver, bound by the illusion of wealth. Now Dad has no silver at all, as he liquidated after a few margin calls. A piece of the inheritance is gone. My Dad has significant bank deposits, which might be under a different strain as banks drop like flies this winter. My advised strategy since the beginning of the year has been to hold silver or gold in physical form, for at least one third of accounts, maybe more.

The uplift coming this autumn and winter will be historic, as new chapters will be written on the global financial rehabilitation and remake. The world is planning the post-US era, amused by the celebration taking place on Wall Street. It will wind down soon enough. The next chapter will be characterized by isolation, retribution, receivership, dismissed government, overriding supply contracts, and redrawn lines.

LICENSE TO STEAL

A time limit has been granted, with high likelihood via order given by the most powerful bank in the world. The US has been ordered to bring its bonds home, to be buried under an avalanche of nationalized debt, foreign vengeance, and bank system collapse. During that period of time, Wall Street has been given a free ride, a blank check, a certificate of impunity, to rig markets for their own gain, to pull credit from client accounts for their own gain, to do whatever they can to force liquidation of positions, to basically rape & pillage private accounts. The fraud has been protected by regulators at the Securities & Exchange Commission and the Commodity Futures Trading Commission, each staffed by Wall Street mafiosi. They are taking full benefit of the granted OPEN WINDOW TO STEAL, pulling gold below 750 and pulling silver below 11. The total split, the bifurcation described last week, has become even more laughable, stark, and obvious of Wall Street corruption of the precious metals market. The gold & silver owned (on paper) by folks has been taken. Since through corruption of the precious metals market, where supply is largely unavailable, call it theft, robbery, larceny. Call a spade a spade! Wall Street loves an investor panic. Do not give it to them. What infuriates me is the impunity. Wall Street firms have a license to corrupt markets and take money from people and businesses, as they are forced into liquidation or shrunk positions, often with credit pulled tactically. The regulators are sitting on their hands, permitting it all during this climax events of a fiesta. Banksters at the BIS are taken care of banksters inside the Untied States. A climax of theft is nearing an end.

THE DOOR SHUTS VERY SOON

On the week of September 15 thru 19, some initial events are anticipated to occur. An important event schedule will be initiated. The party and celebration and corrupt raids should come to an end abruptly. Many possible events are offered in conjecture in the September Hat Trick Letter, due out late this weekend. In all, 13 powerful shock wave events are suggested as possible. Foreigners are watching the tainted party, viewing it as staged atop the heavily listing Titanic vessel. The four pillars of insolvency, plus the looming credit derivative roof crumple, seem not to matter. The entire global playing field, related to commerce and finance, is soon to be reshaped, with the Untied States becoming a bit player, or not invited. The turkey carving is nigh.

When the events begin to unfold, one event will lead to another. Just like the Iraq War, a schedule does not adhere to a calendar, but rather to events. One event leads to released new pressures, factors to be made clear, obstacles to be removed (possibly forcibly), and the next event unfolds. My view of the sequence very simple is to reveal the big picture, RECEIVERSHIP & DEFAULT. The gold & silver prices will rocket higher. Part of the event schedule, down the road in time, not at an early stage, is the launch of the gold-backed Russian currency and the gold-backed Gulf dinar. These are not new news items, but well advertised and fully ignored by a dismissive US failing financial fortress. The gold & silver prices have become laughable. Very little supply was available in the low 800s for gold. Very little supply was available at 13 for silver. Now prices are lower. One should try to imagine the building rage by angry foreign owners of physical gold & silver, who look at the price schemes dominated by paperhangers on Wall Street, who use the printing press and electronic switchboards to create new counterfeit supply to sell. Foreigners seek justice, to stem the corruption, to stem the threat to global stability, both financially and militarily. Do Americans have much of any idea of the foreign perspective? Do they know about violated NATO treaties, and poking the Russian bear with sharp sticks repeatedly? Americans are soon to be given a fresh course in receivership. The opening salvo was Fannie Mae and the fat little brother Freddie Mac. Never in modern history has a widened pattern of nationalization been favorable to a currency!

Note that the Credit Default Swap on the USTreasury Bond itself has moved up 3.5 basis points in the last week to a record 18 basis points. In April it was 6 bpts. This is record territory. German Bund CDSwap protection costs only 8 bpts. The USTBonds have suffered from greater risk after assuming the Fannie & Freddie risk. The risk of USTBond default is next. Watch the CDSwap continue to rise, as the rest of the bailout candidates knock at the door. The precedent has been set. The door is open. The die has been cast toward deep decay of socialism. Add to insolvency exported fraud and aggressive military behavior, and the prescription for foreign reaction is huge. It is coming!

US BANKS READY FOR NEXT SHOCK

The end of the third quarter is coming, less than three weeks away. In Q2 the investment community was told that first quarter bank losses were the peak. Early in Q3, the investment community was told that again, bank losses had peaked, the worst behind us, the solutions have been forged. What a continuing crock! As we come toward the end of Q3, losses previewed by JPMorgan and Lehman Brothers will serve as opening salvos. Much worse news comes. Over a month ago, my chart analysis suggested the BKX bank stock pattern might soon reveal a pennant pause pattern as the quarterly end approached. We are here. The triangle pennant is forming, although it is a clear one. While all eyes are on Lehman, the big failure is likely to be Merrill Lynch. Both firms have failed to find idiots in SKorea to bail them out. The discovery phase was way too ugly, and they were too smart. Next the banksters from New York will turn to severe accounting distortions, sleight of hand, and other devious deceptions. The Lehman quarterly report was the biggest disaster imaginable, even though it was loaded with garbage methodology laced with hokus pokus. The last resort is liquidation, the dread by Wall Street banksters, since one failure could easily result in another rapidly. A liquidation fire sale of Lehman assets lies directly ahead, a huge threat to the congame. The Wall Street firms, since the Bear Stearns kill job, are all aligned in similar fashion, long US$, long USTBonds, short gold, short silver. A liquidation would force a big move in the reverse direction.



The latest economic myths are two: the USDollar is stronger and price inflation is gone. Neither is true. The foreign currencies have moved down, as their economies have slowed, as their own bank distress is evident. The US$ is a giant beneficiary of global debt liquidation, hardly a strength. The US$ rally is actually a signal of its imminent implosion or disappearance. As for price inflation, it is raging at 12.5% from the 2Q2008 according to Shadow Govt Statistics. The official heavily distorted CPI has posted back to back months above 5%. Suppressing the gold price via paper games does not constitute a repeal of price inflation. The biggest story on the price inflation front is the nationalization bailout of Fannie & Freddie mortgage giants. Even with no additional bailout beneficiaries (losers) such as General Motors or airline firms or even Citigroup, the price inflation inside the USEconomy will be magnificent next year. Some analysts expect the doctored CPI to rise above the 10% level.

