NOON HEADLINES 26.9.08 - - - -
TELEGRAPH
Financial crisis: Gordon Brown and Alistair Darling trusted more over
economy
People would rather Gordon Brown and Alistair Darling took charge of
the economy than David Cameron and George Osborne, a poll has revealed.
26 Sep 2008 [Don’t they realise that Brown’s conduct of the economy
is one of the causes. But then David Cameron has never told them
that! -cs]
Prepare for a tense day as bailout talks stall
You have to believe that some form of accord will come out of Capitol
Hill by the end of today.
26 Sep 2008
Bank of England steps up effort to thaw markets
The Bank of England, the Federal Reserve and European Central Bank
are injecting more money.
26 Sep 2008
FTSE 100 dragged down by stalled bail-out
FTSE 100 weakens more than 2pc after US financial rescue talks
stalled and Washington Mutual became the nation's biggest bank failure.
26 Sep 2008
Summit on $700bn Wall Street bail-out falls apart
George W Bush's $700 billion deal to save the global economy from
meltdown is hanging in the balance after a bitter summit with John
McCain and Barack Obama fell apart.
26 Sep 2008
Biggest US bank failure: JP Morgan buys Washington Mutual
JPMorgan Chase buys Washington Mutual for $1.9bn (£1.04bn) after the
bank was shut down by the government.
26 Sep 2008
HSBC cuts 500 jobs in London
Global banking company HSBC has axed 500 in London as it reins in
expenditure in its investment banking division.
26 Sep 2008
Average mortgage rises by £500 in two weeks
Home owners face paying up to £500 a year more on the average
mortgage as some of Britain's largest lenders raised their rates.
26 Sep 2008
Nomura seal $2 Lehman Brothers deal
Nomura International will today announce that it has bought the fixed
income divisions of Lehman Brothers in a deal that is believed to be
worth just $2 (£1.08).
26 Sep 2008
=-=-=-=-=-=-=-=-=-=-=-=-=-=-
THE TIMES
Tempers flare as $700bn bailout stalls
Extraordinary scenes at the White House see Treasury Secretary plead
on one knee as bailout hits buffers
• McCain and Obama strive to disguise their ambition
BoE pumps £55bn into banking system
Bank of England moves to ease credit squeeze with four months' of
weekly auctions, the first for £40bn and $30bn
• Borrowers hit as HSBC and Barclays raise rates
• Bank chief: families face more misery
UK banks could apply for $175bn of US bailout
Britain's lenders hold £95bn of sour assets which could qualify for
any US rescue plan. More than half are held by HSBC
• Disappointing figures puts pressure on bailout
Crunch fears lift hopes of interest rate cut
Kate Barker said credit crunch is proving more serious than expected
and financial upheavals have worsened the outlook
• Don't make City a scapegoat says CBI boss
• Bank lending rates surge in scramble for funds
JP Morgan seizes assets of collapsed WaMu
Morgan buys $900bn of retail deposits and 2,000 branches as
Washington Mutual goes down as largest US bank failure
• Will Washington Mutual be next to fall?
• JP Morgan to sign for £1.5bn new HQ
UK BUSINESS NEWS
HSBC slashes workforce by 1,100
Cuts comprise 500 UK jobs and are thought to include investment
bankers as well as back-office and administrative staff
Queen's dressmaker Hardie Amies shares suspended
Queen's dressmaker is on brink of administration after key
shareholder was unable to provide additional funds
• Freeze on speculators as economy boils over
• Hardy Amies agrees lucrative Japan deal
B&B starts job cuts as rescue bid hopes fade
Share price hits new low as bank announces new losses of £134 million
and reveals plans to make 370 employees redundant
• Rating downgrade batters B&B shares
• FSA fails to find saviour for B&B
=-=-=-=-=-=-=-=-=-=-=-=-=-=-
FINANCIAL TIMES
Central banks step in as bail-out fears mount
The Bank of England moved to inject longer term cash into money
markets as part of a co-ordinated effort with the US Federal Reserve,
the European Central Bank and the Swiss National Bank, following the
breakdown of talks over a $700bn bail-out for the US financial system
- 08:41
• Lex: The end of laissez faire capitalism?
