Fed, ECB, Central Banks Cut Rates in Coordinated Move


A security officer stands outside of the Federal Reserve building in Washington on Sept. 16, 2008. Photographer: Jay Mallin/Bloomberg News

Oct. 8 (Bloomberg) — The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.

The Fed, ECB, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn’t participate in the move, said it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.

Today’s decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937; Japan’s benchmark today had the worst drop in two decades. Policy makers are also aiming to unfreeze credit markets after the premium on the three-month London interbank offered rate over the Fed’s main rate doubled in two weeks to a record.

Read moreFed, ECB, Central Banks Cut Rates in Coordinated Move

Japan’s Nikkei plunges 9.4 percent on crisis fears


A passerby looks at the electronic stock board in front of a Tokyo brokerage Wednesday, Oct. 8, 2008 as Japan’s stock market plummeted 9.4 percent _ its biggest one-day drop in 21 years. The benchmark Nikkei 225 index nose-dived 952.58 points to 9,203.32, a five-year low. (AP Photo/Katsumi Kasahara)

TOKYO (AP) – Japan’s stock market plummeted 9.4 percent – its biggest one-day drop in 21 years – Wednesday as investors rushed for the exits on deepening fears over the global financial crisis.

The benchmark Nikkei 225 index nose-dived 952.58 points to 9,203.32, a five-year low. That was its third-biggest drop in percentage terms and the largest plunge since October 1987.

Toyota’s shares fell nearly 12 percent on concerns about its earnings amid a slump in the vital U.S. car market.

The massive sell-off in Tokyo follows a sharp retreat on Wall Street Tuesday, when the Dow Jones industrial average lost more than 5 percent despite steps by the Federal Reserve to reinvigorate dormant credit markets.

Read moreJapan’s Nikkei plunges 9.4 percent on crisis fears

AIG Executives Blow $440,000 After Getting Bailout


View from the Lobby Lounge Terrace

If you’d just gotten a government bailout, you might be tempted to hold a retreat at a nice California hotel — and that’s exactly what American International Group (AIG: 3.51, -0.36, -9.30%) executives did.

The committee on Oversight and Government Reform held a hearing on Tuesday at 10:00 a.m. Eastern time. to address and examine downfall of AIG, the world’s largest insurance company. The committee planned to discuss the financial excesses and regulatory mistakes that led to AIG’s government bailout.

One of the items discussed was AIG’s expenditure of $440,000 for a corporate retreat at the St. Regis Monarch Beach resort in Los Angeles, Calif. These funds were spent on Sept. 22, a week after the Federal Reserve extended an $85 billion emergency loan to AIG to keep it from going bankrupt due to insurance liabilities.

Click here to see the full hotel bill

Read moreAIG Executives Blow $440,000 After Getting Bailout

Retirement accounts have lost $2 trillion

WASHINGTON – Americans’ retirement plans have lost as much as $2 trillion in the past 15 months – about 20 percent of their value – Congress’ top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers’ nest eggs.

The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people’s savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.

As Congress investigates the causes and effects of the meltdown, the panel pressed economists and other analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.

“Unlike Wall Street executives, America’s families don’t have a golden parachute to fall back on,” said Rep. George Miller, D-Calif., the panel chairman. “It’s clear that their retirement security may be one of the greatest casualties of this financial crisis.”

Read moreRetirement accounts have lost $2 trillion

U.S. Stocks Drop; S&P 500, Dow Post Worst Retreats Since 1937


Ben S. Bernanke, chairman of the U.S. Federal Reserve, speaks on a television above a trader in the S&P pit at the Chicago Board of Trade in Chicago, on Tuesday Oct. 7, 2008. Photographer: Joshua Lott/Bloomberg News

Oct. 7 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.

Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession. Morgan Stanley, KeyCorp and JPMorgan Chase & Co. slid more than 10 percent as investors shrugged off signs the Federal Reserve will reduce interest rates. General Growth Properties Inc., a mall owner, plunged 42 percent on concern it won’t be able to repay debt.

The S&P 500 slid 60.66 points, or 5.7 percent, to 996.23, extending its 2008 tumble to 32 percent in the market’s worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years. The Nasdaq Composite Index lost 5.8 percent to 1,754.88.

“We’ve approached the edge of the cliff,” Leon Cooperman, 65, who manages $6 billion at hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. “Do we go over the cliff or begin to recede? History says we recede, but there’s no guarantee. This is the most difficult financial environment I’ve lived through.”

Read moreU.S. Stocks Drop; S&P 500, Dow Post Worst Retreats Since 1937

Thursday is D-Day

Forget the stock market gyrations. Forget Bernanke and Paulson’s ineffective, unconstitutional schemes.