Higher prices could come from storm effects. Hurricane Gustav inflicted some damage, but nothing significant. Hurricane Ike heads toward the heart of the oil platforms in the Gulf of Mexico, due to hit this weekend. Storm surge waves of over 15 feet (five meters) are forecast between Galveston and Houston Texas. Next year, look for a parade of lawsuits to be delivered as further tidal wave assaults on Wall Street. The Auction Rate Security case, successfully won, was just the beginning. In one year, look for most Wall Street firms to disappear. They have no business left, only managing liquidation, directing accounting fraud, and soliciting sucker bagholders to donate to their corrupt cause. This picture aint New York City, but it don't look good.

Sep 11, 2008
Jim Willie CB

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I can only hope the fed doesn't lower the rate today. I know they will however since it will harm everyone.

I think the fed should raise rates. Lets get this correction over with. We'll have a tough year or two, but come out healthy. Right now we're swirling down the bowl and Helicopter Ben is adding more water.

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Japan, China Join Central Bank Efforts to Calm Market
By Shamim Adam and Mayumi Otsuma


Sept. 16 (Bloomberg) -- The Bank of Japan added a total of 2.5 trillion yen ($24 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.
The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again.
Japanese bonds jumped, sending the yield on the benchmark 10-year bond to its biggest drop in five years on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.
``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. ``Precautionary steps are high on their list to prevent any significant impact and support their markets.''
The Bank of Japan added 2.5 trillion yen in two operations today. The overnight call loan rates traded at 0.54 percent at 2:10 p.m. in Tokyo after the second operation. It rose as high as 0.57 percent, according to Tokyo Tanshi Co. The central bank's target rate is 0.5 percent.
Today's increase in funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen.
Australian Rates
Australian one-month money market rates dropped 3 basis points to 7.21 percent today, the first decline in five days, after the Reserve Bank of Australia injected A$1.848 billion ($1.5 billion) to the financial system, adding to yesterday's $2.1 billion.
The European Central Bank, the Bank of England and the Swiss central bank also added liquidity yesterday. Three-month money market rates in Europe dropped 4 basis points to 4.25 percent yesterday, the lowest level since Aug. 27.
Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001.
``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank starts a two- day policy meeting in Tokyo today.
Bank of Korea
South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said before an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul.
The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to ``help calm market players.''
The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.
``The authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America N.A. in Tokyo. ``They have no choice but to try to calm the markets.''
Taiwan's Stocks
Taiwan's government instructed its four major funds and state-owned banks to buy shares to help reverse the stock market's slump. The index, which fell as much as 5.4 percent today, was 4.5 percent lower at 1:05 p.m. in Taipei.
Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent.
Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.
``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Last Updated: September 16, 2008 01:20 EDT

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WooHoo! They did the right thing!


-------------
Fed Keeps Rate at 2%, Rebuffing Call for Reduction (Update2)
By Scott Lanman and Craig Torres
Sept. 16 (Bloomberg) -- The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for a cut after Lehman Brothers Holdings Inc.'s bankruptcy shook markets worldwide.
``Downside risks to growth and the upside risk to inflation are both of significant concern,'' the Federal Open Market Committee said in a statement in Washington. ``The committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.''
Chairman Ben S. Bernanke and his colleagues noted that financial strains have ``increased significantly,'' signaling that they will continue to address the turmoil with emergency lending and aim monetary policy at a longer-term economic forecast.
Stocks initially fell after the decision, then rallied after a report that the central bank is considering a loan to American International Group Inc. That would be a shift from yesterday, when officials were inclined against providing funds.
``Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters,'' the FOMC statement said. ``Over time, the substantial easing of monetary policy combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.''
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Wall Street in crisis: 'This rivals 1929'

Theresa Tedesco, Financial Post Published: Monday, September 15, 2008



BloombergToronto stocks plunge as Lehman fails, oil drops.
The sturdy concrete pillars at the base of their lower Manhattan skyscrapers on Wall Street had long symbolized America's financial strength and stability. Hundreds of years of investment banking history had weathered the chaos of stock market crashes, the Great Depression, two world wars and several international currency crises. Yet it took a made-in-America mortgage debacle to help topple three of the five venerable independent investment banks -- Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Bear Stearns -- in just six months.

It seemed ironic that senior executives of the major investment banks, many of whom regularly convene to plot major mergers, takeovers and buyouts of other companies, gathered this past weekend in an attempt to rescue two of their own. Many of the these revered banking firms have storied histories in the United States, their corporate logos as common as the average brands consumed by Americans. The greed and wealth of those who ply their trades buying and selling stocks and engineering deals are the stuff of legend -- in fact, they have achieved such rich iconic identification in American culture that Tom Wolfe immortalized them in The Bonfire of the Vanities. To have reached such heights, and to have withstood so much, adds another layer of symbolism to this crisis.

"This crisis stands out because of its sheer scale, the monetary value, its complexity and the speed with which it is happening," said Robert F. Bruner, dean of the Darden Graduate School of Business Administration at the University of Virginia and co-author of The Panic of 1907: Lessons Learned from the Market's Perfect Storm.

For the past year, the U.S. housing crisis and the ensuing credit squeeze has engulfed stock markets, creating panic among investors and depositors, and, inevitably, a run on several banks.
As a result, Americans are losing homes they cannot afford, and the U.S. financial system is losing temples of capitalism it can no longer afford to prop up.

Clearly, Lehman and Merrill, distinguished institutions that have operated for 158 years and 94 years respectively, were plenty battle-worn. Like Bear Stearns before them, these investment banks were more deeply involved in the process that allowed hefty mortgages to get into the hands of unqualified homebuyers. Dazzled by the fees, it seems nobody worried about monitoring the quality of the loans, and whether the mortgage payments would be made.

The crisis was precipitated by the inability of borrowers to obtain more money to finance real estate in late 2006 and 2007. In other words, the system had reached its capacity to *finance the extraordinary boom in the U.S. real estate market.

Few would have thought a year later the U.S. Federal Reserve would be forced to bail out Bear Stearns, as it did in March, to much criticism. Two days ago, the Fed was in New York huddled in frenzied weekend meetings trying to save Lehman from bankruptcy, which failed, although Merrill was sold to Bank of America Corp.

"We've never seen a crisis with this complexity and speed before. This takes the prize," Prof. Bruner says.

According to him, the dollar figures may not be as large as in the stock market crash of 1929, which devastated the global economy. However, the complex transactions have created unprecedented levels of uncertainty in the marketplace. As well, technology has placed increased pressure on how organizations *respond, offering them less time to co-ordinate considered rescue plans.

