25.8% of 182 large retailers are at significant risk of filing for bankruptcy

Wall St. has already provided a list of retailers who may well not make it through 2009. According to The Wall Street Journal, "AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010."So, which chains are at risk as the year draws to a close, especially now that holiday numbers are even worse that expected?The "easy" list that many analysts come up with includes Bon-Ton (BONT), Talbots (TLB), and Saks (SKS). These chains were mentioned in both the 24/7 Wall St. and Wall Street Journal articles.One of the most pressing issues for the industry is whether a very large retail operation will go into Chapter 11 or be sold, putting tens of thousands of people out of work with one stroke? Six months ago, that seemed very unlikely. With 2008 being the worst holiday sales period in decades and 2009 shaping up to be even worse, the number of jobs at risk has become significantly more considerable. One weak operation which could end up being sold is Gap (GPS). The company has 150,000 workers. The firm's shares were nearly $22 a year ago. They now trade under $13. Gap's chains, Gap, Old Navy and Banana Republic, have posted double digit same-store sales declines for many of the months during 2008. Friedman Billings Ramsey recently wrote that its expects sales to get worse in 2009. If that is true, Gap may not make it through the year as an independent.The other large retail operator that will almost certainly suffer double-digit same-store declines in 2009 is Sears (SHLD). It has already posted frightening numbers for most of 2008. A really hard holiday season means that the company will either have to closed hundreds of stores or perhaps eliminate one of its two huge brands--K-Mart or Sears. Over the last year, shares of Sears have dropped from a 52-week high of $114 to $37. Moody's recently warned it may cut Moody's Sears's corporate credit rating from "Ba1," one step below investment grade, according to Reuters. Sears is unlikely to go out of business by a lot of its 337,000 employees could be out of work next year.

Haven Trust Bank, Duluth, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation

Haven Trust Bank, Duluth, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Branch Banking & Trust (BB&T), Winston-Salem, NC, to assume all of Haven Trust’s deposits, including those that exceeded the insurance limit.The four branches of Haven Trust will reopen on Monday as branches of BB&T. All the depositors of Haven Trust will automatically become depositors of BB&T. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their existing banking relationship to retain their deposit insurance coverage. Customers of the failed bank should continue to use their existing branches until they receive further information from BB&T.Over the weekend, depositors of Haven Trust can access all their money by writing checks or using ATMs or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.As of December 8, 2008, Haven Trust had total assets of $572 million and total deposits of $515 million. BB&T agreed to assume all of the deposits for $112,000. In addition to assuming all of the failed bank’s deposits, BB&T will purchase approximately $55 million of the failed bank’s assets. The FDIC will retain the remaining assets for later disposition.

US has seen the collapse of 25 banks this year, with two entities going belly up on average each month.

Reeling under a recession that's getting worse, the US has seen the collapse of 25 banks this year, with two entities going belly up on average each month.
The world's largest economy, which officially entered a recession phase in December last year, has seen the demise of three banks this month.Sanderson State Bank and Haven Trust Bank, both of which were seized by the authorities on Friday, are the latest to join the league of failed entities.Last week, First Georgia Community Bank went bust.According to data available with the Federal Deposit Insurance Corporation, an independent agency of the US government often appointed as receiver of failed banks, 25 banks failed so far this year. On average, it means two bank failures every month.Ironically, in the past eight years, 52 banks went belly up and more than half of them collapsed in the ongoing financial turmoil.As many as 27 banks went bust since September last year, when the economic crisis surfaced in the country's banking sector.The National Bureau of Economic Research (NBER) has said that the US entered a recession phase in December last year, the longest since World War II.There were five bank failures in November, making it the highest in any month this year.Among the five, three entities -- PFF Bank and Trust, Downey Savings and Loan, and The Community Bank -- folded up on November 21. The other two were Security Pacific Bank and Franklin Bank.

Investors who put their fortunes in the hands of arrested New York money manager Bernard Madoff

Investors who put their fortunes in the hands of arrested New York money manager Bernard Madoff are waiting to hear how much of their stake is left.The roster of potential victims in what prosecutors said was a $50 billion Ponzi scheme has grown exponentially longer in the past few days.Madoff, 70, said in regulatory filings that he only had around 25 clients, but it has become apparent that the list of people who lost money may number in the hundreds or even thousands.Among those who have acknowledged potential losses so far: Former Philadelphia Eagles owner Norman Braman, New York Mets owner Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial Services.A charity in Massachusetts that supports Jewish programs, the Robert I. Lappin Charitable Foundation, said it had invested its entire $8 million endowment with Madoff. The organization's executive director said she doesn't expect it to survive.Other institutions that believed they had lost millions included The North Shore-Long Island Jewish Health System and the Texas-based Julian J. Levitt Foundation.Hedge funds and other investment groups looked like big losers too. The Fairfield Greenwich Group said it had some $7.5 billion in investments linked to Madoff. A private Swiss bank, Banque Benedict Hentsch Fairfield Partners SA, said it had $47.5 million worth of client assets at risk.The losses may have extended far beyond the coffers of the wealthy and powerful.The town of Fairfield, Conn., said it placed nearly 15 percent of its retiree pension fund with Madoff. Officials were scrambling to determine how much of the $42 million remained.Harry Susman, an attorney in Houston, said he represents a group of clients who had unknowingly become entangled in the scandal by investing in a hedge fund managed by Merkin, which then put almost all of its $1.8 billion in capital in Madoff's hands.
"They had no idea they had exposure," Susman said. He said his clients were now dumbfounded as to how the fund came to invest all of its holdings with just one man, especially since concerns had been circulating for years about Madoff's operations.
For decades, Madoff had dual reputations among investors. Many wealthy New Yorkers and Floridians considered him a reliable investment whiz. Others, more skeptical, had questioned whether his returns were real, pointing to the firm's secrecy and lack of a big-name auditor.But when he met privately with a family member at his firm earlier this month, something clearly was amiss.First, federal authorities say the 70-year-old Madoff surprised the unidentified family member by saying he wanted to pass out hefty annual bonuses two months earlier than usual, court papers said. Then, when challenged on the idea, he said he "wasn't sure he would be able to hold it together" if they continued the discussion at the office, and invited him to his apartment.It was the beginning of a stunning meltdown for the former Nasdaq stock market chairman.

Madoff himself described his investment business as an unsophisticated "Ponzi scheme," according to investigators who interviewed him.

Perhaps more startling than the loss was that it apparently caught regulators and investigators off guard, only coming to light last week when Madoff's own family turned him in.The core of the scheme — taking investments from one client to pay returns to another — "has been around since the beginning of time," said Marc Powers, a former Securities and Exchange Commission enforcement chief and head of the securities practice at Baker Hostetler.The firm somehow pulled off the fraud despite being subject to examination by the SEC, Powers added. "You wonder how these things escaped the normally careful review of these regulatory organizations."
The latest dose of bad news in the world of finance has left Madoff's clients "panicked," said Stephen A. Weiss, a lawyer for several dozen investors. "These people are sorrowful. These people are angry. And many are now destitute."The wave of ill will — fuel for inevitable lawsuits — was aimed at a man who had cultivated an image as a straight-shooter with a personal touch.
The day after his arrest, his company's Web site still boasted that "in an era of faceless organizations ... Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door."It went on to say "Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."Madoff's resume was the stuff of Wall Street legend: He founded his company in 1960 with $5,000 he earned in part working as a lifeguard on Long Island beaches while putting himself through Hofstra University Law School. It eventually became one of five broker-dealers that spearheaded the formation of the Nasdaq Stock Market, where he served as a member of the board of governors in the 1980s and as chairman of the board of directors in the early '90s.By 2001, Madoff's firm was one of the three top market makers in Nasdaq stocks and the third-largest firm matching buyers and sellers of securities on the New York Stock Exchange, according to Baron's.Investigators say Madoff's crime originated in a separate and secretive investment-advising business.Madoff apparently kept the loss a secret even from his two sons and other family members who work at the firm until he and two of them retreated to his apartment occupying the entire 12th floor of an Upper East Side building on Dec. 9, according the complaint drawn up by an arresting FBI agent.
"It's all just one big lie," he told his family. He confided he had blown the money in what was "basically, a giant Ponzi scheme," the complaint added.Several attorneys representing investors, however, have questioned how he could have acted alone, given the size of the alleged fraud and vast holdings of his firm.According to the court complaint, Madoff told his family he expected to end up behind bars, but wanted to execute his own version of a bailout package by doling out $200 to $300 million he had left to family, friends and employees. After the meeting, a lawyer for the family contacted regulators, who alerted the federal prosecutors and the FBI.
Madoff was in a bathrobe when two FBI agents arrived at his door unannounced at 8:30 a.m. on Dec. 11. He invited them in, then confessed after being asked "if there's an innocent explanation," the complaint said.
Responded Madoff: "There is no innocent explanation."