• Banks lead broad-based sell-off
• Pressure grows on Bank of England to act
• Comment: Global authority can fill vacuum
A hard core of Republicans on Capitol Hill maintained their
resistance to a bail-out deal, even as presidential contenders John
McCain and Barack Obama met President George W. Bush and
congressional leaders to hammer out a compromise
Wrangling holds up US rescue
Emergency meeting ends without a deal - 04:23
• Forum: Is wrangling over the TARP justified?
WaMu seized and sold to JP Morgan
Biggest bank failure in US history
US taxpayers are being enrolled in an economic chain gang
By Jeff Randall
"To preserve their [the people's] independence, we must not let our
rulers load us with perpetual debt. We must make our selection
between economy and liberty, or profusion and servitude" - Thomas
Jefferson
There was a time, early in America's history, when its leaders
believed in financial discipline. No more. Perpetual debt, which
Jefferson feared would enslave future generations, is clamped on
Uncle Sam's undercarriage like a ball and chain. US public borrowing
is $9.8 trillion - and rising.
Jefferson, America's third president (1801-09), is widely regarded as
the White House's most intellectually gifted occupant. He believed
that "banking institutions are more dangerous to our liberties than
standing armies", and that "the principle of spending money to be
paid by posterity … is but swindling futurity on a large scale."
If Congress approves the Treasury Secretary's $700 billion bail-out
of dysfunctional banks, it would be hard to invent a better example
of what Jefferson foresaw: authorised "swindling". Tomorrow's
Americans and those who come after them will pay and pay for the
grotesque excesses and self-indulgence of today's flim-flam merchants.
As Jefferson put it: "If we run into such debt, as we must be taxed
in our meat and in our drink, in our necessaries and our comforts …
[we will have] no means of calling our mis-managers to account but be
glad to obtain subsistence by hiring ourselves to rivet their chains
on the necks of our fellow sufferers."
Having failed to deliver victory in the War on Terror, President Bush
is hoping for better luck in the War on Error. His goal is to limit
damage from the egregious mistakes of sub-prime mortgages; his
tactics are to carpet-bomb the banking system with federal funds. The
upshot, in Jeffersonian terms, is that US taxpayers are about to be
enrolled in an economic chain gang.
The prospect is unappealing, but, we are told, there's no
alternative. Hank Paulson's plan offers fewer details than his weekly
milk bill, but now, it seems, is no time for nit-picking. Having
collected sacks of gold at Goldman Sachs, this former champion of
free markets wants to nationalise assets at a pace not seen since Che
Guevara was lighting cigars with Batista's legacy.
No wonder so many Congressmen look queasy. They must persuade
constituents, many of whom are losing jobs and homes in the credit
crunch, that it is a bright idea to rescue those who profited hugely
from the creation of dark instruments. Not for the first time, Wall
Street is bilking Main Street.
For those who work in the fast lane of finance, the speed of decline
has been ear-popping. Less than a year ago, America's investment
banks were wallowing in record bonuses, totalling almost $38 billion.
Yes, billion.
Their pool of monopoly money was greater than the GDP of Bulgaria.
Split among 186,000 workers at Goldman Sachs, Morgan Stanley, Merrill
Lynch, Lehman Brothers and Bear Stearns, it equated to an average of
more than $200,000 per person, about four times the median US
household income.
Goldman's chairman, Lloyd Blankfein set a new standard in executive
gluttony, collecting $68 million (about one third in cash), but at
least his bank is still standing. Richard Fuld, Lehman's chief
executive, trousered $41 million. Nice work, except that he took the
lot in the bank's shares. Nine months later, when Lehman went bust,
Fuld's bonus joined his reputation, in the trash-can.
Banking's bacchanalia has morphed into a therapy group for manic
depressives. Those still in work look around the room and wonder how
many will be flipping burgers by Christmas. In an interview with
Fortune magazine, Mr Paulson admits: "Raw capitalism is a dead end.
I've seen it."
Now I have heard it all. What next?
In place of rip-roaring markets, according to a Wall Street trader,
America has embraced "trickle-down communism". This system involves
the state paying "cash for trash" to benefit a few miscreants, and
then hoping that some of the taxpayers' largesse will trickle down to
the masses.
Toxic rubbish will not be made to disappear by Mr Paulson's
proposals. All that will be different is ownership. It will be like
removing nuclear waste from a failing business and parking it in a
government building. The risk moves from private to public.