"In absolute value of monetary destruction, this rivals what happened in 1929 and it exceeds the complexity and the speed of the unfolding crisis," Prof. Bruner explained.

Making matters worse is the lack of transparency. If every panic situation is a process of discovering how bad things really are, what prolongs it is not knowing when it will end.

"This is so dramatic because it's being driven by the U.S. housing market, which went crazy," explained Prof. Alan White from the University of Toronto. "It's the real economy stuff that is taking down the financial markets on Wall Street and that doesn't usually happen."
As seismic as the changes on Wall Street have been, some argue that these changes are healthy in the long run. Randall Morck, a finance professor at the University of Alberta, says that the troubled investment banks were victims of poor management, which overextended the institutions.

"Parts of the U.S. banking industry are in serious trouble and as soon as someone clears it out, the better to get the system running again," he said. "The big danger now is not overreacting; that can turn a moderate financial shock into a crisis."

But the rattled nerves on Wall Street may be well past that point.
Some have taken solace from the events of the past few days, saying that the collapse or involuntary sale of a large firm is usually a sign that a financial crisis has bottomed out. But that's surely what the regulators thought when they bailed out Bear Stearns in March. Maybe they didn't know how bad things were at the time. The question is, do investors have faith that they do now?
National Post
ttedesco@nationalpost.com

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Who's next after Lehman Brothers is fed to the wolves?


By Ambrose Evans-Pritchard
Last Updated: 2:47pm BST 16/09/2008

Have your say Read comments
One can date the onset of the Great Depression from December 1930 with the collapse of the Bank of the United States, a mid-size lender to the Jewish community in New York.
It is often alleged that the Anglo elites let the bank fail from motives of anti-semitic malice.

True or not, the consequences were dire for almost everybody. The failure set off a worldwide run on US gold deposits (ie, the dollar), and forced the Federal Reserve to raise interest rates into the slump. Some 4,000 lenders were ultimately driven to the wall.

We will find out soon enough whether the decision to throw Lehman Brothers to the wolves over the weekend was any wiser. Princeton economist Paul Krugman has accused the US Treasury and the Fed of playing "Russian roulette" with the financial system, warning that the shadow banking network could disintegrate within days.
· Read more by Ambrose Evans-Pritchard
· Capitalism - it's painful, but it works
· Is Britain heading for the worst recession since the 1930s?
· Gordon Brown's curse: did the prime minister kill Lehman Bros?
The hunting packs switched instantly to AIG yesterday, driving down its shares by 70pc in early trading. The world's biggest insurer is suddenly on the brink of collapse as well. The killer virus is striking deep into a whole new sector of the financial system.

"This is a potentially very dangerous situation," said Professor Tim Congdon from the London School of Economics.

"Banking system capital is being wiped out. The risk is that this could lead to a contraction of credit and set off a self-reinforcing downward spiral, leading to the sort of debt-deflation we saw in the 1930s.

"It is already clear that money growth has ground to a halt over the past three months. We must prevent it from actually contracting. If the Fed and European Central Bank don't cut interest rates soon, it is going to be a problem," he said.

When creditors cut off funding to Bear Stearns in March, the Fed reacted with dramatic speed. It invoked nuclear powers under Article 13 (3) of its charter, allowing it - in "unusual and exigent circumstances" - to take credit liabilities on to its own books for the first time since the Roosevelt era.

It was fiercely criticised for rescuing Wall Street from its own folly, but the risk was a meltdown in the vast, untested market for derivatives. Bear Stearns alone had over $13 trillion in contracts, with heavy exposure to the turbo-charged CDS credit swaps that so terrify the New York Fed.

Nobody was ready for a derivatives shock at that time. This time, hopefully, they are. The Bear Stearns bail-out gave the banks an extra six months to clean up their positions and lower exposure.

Hence the orderly unwinding of trades at an emergency session of the International Swaps and Derivatives Association on Sunday afternoon.
With the tail risk of a derivatives Chernobyl out of the way, the Fed and the Treasury at last feel safe enough to strike a blow against moral hazard. The line has to be drawn somewhere.

Unlike mortgage giants Fannie Mae and Freddie Mac, broker dealers are not crucial pillars of the US housing market. Lehman is an optimal candidate for ritual sacrifice.

While the appearances of free market discipline have been upheld, the reality of the weekend events is a further lurch towards socialism, or state capitalism if you prefer.

The Fed's lending window has been widened, allowing all forms of investment grade paper to be used as collateral in exchange for taxpayer credit.

Even equities are now admitted, though under a disguised formula. "With investment banks falling like ninepins, the Fed may have decided that it would be prudent to provide some official underpinning for equity market values and hope to avoid a stockmarket collapse," said Stephen Lewis, chief economist at Insinger de Beaufort.

Yet the dangers remain acute, even after the move to shield Merrill Lynch from contagion by orchestrating a shotgun wedding with Bank of America.

The credit crunch is about to bite deeper. The interest rate on Tier 1 debt for typical banks has jumped by 125 basis points since Friday. "This is a violent effect," said Willem Sels, credit strategist at Dresdner Kleinwort.

The closely-watched Libor/OIS spread on three-month money in the US has risen to 105 basis points, pointing to a lending crunch over the winter. Europe's iTraxx Crossover index measuring default risk on junk debt has surged to over 600.

"There is a flight to quality. People are hoarding liquidity and this is going to prove very damaging. What concerns me is that the banks refused to take on Lehman's bad assets even at a low valuation, and that tells you they still don't know where the clearing level is for this mortgage debt," he said.

As this newspaper has long feared, the world is now faced with both a tightening credit squeeze and a synchronised hard-landing across most of the world economy.

The eurozone and Japan are almost certainly in recession already. Britain will follow soon.

America is plummeting into a second downward leg as the fiscal stimulus package fades and the exports mini-boom stalls. China cut interest rates yesterday following a sharp fall in property prices over the summer.

Superficially, one can blame Lehman and its ilk for the excesses that led to this crisis.

However, the root cause lies in the actions of governments across the Western world. They held interest rates too low for much of the past two decades, and encouraged the debt burden to explode to unprecedented levels.

This reckless experiment has left our societies acutely vulnerable to a sudden reversal of debt issuance, or ''deleveraging" as it is known. The ferocious purge now under way will come at a high human cost. Millions in Britain, Europe, the US, and the rest of the world will lose their jobs over the next two years, through no fault of their own.

Having caused this crisis, it would now be remiss for governments to pursue a policy of strict debt liquidation in the name of capitalist purity.
As the bankruptcies mount, the state will have an obligation to step in to preserve social stability. If that means the temporary nationalisation of large chunks of the Western economy, so be it.