Two arrests of prominent New Yorkers alleged to be engaged in massive frauds and the arrest of a governor accused of trying to sell a U.S. Senate seat

Two arrests of prominent New Yorkers alleged to be engaged in massive frauds and the arrest of a governor accused of trying to sell a U.S. Senate seat. And if history proves consistent, there will be many more shocking disclosures to come as the world readjusts to another post-bubble era.nothing new. Excesses during bubble times lead to mistakes, big losses and ultimately the unveiling of frauds. Nobody asks questions when things are going well; they scream for justice when things head south.Bernard Madoff, a well-respected denizen of Wall Street, faces charges he defrauded investors in his advisory firm of $50 billion by running what prosecutors say he admits was nothing more than a gigantic Ponzi scheme. The alleged fraud unraveled when Madoff, who has run the business by himself for years, faced $7 billion in client redemption requests this fall. Ponzi schemes need asset inflows to work and break down when those inflows dry up.Until now, nobody asked loudly enough, however, how it was that Madoff could log such steady and consistent positive returns (reportedly always positive for years even as the markets gyrated). His investment management firm, an affiliate of his market-making brokerage operation bearing his name, had $17 billion under management as of the beginning of 2008, according to the Securities and Exchange Commission, which is pursuing separate civil fraud charges.Rival fund managers and some hedge fund due diligence firms said Friday they had wondered for years how he pulled it off, but few thought to sound alarms with regulators

58,000 commercial bankruptcies filed nationwide through November of this year exceed the year-end totals of every year

58,000 commercial bankruptcies filed nationwide through November of this year exceed the year-end totals of every year since Congress overhauled the bankruptcy laws in 2005, according to Automated Access to Court Electronic Records, an Oklahoma City bankruptcy data company.The 11-month figure is also 35 percent more than the nearly 43,000 business petitions filed in all of last year, the company's data show.
The combination of massive job losses, stagnant consumer spending, tighter credit and the subprime mortgage crisis have hammered businesses coast to coast.Victims include Lehman Brothers and Washington Mutual, the two largest corporate bankruptcies in U.S. history.Thousands of smaller companies also have been forced to liquidate or restructure through bankruptcy.They include car dealerships such as Ernie Haire Ford of Tampa, Fla., home remodeling firms such as Accurate Kitchens of Clifton, N.J., and natural gas marketers such as Catalyst Energy of Atlanta.When the recession began last December, businesses nationwide were filing an average of 206 bankruptcy petitions a day. That average has increased steadily since June, reaching 318 per day in November.

London analysts said it was "baffling" that Ireland had still not set up a bail-out scheme of its own.

Irish banks, including AIB, Bank of Ireland, Anglo Irish and Irish Life & Permanent, were this weekend worth a combined €8.3bn. In the next two weeks, AIB, Irish Life and Bank of Ireland are due to publish updates or earnings statements.
Other London analysts said it was "baffling" that Ireland had still not set up a bail-out scheme of its own. "The Barclays fundraising makes Ireland stand out even more," an analyst said. Senior economists at the Organisation for Economic Co-operation and Development (OECD) believe it likely the Irish government will have to follow the rest of Europe and put money directly into the Irish banks. Some London analysts, who did not wish to be named, said that AIB, after meeting accounting good will costs, would at best raise only €1bn if it were to sell its 24% stake in M&T.
Analysts also believe that Anglo Irish will fight to avoid tapping any future Irish taxpayer refunding scheme because Anglo management owns 10% of the bank.

Russian officials, armed with the third largest forex reserves in the world, are trying to project an image of self-confidence.

Russian officials, armed with the third largest forex reserves in the world, are trying to project an image of self-confidence. They are blaming the crisis on the United States.They need to calm nerves among foreign investors in particular because much of the money that had been fleeing the Russian market and causing dramatic stock market loss is foreign-owned.But ordinary Russians, who have been dumping roubles, and Western portfolio managers are not entirely convinced.“The question everybody has is where is the bottom? I am sick of putting money in and watching it disappear. There is no liquidity, no-one is buying, it is like a nightmare,” said John Connor, portfolio manager at U.S. fund Third Millennium Russia. “It is like going to Las Vegas and watching the money fall through the floor. I am not into gambling with my investors’ money.”Aivaras Abromavicius, from Sweden’s East Capital, asked Kremlin’s economic aide Arkady Dvorkovich what the government is planning to do about some majority owners pulling out of share buyouts despite complaints from minority shareholders.Dvorkovich said the matter should be taken to court and the government did not plan to interfere in court decisions. Abromavicius said he was happy Dvorkovich was at least aware of the problem.He added that Western funds were worried about arbitrary trade stoppages in the Russian bourses, which hindered fund redemptions, and were in his view a sign that the Russian market was still far from being civilised.The government has unveiled a package of over $200 billion to keep the economy going and some investors, who also work in other ex-Soviet countries, have praised Moscow’s response.“Unlike many other states, Russia makes decisions, takes measures, works out strategy. They have the money and the political will,” Abromavicius said. “What you need the least is officials sowing panic.”Russian officials have become harder to reach with secretaries saying they are out in meetings all day. Shuvalov spent all morning on Tuesday in closed-door talks with a group of UK businessmen led by business minister Peter Mandelson.

State-owned Development Bank, also known as VEB, has been entrusted by the Kremlin to distribute a $50 billion rescue package

Russian billionaires became fabulously rich in the 1990s during the so-called loan-for-shares schemes when they lent money to the state and got stakes in prized firms as collateral. The state never paid back the loans, allowing future tycoons to become owners at a fraction of the real value."Today, it's almost like a reversal of the shares-for-loans scheme," said Kavanagh at UralSib.The idea of another round of property nationalization or redistribution now seems appealing even to some rich.
"Why did Deripaska get the money? I don't understand why?" said banker Alexander Lebedev, a former Soviet spy who was once stationed in London at the Soviet Embassy.
State-owned Development Bank, also known as VEB, has been entrusted by the Kremlin to distribute a $50 billion rescue package, helping Russian companies to refinance a total of $120 billion of Western loans by the end of 2009.The first round of payouts has already been approved.VEB disbursed $2 billion to Mikhail Fridman's Alfa Group to help it pay back a loan to Deutsche Bank and rescue Alfa's 44 percent stake in Russia's No. 2 mobile phone firm, Vimpelcom, which was used as collateral with the bank.Fridman joined Oleg Deripaska, Russia's richest man, who this week became the first billionaire to get state support in refinancing his foreign debts.VEB has said no company would get more than $2.5 billion, but Deripaska's aluminum major, United Company RUSAL, received $4.5 billion to pay back debt to foreign banks, which it amassed to buy 25 percent in mining giant Norilsk Nickel."It is possible that neither Alfa nor UC RUSAL will find fresh cash to repay the VEB loans, and the state could eventually get the stakes in both Norilsk Nickel and Vimpelcom," analysts from UniCredit Aton said in a note.

American Express will notify its card members in the coming weeks that it will initiate a broad-based interest rate hike.

Big-name credit card issuers, including Bank of America, Chase and American Express, are shrinking -- not raising -- some credit limits. And some, including Chase, are closing some accounts.American Express will notify its card members in the coming weeks that it will initiate a broad-based interest rate hike -- not a cut.
Rates on American Express cards are expected to go up by 2 percentage points to 3 percentage points.

European Central Bank's lending to financial institutions surged to a record as it pumped extra cash into the banking system

European Central Bank's lending to financial institutions surged to a record as it pumped extra cash into the banking system to ease a funding gridlock. The Frankfurt-based central bank said its outstanding euro loans to banks rose to 773.7 billion euros ($1.01 trillion) yesterday, the largest amount ever, from 753.1 billion euros a day earlier. The figure does not include the ECB's dollar loans. Lending between banks ran dry after Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, shattering confidence among lenders and sending borrowing costs to records. Money- market rates in London are falling after governments bailed out banks and policy makers intensified efforts to encourage lending with cash injections. The ECB has also signaled it's ready to follow its emergency interest-rate cut on Oct. 8 with another reduction next week.

Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 billion euro ($3.4 billion) equity injection

Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 billion euro ($3.4 billion) equity injection from the Austrian government at annual interest of 8 percent, as it posted results in line with estimates.
And Kazakhstan's BTA said it expected the government to inject $2.3 billion into its capital as part of a $5 billion bank bailout package announced earlier this week.
Erste is the first Austrian bank to accept capital from the state's 100 billion euro bank support programme and a major lender in emerging Europe. The move will boost its tier 1 capital ratio to more than 10 percent by the end of the year, when it expected the deal to close.
Erste posted a 17 percent decline in third-quarter net profit before one-off gains, as loan loss provisions more than doubled, its trading profit almost evaporated and costs continued to rise.
And in the UK, Lloyds TSB named its management team following the proposed takeover of HBOS, a deal done before the UK government unveiled its support package for the banking system.
The line-up was dominated by names from Lloyd's existing team, with only two out of nine coming from HBOS.
Lloyds stepped in to buy HBOS last month in a government-brokered deal, after its rival was hit by the credit crunch and concerns about its exposure to the UK housing market

Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars

Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars of global strength, sparking runs on their currencies and dramatic plunges in their sharemarkets. The Brazilian real and Korean won, for instance, have both shed more than 30% against the dollar in the past two months as panicked investors have yanked billions out of the market. Hungary, also among those countries hit hardest, has already struck a deal for a loan with the IMF, and the European Central Bank said on Wednesday it would join in the $US25.1 billion bail-out.Making matters worse, many financial institutions in the developing world are struggling for cash as banks in the developed world, themselves facing a credit crunch, pull in their lines of credit. Governments, companies and even consumers have loans and other bets denominated in US dollars, making those debts suddenly more expensive as their domestic currencies sink against the dollar.By offering emergency loans to the central banks in key emerging markets, the Fed and the IMF are giving institutions more power to jump-start lending in their home countries, many of which have spent billions of their reserves defending their currencies in recent weeks.The Fed made clear that it viewed the risks facing the US economy to be severe. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the Federal Open Market Committee said in an unusually blunt statement. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."The rate cut is designed to guard against the risk of a devastating downturn. In normal times, Fed rate cuts make it cheaper for businesses to borrow to expand and for consumers to get car loans, home mortgages and credit card debt. But in the current crisis, with banks reluctant to lend at any price, the rate's impact is uncertain.Nonetheless, many economists think the Fed will cut the rate again at its December 16 meeting, if not before, as the economy worsens.By offering new loans with flexible terms, the IMF is breaking with decades of highly methodical lending that came with tough conditions.Only nations viewed as fundamentally sound and with good relationships with the fund can participate in the program. Countries deemed not to have good track records, such as Argentina, would not be eligible.The short-term loans would have three-month terms, in contrast with the three-to-five-year terms of typical IMF loans.

