Wow... I thought it was a little shady when the FED announced with the Term Securities Loan Facility that the identities of companies seeking liquidity through the instrument were not going to be released, but this latest news out of England is an indication of just how important it is for the central banks to keep these secrets from the people. I find paragraph 3 below entirely shocking... that even after 30 years when even information of highest sensitivity would be released under England's freedom of information act, they will continue to bury the identities of the borrowing banks. What could possible be so incredibly damning about the information that it could roil the markets 30 years from now??? It almost seems as though some institution, or perhaps the administration, is protecting itself from incrimination of some type. No argument can be made that its to prevent a run on banks that the information will stay buried forever.... since after the crisis has come and gone the information would not cause such a run. As much as we already know about the ongoing financial crisis, I'm afraid to say there is likely so much of tremendous importance that is being withheld from the public...... perhaps it is the true extent of the crisis that they fear, as if the revelations would ultimately make fiat currency regimes untenable thereafter... or perhaps there are conflicts of interest between central banks and and recipient corporations? The people should demand immediate access to this information... it is THEIR money being used to foot the bill, and they have a right to know if their bank is insolvent. [more]
This has been my favorite junior silver producer for some years, and I have written on several occasions about hos ridiculously undervalued it is/was. This company will probably be snatched up before it has a chance to grow to maturity on its own, but if left alone, I predict its shareprice would ultimately increase 10-fold before this is all said and done. [more]
Nothing like a little good news on a rainy day. :) Seriously, I hope no one thinks I'm just a Debbie Downer trying to spread doom and gloom across the land. Far from it. My reasons for posting these articles is to build a picture, piece by piece... opinion by opinion... of the severity of this clearly unprecedented event. I had no preconceived conclusions going into this crisis, but in my ongoing analysis of the situation I am seeing a clear preponderance of the evidence points toward a deep and prolonged depression... and so it is my wish to sound the alarm a bit so that fellow CAPS members will manage their capital accordingly. We are navigating through uncharted territory, suggesting enormous potential risk for investors. There are appropriate defensive moves that can be taken, and it is my sincere wish that every CAPS player, and indeed everyone out there, would have a portion of their assets in gold and silver. [more]
After the weekend's downgrades of Alt-A securities by Moody's, the Californian blogger who made the videos I posted last week is looking to be spot-on! That link is work a look if you haven't checked it out. [more]
Sounds bad, right? But there's nothing to worry about... They still have a AAA rating from Moody's so everything with this company must be on sound financial footing. :() Give me a break... if we learn one thing from this whole fiasco, it's to never again rely on the ratings agencies for impartial, honest indicators. The ratings agencies have shown their cards with this crisis... they are a cog in the spin machine, trying to give the appearance of everything being A-OK. S&P, Moody's, etc... as Steve Colbert would say... "you're on notice"! We're on to you. Fitch's downgrade to AA was a joke of an understatement, and only serves to save a little face for them. What do you suppose the REAL ratings on Citibank or Lehman would be of we had impartial oversight of financial stability? I have one word for the whole financial sector right now until the markets suffer their way through systemic de-leveraging: Junk! [more]
I've been collating and posting anecdotal information on the state of the economy throughout this financial tsunami, but I keep being reminded of the millions and millions of individual people out there who are being most severely affected by everything that's transpiring. This article is a perfect example. The numbers on a page are statistics, but every family affected by these statistics is a group of people facing tragedy and hardship. Here at CAPS, most of us have at least something in the way of extra assets, since we have it to invest, so within our ocmmunity we're not likely to have dialogue with people like those interviewed for this article. My heart goes out to them. [more]
By Krishna Guha in Washington
Published: April 21 2008 18:16 | Last updated: April 21 2008 18:16
What will be the shape of the US economic downturn? In recent months, the debate among economists has shifted from whether the US will have a recession to how deep and how long it will be.
Will it be a V-shaped recession – short, shallow and followed by a rapid return to normal rates of growth? Will it be U-shaped, in which the initial downturn is followed by a protracted period of weak growth and a slow return to the trend rate? Or could it even be an L-shaped recession – with economic weakness lasting for many years, as in the US during the Great Depression or Japan in the 1990s?