This is too grave a crisis for ideological preening and free market infantilism. May those calling for debt liquidation ''a l'outrance" be the first in line to lose their jobs.

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AIG Faces Cash Crisis
As Stock Dives 61%
SEPTEMBER 16, 2008

By MATTHEW KARNITSCHNIG, LIAM PLEVEN and SERENA NG

American International Group Inc. was facing a severe cash crunch last night as ratings agencies cut the firm's credit ratings, forcing the giant insurer to raise $14.5 billion to cover its obligations.

With AIG now tottering, a crisis that began with falling home prices and went on to engulf Wall Street has reached one of the world's largest insurance companies, threatening to intensify the financial storm and greatly complicate the government's efforts to contain it. The company, whose stock fell 61% yesterday, is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system.
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AIG has been scrambling to raise as much as $75 billion to weather the crisis, and people close to the situation said that if the insurer doesn't secure fresh funding by Wednesday, it may have no choice but to opt for a bankruptcy-court filing.

"The situation is dire," a person close to AIG said.
Many market participants have been anticipating a government-led rescue. So far, however, the U.S. has been reluctant to step in, preferring instead to broker a private-sector solution.

The Federal Reserve hosted a meeting to discuss AIG's prospects at the central bank's offices in New York on Monday with company executives, bankers as well as state and federal officials.

With strong encouragement from the Fed, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. are seeking to raise $70 billion to $75 billion in loans to help prop up AIG, according to people familiar with the situation. Word of AIG's efforts to borrow that much sent the stock market tumbling in the last hour of trading.

The company turned to the government in earnest after a weekend where intense efforts failed to produce a plan to raise roughly $40 billion in capital. The worsening crisis has now forced the firm to seek considerably more, underscoring its precarious position. AIG needs the money to sidestep a potentially fatal downgrade by credit-rating firms.
The downgrades by Moody's Investors Service and Standard & Poor's mean that AIG's counterparties, or trading partners, can demand that it post an additional $14.5 billion in collateral, according to a filing AIG made with the Securities and Exchange Commission in August. It is not clear how quickly AIG would have to produce those funds. In addition, AIG or its counterparties could demand early termination based on the downgrades, resulting in payments of up to about $5.4 billion, the filing said.

One sliver of optimism for AIG last night was that much of its exposure is related to credit default swaps, insurance like contracts tied to corporate defaults. AIG's counterparties on these instruments include Wall Street firms, which may have an incentive not to immediately demand more collateral so as not to trigger a wider panic. Such collateral could come in the form of cash or liquid assets such as government or municipal bonds.

Crisis on Wall Street

• AIG, Lehman Shock Hits World Markets
• Old-School Banks Emerge on Top
• Complete Coverage: Wall Street in Crisis

But many of AIG's counterparties are based in Europe and Asia and may have less interest in helping to prop up the firm. The market for credit default swaps is immense, trading against about $62 trillion of debt. Some participants in the largely unregulated market worry that the default of a major player such as AIG could trigger chaos.

On Monday, many of AIG's bonds traded at levels more reflective of junk bonds that are on the verge of default. Some of the bonds traded at less than 50 cents on the dollar, having fallen from more than 80 cents last week. In the market for derivatives contracts that provide protection against debt defaults, investors were agreeing to pay $2.5 million upfront plus $500,000 annually to hedge against a default of $10 million in AIG's debt over five years, according to data provider CMA DataVision. The cost is so high because sellers of the protection want to be adequately compensated for taking on the risk.

Analysts believe that AIG's insurance businesses remain healthy. But losses elsewhere, linked to subprime mortgages, have helped make the major credit-rating agencies skeptical of its ability to raise enough capital to offset the losses.

In New York, where AIG is based, Gov. David Paterson announced Monday that state officials are working with the insurer on a plan that would allow the firm to, in effect, loan itself $20 billion, by borrowing against its assets. The state would allow the company to shift assets that are subject to tight regulation in order to give the company better liquidity in the short term.

The private loans facilitated by banks, should they become available, would provide a huge measure of relief to AIG. The insurer had sought a bridge loan from the Fed to tide it over until it was able to sell some assets, but Fed officials are not inclined to provide one, especially right after spurning Lehman Brothers. The Fed's failure to come to Lehman's aid forced the firm to file for Chapter 11 bankruptcy protection Monday.

At a midday news conference, U.S. Treasury Secretary Henry Paulson said AIG's meetings with federal officials had "nothing to do with any bridge loan from the government" and rather represented a private-sector effort that was important to the "financial system."

Indeed, the company's woes could pose problems in many corners -- a concern that has the federal government on watch. AIG's massive assets mean that its millions of traditional insurance customers will likely get claims paid, no matter what happens next. But AIG's shares and debt are widely held, and the firm is used by many companies world-wide to manage a range of risks, including exposure to investments in subprime mortgages. Its demise would potentially make it harder or more expensive for businesses to control their risks.

Hammered Stock
AIG had hoped to have a comprehensive plan in place before the start of trading on Monday. It was unable to broker a deal in time and made no public pronouncements about its plans. Each day lost can make it harder to craft a solution. On Monday, nervous investors continued to hammer its stock. AIG's share price closed at $4.76 in 4 p.m. composite trading on the New York Stock Exchange, down $7.38, and is down 92% for the year. The lower the stock price, the harder it can be for the firm to raise capital.

AIG's businesses include selling life and property-casualty insurance policies. It operates in more than 100 countries around the world. With more than 100,000 employees world-wide, AIG has a sprawling portfolio of companies that also includes units that make consumer loans and lease aircraft.

AIG's business selling credit protection against the possibility of default in a variety of assets, including subprime mortgages, set it apart from most other insurers and tied it more closely to the fate of the housing and credit markets.

When the housing market began to spiral downwards, the value of those contracts plunged. That issue is at the heart of AIG's massive losses, which have totaled $18 billion over the past three quarters.

The losses have put the company over a barrel. To raise money, AIG in recent days has explored selling off valuable units. The company, for instance, is looking into selling AIG Variable Annuity Life Insurance Co., which provides retirement services, according to a person familiar with the matter. An AIG spokesman declined to comment.

AIG has also held discussions in recent days with private-equity firms about providing an infusion of cash. But some firms balked at putting in money absent a Fed bridge loan, and at this point, private-equity firms such as TPG and Kohlberg Kravis Roberts & Co. are more interested in buying specific AIG assets rather than contributing money to a capital infusion, according to people familiar with these firms' thinking.