Metals magnate Oleg Deripaska to pay off a loan to a group of Western banks

National development bank VEB announced Wednesday that it had approved nearly $10 billion in government bailout credits to Russian companies that have foreign loans coming due, without naming the companies.Russian government has agreed to loan $4.5 billion to metals magnate Oleg Deripaska to help him pay off a loan to a group of Western banks, newspapers reported Thursday.The respected Russian business newspaper Vedomosti reported that Deripaska was among the beneficiaries. This was also reported by The Wall Street Journal and Financial Times, both co-owners of the Russian paper. All three cited unnamed sources.VEB said Thursday it was not ready to release the names of loan recipients.Russia's wealthiest businessmen, dubbed oligarchs, are facing a shakeout after many of them borrowed heavily in recent years, often using their firms' shares as collateral. When Russian stocks plunged over the past few weeks, their creditors began demanding that they put up more collateral or risk losing their shares.Wall Street rises after report on economyU.S. economy shrinks in 3rd quarterExxon Mobil quarterly income hits $14.8 billionDeripaska's aluminum company UC Rusal faces a Friday deadline to repay a $4.5 billion loan to 11 Western banks, which had threatened to seize Rusal's 25 percent stake in metals giant Norilsk Nickel that they hold as collateral.Another reported recipient of the VEB credits is Mikhail Fridman's Alfa Group. Vedomosti said VEB has loaned Alfa Group $2 billion to repay a debt to Deutsche Bank and prevent the loss of its 44 percent stake in VimpelCom, Russia's second-largest cellphone company, which it had pledged as collateral.The state loans to Rusal and Alfa Group would be among the first credits extended under a $50 billion government bailout plan that could shuffle Russia's business elite.VEB would not repay the companies' foreign loans directly and would demand the same stakes as collateral, Vedomosti said. The VEB loans are to be repaid by the end of 2009

Citigroup and Credit Suisse are so damaged by the financial crisis, it seems, that they've given up underwriting loans to their biggest clients

Citigroup and Credit Suisse are so damaged by the financial crisis, it seems, that they've given up underwriting loans to their biggest and most valuable corporate clients, including Nestle and Nokia. Instead, they're linking those loans to the companies' CDS spreads.

U.S. dollar has slid as investors grow more willing to take risks and buy stocks, easing demand for the currency as a safe haven.

U.S. dollar has slid as investors grow more willing to take risks and buy stocks, easing demand for the currency as a safe haven.The dollar skidded against the euro, which climbed Thursday to a high of $1.3296, while the pound surged to $1.6672, before slipping back slightly to $1.3076 and $1.6479 respectively. Both rates hit their highest since October 21 earlier in the session Thursday.Central banks and the International Monetary Fund have taken action over the past several days to ease credit and put more money into the world financial system, still in the throes of a severe credit crunch after the collapse of the market for bonds based on subprime mortgages. Stocks are up as a result.

Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity

Liquidity management has grabbed the lead role from interest rate policy internationally as central banks grapple with the global financial crisis, a Norwegian central banker said on Thursday.
Norges Bank, which cut interest rates by 50 basis points on Wednesday to 4.75 percent, has been injecting hefty doses of liquidity into the Norwegian financial system almost daily as interbank lending has dried up in the crisis.
Those money market operations are central to what Norges Bank says is a more active than usual policy approach that it will pursue for the time being to keep the system functioning.
"For a long time central banks have focused predominantly on their interest rate policy," Deputy Governor Jan Qvigstad said in the text of a speech to a conference in Geneva.
Considerably less attention has been paid to liquidity policy "which used to be carried out somewhere in the basement of the monetary policy temple, far away from the spotlight of the announcement of interest rate decisions", he said.
"This year, liquidity policy has moved into the spotlight and has taken over the lead role at the forefront of the monetary policy scene," Qvigstad said in a speech focused on the history of monetary policymaking.
The current situation, he said, also highlights the close interaction between price stability and financial stability and the focus of policymakers today on "crisis management".
"The challenge in the coming months and year is to pursue a dual approach consisting of short-term action and long-term solutions," he said.
"We must constantly be on the alert to put out fires when and where they emerge," he said, adding that central banks must also find the right long-term remedies in the form of new rules and systems to avoid repeating the same mistakes.

Barclays shunted hundreds of millions of dollars of toxic mortgage assets into two secretive investment vehicles according to a lawsuit

Barclays shunted hundreds of millions of dollars of toxic mortgage assets into two secretive investment vehicles that it had created itself. It did this just as the collapse of two Bear Stearns hedge funds last year alerted executives to the extent of the coming troubles in the credit markets, according to a lawsuit.Barclays must decide this week if it will try to persuade a US court to throw out the suit, which alleges that the bank defrauded investors in the two structured investment vehicles "SIV-lites". Both went bust just weeks after the transfers. The bank must file for dismissal by Friday or face a trial. Barclays, under its president Bob Diamond, is now expanding its US investment banking operations aggressively, and the case threatens to hurt its reputation and reveal details of how it responded to the emerging crisis in the credit markets last year. The transfers of toxic mortgage derivatives into its SIV-lites occurred as another division of the bank was facing big losses on its investment in the Bear Stearns funds, which Barclays is now alleging were used by that bank as a dumping ground for toxic assets of its own.
Across the world, lawyers have begun to pick through a vast network of inter-connected investment vehicles created during the credit market boom, through which increasingly complex mortgage derivatives were spread around the financial system. Civil lawyers and criminal investigators are looking for evidence deep in the contracts that defined these vehicles and set out the relationships between the banks that created them, the hedge funds that managed them and the investors that bet on them. In the latest case, Barclays is being sued by a French asset manager in a New York court over the collapse of two investment vehicles designed in London and managed out of the tax havens of Jersey and Guernsey.Oddo Asset Management says it lost its $50m (around £30m) investment in two SIV-lites, Mainsail and Golden Key, because of a scheme cooked up between Barclays and its partners.
The two vehicles purchased, at face value, several hundred million dollars of mortgage derivatives that had previously been sitting on Barclays' balance sheet and threatened to cause big losses for the UK company.SIV-lites were a risky investment vehicle that took on huge amounts of debt in order to buy a variety of complex mortgage derivatives. They exploded into view last year when they became unable to service their debts, and dozenscollapsed. Some of the banks that created them took them on to their own books; others let them fail.Barclays offered $2.5bn in credit lines to Golden Key and Mainsail in August 2007, but this was not enough to save them. Oddo claims that although both vehicles were ostensibly managed independently – Golden Key by Avendis (now in liquidation), Mainsail by Solent Capital Partners – Barclays manipulated them to get them to buy mortgage assets from itself, at what the bank knew were inflated prices."Barclays created these vehicles and hired investment advisers to manage the funds who were beholden to it," said Geoffrey Jarvis, Oddo's lawyer.

British Bankers’ Association, the industry group, said “commercial realities” made it “inevitable that some businesses will not survive” the recession

British Bankers’ Association, the industry group, said “commercial realities” made it “inevitable that some businesses will not survive” the recession. Gordon Brown, prime minister, has put support for small businesses at the centre of his banking rescue plan, requiring HBOS, Lloyds TSB and RBS to make lending available at 2007 levels in return for £37bn of taxpayer-funded equity.The Conservatives said Mr Brown’s pledge on lending was “meaningless”. “The rhetoric does not match the reality on the ground – it’s as deceitful as it is fanciful,” said Alan Duncan, shadow business secretary.“Lending to small businesses is drying up,” he said. “Even now, banks are cancelling overdraft facilities at two days’ notice and driving many good small firms to the wall.”Government officials said the talks were “constructive and positive” and not “read the riot act territory”. Ministers did not attempt to impose any constraints on the amounts or costs of their lending, said insiders.
“It was more a general discussion about intent. There were no detailed talks about areas like pricing,” said one. Another said the banks had told ministers they could make loans available but “not force the demand” from a shrinking sector.Lord Mandelson, who will chair the meeting with small business groups, said the talks would allow business and banks to resolve their differences. Angela Knight, chief executive of the BBA, said there were limits to the help banks could offer. “What we can’t do unfortunately is reverse a poor economic situation,” she said. “As talk turns to recession, it seems inevitable that some businesses will not survive, even with the best assistance that banks, government and voluntary agencies can give them.”

Half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall

Half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall, according to industry experts.Speaking at the Russia Alternative Investment Summit on Wednesday, Simon Fentham-Fletcher, head of fund of hedge funds at Raiffeisen Bank, said in a worst-case scenario, 50 percent of Russian hedge funds could close. The primary source of failure will be a lack of funding as performance deteriorates and investors redeem their money, he said."If they're not well-capitalised they can't look after themselves properly. It's expensive to run a hedge fund out of Russia and you can eat into your reserves very quickly," said Fentham-Fletcher, who is based in Moscow.
Christoph Kampitsch, head of alternative investments for Erste Bank, said there were about 75 hedge funds operating in Russia but by January next year this number may be closer to 25. Fentham-Fletcher said the vast majority of hedge funds in Russia were equity focused with only minimal hedging -- positions designed to reduce losses when markets fall -- and as a result had been badly affected by the decline in the stock market.

Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims"

German Banks Now Face Big Losses From Their Misadventures in Iceland WSJ
German banks have bled billions of euros in the U.S. subprime-mortgage debacle. Now they face another potentially big bill from a costly misadventure in Iceland.
The Icelandic bet is the latest illustration of how German banks -- including once-sleepy regional lenders -- ranged far and wide in recent years in search of yield to escape stiff competition and low profit margins on their home soil.By June of this year, before Iceland's spectacular financial meltdown, German financial institutions had lent $21.3 billion to Icelandic borrowers, according to the Bank for International Settlements. That was well over a quarter of all foreign lending in Iceland, and roughly five times as much as Britain, the next-largest creditor country.Iceland's three largest banks -- and the country's main debtors -- collapsed this month, plunging the country into crisis. Kaupthing Bank, Iceland's biggest, missed a coupon payment this week on 50 billion yen ($512 million) of bonds in Japan, heightening default concerns.Blaming fallout from the U.S. financial crisis, lawmakers in Berlin approved a €500 billion ($642 billion) rescue package for German banks on Oct. 17. Bayerische Landesbank, a state-owned regional lender, became the first German bank to raise its hand for help this week, requesting a €5.4 billion capital injection from the federal government.BayernLB, as the bank also is known, wrote down €2.6 billion in investments during the first half of the year, much of them tied to soured American subprime debt. But it also disclosed this week that it has €1.5 billion in credit exposure to Iceland, a large chunk of which it might also have to write down. ( more from Bloomberg BayernLB to Seek EU5.4 Billion From German Government )That lack of clarity highlights the lack of transparency in today's global financial markets -- and why it may take a long time for banks to fully resume lending to each other, even as authorities in Germany and other countries take aggressive steps to restore confidence. Germany's financial-services regulator said Thursday new accounting rules aimed at giving banks and insurers more leeway in valuing certain assets should boost earnings at the country's biggest banks by up to €1 billion in the third quarter.Now foreign bets that boosted profits are coming back to haunt many banks. Germany's five largest private-sector banks had €12.9 billion in markdowns on securities during the last half of 2007 and first half of 2008, according to Standard & Poor's. Many of the losses are tied to U.S. investments.But some of the country's state-owned regional lenders, or landesbanken, also have bloodied their noses after venturing abroad in search of juicier yields. Originally created to channel credit to their home states, some became aggressive players in international capital markets in recent years. They also had a lot of money to spend after raising money on the cheap before 2005, when government guarantees on their new debt issuance expired."There's not enough low-risk business that can feed all these banks," said Johannes Wassenberg, a European bank credit analyst in London with the ratings agency Moody's.Two small and relatively unknown German banks, SachsenLB and IKB Deutsche Industriebank AG, became the country's first two victims of the U.S. subprime crisis last year after stocking up on asset-backed securities and then failing to secure enough liquidity to stay afloat.
Deutsche Bank AG and Commerzbank AG, Germany's two largest banks by assets, declined to say how much exposure they have to Iceland. Landesbank Baden-Württemberg, or LBBW, the country's largest landesbank, also declined to say how much Iceland exposure it holds.HSH Nordbank, a smaller landesbank, said Thursday it had exposure of "low three-digit-million" euros to Iceland. Another landesbank, WestLB, said its exposure to Iceland was "less than €100 million." A third landesbank, Helaba, said its Iceland exposure was below €10 million.David Oddsson, Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims" on the country's three largest banks.German Banks Are On The Hook For $ 21.Billion Or 30% Percent Of Icelands Debt

Main Street Bank of Northville, Michigan bank failed two weeks ago, it had $98 in assets

Main Street Bank of Northville, Michigan. Billed as a "hometown bank", it opened for business in 2004.
When the bank failed two weeks ago, it had $98 in assets. This is especially sad, since the bank was founded by Northville residents active in community building efforts in their town.

crisis in Maine is tied directly to the collapse of Icelandic banks

Maine lobster industry is reeling from a collapse in demand, and subsequent collapse in the market prices, for the deep-sea crustacean. While supplies are adequate, Canadian seafood processors, who usually grab a significant portion of each day’s catch, have stopped ordering and buying lobsters because their credit lines with Icelandic banks have been frozen.The crisis in Maine is tied directly to the collapse of Icelandic banks which were key lenders to processors in Canada, according to Dane Somers, executive director of the Maine Lobster Promotion Council. Without ready credit from those banks, Canadian processors don’t have the cash to purchase lobster from Maine, Somers said.Lobsters were at $4.99/lb at Augusta Seafood earlier this week. Lobsters off the boat are barely fetching $2.0/lb at some ports. For the typical consumer, lobsters at $4.99/lb. is a tremendous difference from the $12-13 per pound rates earlier in the summer and should make lobster lovers rejoice. However, lobstermen and women can’t make any money at these low prices. Fewer and fewer boats will be departing for the lobster fisheries in the coming weeks; supplies will constrict quickly and prices will rise. The length of this crisis could determine how many lobster boats stay in the business.

Squeezed banks and investment firms are borrowing from the Fed because they can’t get money elsewhere.

Banks borrowed in record amounts from the Federal Reserve’s emergency lending facility over the past week, while investment banks drew loans at a slightly lower - but still brisk - pace, a fresh sign of the credit stresses bedeviling the country.
The Fed’s report, released Thursday, showed commercial banks averaged a record $105.8 billion in daily borrowing over the past week. That surpassed the old record - a daily average of $99.7 billion - from the prior week. On Wednesday alone, $107.5 billion was drawn, an all-time high.For the week ending Wednesday, investment firms drew $111.3 billion. That was down from $131 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley (MS) and Merrill Lynch.The Fed report also showed that over the last week $114.2 billion worth of loans were made to money market mutual funds - via banks - to help the funds, which have been under pressure as skittish investors demand withdrawals. The Fed announced a new effort earlier this week to help shore up mutual funds.

George Bush has defied the leaders of Europe collapse of the US lending markets has cascaded around the globe

George Bush has defied the leaders of Europe, instead calling a G20 summit in Washington for November 15 - the first of several meetings to consider how to clean up the financial mess that has its roots in the grossly inadequate regulation of the sub-prime lending market in the US. The collapse of the US lending markets has cascaded around the globe, leading to bank failures and stock market panics. And it is now bearing down on the real world economy, and threatening to plunge many nations into recession. Rudd, who refused to comment on his dealings with Bush for the preparation of this article, was not the only leader in the world to advocate broad global action on the crisis. But his success in convincing the US and the leaders of several other nations of his view signals that he has established his credentials as a genuine player on the global political stage. Perhaps more so than any of his predecessors, Rudd is bringing a new understanding to world politics - a keener sense of the subtle political changes in coming decades as economic and political power moves inexorably away from Europe and North America towards Asia.
Rudd had solicited Bush's telephone call, which came as the financial crisis reached frightening proportions. Trading on the Australian stock market that Friday saw share prices plunge by 8.3per cent.

Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits.

Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.
The economist's argument makes which of the following assumptions?
(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool

Indian Prime Minister Manmohan Singh Friday forcefully asserted that a “massive failure” of regulatory and supervisory powers had led to the global economic turndown.”Clearly, there had been a massive failure of regulatory and supervisory powers. Speculators have had a free run for too long a period. International institutions like the International Monetary Fund (IMF) have also not covered themselves with glory,” he powerfully argued.
Manmohan Singh, who was specifically listed as the last speaker on the opening day of the conclave because he is seen as having mentored India’s economic reforms and many heads of state wanted to hear the Oxford educated economist on how he perceived the situation and if he could suggest a course correction, was at his eloquent best.
“There has been an unacceptable failure of effective multilateral supervision of major developed economies and in particular, of what has been going on in their financial markets,” the prime minister maintained.Many of those who heard Manmohan Singh said he made powerful presentation that was listened to with rapt attention.
While pointing out that India’s banking system was sound and capitalized, the prime minister said India could not remain totally unaffected by the economic tsunami.
“Our stock markets and the exchange rate of the rupee are under pressure due to capital outflow of foreign institutional investors. Sooner or later, the economy is bound to experience the pain,” he said.Pointing out that pragmatic solutions were the order of the day to bail out the world economy, Manmohan Singh said economies the world over should de-clog their credit markets and also suggested that it was time to actively deliberate on a global regulatory body.“The reform or reconstruction of financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil,” he said as Asian stock markets continued to take a beating for another day.
This is the first summit of Asian leaders since bank failures, plunging stock markets and weakening currencies amplified fears that the world is headed for a protracted economic decline. “Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote global supervision and cooperation in the increasingly integrated world we live in,” Manmohan Singh maintained.Identifying three reasons for the global financial crisis, the prime minister said it was primarily because of a regulatory and supervisory failure in developed countries, a failure of the risk management mechanism in private financial institutions and a failure of the market discipline mechanism.Quoting economist John Keynes for the second time on this trip, Manmohan Singh said: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”
From the standpoint of developing countries, international financial institutions, particularly the IMF and the International Bank for Reconstruction and Development (IBRD), Manmohan Singh said there was an immediate need to put in place exogenous facilities to provide additional assistance more quickly and in large amounts, with “less service conditionality and greater flexibility”.“Globalization without a global financial governance structure can lead to severe problems as has been seen in the recent turmoil,” the prime minister contended.
Many leaders here want China to play a major role in this unprecedented crisis as it is seen as a key to this global response because it has the world’s fastest-growing major economy and $1.9 trillion of currency reserves.The prime minister said as a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resource flows from multinational financial institutions such as the IBRD and the Regional Development Banks, could act as a powerful stabilizer.

U.S. bank shares suffered a rocky ride, closing mostly lower amid fears that losses from bad loans will soar because of a deep global recession.

U.S. bank shares suffered a rocky ride, closing mostly lower amid fears that losses from bad loans will soar because of a deep global recession.The Treasury Department plans to provide funds for 20 to 22 additional lenders as part of its next round of a $250 billion bank recapitalization program. It has already committed half that amount to nine of the nation's largest banks in exchange for preferred shares.Treasury plans to let banks announce the infusions on their own, rather than release a list of recipients all at once and risk scaring investors who might think banks left off failed to qualify for help, a person familiar with Treasury thinking said.

