Doomed?

Tuesday, September 30, 2008

Doomed?

US lawmakers have "taken leave of their senses" says EU trade commissioner Peter Mandelson. He adds, "I hope that in Europe we will not see politicians and parliamentarians replicating the sort of irresponsibility and political partisanship that we have seen in Washington."

The US stock market gave a more tangible response to the House rejection of the Paulson plan by a vote of 228 to 205. The Dow lost 778 points, its largest point decline ever, and posted its biggest daily percentage slide since the 1987 stock market crash. The benchmark S&P 500 also had its worst day in 21 years.

At the time of writing, Forbes was reporting that Japan's Nikkei average was expected to fall, possibly hitting a new low for the year. 

Bloomberg recorded the response of Thomas Sowanick, who helps oversee $22 billion as chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey. Speaking before the Asian markets had opened, he said, "Something very positive has to come out before tonight's opening or the equities going to get crushed again in overseas trading."

His view of the House vote was that the failure to get the bill passed was "disgusting" and "disgraceful." 

So, are we doomed?

Well, The Guardian is reporting that UK government "was bracing itself last night for further casualties after a day of panic on the world's financial markets." And that appears to have been written before the House vote was known, prompted by fears that the nationalisation of Bradford & Bingley would have a domino effect on the banking sector in Britain. 

Now, anything goes.

Later comment in The Guardian cites Peter Morici, professor of business at the University of Maryland. He says: "Things are going to get so bad something will have to be done in the next few weeks. Banks will sink, credit markets will seize, the economy will go into something much worse than a recession."

Nevertheless, it is too early to say what will happen, but the London stock market in the morning will give us some clue. While others are talking of a "meltdown" and "looking into the abyss," The Times contents itself with saying that this is a "dangerous moment."

Me? I go with Morici. We are doomed. But then, what do I know?

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Monday, September 29, 2008

Breaking news

The US bank bailout has been rejected. Wall Street has nose dived.

Hold on tight!

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This is one we missed

While all attention here has been focused on the B&B rescue and the drama in Congress over the Paulson plan – to say nothing of Osborne's speech to the Conservative Party conference and, of course, the Fortis rescue – less attention has been given to events in Germany.

There, according toDeutsche Welle, the German government has been injecting "billions of euros" into troubled commercial property lender Hypo Real Estate (HRE). This, we are told, is the first German blue-chip company to seek a bailout in the global financial crisis.

The German Finance Ministry in Berlin is reported to have said it had provided HRE guarantees for an emergency credit line totalling €35 billion (about £25 billion), although there are no plans to nationalise the bank. A spokesman for the finance ministry said the commitment was needed so that [other] banks could bail out HRE.

In different times, this might have made front-page news but such is the torrent of financial news that it is hardly surprising that it has been given less than star treatment by the bulk of the UK media.

To be fair, The Times has picked it up, together with the news of Glitnir, "the struggling Icelandic bank". This was partially nationalised today as the Icelandic Government bought a 75 percent stake in it for €600 million (£478 million) "to ensure broader market stability".

The Icelandic bank move was not unexpected but problems with HRE were not widely signalled. The Times has Bundesbank, and financial regulator, BaFin, confirming that they were involved in the efforts to bail out HRE, and has their spokesman saying: "The Bundesbank and BaFin now assume that Hypo Real Estate Group is secure."

On the other hand, Kiri Vijayarajah, an analyst at Citigroup, counters: "Hypo Real Estate also has other problems. It has exceptionally high leverage, which may no longer be viable. Also, we believe it is likely to experience losses on real estate loans, causing more damage to earnings and capital."

When blue-chip German banks start feeling the strain, it is time to wonder where it is all going to end.

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