The company also talked with Warren Buffett, chairman of Berkshire Hathaway Inc., which has a number of insurance businesses. The talks didn't result in specific plans, and it wasn't clear if they were ongoing.

Striking Situation
The problems confronting AIG are especially striking because the company is so large. At the end of the second quarter, its assets exceeded its liabilities by $78 billion. But most of those assets are held by its insurance subsidiaries, as guarantees that they will be able to pay claims.



As a result, those assets can't be liquidated to meet the company's other obligations, such as those associated with the recent losses. AIG raised $20 billion earlier this year, but it's not clear how much of that it still has on hand. And if ratings agencies downgrade it, the company could have to come up with at least $10 billion, and perhaps as much as $18 billion.

That is one way loans from banks or New York state's moves could aid the company -- by giving it short-term cash while it works on longer-term efforts to raise money, such as by selling assets.

In New York, Insurance Superintendent Eric Dinallo is working with AIG on efforts to shift around assets that it could use to help raise cash. Insurance companies operate under strict regulations about moving assets among subsidiaries, in order to guarantee that they can meet their obligations to policyholders.

New York, though, may allow AIG to move certain assets that are harder to liquidate quickly into its insurance subsidiaries, where they would back up possible future claims, and then shift more easily tradable assets, such as municipal bonds, to the parent company. The parent company could then borrow against those more liquid assets, which could in turn help ease its needs for cash in the short term.

—Susanne Craig, Jon Hilsenrath, Aaron Lucchetti and Peter Lattman contributed to this article.

Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com, Liam Pleven at liam.pleven@wsj.com and Serena Ng at serena.ng@wsj.com

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Bank customers urged not to panic

All comments (1)

• Miles Brignall
• guardian.co.uk,
• Monday September 15 2008 11:51 BST
• Article history

No need to pack the flask: Savers have been advised their money is safe. Photo: AFP

Bank customers in the UK were today urged not to panic about the safety of their savings as bank shares took a hammering in the wake of the collapse of American firm Lehman Brothers.

The investment bank was forced into bankruptcy after rescue talks failed, sparking fears that the credit crunch may claim more victims before it ends.

The news is likely to concern savers, and comes almost exactly a year since news of the Bank of England's emergency funding led to a run on Northern Rock.

However, Angela Knight, chief executive of the British Bankers' Association, moved to reassure UK savers their money is safe.
"Undoubtedly this is a momentous day, but it's important to note that Lehman's was an investment bank, and as such it's impact will not be felt directly by bank customers over here.

"Over the last year, the UK's banks have been recapitalised and are now on a sound footing. These events are once again closely allied to the US housing market - there is no need for anyone to start withdrawing their money, and we are not expecting anyone to do so," she said.
Despite her comments, market traders continued to offload banking shares, with HBOS - which owns Halifax and the Bank of Scotland - taking the biggest hit.

By mid-morning its shares were down 36% as traders speculated who would follow Lehman, Merrill Lynch and the insurance giant AIG into serious financial difficulties. Royal Bank of Scotland shares were down 14%.

A spokesman for HBOS said: "Like all the other banks we've been caught up in the fallout from Lehman's collapse. We are a very strong financial institution and one of the country's largest savings providers with a very strong capital position, something that was borne out last week when Goldman Sachs said we had the highest core equity tier ratio of any UK bank. There is no need for savers to panic."

Last week, Nationwide building society stepped in to save both the Cheshire and Derbyshire building societies after it emerged they didn't have sufficient funds to carry on trading. Other societies are though to be similarly at risk and could also seek help over the coming months.

The Building Societies Association declined to comment this morning.
Since the Northern Rock crisis the government has sought to shore up the Financial Services Compensation Scheme (FSCS), offering protection to 100% of the first £35,000 held by customers in savings accounts, and consulting on increasing the level to £50,000.

Consumer confidence in big companies has been severely tested in recent weeks. While many consumers have grown inured to the post-credit crunch banking crisis, the collapse of the holiday firm XL group has added to growing concerns about the state of the economy.

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Wall Street
More Financial Turmoil To Come
Oxford Analytica 09.15.08, 10:45 AM ET

The collapse of Lehman Brothers, and attendant weakness of other major financial institutions, has now produced perhaps the worst U.S. financial crisis since the banking panic that faced former President Franklin Roosevelt at the beginning of his administration in March 1933.

The uncertainty created by the reluctance of the Treasury and Federal Reserve to subsidize the acquisition of Lehman (along the lines of JPMorgan Chase's March takeover of Bear Stearns), and the process of unwinding Lehman's huge portfolio of securities and derivatives trades, is likely to produce a major surge in counter-party risk aversion. The resulting unwinding of leverage and flight to quality threatens to destabilize the global financial system, which may thus be facing a period of rapid change and re-regulation.

Regulatory response. Market anxiety has been heightened by the government's unwillingness to prevent the failure of such a large investment bank. Measured by assets, Lehman is larger than Bear Stearns before its March 16 collapse. This has increased uncertainty, as Wall Street has been left to guess how large an institution must be before regulators deem it to be "too big to fail."

Treasury Secretary Henry Paulson, a former chief executive officer of Goldman Sachs, understands the risks posed by such uncertainty. However, with other, much larger U.S. thrifts and insurers in an increasingly precarious financial position, he has been increasingly reluctant to put taxpayers' dollars at risk backstopping less than indispensable institutions.

Spreading contagion.
The bankruptcy of Lehman Brothers , combined with the potential insolvency of the insurer American International Group threatens to saddle financial institutions around the world with new losses. Those could come if Lehman's creditors dump its poorer-quality investments onto markets, forcing investors who own similar securities to write-down their value, or AIG's contracts in credit default swaps, a type of insurance for securities, become worthless. Another concern is that financial regulators outside of the United States may lack resources to bail out institutions in their jurisdictions.

Back to basics?
Undoubtedly, the financial sector is likely to see important mergers and acquisition activity as the crisis persists.

A larger question is whether more traditional banking interests with access to retail deposits will acquire independent broker dealers, such as Goldman Sachs and Morgan Stanley--the two remaining independent players. In the last decade, investment banks have increasingly become hedge-fund-like entities, utilizing high degrees of leverage and making significant income from proprietary operations. With more traditional banking interests retaking the lead, major players are likely to be seen taking less risk. High-risk/high-leverage activity will continue, but in the boutique market (i.e., hedge funds).

Shadow banking?
The bigger worry is the state of the shadow-banking sector-- hedge funds and structured investment vehicles.

These entities tend to have short-term liabilities, while their assets are long-term, and in many cases illiquid. As primary brokers continue to have their own difficulties, it will be harder and harder for them to service this sector.

In the short-term many of these will likely fail. Whether their counter-party risk is enough to cause further knock-on effects remains uncertain.