US Treasury adds $7.7bn to National City rescue

National City, one of the biggest mortgage lenders in the Midwest, was acquired in a rescue deal yesterday after months of speculation about whether the bank would survive at all. PNC Financial Services said that it was buying National City for $5.58 billion (£3.5 billion) in a cash-and-shares deal, valuing the bank at a 19 per cent discount to its closing price on Thursday. As a sweetener for the deal, PNC will also get $7.7 billion of capital from the US Treasury by selling a stake in the newly combined group to the American taxpayer. The capital injection forms part of new legislation that allows the US Treasury to acquire shares in troubled banks to help them to survive the credit crisis. On a conference call to Wall Street analysts yesterday, PNC said that it would have to write down $19.9billion of bad loans stagnating on National City's books. PNC refused to be drawn on whether it had been forced to buy National City by Henry Paulson, the US Treasury Secretary, as part of a move to secure the future of the lender. However, it sought to reassure shareholders by insisting that the new deal would create a larger and very well-capitalised bank. At the end of 2006, National City had retail deposits of $87 billion. The bank, which is based in Columbus, Ohio, is heavily exposed to the housing crash in the Midwestern state, which has been one of those worst-affected by the American residential property slump. Ohio has suffered so badly because of the concentration of low-income mortgage borrowers who defaulted on monthly repayments.
National City shareholders will receive 0.0392 shares of PNC common stock for each share of National City they own. However, the discounted valuation of the lender comes after sharp declines to its share price over the past few months. This time last year, shares in National City were trading at around $24, but they fell to a little more than $1 this month. Rumours that the lender was facing funding difficulties dogged the share price and led the bank's chief executive to issue public reassurances about the health of the group. It emerged yesterday that PNC had been mulling a takeover of National City for months. This week, National City posted a quarterly loss of $5.15 billion. The lender set aside $1.18 billion during the third quarter for loan-loss provisions, compared with provisions of $368 million during the same quarter a year earlier Mr Paulson has been very active in forcing troubled banks to merge with other, better-capitalised groups. He has already overseen the acquisition of Washington Mutual by JPMorgan Chase and this month orchestrated the distressed break-up of Wachovia to Wells Fargo, the West Coast-based lender, and to Citigroup, the world's biggest bank. The US Government is desperate for troubled banks to be taken over to avoid a withdrawal on the federal bank insurance fund, which guarantees up to $250,000 of Americans' savings. That fund is running dangerously low because around 15 banks have already gone bust in the United States this year alone.

BayernLB, has already appealed for help, and a second landesbank, HSH Nordbank, run by the states of Hamburg and Schleswig-Holstein,

BayernLB, has already appealed for help, and a second landesbank, HSH Nordbank, run by the states of Hamburg and Schleswig-Holstein, said it had decided in principle to apply.Landesbanks, which also have powerful non-government shareholders, have been among institutions hit hardest in the past year by investment in subprime US mortgages."The board of HSH Nordbank has decided in principle to to make use of the government measures," a spokesman, Rune Hoffmann, told DPA news agency in Hamburg. "But we are not under pressure of time." He said the company's prime objective was a resumption of interbank lending. He said HSH'sdiverse shareholders had not yet finally approved the move.A third landesbank, WestLB, was on the verge of applying for help, the newsweekly Der Spiegel said Saturday.It quoted the chief executive, Heinz Hilgert, saying WestLB would also seek a government takeover of its toxic securities.The magazine said government officials were meanwhile debating how to force recapitalization on Germany's commercial banks, which have resisted taking up the government offer.Commercial banks reportedly fear a loss of credibility if they seek state aid. Their senior executives would also face a pay cap as a condition for aid.Quoting sources, Der Spiegel said German Finance Minister Peer Steinbrueck planned to summon commercial bank chiefs to Berlin in two weeks to press them to jointly apply for help.A fresh embarrassment awaited the state of Bavaria over its landesbank, BayernLB, which needs 6.4 billion euros ($8 billion) in new funds, Spiegel added.It said Bavaria and its trustee savings banks had hoped for relief from a promise earlier in the year to guarantee 4.8 billion euros of the sum, and did not realize the week-old federal aid package ruled this out.The Bavarian government quarrelled this week with the savings banks, which as joint owners of BayernLB successfully resisted a government bid to sack BayernLB chief executive Michael Kemmer.

IMF has warned that more European banks face the risk of going bankrupt

IMF has warned that more European banks face the risk of going bankrupt due to the continuing credit crisis and falling property prices. The property prices in most of the European countries are continuing to slide , and there are no signs of they returning back to positive growth rates in the near future. Hence, IMF has warned that there could be more bank failures in the near future.

Short sharp recession? Not on the evidence. We are now in the grip of a global deleveraging which will be severe, unsparing and prolonged.

Short sharp recession? Not on the evidence. We are now in the grip of a global deleveraging which will be severe, unsparing and prolonged. Interest rate cuts may alleviate some of the pain. The reason that the UK economy is especially vulnerable is, first, that it entered this crisis with high levels of both household and government borrowing, and second because of the structure of the economy itself. Financial services, which formed the fastest-growing sector of the economy overall in recent years, is facing a severe contraction. Retail, business services, property, construction and housebuilding are all now being hit hard. That leaves manufacturing, but we have little of that left after the two previous recessions. We will now see rebalancing – with a vengeance.

Hungary has not had a mortgage crisis yet, but the country’s public finances are a mess.

Hungary has not had a mortgage crisis yet, but the country’s public finances are a mess. Since the accession to the European Union the country had no chance to enter the ERM-II and start the adoption of the euro, so its very open, free-trading economy has to do with the forint. The government had excessive deficits since 2002, crowding out everybody else from the credit market and pushing up interest rates a few percentage points above the euro rate. The Hungarian families, hoping to pay back some time in euros, started to take out their mortgages in euros and Swiss francs, which just suited their banks fine, who happened to have Western European owners, and could easily find loanable funds abroad than in cash-strapped Hungary. Everybody had to sign a paper that he or she understood the risks involved: if the forint stumbles, mortage rates will be high.

cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash

The cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash even after policy makers pumped record amounts of the U.S. currency into financial markets. The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent today, British Bankers' Association said. It gained for the first time in 10 days yesterday. The comparable rate for U.K. pounds jumped 19 basis points to 4.75 percent. The Libor-OIS spread, a measure of cash scarcity, widened by the most since Oct. 10.

Global market meltdown.central banks of Australia, Britain, Canada, Denmark, Norway, Sweden and Switzerland

Bank of Japan said Monday it was doubling a dollar swap to 120 billion dollars as part of the latest coordinated action by the world's central banks to contain a global market meltdown.The Japanese central bank said it held an emergency policy board meeting at which it agreed to pour up to 120 billion US dollars onto the money markets through April.It had agreed on September 18 to a swap facility of up to 60 billion dollars through January.The Bank of Japan said it was taking action in response to "continued strains" on money markets due to the turmoil on Wall Street.
"Central banks will continue to work together closely and are prepared to take appropriate steps as needed to address funding pressures," a Bank of Japan statement said.The central bank said it kept interest rates unchanged at 0.5 percent at the special meeting.The US Federal Reserve and European Union are part of the latest global effort, the Bank of Japan said.
The central banks of Australia, Britain, Canada, Denmark, Norway, Sweden and Switzerland are also taking part, it said.

European governments announced a flurry of bank bailouts from Germany to Iceland

European governments announced a flurry of bank bailouts from Germany to Iceland, but the rescue deals only heightened fears that the contagion from the U.S. credit crisis has much further to spread before the financial system recovers.European shares fell heavily Monday and money markets remained frozen with banks refusing to lend to each other for all but the shortest periods amid concern that a planned U.S. government $700 billion bailout package would not be enough to stem the crisis.
A few hours later, the U.S. House defeated the rescue package by a vote of 228-205, but lawmakers were expected to reconvene Thursday in hopes of a quick vote on a reworked version."In the near term, it will be the weak ones that will be picked off," Global Insight chief European economist Howard Archer said before the U.S. congressional vote of the expectation that more banks would collapse or need rescue.
"But, obviously, the more the turmoil and dislocation continues, the further this could spread," he added. "We live in vicious times."

National City (NCC, Fortune 500) shares plunged as much as 67% Monday, falling as low as $1.25 each,

National City insists it isn't about to follow in the footsteps of Wachovia and Washington Mutual. But the events of the past week suggest the bank's depositors are the ones who will make that decision. National City (NCC, Fortune 500) shares plunged as much as 67% Monday, falling as low as $1.25 each, as investors bet the Cleveland-based lender will be the next financial firm to fail.

Russian stocks fell sharply Monday, joining a broad sell-off in emerging markets

Russian stocks fell sharply Monday, joining a broad sell-off in emerging markets, as tumbling oil prices and mounting worries about the global financial crisis pushed the RTS stock index down 7%.
In Moscow, the dollar-denominated RTS stock index fell 7.1% to end at 1,194 points. The ruble-denominated Micex stock index dropped 5.5% to finish at 1,019 points.
After the close of trading in Moscow, the U.S. House of Representatives rejected the $700 billion bailout plan for the financial sector, sending U.S. equities into a free fall.