The answer will have enormous significance for the world economy and is likely to determine whether the recent improvement in some financial markets marks the beginning of the end of the credit crisis, or simply another false dawn.
The Federal Reserve believes the single most likely outcome is a V-shaped recession, though it sees significant risks of a deeper and more prolonged downturn. Fed staff expect economic activity to contract in the first half of this year, with a pick-up in growth beginning in the second half. They predict growth will be above trend – more rapid than normal – in 2009, when measured from the final quarter of 2008 to the final quarter of 2009.
This month Ben Bernanke, the Fed chairman, told Congress that the US was going through a “very difficult period” but said “much necessary economic and financial adjustment has already taken place” and policies were in train “that should support a return to growth in the second half of this year and next”.
Until recently, this was also the near-unanimous view of private-sector forecasters. These experts highlighted the absence of excesses in the corporate sector outside housing and finance. Most companies did not invest heavily or hire aggressively during the economic upturn, and so are unlikely to cut back deeply on investment and staff as they did in the last recession in 2001.
This theory is consistent with the data so far. Private-sector employment has fallen for the past four months but at a modest rate compared with past recessions, while hours worked have held up quite well.
Miles of unoccupied new homes on the edges of Las Vegas and half-built condominiums in Miami demonstrate that there were big excesses in the building industry. But the adjustment in housing is well under way. Home starts are still falling at a precipitous rate but the Fed expects that the rate of decline of residential investment will slow from the second half onwards, reducing the drag on growth.
Moreover, there is a double boost in the pipeline from the fiscal stimulus and aggressive interest rate cuts by the Fed early this year, which typically effect the economy with a lag. The first tax rebate cheques will be sent out next month.
Brian Sack, chief economist at Macroeconomic Advisers, estimates that consumers will spend about 40 per cent of the rebate cheques of up to $1800 (£907, €1,132) per household. “We expect a sizeable contribution to growth from the fiscal stimulus package in the middle two quarters of this year,” he says. There would be some “payback” later but by the time the stimulus fades, “the economy will be getting itself on a better underlying footing”.
In this scenario, exports continue to be strong, the drag from housing declines and reasonable income growth enables the economy to return to trend growth quite quickly, even allowing for a moderate increase in the household savings rate. The relatively benign forecast assumes that stresses in financial markets gradually ease, reducing pressure on the economy and amplifying the effect of interest rate cuts.
A V-shaped recession is certainly quite possible. But top Fed officials acknowledge that, while we know that the first half of this year will see either a shallow recession or very little growth, and that there should be some support from fiscal and monetary stimulus around the middle of the year, the outlook is quite uncertain from there onwards.
These officials believe that the great unknown is what will happen to the housing sector (see below). As long as house prices show no sign of bottoming out, it will be difficult for financial markets to return to normal and consumer spending will remain under severe pressure.
Other experts – including some top central bankers in Europe – think there is a significant risk of a sharp rather than a gradual increase in the household savings rate in current conditions, even if house prices do begin to bottom out.
In recent weeks a number of private-sector economists have moved to more of a U-shaped outlook, forecasting an extended period of tepid growth and a sluggish recovery. Some believe that tax rebates will be used almost entirely to pay down debt, while others offer the notion of a W-shaped recession in which a bounce from the stimulus is followed by further weakness.
The International Monetary Fund, meanwhile, has gone still further in forecasting an extended period of economic weakness in the US, with growth of minus 0.7 per cent on the Fed’s final-quarter-to-final-quarter measure this year, and only 1.7 per cent next year. The IMF believes that US growth will start to recover only in 2009, not in the second half of this year as the Fed expects, and will only return to at or above trend in 2010. The forecast is an outlier from the consensus but its assumptions are not particularly radical.
Alan Blinder, a professor of economics at Princeton and a former Fed vice-chairman, says the economy will struggle to return to normal growth in the face of “super-headwinds” emanating from the financial sector.
With banks under balance-sheet pressure and the financial system as a whole deleveraging, the credit squeeze on the real economy could continue even after the risk of a systemic crisis in the banking sector recedes.
Moreover, the impact of the tightening to date is only now beginning to be felt in the economy. Richard Berner, chief US economist at Morgan Stanley, who expects a lacklustre recovery, says that “given the time lags between when financial conditions tighten and when it shows up in the economy we still have a long way to go.”