Thursday’s auction for Lehman’s credit default swaps (CDS) is much more important.

Why?

Well, if banks are reassured by the CDS auction, it could do more to free up frozen capital than all of the Fed and Treasury’s ill-conceived plans put together.

Read moreThursday is D-Day

Pakistan facing bankruptcy

Pakistan’s foreign exchange reserves are so low that the country can only afford one month of imports and faces possible bankruptcy.


An investor monitors the index at Karachi Stock Exchange in Karachi, Pakistan Photo: BLOOMBERG

Officially, the central bank holds $8.14 billion (£4.65 billion) of foreign currency, but if forward liabilities are included, the real reserves may be only $3 billion – enough to buy about 30 days of imports like oil and food.

Nine months ago, Pakistan had $16 bn in the coffers.

The government is engulfed by crises left behind by Pervez Musharraf, the military ruler who resigned the presidency in August. High oil prices have combined with endemic corruption and mismanagement to inflict huge damage on the economy.

Read morePakistan facing bankruptcy

American financier kills his family and himself after losing fortune in credit crunch


Tragedy: A coroner’s assistant brings out a body

A businessman gunned down five members of his family then shot himself after seeing his family’s fortune wiped out by the stock market collapse.

Karthik Rajaram, 45, who had made almost £900,000 on the London stock market, shot his wife, three children and mother-in-law in the head before turning the gun on himself at the family home near Los Angeles.

He was found with the gun still in his hand.

In a suicide note to police, he blamed the killings on financial hardship brought on by a collapse in shares.

Los Angeles Police Deputy Chief Michael Moore said: ‘The source of it appears to be a financial state, a crisis that this man became embroiled in that has unfolded over the past weeks.

‘We believe he has become despondent recently over financial dealings and the financial situation of his household and that this is a direct result of that.

‘This is a perfect American family behind me that has absolutely been destroyed,’ he added. ‘It is critical for us to step up and recognise we are in some pretty troubled times.’

Using a handgun bought on 16 September, Rajaram went from room to room, picking off the family one-by-one.

Read moreAmerican financier kills his family and himself after losing fortune in credit crunch

Bank shares plunge again in panicky trading

Shares in Britain’s banks plunged again amid panicky trading following emergency talks with the government over a possible injection of billions of pounds of taxpayers’ money into the banking sector.

Royal Bank of Scotland nosedived by almost 40% to 90p in morning trading – its lowest point since the recession of the early 1990s. Barclays, Lloyds TSB and HBOS were also hit, as the lack of a coordinated rescue plan for the banking sector alarmed the City.

By 3pm RBS shares were 32.5% lower at 112p, giving it a market capitalisation of £15.98bn – down from over £75bn a year ago.

HBOS was 23% lower at 124p and Lloyds TSB had lost 13% to 225p. Barclays had recovered most of its early losses following Varley’s comments this morning.

Last night Britain’s bank bosses met with chancellor Alistair Darling, to discuss a possible £50bn injection of equity. They are due to meet again at the Treasury this afternoon.

The talks centre on the idea of a part-nationalisation of the banking system through the injection of capital into the banks via preference shares, which take precedence over ordinary shares during a liquidation, but do not give the holders any voting rights.

Read moreBank shares plunge again in panicky trading

US Mint halts some American Eagle coin production

NEW YORK, Oct 7 (Reuters) – Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year and to supply other bullion coins on an allocation basis.

“Due to the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is unprecedented and the demand for platinum is unusually high,” the U.S. Mint said in a Monday memorandum to its authorized coin dealers.

Related article: Financial Crisis: Rush for gold as savers queue for bullion

“The U.S. Mint has worked diligently to attempt to meet demand, however, blank supplies are very limited and it is necessary for the U.S. Mint to focus remaining bullion production primarily on American Eagle Gold One Ounce and Silver One Ounce Coins,” the Mint said.

Read moreUS Mint halts some American Eagle coin production

France’s former elite go on trial over arms trade

The son of a former French president, an Israeli-Russian billionaire and a tycoon with ties to Arizona’s jet set were among the headliners yesterday as 42 defendants went on trial in Paris, accused in a worldwide web of trafficked arms to Angola, money laundering and kickbacks.

Defense lawyers and Angola’s government are trying to stop the show, however, arguing the trial has no right to go on.

Prosecutors allege that between 1993 and 1998, two key suspects – French magnate Pierre Falcone, a longtime resident of Scottsdale, Arizona, and Arkady Gaydamak, an Israeli businessman based in France at the time – organized a total of $791 million in Russian arms sales to Angola, a breach of French government rules.