Turmoil in the European economy undercut the euro and the pound.Hypo Real Estate Holding AG going under

Turmoil in the European economy undercut the euro and the pound. The 15-nation currency fell to $1.4468 in New York, down from $1.4615 on Friday.
The British pound was quoted at $1.8160, down from $1.8417. And the Japanese yen fell to ¥104.43 from ¥106.14. The dollar's strength comes as the crisis on Wall Street appears to be spreading to the European financial system. In Germany, government regulators and several banks tossed a multibillion euro line of credit to Hypo Real Estate Holding AG in move aimed at preventing the country's second largest commercial property lender from going under. Meanwhile, the British government announced plans to nationalize troubled mortgage lender Bradford & Bingley, taking over the bank's $91 billion mortgage and loan books, in a bid to help stabalize the country's financial system.Over the weekend, the governments of Belgium, the Netherlands and Luxembourg partially nationalized Dutch-Belgian banking giant Fortis NV with a $16.4 billion rescue after investor confidence in the bank evaporated last week.The news from Europe "made the market aware that the contagion was not just in the U.S.," said Amo Sahota, chief currency analyst at U.K.-based HiFX plc.
But the currency market's focus shifted to the United States later Monday after the government's proposed $700 billion intervention in the financial system fell short of the needed votes in the House of Representatives.
"Now all eyes are back on the U.S.," Sahota said.While the bailout's defeat raises serious questions about the future of the U.S. economy, the dollar did not weaken substantially following news of the vote.The stock market, however, was hit particularly hard by the bailout delay. The Dow Jones industrial average plummeted 777 points, marking the index's steepest one-day point drop ever.
The gridlock in Washington, "leaves us right where we were before," Sahota said.
"And that is: still confused about whether there's going to be any positive resolution," to the government's plan for combating the crisis on Wall Street.
Lawmakers were widely expected to pass the bailout plan, and Monday's setback caught many market participants by surprise."The conventional wisdom was that legislation would be passed by the end of the week," said Stephen Malyon, currency analyst at Scotia Capital in Toronto.Congress' failure to pass the legislation has prompted some speculation that the Federal Reserve will take steps to prevent further damage to the financial system, Malyon said

1930s style bank run...... collapse of the financial system

OUTCOMES collapse of the financial system

1930s style bank run...... collapse of the financial system
The bail out was based on a single assumption; the level of toxic debt was so large that much of the US banking system could no longer function. Stripped to its core, this amounts to saying that many banks were effectively insolvent.
It then follows that if anyone has any uninsured deposits in a US bank, then it would be prudent to take them out. This simple logic means a widespread run on banks, a collapse of the financial system, which in turn will be followed by a huge contraction of economic activity.However, there is an ironic twist to this scenario. As banks go bust, the Federal Deposit Insurance Corporation comes in and takes on the assets of failed banks. The government may end up with much of this toxic debt anyway....Banks write off the debt and move on....Perhaps, Wall Street was exaggerating about toxic debt. It really was an attempt by banks to push their losses onto the public sector. In reality, banks could have absorbed these losses all along.The Republicans saw through this scam and voted it down. With today's vote, banks will now get serious about writing off toxic debt and within a few weeks, the worst will be over.
...and anywhere in betweenThose are the two end points of the spectrum of possible outcomes. My feeling is that we are closer to the first point.

Banks have lost faith in the soundness of other banks

Banks have lost faith in the soundness of other banks, so they won't lend each other money. The American people have no faith in their president and Congress, so they are carpet-bombing those same members of Congress with e-mails warning them not to support a $700 billion bailout of the banks.
The members of Congress, who don't trust the president, the secretary of the Treasury and the chairman of the Federal Reserve, and who are worried that a vote for the bailout would be political suicide a month before an election, voted the bailout down 228-205 Monday.
But make no mistake. If Congress is unwilling to pass a bailout that might restore faith in the financial markets, it will plunge the United States deeper into the abyss of the unknown.
So, yes, a $700 billion bailout would be a leap of faith. No one can guarantee that it will work. No one can honestly promise that it will free up credit or that the Treasury will get all of the public's money back if it buys up distressed securities and holds them for a couple of years while financial experts try to figure out what they are worth. Nothing is certain.
But doing nothing looks worse. Already, three Wall Street investment banks have failed, and two others will become commercial banks. The U.S. government has nationalized Fannie and Freddie. Washington Mutual has become the largest bank failure inU.S. history, and Wachovia almost followed Monday. What more evidence do the American people need?
Need it or not, they are going to get it. After the House vote Monday, the Dow plunged 780 points, the largest single-day loss in history and a 7 percent decline. The Nasdaq and S&P 500 did even worse, each losing about 9 percent.
If this kind of bloodletting continues, and more huge banks collapse, maybe the House will get the message. Our hope is that by then it won't be too late.
Maybe then the 133 Republicans, including Utah's Rob Bishop, and 95 Democrats, including Utah's Jim Matheson, who voted against the bailout will realize that they've got to stand up and vote for a plan to restore faith in the nation's credit markets. They've got to do so even if it costs them an election. They've got to do it to keep faith with the best interests of their constituents, even if those same voters don't understand that.
That's leadership. That's statesmanship. And here's the irony. That's what's been missing from the presidency and Congress, and why we're in this fix in the first place.

Shares of most large banks and finance firms slumped as the Senate Banking Committee's hearing on the $700 billion Wall Street bailout came to an end

Shares of most large banks and finance firms slumped as the Senate Banking Committee's hearing on the $700 billion Wall Street bailout came to an end without alleviating investor concerns.Dismayed investors are still throwing a "hissy fit" that the deal wasn't completed when they came into work Monday morning, said Matt McCormick, portfolio manager with Bahl & Gaynor Investment Counsel, a money management firm. "Wall Street clearly wants a deal done yesterday, regardless of what's actually in the deal," said McCormick. "They don't really care about what's in the details. They don't care about discussing the long-term effects on the economy. They just want it done." McCormick added, "As the deal changes hourly, nobody knows what the rules are."The S&P Banking Index was down 2% in late afternoon trading, led by losses in regional banks Wachovia (WB, Fortune 500) and Wells Fargo (WFC, Fortune 500) and battered savings and loan Washington Mutual (WM, Fortune 500).
Shares of top banks JPMorgan Chase (JPM, Fortune 500), ,Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and investment bank Goldman Sachs (GS, Fortune 500) also were trading lower. But Goldman rival Morgan Stanley (MS, Fortune 500) bucked the downward trend and was up 2%. The gains came one day after Morgan Stanley agreed to sell up to one-fifth of its company to Mitsubishi UFJ Financial Group, one of Japan's largest banks.Brad Hintz, analyst for Sanford C. Bernstein, said that most bank stocks were down due to a combination of fears about further disruption in the credit markets as well as worries that the government may not approve a bank bailout.Politicians grilled Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke about the bailout Tuesday.
Paulson said the bailout is necessary for "the very health of the economy." He said it should be big enough to have "maximum impact and restore market confidence" and it should also have transparency and oversight.
Bernanke also spoke in favor of the bailout: "We believe that strong and timely action is urgently needed to stabilize our economy."
Proponents of the bailout believe that it is necessary in order to save the economy. But others believe it is too expensive and baseless.
Oppenheimer analyst Meredith Whitney, one of the most influential banking analysts on Wall Street, said in a report published Tuesday that the bailout was too late to save the credit and lending markets."A virtual suction of liquidity has occurred in the credit and lending markets, and consumer and corporate credit is already showing the effects," Whitney said. "What started last summer has accelerated and intensified so much so that we believe any government bailout plan has little hope of improving core fundamentals over the near and medium term," she added.

John Paulson’s hedge fund emerged Tuesday as the biggest short seller of British banks,

John Paulson’s hedge fund emerged Tuesday as the biggest short seller of British banks, The Financial Times reported, citing filings made under a new regulatory regime.Mr. Paulson, whose historic bet against the housing market that earned him more than $3 billion last year, has shorted four of the U.K.’s five biggest banks, the newspaper said, citing the filings.Mr Paulson, the founder of Paulson & Company, has bet against four of the five biggest British banks, according to filings made under a new regulatory regime on Tuesday. Among his positions are a 350 million pound bet against shares in Barclays; a 292 million pound bet against Royal Bank of Scotland; and 260 million pound bet against Lloyds TSB, according to the newspaper.
The newspaper noted that Mr. Paulson, anticipating criticism for his moves, defended the short positions, saying his hedge fund “empathizes with financial firms as to the difficult positions in which many find themselves.”Last week, British and U.S. regulators moved to temporarily ban short sales on a slew of financial firms. The regulators also enacted new disclosure rules for institutional short-sellers
Short selling — a bet that a stock price will decline — is the practice of selling stock without owning it, hoping to buy it later at a lower price, and thus make a profit. It has often been blamed for forcing prices down in times of market stress, but the level of anger has intensified as the American government has been forced to bail out major financial institutions and the leaders of some investment banks have asked for action to protect their shares.

U.S. Congress is currently reviewing a $700 billion plan

Half the battle with this financial crisis is finding a way to address distress / bad mortgage assets / bonds. The U.S. Congress is currently reviewing a $700 billion plan to address the above, although the plan could differ considerably from the U.S. Treasury's proposal. The other part of the battle is maintaining liquidity for day-to-day operations in finance and the "real economy." Swap lines will help achieve this goal. The swaps are the (roughly) corporate equivalent of 'keeping ATMs stocked with plenty of cash' for commercial customers.

ICICI will have to take a loss of $28 million and make provisions for this. Tata AIG, by far the most affected Indian company

ICICI will have to take a loss of $28 million and make provisions for this. Tata AIG, by far the most affected Indian company, will have to do some serious firefighting. Happily, though, finance minister P Chidambaram has assured the insurers that the firm will have all the necessary funds to absorb these losses. For the rest, there need not be any fear. The global credit crisis will only have a marginal impact on the Indian economy as our financial institutions are insulated and regulators have been losing their jobs. However, one casualty will be India's contemplated introduction of long-term capital convertibility which will now be delayed.