With the markets for housing finance still dysfunctional, the downturn in both construction and home prices could prove more protracted than the Fed expects. Global growth could also weaken as the effects of the credit crisis are felt in Europe and possibly even in emerging markets such as China.
Yet at the centre of the debate is consumer spending, which accounts for about 70 per cent of the US economy. Consumers are grappling with falling net worth, tightening credit conditions, higher energy and food costs, and a softening labour market.
The Fed forecast assumes a flattening out of commodity prices, which would give consumers over time more purchasing power while easing inflation pressure. But commodity prices keep going up, worsening the growth/inflation mix. The longer this persists, the greater the risk that stagflation – low growth and high inflation – becomes embedded in the expectations of workers, companies and investors.
The inflation risk means the Fed will now have to moderate or even soon pause its interest rate cuts. Moreover, while the US corporate sector generally looks in good shape, some analysts see huge excesses in the household sector that need to be worked out, including record levels of debt relative to income and a savings rate that is close to zero.
Others dispute that US households are badly overstretched, noting that household net worth is still close to record levels. Wealth, though, is unevenly distributed, and could fall sharply if the worst-case scenarios for house prices prove correct.
“The trillion-dollar question is what happens to consumption – is the US household going to rein back its spending?” says Raghu Rajan, a professor at the University of Chicago’s Graduate School of Business. As results from US retailers indicate, the consumer is already pulling back. “But the real question is has it got much further to go?”
Mr Rajan says economists do not fully understand why the savings rate collapsed from the early 1980s, making it hard to be sure at what rate it might rise again. Most explanations suggest some combination of increasing wealth (first from equities, then housing) and financial innovation, which made it easier to access the wealth represented, for instance, by home equity.
Kenneth Rogoff, a professor at Harvard, says US consumer spending would have to adjust following the reversal in house prices, even if there had been no accompanying credit crisis. As things stand, “even if we take away the immediate financial crisis, we are still left with a story where the whole credit structure that propagated the housing boom and credit boom has been seriously compromised,” he says.
Most experts believe the US savings rate will rise as households start to repair their balance sheets, but that this will happen gradually, muting rather than derailing economic recovery. There is a risk, however, that under stress this adjustment could be more abrupt.
Moreover, the longer an economic downturn lasts, the greater the strain on the financial system. The IMF already estimates that losses and writedowns on all debt and securities – not just subprime mortgages – could total $945bn.
Nouriel Roubini, a professor at New York University and chairman of RGE Monitor, an economic research firm, argues that underwriting standards deteriorated across a wide range of credit products during the boom, and that economic stress will result in a sharp rise in defaults and delinquencies on non-mortgage debt such as car loans, credit cards and leveraged loans.
The ultimate losses could turn out to be much lower than the IMF and others estimate. But the potential losses in a protracted downturn are of a size that could impair the capital base and functioning of the US financial sector. This could create an L-shaped recession, in which an anaemic economy and a damaged financial sector transmit weakness to each other, resulting in an extended period of stagnation like that of Japan in the 1990s.
Yet while the risk of a U-shaped recession has probably risen in recent weeks, the worst-case scenario is looking less likely thanks to policymakers’ activist response. A number of experts see the rescue of Bear Stearns, the investment bank, by the Fed and JPMorgan Chase as a watershed. The US authorities showed they were willing to deploy public money to prevent a systemically important institution from defaulting on its debts. Congress, meanwhile, is considering plans to provide between $300bn and $400bn in credit guarantees to allow lenders who agree to write down home loans to refinance these mortgages.
Robert DiClemente, chief US economist at Citigroup, says that the problem for the pessimists’ analysis is that “the stark seriousness of where we are” galvanises an aggressive policy response. For this reason, even the arch-bear Mr Roubini says: “This is not going to be like Japan – it will be U-shaped, not L-shaped” – though Mr Roubini’s idea of a U-shaped recession still involves 12 to 18 months of economic contraction.
Policy activism is not a guarantee of success. The US’s large current account deficit increases the risk of a dollar crisis and a sudden pick-up in inflation expectations – a threat that has looked worryingly real at moments in recent months.
Moreover, there are some financial risks – such as multiple ruptures in the credit default swaps market, which banks and other financial institutions use to trade and hedge credit risk with each other – that would be very difficult for the Fed and Treasury to contain even if they wanted to.