It is this form of regressive redistribution that Messrs Bush and
Paulson are peddling as the road to redemption for Western finance.
Excuse my cynicism, but would you buy a used derivative from either
of them?
After Hurricane Katrina and the flooding of New Orleans, Mr Bush's
record on rescue missions does not inspire confidence. As for Mr
Paulson, if he's so insightful, why, when he was earning an $18
million bonus at Goldman in 2006, did he not spot the radio-active
dump piling up in his industry's back-yard?
Mr Paulson's sales pitch is essentially: "American capitalism, I love
you! But we only have 14 hours to save the Earth!" In return for a
promise to head off financial obliteration, he is demanding a cheque
of disturbing blankness. It is to be a bail-out with precious few
strings, plus immunity from review "by any court of law or
administrative agency". His legal team must have chuckled when they
slipped in that one.
The scheme is under attack from right and left. George Soros, the
investor who helped break the pound in 1992, is in favour of action
to stem insolvencies, but insists that Paulson's plan falls short.
Paul Krugman, professor of economics at Princeton, has little faith
in Paulson as a fixer: "He's making it up as he goes along, just like
the rest of us."
Outside Washington, in the real world, there is a growing clamour for
something to be done. Ordinary voters are in pain. They want
government to make it go away. But there is no magic powder.
Those who borrowed to buy assets at the wrong prices will have to
suffer, as financial gravity re-asserts its downward pull. There is
no policy yet invented that can make fifty cents worth two bucks
forever.
Any long-term solution will have to recognise that contraction cannot
be deferred in perpetuity. Having restored stability, it should
punish those who created the mess. Where's the retribution in
Paulson's package? It looks too much like a parachute for his chums
at the back of a burning plane.
Finally, there needs to be an overhaul of banking governance. The
rules of the game were, in effect, made redundant by the ingenuity of
financial engineers. We do not need more regulation, but more
appropriate regulation.
Which brings us back to Jefferson. Two hundred years ago, he
demanded: "The issuing power should be taken from the banks and
restored to the people to whom it properly belongs." Twas ever thus.
=========================
TELEGRAPH Business News 25.9.08
EU refuses bail-out package despite crisis fears
Europe rebuffs calls for fiscal rescue plan as German exports
collapse and Nordic central banks firefight liquidity squeeze.
By Ambrose Evans-Pritchard
The European Union no plans “yet” for a rescue package along the
lines of the Paulson plan despite severe stress in the region’s
banking system and further evidence that the bloc is sliding into a
deep and protracted recession.
“The situation we face here in Europe is less acute and member states
do not at this point consider that a US style plan is needed,” said
Joaquin Almunia, the EU’s economics commissioner, in a tense session
at the European Parliament.
“We didn’t have subprime mortgages. We do not have investment banks.
In any case, it’s not up to the EU; it’s up to every one of the
member states to decide whether they need to launch this kind of
fiscal initiative.”
The comments fell far short of reassuring doubters that the EU system
has the machinery to tackle a major financial crisis.
Daniel Gross, director of the Centre for European Policy Studies in
Brussels, said euro-zone lenders are heavily exposed to the fall-out
from the US credit crisis, describing the Paulson plan as a de facto
rescue for the Euopean banking system.
It has emerged that French finance minster Christine Lagarde was one
of those pleading with US Treasury Secretary Hank Paulson last week
to bail out AIG, which had insured over $300bn of credit derivatives
to European firms.
Mr Gross said Deutsche Bank deploys fifty times leverage and has
liabilites of $2,000bn, equivalent to 80pc of Germany’s GDP. Fortis
Bank has liabilities of 300pc of Belgian GDP. These dwarf the burden
of any US bank on the US government balance sheet. He said EU states
do not have the means to bail out these banks. Any rescue would have
to come from the European Central Bank, yet it is not allowed to
carry out bail-outs under the Maastricht Treaty law.
The picture is clearly going from bad worse across the eurozone and
the Nordic region. Germany’s IFO index of business expectations fell
to 86.5 in September, the lowest level in fifteen years. “The time
has come to cut interest rates,” said Gernot Nerb, the IFO’s chief
economist.
“A full-blown recession is looming in the 2009 for the euro area,”
said Jacques Cailloux, Europe economist at the Royal Bank of Scotland.