Washington Mutual, one of the nation’s biggest and most troubled financial institutions, remains locked in a dance with several suitor

Washington Mutual, one of the nation’s biggest and most troubled financial institutions, remains locked in a dance with several suitors, all hesitant about a union until they can understand more clearly just how the government’s plan to siphon soured assets out of banks like WaMu will work.
vulture investors are combing through balance sheets of possible targets that could run into trouble if banks start calling back loans to businesses and the economy worsens.In the beaten-down banking industry, private equity investors are scrambling to find investment opportunities in downtrodden community and regional banks that can be nursed back to profitability in a turnaround.In the coming weeks and months, these investors are betting the opportunities will become clearer. They are preparing for a field day for deals, not only in the financial industry, but in the industrial, retail and other sectors where the flagging economy and tight credit will push more companies to the brink.In a sign that the climate of fear that had frozen some big deals may be thawing, Warren E. Buffett announced plans Tuesday to invest $5 billion in Goldman Sachs. Analysts also questioned whether Morgan Stanley, the venerable investment bank, could still become a takeover target even after it secured a huge investment on Tuesday by Mitsibushi UFJ Financial Group.
“There is a growing crowd of hedge funds and private equity firms and stronger banks that are shopping. They are all going to bid against each other,” Christopher Whalen, a managing partner at Institutional Risk Analytics, told The Times. “A lot of my clients see financials in 2009 and 2010 as being a huge home run,” he added.
To be sure, it is still unclear how firms that buckled under the weight of toxic mortgage assets will be treated under the plan of Treasury Secretary Henry M. Paulson Jr. to stabilize the housing market — the root of the crisis that has left a litter of banks and companies scattered across the economic landscape for vulture buyers to pick through.Indeed, Mr. Paulson and Ben S. Bernanke, chairman of the Federal Reserve, spent much of the day in tense testimony before skeptical members of the Senate Banking Committee. The outlines of the emergency plan appeared uncertain after lawmakers raised concerns about its size and scope, driving the stock market sharply down for a second day.As long as that continues, the fate of several big banks whose fortunes may yet be altered by the final contours of the rescue package remain in flux.


The banks bidding for Washington Mutual — like JPMorgan Chase, Citigroup, Banco Santander and Wells Fargo — are trying to calculate how much they should pay for a company whose losses may eventually reach $30 billion. The sum may also depend on how many tainted assets Washington Mutual might dump into a government bailout fund, and what price the government or private parties might pay for those assets.

Also unclear is whether the scope of assets to be salvaged by the government will include commercial real estate and credit card loans, on top of troubled home loans and mortgage-related securities.

Washington Mutual faces several pressure points that suggest a deal will need to be carried out soon if the bank — considered one of Wall Street’s weakest links after the failure of Lehman Brothers last week — is to avoid outright collapse. Such a move could cost taxpayers billions more because it would virtually wipe out the federal deposit insurance fund.

The bank, which grew into a behemoth over the last decade through a series of acquisitions that proved its undoing, has seen its name in headlines alongside other troubled giants of the financial world, including Lehman Brothers and American International Group. To attract customer deposits, Washington Mutual has been offering 5 percent for one-year certificates of deposit — exceeding the 4 percent that other weakened banks are offering.

Despite WaMu’s problems, its suitors are eager to gain access to a lucrative consumer base that it has built throughout the country. JPMorgan wants to gain a foothold in California, where Washington Mutual has plenty of branches, a move that would further entrench it in key markets like Chicago and New York.

Citigroup is interested in access to a deposit-gathering franchise in several big markets, which would raise its overall number of branches. Banco Santander would expand its presence in the United States. Wells Fargo, already a big player in California, would prevent JPMorgan and other potential rivals from encroaching on its territory.

Under its former chief executive Kerry Killinger, the Washington Mutual dove into a particularly risky part of the mortgage business, making option adjustable rate mortgage arm loans to the least creditworthy borrowers, who were permitted to pay only a portion of the principle and interest.

While the new chief executive, Alan Fishman, had more of Wall Street’s confidence, it has become too late to resolve the ailing bank’s problems, analysts said.

Some analysts had even asked whether TPG, formerly Texas Pacific Group, which together with other investors had put $7 billion into WaMu, might add more capital. But that generally seemed unlikely. The group had invested roughly $8.75 a share and was well under water on that investment while the government announced a major overhaul that might take the troubled loans off Washington Mutual’s balance sheet.

Nevertheless, shareholders have a stake in a company that has great appeal to other banks because of its wide depositor base which could provide stable capital to another buyer.

Thousands of Hong Kong savers mobbed branches of Bank of East Asia

Thousands of Hong Kong savers mobbed branches of Bank of East Asia on Wednesday to withdraw deposits, as the bank scrambled to reassure them it was not overexposed to Lehman Brothers and AIG.Police were called in to control the crowds after text messages flashed across the city warning the bank was unstable as it held a large number of assets linked to the failed Wall Street bank and the troubled insurance giant.But BEA and the city's financial authorities moved quickly to rebuff the claims, insisting the bank was in a solid financial position."It has come to the notice of The Bank of East Asia (BEA)... that malicious rumours have been circulated questioning the stability of the bank," the bank said in a statement."The management of BEA hereby states in the strongest possible terms that such rumours have no basis in fact. The management further confirms that the bank's financial position is sound and stable."Hundreds gathered outside branches across the city and the bank extended opening hours for several hours to try and deal with the rush of customers.
"I hope it is just panic, but you never know. I am going to take my money out and put it in another bank," said public relations worker Ada Ho, outside a city centre branch. Ho said she read the rumours on the Internet.At one branch they issued IOUs and told people to come back in the morning to claim their deposits, an AFP photographer said.Up to 400 disgruntled savers, many of them elderly, had to be held back by police as they battled to get inside one branch of BEA in southern Hong Kong island before it closed, according to an AFP photographer at the scene.The bank's deputy chief executive, Joseph Pang, told Dow Jones Newswires that while there have been slightly more bank withdrawals than usual, the situation was "manageable."Pang said the bank first learned of the rumour on Monday, but didn't disclose it immediately because it wanted to avoid spreading panic.The statement said BEA's outstanding exposure was 422.8 million Hong Kong dollars (54.2 million US) to Lehman's and 49.9 million dollars to AIG.Its total consolidated assets stood at 396.6 billion Hong Kong dollars on June 30, with a capital adequacy ratio of 14.6 percent, well above the international required level, the statement added.
The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, insisted the banking system was "safe and sound.""Local banks are well capitalised and highly liquid... The rumours of the financial instability of BEA are unfounded," it said in a statement.Joseph Yam, HKMA's chief executive, said it would provide liquidity if BEA required it, but no request had been made. He said the police would investigate who started the rumour.Shares in the bank dropped as much as 11.3 percent in afternoon trade on the Hong Kong Stock Exchange after falling 6.9 percent over the past two trading days.However, after the bank's statement its shares rallied in late trade to close down 6.9 percent on the day.The drama came just days after the company was forced to restate its earnings downwards by almost 12 percent, after it found that one of its workers had buried losses from an unauthorised trade.
The bank wrote-down its profits after it found the 93 million Hong Kong dollar trading loss, which it attributed to "an unauthorised manipulation of the valuation of certain equity derivatives held by the bank," the Financial Times reported.
The bank's chairman is Hong Kong tycoon David Li, a member of one of Hong Kong's most powerful families, which has been prominent for five generations in business and politics.His grandfather founded the Bank of East Asia in 1918 and the lender boasts one of the biggest branch networks in mainland China among Hong Kong lenders.
Hong Kong investors reluctance to heed government assurances may be linked to the collapse of Bank of Credit and Commerce International in the early 1990s.
The government issued a statement at the time saying that the Hong Kong arm of the bank was "sound and viable" and encouraged investors to stop withdrawing cash.But just days later they were forced to liquidate the bank, leaving many savers in the lurch.

Morgan Stanley and Goldman Sachs Group Inc. led a drop in the cost of protecting bank bonds from default as the U.S. government broadened the scope of

Morgan Stanley and Goldman Sachs Group Inc. led a drop in the cost of protecting bank bonds from default as the U.S. government broadened the scope of its plan to stem the financial crisis. Credit-default swaps on the securities firms fell to the lowest in a week after the Federal Reserve approved their bids to become banks and Mitsubishi UFJ Financial Group Inc. said it may buy as much as a fifth of Morgan Stanley. Contracts on banks including Wachovia Corp. and Bank of America Corp. also fell as U.S. Treasury Secretary Henry Paulson submitted a plan to Congress to buy $700 billion of devalued assets. The scope of the government's purchase program is quite significant,'' Merrill Lynch & Co. strategists Akiva Dickstein, Roger Lehman and Kamal Abdullah wrote in a note to clients today. At distressed prices, the Treasury could acquire as much as 10 percent of the outstanding residential and commercial mortgages that aren't already owned or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, they said. Treasury's plan and the approval of Morgan Stanley and Goldman as bank holding companies boosted investor confidence that the government has calmed the financial turmoil that last week drove Lehman Brothers Holdings Inc. into bankruptcy, while prompting the government to bail out insurer American International Group Inc. and Merrill Lynch & Co. to sell itself to Bank of America Corp. Cars, Credit Cards The U.S. Treasury late yesterday gave Congress revised guidance on its plan, which may allow the government to also buy other devalued assets such as car loans and credit-card debt. Paulson also has proposed as much as $400 billion to guarantee money-market mutual funds. Contracts on Morgan Stanley dropped 132 basis points to 415 basis points, according to CMA Datavision in London. Mitsubishi UFJ, Japan's biggest bank by assets, agreed to invest up to 900 billion yen ($8.4 billion) in Morgan Stanley, the bank said in a statement today. Contracts on Goldman fell 87 basis points to 280 basis points. Converting Morgan Stanley and Goldman into banks ``seems to be a sensible solution for them,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``The broker business model seems broken. Turning them into commercial banks helps take care of the funding problem. It takes some pressure off them to go into a quickly decided wedding with some other banks.'' The Markit CDX North America Investment Grade Index, a benchmark gauge of credit risk tied to the bonds of 125 companies in the U.S. and Canada, was unchanged at 151 basis points, according to broker Phoenix Partners Group. Wachovia, Merrill Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates deterioration in the perception of credit quality; a decline signals improvement. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Banking dead were rising from their graves and financial stock zombies were seen stumbling through the trading day