The US government is also in a worse fiscal position than it was in 2001, making it harder to sustain an aggressive fiscal policy such as the Bush tax cuts and increased government spending that helped pull the US out of recession last time. Yet the likelihood is that the US – with even its external debts denominated in its own currency – has both the economic capacity and political will to prevent an L-shaped recession taking hold. In an election year, the pressure is for action.
The US should manage to avoid an L-shaped recession – and may even escape with a short V-shaped recession. The danger is that the extreme measures taken – already including the extension of the safety net to investment banks and the loosening of constraints on government-sponsored enterprises to support the housing market – could lay the seeds for the next financial and economic crisis.
Bleak houses in search of equilibrium
In the end, thinks the Federal Reserve and much of Wall Street, it all comes down to the value of bricks and mortar, writes Daniel Pimlott. How much further will American house prices fall and when will they bottom out? Jan Hatzius, chief US economist at Goldman Sachs, says this is “the most important question in the US economic outlook”.
The extent of the decline is critical both for consumer spending and financial stability. The further home prices fall, the more household wealth declines and the greater the pressure on consumers to spend less of their income. Meanwhile, the larger the fall, the bigger the losses in the financial sector and the greater the likelihood of a protracted credit squeeze as banks seek to repair their balance sheets.
The timing of the decline matters too. Until house prices at least begin to bottom out, it will be impossible to put firm values on mortgage-backed securities and resume something resembling normal business in the credit markets.
No one – including the Fed – has a good sense of how far house prices will fall or when they will stabilise. The US central bank’s base case is that the Office of Federal Housing Enterprise Oversight (Ofheo) index of house prices might fall another 6-8 per cent from current levels. This would imply a larger decline – in the region of 10 per cent – in the more volatile S&P/Case-Shiller index, which reflects house prices in 20 US metropolitan markets.
Yet top Fed officials admit that this is only an educated guess. There is no consensus among economists as to what the equilibrium price for US housing – the price that matches demand and supply – might be. Analysts differ as to whether house prices will undershoot fair value on the way down in the same way they overshot on the way up.
Moreover, just as house prices will affect the depth of the downturn, its severity – in particular the rise in unemployment – will affect house prices. “If we have a deep recession, all bets are off,” says Todd Sinai, assistant professor of real estate at Wharton.
US house prices have already fallen by about 10 per cent from their peak in mid-2006 on the Case-Shiller index. This takes them back to levels that last prevailed in 2005, when the subprime mortgage boom was beginning. Some measures of house prices-to-rent ratios suggest that houses remain as much as 60 per cent overvalued. Others, which allow for an increase in the price/rent ratio over time, still suggest that prices in January were about 30 per cent higher than their trend.
However, various housing affordability measures – which take into account the cost of mid-market mortgages – suggest that prices are either at normal levels relative to income or not much more than 10 per cent overvalued. Goldman Sachs estimates that the Case-Shiller index will fall another 15 per cent from its January 2008 level, for a total peak-to-trough decline of 25 per cent.
Lehman Brothers concurs and both firms see house prices bottoming out late in 2009. Michelle Meyer, an economist at Lehman, says: “The most rapid decline was at the beginning of this year. Next year the pace of decline will be much more moderate.” Merrill Lynch economists think house prices will fall another 20 per cent or so on the same measure, for a total decline of 30 per cent. The futures market is pricing in a further 20 per cent or so decline in the narrower but more actively traded Case-Shiller 10-city index. That has already fallen about 15 per cent, for a total predicted decline, peak to trough, of about 35 per cent.
The larger estimated drops generally include some degree of undershoot below fair value. There are a number of reasons why this might happen.
First, excess supply. While the stock of new homes for sale relative to market turnover has stabilised and inched down, the proportion of existing homes for sale is still rising. “Home prices are now falling at a rapid rate because the overhang of vacant homes has surged to historic highs,” says Peter Hooper, chief economist at Deutsche Bank Securities. A wave of home foreclosures and abandonments – in most cases linked to negative equity – could add as many as 5m homes to the market over the next three or four years, Goldman estimates.
Second, credit conditions. Just as an abundant availability of credit helped push house prices above fair value during the housing boom, the credit crunch could push prices below that level now. Borrowers face higher credit scores and lower loan-to-value ratios.