Coordinated response?
The toolkit for monetary and fiscal policy remains relatively constrained at the moment. A continuation of the crisis might manifest more policy coordination among major central banks, though a coordinated fiscal response remains unlikely.

Given inflation pressures have eased as commodity prices continue their decline, central banks may feel inclined to lower interest rates sooner.

It appears likely that the Fed may lower rates following its decision to relax its the collateral quality requirements associated with its existing term-auction facility.

The ECB and Bank of England could also reduce interest rates, having today already injected close to $50 billion into the financial system.

Wither recovery?
Even if the immediate systemic risks posed by Lehman's failure are contained, a U.S. (and global) economic recovery is not a near-term prospect. Stabilization of the U.S. housing market is a necessary condition for the end of the global credit crisis--given that most of the problematic assets that trouble the balance sheets of major financial institutions are linked to U.S. housing.

However, there is little indication that U.S. housing prices will stabilize until mid-2009, at the earliest. This means that banks and financial firms face further write-downs, greatly increasing the chances of additional failures.

To read an extended version of this article, log on to Oxford Analytica's Web site.

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Fed rides to rescue yet again

Buys 80% stake in insurance giant AIG with $85 billion loan

By Greg Burns | Chicago Tribune correspondent
September 17, 2008
Uncle Sam did it again, using taxpayer funds to rescue a financial giant.

The Federal Reserve announced a deal Tuesday evening to pump billions into American International Group Inc., a huge New York-based insurance company on the verge of collapse. The Fed will lend the troubled firm $85 billion in exchange for an 80 percent equity stake and the right to veto dividend payments to shareholders.

The government's extraordinary move to commit so much money to take control of an international company that was otherwise headed for Chapter 11 underscores the scope of a financial crisis that started with risky housing loans a year ago and led to plummeting home values, failures on Wall Street and the specter of recession.

In a statement, the Fed said that propping up AIG is the best course for the country. A "disorderly failure" would have made the financial markets even more fragile and hurt the economy through higher borrowing costs and "reduced household wealth," the Fed said.
The agreement will enable AIG to stay in business without interruption, a benefit to other financial players counting on the insurer to back up their troubled loans.

But the move comes with controversy. Already this year the government orchestrated the bailout of the Bear Stearns investment bank and seized the Fannie Mae and Freddie Mac mortgage companies. Then, over the weekend, it declined to intervene in the collapse of Lehman Brothers, a bank similar to Bear Stearns, raising questions about its criteria for deciding when to step in.

Critics have said the government's willingness to pump funds into Wall Street will encourage excessive speculation. Risk-takers will feel at least partly shielded from the consequences of bad decisions, while enjoying the rewards from bets that work in their favor.

"Extraordinary times sometimes require extraordinary measures," said Diane Swonk, chief economist at Mesirow Financial, "but sometimes you have to worry about unintended consequences."

No one knows where the bailouts will end. Automakers have sought relief, and many financial companies are teetering on the brink of failure, including behemoths such as Washington Mutual, the biggest U.S. thrift.

In the case of AIG, Fed Chairman Ben Bernanke, with the support of Treasury Secretary Henry Paulson, determined that a collapse would have spread too many losses to financial institutions across the globe.

The Fed also suggested that it cut a good deal on behalf of taxpayers. In exchange for the loan, AIG pledged all its assets and agreed to sell its sprawling businesses to pay back its debt. An "orderly" sale will lead to "the least possible disruption to the overall economy," the Fed said.

AIG, with $1 trillion in assets, piled up net losses totaling $18.5 billion in the past three quarters on write-downs tied to the collapse of the U.S. subprime mortgage market.

In recent months, the AIG juggernaut had become the equivalent of "house poor," said Jack Ablin of Harris Private Bank in Chicago. It had valuable assets but couldn't raise cash because other big financial institutions wouldn't make deals with it. In fact, those institutions were petrified that AIG would not make good on the deals they already have.

AIG had become critically important to its fellow financial firms because it supplies insurance that pays off if borrowers fail to pay. Banks are counting on those insurance policies — known as credit default swaps — to shield them from losses if mortgages and other loans go bad.

Of course, loans are going bad all over as real-estate markets tank. Wall Street's top firms and the biggest companies in Europe and Asia have bought protection on $441 billion of fixed-income assets from AIG.

If those firms lost the AIG safeguard, they would have been forced to mark down their assets. That would have reduced the capital on their books, leaving them less able to extend loans.

"As the banks take write-downs, there's more pressure to raise capital, and it's not easy to raise money for anything right now," explained Patrick Arbor, a former Chicago Board of Trade chairman and director of First Chicago Bank & Trust.

So, could the failure of one key firm conceivably suck the oxygen out of global economic growth? As Ablin explained, "That's the domino effect."

Former Securities and Exchange Commission Chairman David Ruder said he considers the economic risk posed by a failure of AIG greater than that of the 1987 stock market crash.

It would have had "more potential for damage to the economy," said Ruder, now an emeritus law professor at Northwestern University. "If the credit markets fail, no one will lend money to anybody, and the system won't work."

William Neikirk and Bloomberg News contributed to this report.

gburns@tribune.com

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Washington Mutual cut to junk by S&P

Mon Sep 15, 2008 9:05pm EDT
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NEW YORK (Reuters) - Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz), was downgraded to "junk" status on Monday by Standard & Poor's amid concern about mortgage losses, causing shares of the largest U.S. savings and loan to slide after-hours following a 27 percent plunge in regular trading.

The credit rating agency lowered the Seattle-based thrift's credit rating to "BB-minus," three notches below investment grade, from "BBB-minus." It cut its rating on Washington Mutual's banking unit one notch to "BBB-minus" from "BBB." S&P's outlook is "negative," indicating another cut is possible within two years.

Washington Mutual responded that none of its unsecured debt is subject to ratings-based financial covenants and that it does not expect the downgrade to have a material impact on its borrowings, collateral or margin requirements.

The company sees its capital levels at the end of the quarter significantly above the levels required of "well capitalized" institutions and that it has not changed its outlook for expected credit losses.

The announcement followed downgrades last week by Moody's Investors Service and Fitch Ratings. Moody's also cut the thrift to junk, while Fitch still rates it investment grade.

Washington Mutual on September 11 said it expects to set aside $4.5 billion in the third quarter for loan losses, down from $5.9 billion in the previous quarter. The thrift has reported $6.3 billion of net losses in the last three quarters.

"Increasing market turmoil and the related impact from managing its concentrated mortgage franchise in this troubled housing and credit cycle led to the downgrade," S&P said.