Banking dead were rising from their graves and financial stock zombies were seen stumbling through the trading day with the disjointed, uncertain gait of trauma victims being forced to take a long march when they would rather take a nice ride on a gurney.It all began a day before when in reaction to the prospect of nothing less than a total collapse of the world's financial system (triggered by the imminent implosion of teetering AIG, ( http://www.nytimes.com/)) the brightest minds in the nation pulled together and, in an inspiring bipartisan show, boldly ordered increased supplies of chewing gum, Bondo, and duct tape. The SEC, in their escalating and poignantly quixotic battle with the laws of Gravity, Logic, and Physics, released a vastly expanded version of July's "No Crappy Bank Left Behind Act" (NCBLB). In a historic move, Chairman Christopher Cox issued a papal ban on short selling, an edict which ranks alongside Pope Gregory's defense of a flat earth. 799 financial stocks in various stages of health ranging from organ donor to the sniffles were swooped beyond the reach of short sellers: naked, casual, or formally dressed. The crisis was postponed until the week of October 2nd, and markets around the world rejoiced. With this 11th hour pardon from the governor, a legion of bionically enhanced pigs, destined to become bacon bits the day before, was now unleashed on the market. Within hours, birdwatchers and air traffic controllers reported sightings of enormous flying porkers all along the eastern seaboard. WB, WM, FNM, FRE, MER, BAC were lifted into the stratosphere on a fast moving current of hot air issuing directly from Washington D.C. Not everyone was on board. Cynics stated that this move by the SEC signals a desperate SOS (“Save Our Stocks”) and that the rescue could cost a not insignificant $1 Trillion (USD) ( http://www.independent.co.uk/..). The budget minded were similarly spooked when the Treasury announced the special sale of a brain-busting $174 billion in treasuries, to be completed within the week (http://online.wsj.com/article/..) and inflation-sensitive investors, aka ‘crazy gold bugs', continued to snap up the yellow metal, bought MREs, and investigated underground bunkers in Canada beyond the inevitable taxation which will be needed to pay for this. We on Trader's Asylum, however, preferred to maintain a more positive and open mind considering the profits we made the last time the SEC battled the laws of physics. On it's Friday debut, however, NCBLB II (Return of the Dung) , seemed less well received than its predecessor. Like every sequel, we probably know how this one is going to end, having seen the first one. Oh it's true, shorters covered pre-market and financial stocks were up between 50-100%, but at the opening bell, investors and shorters alike took their windfall profits and immediately fled the scene of the crime. Trading seemed disconcertingly lackluster to those who expected a massive short covering rally and treasury mandated fireworks. Could be that despite the cheerleading and hosannas on the media, doubts about the patient's prognosis remained? It seemed buyers ventured back with all the enthusiasm of someone being forced to dance with a pair of six guns pointed at his feet. The situation improved somewhat into the close, but stocks failed to revisit their opening highs. The sense we had, watching the level 2s for our watch list: XLF, SKF, AIG, FNM, FRE, UYG, was that Market appeared frozen, and some speculated perhaps some of the gum intended to patch the gash in the hull of the distressed S.S. Wall Street had fallen into the gears of the market instead.
Harvey, my trading partner, bored with hanging up on cold callers trying to sell him distressed banking divisions, decided to join the party with an array of AIG calls, figuring that AIG was the guest of honor for whom this particular charade had been thrown anyway (much as the Humidorian Reaction of mid-July was thrown for the benefit of Fannie and Freddie and their urgent need to raise capital). However, although AIL JU (AIG $7.50 October calls) made a lovely little run from a low of .13c to .52 at the close, there was hardly the same joie de vivre and verve seen in July after the first round of shorting restrictions.
I guess I can't blame Mr. Market for being a less than enthusiastic participant in the bold new plan. After all, he's being treated to the delightful prospect of a luge ride without brakes (and, considering the state of AIG, MBI, and ABK, probably without insurance as well). It's important also to note that this past week's demise of LEH, near death experience of MER, and mauling of MS and GS may have eliminated or subdued the very market makers who made the market liquid in the first place. However, it's nothing a little WD-40 won't fix; and fresh supplies are already on their way. Entirely left out of Friday's brave new rally was monoline insurer and multi-car collision victim Ambac (ABK), whose shares plummeted 41% ( http://www.forbes.com/f..) to a low of $3.87, presumably without the assistance of any shorters. This swan dive no doubt left message board faithful stunned and proved that gravity was still able to extend its awesome reach even into the would-be sanctuary created by the SEC. We wondered if ABK's unpatriotic dip into the red might inspire an even more drastic response. “What's next,” Harvey asked, "a ban on selling altogether? Is the color red to be outlawed during October, leap years and months which end with “r”? Why not just replace today's dismal screens with re-runs from 1985, 1996, and 1999, happier market feeds from years when Dow 10,000 was a ‘good thing', just as TV stations re-run old programming during technical difficulties.” Perhaps, I offered, "Don't Worry, Be Happy" could run on a loop when retail investors log into their Ameritrade or E-trade accounts, and “Happy Days are Here Again” required for all commercial brokerage on-hold music. The SEC, with one bold stroke, has eliminated shorters, but has also prevented hedging in the options market, thus clogging an important risk transfer mechanism used by major institutions ( http://globaleconomicanalysis.blogspot.com/..). But never mind, voters who have never even considered shorting let alone buying an option a day in their lives are comforted and elated. The wicked witch is safely tucked under a house, and the problem is solved. Never mind that short selling, a strategy introduced in 1600s Holland, managed to survive the French Revolution, 2 World Wars, and the Great Depression, has proven necessary for 400 years. Never mind that the air pockets created by its elimination will only magnify a later plunge ( http://globaleconomicanalysis.blogspot.com/..). All that matters is that the collapse has been postponed, preferably until after the circus of the election has left town. Until October 2nd, shorting has gone from being a tool available to ordinary investors, to a crime as heinous as jaywalking, egging a church or attempting to poison one's mother in law. I'm told that those who even consider the left-hand path of going short or daring to mention the vulnerable naked state of the Emperor and his top U.S. investment banks could end up on a watch list of subversives with an agenda to make a profit. Last week's crisis will henceforth be known as "the recent unpleasantness" or the "war of shorter aggression." By divine decree, all banks are now well-loved, well capitalized, and above average. Saying or writing otherwise might get you labeled as a dangerous Financial Terrorist. ( http://www.cnbc.com/..) I can only presume we will soon receive alerts to seal up our trading stations with plastic wrap and duct tape. Upon hearing Thursday's news, Harvey briefly considered giving up trading and going back to mucking out stables, where at least one knows one is dealing with horse manure and can dress appropriately. He's decided, however, that perhaps the situation can be mined for the high comedy value instead, and suggested a season of Survivor based in the canyons of Wall Street, a show where former CEOs and Managing Directors are forced to eat worms in order to avoid having to pay back last year's bonuses.
But in closing, at the risk of seeing depressingly dull and pedestrian, I must wonder why, instead of draconian new measures, the SEC does not simply restore the “uptick rule” ( http://en.wikipedia.org/wiki/Uptick_rule ), instituted in the 1930's after the last time the bad boys of Wall Street managed to wreck the playroom? But alas, perhaps that is too simple and elegant a solution, and painfully bland and obvious no matter how effective. It's like avoiding the use of arithmetic to determine whether a buyer is qualified to buy a house, instead relying on convoluted models and expensive metrics. So, like it or not, they'll bring on the complex, the fallacious, the the muti-chef chewing gum solutions, and I'll go back to buying gold, which kept climbing on Friday as a large sector of investors remained unconvinced by Project SOB (“Save Our Banks"). But you gotta feel sorry for Ben Bernanke, inheritor of a ticking time bomb and now faced with the unenviable job of having to choose between permitting an immediate and total financial breakdown and advocating solutions which will lead to higher taxes, diminished lifestyle, and a prolonged recession with no guarantee of a cure. With this in mind, savvy traders should keep those steel umbrellas near at hand to protect themselves from the scat from all those flying pigs.

U.S. banking bailout moves ahead, WaMu, sickest of the U.S. regional banks

U.S. banking bailout moves ahead, there's a backlash building on two fronts: executive compensation and participation of foreign financial institutions.That second point threatens to derail any bid for troubled Washington Mutual by Toronto-Dominion Bank.There's broad agreement in Washington that the U.S. taxpayer's $700-billion purchase of troubled loans is necessary to the survival of the American banking systems. If finessed just right, there's an opportunity for U.S. taxpayers to take actually make a few bucks on this trade.However, politicians and the general public are going to struggle with any rescue package that enriches the folks who caused this crisis, or perceived outsiders.That's why you're now hearing populist calls to cap executive compensation at any financial institution that taps the bailout fund. Those calls are going to intensify as U.S. elections play out.
Then there's foreign participation in the bailout fund. The citizens of Buffalo already miffed about losing their football team to Toronto once a season. Now they're going to subsidize Toronto's banks, too? You can just see New York Senator Chuck Schumer, who runs the key finance committee, going ballistic on this one.
Which brings us to WaMu, sickest of the U.S. regional banks, and arguably the most attractive target. Seattle-based WaMu has a huge branch network and an equally huge portfolio of mortgages and loans - $309-billion, with a substantial amount of these assets impaired.WaMu formally went on the auction block last week. While the bank's board insists they have enough liquidity to keep rolling in the short-term, it's clear that in the not too distant future, WaMu is going to be tapping the bailout fund, big time. Back-of-an envelope estimates by one fund manager have WaMu needing to sell $40-billion of bad mortgages. TD Bank is reported to be kicking tires at this bank along with the big names in U.S. retail banking Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co. Spain's Banco Santander SA is also said to be interested. There is no harm in looking. In fact, all the Canadian banks and insurers should be looking at U.S. acquisitions.But the winning bidders for WaMu will be the bank that shoulders the most balance sheet risk, while at the same time convincing the U.S. taxpayer to soak up a considerable amount of toxic assets. That balancing act will require considerable political goodwill from folks like Senator Schumer. Citi or JP Morgan are far better positioned to tap that support than a bank from Toronto or Madrid