Third, downward momentum. During the boom people bought houses in part because they thought they would appreciate in value. Now they are holding back because they think prices will fall further.
House prices could end up falling by less than the futures market anticipates. But they could also fall considerably more than the Fed is assuming. The only solace is that price falls of anything approaching that magnitude would likely prompt large-scale government intervention to restore credit supply and minimise foreclosures.
Copyright The Financial Times Limited 2008
This story provides further support of the information presented in my article published March 24 entitled "Don't Miss the Silver Lining". For further context, please also see my blog post on the subject here. [more]
Bank of England to unveil mortgage bailoutMore details on subprime-related losses expectedBy William L. Watts, MarketWatchLast update: 10:37 a.m. EDT April 20, 2008 [more]
Whether by means of Elliott Wave Analysis or through careful scrutiny of relevant news and market action, today's dip in gold and silver was foreseen by many. While I never attempt to predict or play upon short-term movement in markets as volatile as gold and silver, I nonetheless had a feeling yesterday that we would have a big dip today. In fact, I would prefer a continuation down to the $870-$880 range for gold, as this would build a stronger spring-board for gold's ascent to $1,200. [more]
Icelandic banks pose a global risk
14 Apr 2008
Not all countries can afford to prop up their banks in a crisis
Whenever financial markets tremble, everyone thinks of 1929 and the great American stock exchange crash. But fewer market participants remember 1931, a more significant year in the story of the big 20th century economic collapse, the Great Depression.
Yet 1931 holds more lessons about the vulnerabilities in an age of globalisation. Threats to the system can originate in small and obscure places and do not necessarily come from the heart of the financial system.
Despite the perception that the US story is central to the Great Depression, the international widening of the economic crisis was the result of the failure of a large bank in a tiny country – Austria. It started when the Vienna Creditanstalt announced in 1931 that it could not present its annual accounts on schedule.
Then, on the night of May 11, it revealed big losses of around 140m schillings. A run of the largely international depositors started, prompting the failure of not only Creditanstalt but other Austrian banks too, followed by a run on the currency.
The Creditanstalt crisis was solved in the way that many banking crises are, by a combination of a fiscal bailout and a partial debt moratorium. But in a small country, the costs of a bailout are high and difficult to calculate and they spill out beyond national frontiers.
The costs also raise the suspicion that speculative foreigners are being given illegitimate rewards at the expense of the domestic taxpayer.
The estimated cost of the failure of the Creditanstalt doubled between June 1931 and the end of the year. In the end, the Austrian Government needed to put in around 9% of Austria’s gross domestic product.
But the failure of one bank also discredited the other large Austrian banks, which needed to be reconstructed, with the consequence that the total cost of the crisis was around 20% of GDP.
The rescue also poisoned Austrian politics in a precarious international situation. The accusation that the old parties of the First Austrian Republic had been responsible for the Creditanstalt mess and had then gained from its resolution was one of the rallying cries of the Austrian Nazis.
The financial and political consequences of the crisis were not restricted to Austria. Neighbours Hungary and Germany were affected.
The contagion occurred not because of direct financial links between Vienna and Budapest or Berlin, but because UK and US investors saw structural parallels in weak banking systems over-exposed and over-dependent on international borrowing and in states with deteriorating fiscal positions.
After the German crisis in July 1931, the financial centres in London and then, after September 1931, in New York became directly affected.
The risks that blew up the early 20th century version of financial globalisation are even more acute at the beginning of the 21st century. There has been a rapid proliferation of small offshore financial centres that practise new forms of financial intermediation.
In the new millennium, financial liberalisation meant that Icelandic banks have expanded into international activities. As recently as 2001, foreign loans were less that 4% of Icelandic bank lending. There was a sharp crisis of confidence in the summer of 2006 but, at that time, rating agency Moody’s referred to the banks’ assets as “high-quality external foreign investments”.
Bank profits were high and the risk-based capital adequacy calculations showed a steady improvement. Despite the tremors of 2006, foreign money continued to pour in throughout 2007, although the current account deficit fell from the record level of 27% in 2006 to 13%.