S&P also expressed concern about the thrift's share price, which has fallen 94 percent in the last year, and said "it increasingly appears that market conditions could overtake credit fundamentals and leave the company with greatly diminished financial flexibility."

Washington Mutual nevertheless has "adequate capital positions from a regulatory perspective," with a stable deposit base, S&P said.

Last week, the thrift said retail deposits as of August 31 were "essentially unchanged" from $143.6 billion at the start of the year.

In its statement the bank also said it has "de minimis" trading exposure to Lehman Brothers Holdings and no trading exposure to AIG. It has a maximum exposure to any one institution of $40 million.

Shares of Washington Mutual closed Monday down 73 cents at $2 on the New York Stock Exchange, following the bankruptcy of Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), which also had heavy mortgage and real estate exposure. The shares fell another 20 cents, or 9.5 percent to $1.80 after-hours.


(Reporting by Jonathan Stempel; Additional reporting by Karen Brettell; Editing by Marguerita Choy and Bernard Orr)


© Thomson Reuters 2008 All rights reserved

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City to lose 110,000 jobs as credit crisis escalates

By Rowena Mason and Jon Swaine
Last Updated: 9:04am BST 17/09/2008



More than 110,000 people working in banking and financial services will lose their jobs over the next year, according to economists.
The prediction came as employment prospects in the City took a dive, with 4,500 jobs losses at the collapsed bank Lehman Brothers and thousands more threatened by the takeover of rival bank Merrill Lynch.

Meanwhile union leaders warned that long-term unemployment - the number of people out of work for at least a year - could almost double to 700,000 by the end of next year, while the overall jobless figure could hit two million.

The forecasts suggest that an era of low unemployment - a key underpinning of the Labour Government's economic strategy - will soon be ended, increasing the likelihood that Britain will slide into recession.
They are also likely to increase pressure on the Bank of England to cut interest rates in an attempt to stimulate the economy.

The economists, from the Hay Group and the Centre for Economic and Business Research, warn that "UK Plc is on the back foot" and that almost a third of all job cuts will fall in the financial sector.

Hay Group's associate director, Russell Hobby, said redundancies would be the most common form of job losses, but mergers and bankruptcy could also play a significant role.

"We are predicting big job losses from a few of the big firms, probably about five to 10 large hits and a trickle of cuts at smaller firms too," he said. "I think on a macroeconomic level, we are beyond the point where anything can be done to stop it."

Brendan Barber, the TUC general secretary, said: "Employment levels have remained high despite the recent economic turbulence and are nowhere near the dark days of 1992, when nearly three million people were unemployed.

"However, the TUC is concerned that unemployment has been sneaking up in the last few months and it's up to unions, employers and the Government to halt and reverse this trend as soon as possible.
"With unemployment rising, people are looking to the Government for a response and economic measures will be far more welcome than yet another round of welfare reforms.

The Hay researchers found that many large companies would rather make job cuts than reduce bonus payments or tackle expected wage rises of 5.2 per cent. "This was the thing that surprised us most," Mr Hobby said.

"We need to see stronger signs of collective leadership in the finance sector. There is still a culture of risk-taking, but maybe when people start to wonder whether their job will be next to go, they will stop behaving in this way."

Howard Archer, the chief economist at economic consultancy Global Insight, said events of the past few days had done nothing to calm already grave worries about job losses.

"Obviously the employment situation in the City is looking decidedly dodgier after events at Lehman," Mr Archer said.
"I do think a lot of these problems we are seeing are going to take a long time to work through. I suspect there are going to be more collapses in the City and an increase in global restructuring will mean a lot of redundancies."

The predictions are published days after the Confederation of British Industry also said it was worried the UK's unemployment levels could rocket to more than two million next year.

Meanwhile the number of new job vacancies within the City of London in August was 34 per cent than at the same point last year, according the Morgan McKinley London Employment Monitor.

Just 6,867 jobs were on offer, compared to 10,458 the year before. Robert Thesiger, the chief executive of Morgan McKinley's parent company, Imprint, said: "The momentous events of the last few days have changed the landscape of not only London's but also the global financial services sector."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/17/bcnjobs117.xml

[Jag]

Another nightmare on Wall Street: Dow down 450

By ELLEN SIMON, AP Business Writer 31 minutes ago



NEW YORK - The stock market took another nosedive Wednesday as the American banking system appeared even shakier and investors worried that the financial crisis is spinning so far out of control that even government rescues can't stop it.

The Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the days after the Sept. 11 attacks, lost another 450 points. About $700 billion in investments vanished.

One day after the Federal Reserve stepped in with an emergency loan to keep American International Group Inc., one of the world's largest insurers, from going under, Wall Street wondered which companies might be the next to falter.

A major investor in ailing Washington Mutual Inc. removed a potential obstacle to a sale of the bank, and stock in two investment banks, Morgan Stanley and Goldman Sachs, was pummeled.

It was the fourth consecutive day of extraordinary turmoil for the American financial system, beginning with news on Sunday that another venerable investment house, Lehman Brothers, would be forced to file for bankruptcy.

The 4 percent drop Wednesday in the Dow reflected the stock market's first chance to digest the Fed's decision to rescue AIG with an $85 billion taxpayer loan that effectively gives it a majority stake in the company. AIG is important because it has essentially become a primary source of insurance for the entire financial industry.

As the stock market staggered, the price of gold, which rises in times of panic, spiked as much as $90.40 an ounce. Bonds, a traditional safe haven for investors, also climbed.

"The economy is not short of money. It is short of confidence," said Sung Won Sohn, an economics professor at California State University.

The financial stocks in the Standard & Poor's 500 dropped even more, falling 10 percent, and insurance that backs corporate debt soared for the last two surviving independent U.S. investment banks, Morgan Stanley and Goldman Sachs.

"It seems as though banks are hoarding cash, no matter what rate they could be lending it at," said David Rosenberg, North American economist at Merrill Lynch.

Markets around the world also tumbled, with stocks dropping from Hong Kong to London. Brazil's benchmark index saw the largest drop, losing nearly 7 percent in a day.

Worse, the short-term credit markets remained frozen, with overnight interest rates soaring for loans between banks and for overnight loans to businesses. Long-term loans, however, didn't rise as much.

"The worry on short-term loans is you're not sure who the ultimate borrower is," said Brian Bethune, chief U.S. economist at Global Insight Inc.

And in case anyone needed additional symbolism, a glass panel near the top of a Bank of America skyscraper in Midtown Manhattan fell more than 50 stories onto the street below and shattered. No injuries were reported.

In the United States, the faltering economy and banking system have begun to dominate conversations at dinner tables, bars and online, not to mention seizing the campaign trail.