“We think Germany’s economy will contract next year. Foreign
manufacturing orders have been falling for eight months in row, which
is the longest continuous drop on record. German house prices have
fallen 4pc this year, which is surprising for a country that has seen
no increase for ten years,” he said.
“The country has a `high-beta’ to the global cycle because of its
industrial exports. Given this macro-outlook, we think the ECB should
cut rates,” he said.
Spain’s finance minister Pedro Solbes said on Wednesday that his
country’s economy may faces outright contraction in the second half
of the year, warning that debt arrears had become “very disturbing”.
Even oil-rich Norway is facing strains in its credit system as the
mayhem goes global. The Norges Bank joined with the central banks of
Sweden, Denmark and Australia in an emergency scheme to draw $30bn of
US dollar funds in a swap accord with the Federal Reserve.
“There is now an unusually high degree of uncertainty linked to the
turbulence in financial markets. The crisis in financial markets has
deepened. In Norway there are also clear signs that economic growth
is slowing,” it said.
The wild ructions in the Oslo, Stockholm, and Copenhagen credit
markets are a fresh reminder that there is almost nowhere left to
hide in world economy as the fall-out from the collapse of Lehman
Brothers continues to wreak havoc.
Under the swap deal, the Fed is providing $5bn each to Norway and
Denmark, and $10bn each to Sweden and Australia. It aims to assuage
the frantic scramble for dollars by banks with exposure to US toxic
debt.
Denmark is in full-fledged recession and has already suffered two
embarrasing bank failures this summer as the bubble burst in
commercial real estate.
The central bank seized Roskilde Bank in August in a $8bn bail-out
after a deposit run by client in a Nordic version of the Northern
Rock debacle, warning that the total collapse of the lender would
pose a “significant threat to the financial stability of Denmark”.
It stepped in again this week to rescue EBH Bank with a state
guarantee, and has pushed shotgun marriages for two other distressed
lenders, Lokalbanken and Forstaedernes.
Stein Bocian, chief economist at Danske Bank, said the banks had lent
heavily to developers in high-risk projects, relying on short-term
funding in the capital markets. The game ended when the credit window
jammed shut.
“Short-term funding has become extremely expensive and now they can’t
roll over their loans,” he said.
Denmark has enjoyed a blistering credit boom over recent years,
fuelled by membership of Europe’s Exchange Rate Mechanism which fixed
the Dranish krona to the euro.
The policy caused the country to import the monetary policy of the
ECB at a time when it was far too loose for Danish needs. Intrest
rates were just 2pc until the end of 2005. The result was to push
household debt to 260pc of GDP, the highest level in the world. This
compares to 135pc in America.
Denmark’s housing bubble is now popping with the same destructive
effect as bubbles in the US, Britain, Ireland, Spain, and indeed
China. Danish prices have dropped 4pc so far nationwide on official
data, but estate agents say properties are now off at least 20pc in
parts of Copenhagen.
Across the Oresund in Sweden, the economy has ground to a halt and
Volvo sales in Russia, Europe, and the US have plummeted. The
flagship car company laying off 8pc of its 25,000-strong work force
and cancelling a production shift.
Adding to the gloom, the pan-Nordic airline SAS is now battling for
its life, the latest casualty of the global aviation crunch. The
carrier has denied persistent reports that it will soon be taken over
Lufthansa.
Stefan Ingves, governor of Sweden’s Riksbank, said on Wednesday his
country had been battered by the “renewed wave of international
financial unrest” but insisted that the banking system remained fully
solvent. He described the swap agreement with the Fed as a
precautionary measure.
The Swedish treasury suspended bond sales last week because the
market had ceased to function properly.
There have been concerns that Swedish banks could face a squeeze over
coming months as the property boom deflates and the losses mount on
heavy investments in the Baltic region, where Estonia and Latvia are
sliding into deep recession.
The International Monetary Fund has warned that the Baltic slump
could “cause a credit crunch in Sweden itself” if the Swedish banks
prove unable to roll over their loans in the wholesale capital markets.
It said that Swedbank and SEB are highly exposed to the region.
Svedbank is the dominant lender in Estonia and Latvia, earning 30pc
of its porfits in the region. The share prices of the two banks have
fallen by two thirds since mid-2007 and are understood to have been
the target of aggressive “shorting” by hedge funds.
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