The big three Icelandic banks grew so quickly that it became impossible for the domestic government to rescue them. In 2007, Kaupthing had assets worth $63.6bn on its books, Glitnir $47.4bn and Landsbanski $49.1bn. The GDP of Iceland was considerably lower at $15.6bn at the end of 2006.
In a world of pure financial globalisation, such figures should not matter as long as the risks are properly assessed and the assets are sound. The calculation changed on March 14 this year, following the bailout of Bear Stearns.
Bear Stearns showed Americans, as Northern Rock had shown the British, that in the end governments are so nervous about the possibility of financial panic they will stand behind the entire banking system. This has brought a relatively rapid restoration of confidence.
We now know the really bad problems of big countries will be socialised, as they were in Japan in the 1990s. In Japan, this cost 15% of GDP; the estimates are that the cost to the US will be around 7% of GDP.
International banks located in smaller centres are in a much more difficult position than over-stretched investment banks at the core. Their host governments simply cannot afford a Bear Stearns type of bailout since it would involve not a percentage but a multiple of GDP.
Financial crises and the need for bailouts has brought back the state, but it is the big and powerful state.
In the interwar period, there was some political recognition of the particular problems of small countries and their capacity to pose a systemic threat. The newly established Bank for International Settlements gave a small loan to Austria in 1931, but it did not cover even the very first and grossly under-estimated calculation of the Creditanstalt losses.
The BIS did not have the size or the legitimacy to undertake bigger rescue operations.
In the aftermath of the contagious Asian crises of 1997 to 1998, which bore some similarities to the central European debacle of 1931, critics on both the right and the left criticised the big bailouts orchestrated by the IMF.
As a consequence, the IMF has been scaling back its activities and it is widely perceived as being marginal to global financial stability.
The result is that there is – as in the early 1930s – no politically realistic way of preventing small, inadequately regulated offshore centres developing into a risk for the whole world economy.
Harold James is professor of international affairs at Princeton University
Commodities Boom Just Keeps Going and Going...
Thursday April 17, 2:43 pm ET [more]
By Peter Taylor
Last Updated: 12:49am BST 17/04/2008
The British Bankers' Association has brought forward a review into how it sets the pivotal London Interbank Offered Rate amid mounting concerns over the credibility of the measurement.
The association yesterday revealed it was re-assessing how it calculates Libor - a benchmark measurement that filters through the economy, affecting mortgage and other interest rates across the lending system.
Despite widespread concerns that Libor has blown out to levels significantly above base rates, economists fear banks are understating the rates at which they are prepared to lend to each other, downplaying liquidity problems.
Pressure for an overhaul of the Libor calculation process is escalating after a report last week, Is Libor Broken?, by Citigroup interest rate strategist Scott Peng, who said the inter-bank rate "touches everyone". "We believe the current liquidity crisis has damaged the inter-bank market, resulting in Libor sets that at times deviate significantly from real inter-bank lending rates," he said.
Paul Calello, chief executive of investment banking at Credit Suisse, yesterday joined a growing chorus questioning Libor reliability.
"Continuing to base an enormous amount of derivative contracts on an index with credibility problems is a serious issue we must address," he told a banking conference.
Credit Suisse rate strategist William Porter said Libor had a "huge incumbent advantage" the British Bankers' Association (BBA) was in danger of losing. "There's no underlying transaction actually done at Libor, so it is inherently subjective, and yet it fixes the interest rates on a large proportion of the world's interest-rate contracts."
The BBA calculates a range of Libor figures in various currencies for borrowing periods ranging from overnight to 12 months, based on an average of inter-bank rates offered by a panel of 16 banks each morning.
A BBA spokesman said Libor rates were "self-checking because they are rates within the market", though they were verified by a committee of "practitioners and experts".
While an annual review had been scheduled for mid-year, it had been brought forward and started several weeks ago. The outcome would be announced "in due course", he said.
Though lower inter-bank rates reduce consumer borrowing rates across the credit system, the fear is that the banks are understating their real borrowing costs to avoid drawing more attention to their funding woes.
Another economist, who declined to be named, said: "No one's going to call each other's bluff because, as an industry, I think they don't want to admit the problems that there are out there with funding. It's like a mutual thing: I'll pretend you're thin if you pretend I'm six feet tall."