One blogger, Michele Catalano of Long Island, posted this on Wednesday: "Dreamed about AIG and the stock market, woke up with the urge to stock up on canned goods and shotguns."

Mortgage rates, which had fallen after the government's takeover of Fannie Mae and Freddie Mac, rose again, removing a glimmer of hope that the housing crisis, the kindling for the broader financial meltdown, was hitting bottom.


And new statistics showed that construction of new homes and apartments fell a surprising 6.2 percent in August to the weakest pace in 17 years.

The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.

Treasury officials said the action did not mean that the Fed was running short of cash, but simply was a way for the government to better manage its financing needs.

Separately, the Securities and Exchange Commission tightened rules on short selling, the practice of betting that a stock will fall.

A $62 billion money market fund — Primary Fund from Reserve — on Tuesday saw its holdings fall below its total deposits, a condition known as "breaking the buck" that hasn't happened to a money market fund since 1994, Rosenberg said. Money market funds are supposed to be conservatively invested and almost as safe as cash.

Democratic presidential nominee Barack Obama appeared Wednesday in a two-minute commercial to outline his economic plans and caution it won't be easy to fix the nation's worsening financial problems.

"The truth is that while you've been living up to your responsibilities, Washington has not," he said.

Republican John McCain's running mate, Alaska Gov. Sarah Palin, said of the AIG move: "It's understandable but very, very disappointing that taxpayers are called upon for another one."

The Dow fell 449.36 to 10,609.66, finishing near its lowest point of the trading day. The index is down more than 7 percent just this week and more than 25 percent since its record close less than a year ago, on Oct. 9, 2007.

Stock in Washington Mutual fell 13 percent, dropping 31 cents to $2.01 amid reports that the government was trying to find a buyer for the bank, which has been battered by bad home loans. It lost $3.3 billion in the second quarter.

Many economists worried about the unintended consequences of the Fed's actions.

"Every time that umbrella widens, it gets heavier and heavier for those holding it up — which is the taxpayer," said Bernard Baumohl, chief economist at the Economic Outlook Group in Princeton, N.J.
"With most Americans now preoccupied about their own future job security, the one thing they do not want to hear is how they will end up paying the bill for poorly managed companies," he said.

http://news.yahoo.com/s/ap/20080918/...Jlgyzfnz.s0NUE

Jag

[Jag]

Bloomberg warns of possible 'next wave' crisis

By DEVLIN BARRETT, Associated Press Writer 1 hour, 57 minutes ago


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.

The billionaire mayor spoke before an audience at Georgetown University, telling them it's not clear who is going to continue buying U.S. debt as financial firms try to cope with a crisis of confidence on Wall Street.

The mayor is scheduled to meet Thursday morning with Treasury Secretary Hank Paulson and Securities and Exchange Commission Chairman Chris Cox.

Before becoming mayor, Bloomberg made a fortune by launching a financial information company that bears his name, and he has more credibility than most politicians on economic matters.

Bloomberg said he was concerned that the credit crisis in the United States may scare off foreign investors that, until now, have been willing to buy debt that the U.S. uses to maintain a deficit.

"It's not clear who's going to be buying our debt," said Bloomberg. "It may very well be that the next wave is going to come back and bite us."
The mayor, a Democrat-turned-Republican-turned independent, regularly criticizes both parties, the Congress, and the White House for what he says is their lack of foresight. He said the current economic crisis is the latest example of the same problem.

"We have on both sides of the aisle, on both ends of Pennsylvania Avenue, thrown caution to the wind. We pay lip service to responsibility," he said, as he sat onstage in an armchair, fielding questions from Georgetown President Jack DeGioia.

Bloomberg had originally planned to give a speech about the economy, but amid the fast-moving events on Wall Street, he scrapped the speech and went with a question-and-answer session instead.

"The systemic problem is we've all gotten into a situation where we want it now, there's no pain ... We keep saying we want to have it, we don't want to pay for it. You can't go on forever not addressing the key issues in this country," like health care and immigration, he said.

Asked about government regulation of the U.S. economy, he said that while some complain it is excessive, the United States has a competitive advantage because in many other countries "you would think that most (corporate financial statements) are just made up."

In fact, just last year the mayor and New York Senator Charles Schumer issued a lengthy report decrying what they saw as overreaching and overly demanding regulation of business.

Back then, Bloomberg and Schumer wrote that enforcement of a 2002 law toughening business reporting requirements "produced far heavier costs than expected (and) has only aggravated the situation," putting the U.S. at a competitive disadvantage with other financial centers like London.

Fast forward to 2008 — and the meltdown of confidence in U.S. financial markets — and Bloomberg had many nice things to say about regulation, including the Depression-era Glass-Steagall Act that separated commercial and investment banking, and was scrapped in 1999. As the modern financial sector has struggled, many Wall Street watchers have suggested resuscitating the old law.

Bloomberg did, though, continue to argue for a reordering of the current regulatory thicket.

"The real world has changed," he said, and old government agencies no longer are equipped to monitor companies that offer a combination of services, like insurance and investments and banking.

"All of these industries, the participants all do the same thing so there's a mishmash and there's too many places for things to slip through the cracks. I don't know that the regulators are asleep at the switch. The structure is not suitable for the real world."

Jag

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Darkest day for Scottish banking as the Bank of Scotland faces its end

Published Date: 18 September 2008
By Bill Jamieson
FOR Scotland's oldest bank, it was the suddenness of its rout that stunned. That and the silence at the top. That and the invisibility of leadership. That and the short-selling frenzy that descended on HBOS shares yesterday, like vultures on a corpse.
This was the blackest day in Scottish banking. An appalling day of shock, confusion and disbelief.

Many this morning will still be aghast at the speed of the bank's share collapse. Anger and a reckoning will come later. Today, the fate of HBOS, the savings of its 22 million customers, the prospects for its 72,000 staff and the final reckoning for its 1.2 million hapless investors – whose shares have been savaged – rest on the merger with rival Lloyds TSB.

Yesterday, in conditions of near pandemonium, shares in HBOS had by far their worst day since the onset of the credit crisis. Monday and Tuesday were train-wreck enough – the value of HBOS had plunged by £7 billion by Tuesday night. So there was a surge of relief when the shares opened firmer at the start of trading yesterday. It did not last long.

The shares opened at 200p, rose to 214p, then plunged to only 88p – an astonishing collapse of 56 per cent in less than an hour. Then came reports of "advanced" merger talks with Lloyds TSB, at a price of 300p a share.

The shares rallied – only to fall back again. Amid ever-growing confusion in the market, the mooted bid terms were now corrected – to 200p a share.

Read more at:
http://thescotsman.scotsman.com/late...ish.4503252.jp