The significance of Libor, which has far more impact on "coal face" rates than central bank rates, has grown since the liquidity crisis took hold last year and the gap between inter-bank rates and central bank rates has widened. While the Bank of England cut base rates last week to 5pc, the three-month sterling Libor yesterday stood at 5.9244pc.
In his report, Mr Peng said the importance of Libor, the most popular floating-rate index in the world, had "evolved far beyond its humble roots as an inter-bank lending rate". "Libor touches everyone from the largest international conglomerate to the smallest borrower in Peoria: it takes centre stage in every interest rate swap." [more]
While the distance of this grade strike may only be .6 meters for now, this is one of the highest grades I've ever seen reported!!... and I've been pouring over exploration results from mining companies continuously for over 3 years now! [more]
US Foreclosure Filings Jump in March
Tuesday April 15, 5:12 am ET
By J.W. Elphinstone, AP Business Writer
Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge
The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.
And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.
"Once we're through that batch of loans, the worst will have been worked through the system," said Rick Sharga, RealtyTrac's vice president of marketing.
The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.
The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.
That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.
Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.
"In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it's not as embarrassing and it's a little less of a blemish on their credit record compared to a foreclosure," Sharga said.
He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.
Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren't able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher.
Nevada clocked in the worst foreclosure rate for the 15th straight month. Last month, one in every 139 households received a foreclosure-related notice, nearly four times the national rate. The number of properties with a filing increased 24 percent over February and 62 percent over the previous March.
California had the second-highest foreclosure rate in the country. One in every 204 California households received a foreclosure-related notice. The state had 64,711 properties facing foreclosure, the most of any state and more than double last year's total.
In Florida, 30,254 homes reported at least one filing, down nearly 7 percent from February, but up 112 percent from the year before.
Rounding out the states with the highest foreclosure rates were Arizona, Colorado, Georgia, Ohio, Michigan, Massachusetts and Maryland [more]
This is a classic... 5-600,000 new jobs to be created out of these little $600 "stimulus checks". [more]
Article from Seeking Alpha [more]
Fair warning: This article from Vanity Fair will make you think twice about the food you eat. So if enjoying your food is more important to you than knowing the truth, do not read this. :) I was looking at Monsanto as a potential play on the Ag sector boom when I came across this article. For the most part, I try to seperate my politics and ethical convictions from my investing activities, itself an exercise in looking the other way I am well aware, but when a company behaves this eggregiously towards its fellow humans, thinking only of the bottom line while knowingly causing pain and sorrow in the world, I must place that company on my blacklist. I will never own Monsanto! [more]
WASHINGTON (AP) — Worries about a deep recession drove Fed policymakers to slash a key interest rate last month, minutes of their closed-door meeting show.
Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of "prolonged and severe" business downturn. It was in that environment that they vote — with some dissent — to cut this important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century.
Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and "ongoing weakness in the housing market," according to the meeting minutes that were made public Tuesday.
Two Fed's members — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — opposed such a big rate reduction, however. They favored a smaller cut because of concerns about a potential inflation flare-up. It was a crack in the mostly unified front that the fed often has projected to the public.
The minutes of the closed-door March meeting underscored the economic cross-currents pulling at Fed policymakers.
"With the uncertainties in the outlook for both economic activity and inflation elevated, members noted that appropriately calibrating the stance of (interest-rate) policy was difficult," the minutes stated.
On the one hand, the Fed has been urgently moving to prevent the trio of economic woes — housing, credit and financial_ from plunging the country into a deep recession. On the other hand, with soaring energy prices and high food costs, policymakers realize that they can't afford to let inflation get out of control, either.
Even with the big interest rate reduction in March, most Fed members saw overall inflation moderating in coming quarters, the minutes said. However, inflation pressures had picked up even as economic growth had weakened, the minutes added, suggesting that uncertainty clouded the inflation outlook.
Plosser and Fisher — the two who opposed the hefty three-quarter-point reduction in March — were "concerned that inflation expectations could potentially become unhinged," according to the minutes. If people, investors and businesses expect prices to rise sharply, they'll act in ways that will make inflation worse. Once inflation takes hold, it is hard to break."
Since last September, the Fed has been cutting rates to shore up the economy. One of the risks of lowering rates is that it can sow the seeds of inflation down the road. To battle inflation, the Fed usually boosts rates. [more]
Some US banks face failure as credit problems mount-RBC Mon Apr 7, 2008 2:22pm EDT(Recasts; adds analyst's comments, background, share movement)
April 7 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said. [more]
Fitch: Bank systemic risk still rising; global credit growth falling
Published April 8, 2008
Fitch Ratings, in its latest semi-annual "Bank Systemic Risk report" issued recently, says that banks worldwide face an increasingly challenging operating environment. Bank systemic risk continues to rise, the US and Swiss banking systems have weakened due to the US subprime crisis, and a sharp fall in global credit growth is underway.
"Large, global banks in several major developed countries have been hardest hit by the US subprime crisis, marking this crisis out from more familiar, country-specific banking crises," says Richard Fox, Senior Director in Fitch's sovereign team. "The US and Swiss banking systems have been toppled from their top, 'very strong' ranking based on Fitch's Banking System Indicator. But this still leaves them on a par with most developed country banking systems which remain 'strong'. In the US, losses and writedowns to date, while still mounting, fall well short of aggregate system capital - a conventional measure of the severity of a banking crisis. But global real credit growth is forecast to slow sharply to 9% this year, from over 14% last year, and leading indicators of potential stress are flashing in more emerging market regions."
The fall in the US Banking System Indicator (BSI) to 'B' from 'A' reflects Individual rating downgrades for over 30 banks and bank groups since October.
"Fitch expects ratings pressure to remain for the remainder of 2008, but a further decline in the BSI is not envisioned," says James Moss, Managing Director of Fitch's North American Financial Institutions team. "The largest US banks have raised in excess of USD60bn in new capital to date, often in amounts representing 10% or more of a firm's capital base."
Developed countries in aggregate have more elevated macro prudential indicators (MPI) than emerging markets. Four developed countries are in Fitch's highest macro prudential risk category (MPI 3), of which Iceland continues to give most cause for concern; Fitch placed the three major banks' ratings on Rating Watch Negative (RWN) last week. Australia, Canada and Ireland are also MPI 3, though the trends exhibited there are nowhere near as extreme as in Iceland. Australia remains one of now only five 'very strong' (BSI A) banking systems (Luxembourg, the Netherlands, Spain and the UK are the others - all MPI 2). With the UK's Northern Rock an isolated bank failure, none of these countries have seen any large bank's Individual rating downgraded. In the UK and Spain, weakening property sectors are likely to exert some moderate pressure on banks, while in the UK, the potential for additional write-downs and a weaker earnings outlook for wholesale and investment banking will impact banks more exposed to those sectors.
Fitch's Bank Systemic Risk matrix shows the BSI and MPI side by side to emphasise that stronger banking systems, typically in developed countries, are better able to withstand the potential stress that Fitch's leading indicators of macro-prudential stress aim to anticipate. Azerbaijan and Iran have been in the weakest (E3) segment of the matrix for some time, although in Azerbaijan's case low credit to GDP is a mitigating factor. Russia remains in the 'D3' segment, now joined by Kazakhstan, Romania and Turkey. The dependence of Kazakhstan's banking system on external funding made it an early casualty of the global credit squeeze. Credit growth is now slowing rapidly but strong sovereign support has averted systemic failure. Romania had one of the highest rates of real credit growth in emerging Europe last year and it shows no sign of slowing. By contrast, credit growth is slowing in Turkey. Like Slovakia, which also moves into the MPI 3 category, credit growth only just exceeded the MPI 3 threshold last year, in contrast to other emerging Europe MPI 3s where real credit growth ranged from 30-60%. Slovakia's banking system is relatively strong (BSI C) in emerging market terms.
The GCC is a region with generally strong banking systems (BSI B), on a par with the typical developed country system. However, credit growth has been rapid for some time due to abundant liquidity, strong demand and falling real interest rates. Inflation has reached double digits in both Qatar and the UAE and both these countries rise to MPI 3 in this report. Latin America also sees its first MPI 3 country - Brazil - though it too, has a stronger than average banking system by emerging market standards, at BSI C.
The latest "Bank Systemic Risk report" and the original July 2005 criteria report entitled "Assessing Bank Systemic Risk" are available on the agency's website, www.fitchratings.com.
Re-disseminated by The Asian Banker