Most of the other suspects are accused of receiving money or gifts, undeclared to tax authorities, from a company run by Falcone in exchange for political or commercial favors. Investigators say the corruption grew into a tangle of laundered money and parallel diplomacy that left a stain on France’s relations with Africa.

Among the defendants who filed into a Paris courthouse Monday were icons of France’s political elite – including late President Francois Mitterrand’s eldest son, Jean-Christophe, and an economic adviser to current President Nicolas Sarkozy, Jacques Attali.

Read moreFrance’s former elite go on trial over arms trade

Financial Crisis: Rush for gold as savers queue for bullion

Savers have been queuing in the street to buy gold bars and coins, as they search for a safe place to invest their money.


Traditionally, gold has been one of the safest investments during times of financial turmoil Photo: AP

London’s two leading bullion dealers, ATS Bullion and Baird & Co, have reported a rush of interest from savers, many of whom have hundreds of thousands of pounds worth of savings they want to convert into the precious metal.

Related article: US Mint halts some American Eagle coin production

At least two customers have invested the entire proceeds from selling their houses into gold, each buying up more than £500,000-worth of gold bars, according to one dealer.

Savers have been queuing in the street at ATS Bullion, whose offices are just off the Strand in London’s west end.

Read moreFinancial Crisis: Rush for gold as savers queue for bullion

Economic chaos creates surge in homelessness

CAMBRIDGE, Massachusetts (AP) — The number of homeless families in Massachusetts has surged — a spike that has overwhelmed the state’s shelter capacity and forced it to again place homeless families in motels.


The number of homeless families living in Massachusetts motels skyrocketed in September 2008.

Driving the increase is the sour economy, rising energy costs, escalating unemployment and shortage of affordable housing. For the first time, the state is tracking how many families are winding up homeless due to foreclosures.

“You’re seeing a perfect storm,” said Robyn Frost, executive director of the Massachusetts Coalition for the Homeless.

Read moreEconomic chaos creates surge in homelessness

Thailand: Troops patrol Bangkok after clashes


Riot policemen march towards anti-government demonstrators protesting outside Parliament in Bangkok October 7, 2008. REUTERS/Sukree Sukplang

BANGKOK (Reuters) – Thailand’s military put troops on the streets of Bangkok on Tuesday to keep order after a day of battles between police and anti-government protesters in which more than 380 people were injured.

One man was killed by a car bomb near parliament, police said, where protesters involved in a four-month campaign to unseat the government battled riot police in clouds of teargas.

Army commander Anupong Paochinda said police asked for help and he denied rumors of a coup, two years after the military ousted Prime Minister Thaksin Shinawatra in a bloodless putsch.

“People should not panic. Soldiers will not launch a coup since it will not be good for the country,” he told reporters.

Read moreThailand: Troops patrol Bangkok after clashes

Trading in Icelandic banks halted pending announcement

Trading in the shares of Icelandic banks was suspended in Reykjavik ahead of an announcement and because of concerns over the pricing of their shares.


Icelandic Prime Minister Geir Haarde is facing a financial meltdown

The suspension covers trading in all financial instruments issued by Kaupthing, Landsbanki, Glitnir, the Icelandic lender bailed out by the government after its short-term funding dried up, Straumur-Burdaras, Exista and Spron.

Iceland’s Financial Services Authority requested the move, the OMX Nordic Exchange in Iceland said. The exchange said: “This decision is made in order to safeguard the equality of investors while awaiting an announcement.”

Iceland’s prime minister Geir Haarde has confirmed the country’s major banks have agreed to “sell their foreign assets and decrease their activity abroad”, as pressure mounted for the government to secure a rescue deal for its ailing financial system.

Read moreTrading in Icelandic banks halted pending announcement

The Dollar is Doomed

When the precious metals were smashed out of nowhere and the dollar started climbing this summer I became very worried. I didn’t question my conviction that commodities are in a bull market, or that precious metals in particular are undervalued. I felt something sinister was at work. Neither move was justified on a fundamental level. I assumed that something very bad was about to happen and the metals needed to be brought lower in advance of the bad news.

Now we have a glimpse at the ugly consequences foreseen by the Treasury Department and the Federal Reserve. In early September, Fannie Mae and Freddie Mac were nationalized with a financial commitment of USD$200 billion from the taxpayers. Incredibly, the loan limits at the former GSEs were raised from $417,000 to $729,750 in March when it was more than obvious these institutions needed to be reined in. Like most bailouts and bank failures, this one was announced on a weekend to limit the impact on the stock markets.

As I mentioned in last month’s issue, Treasury Secretary Paulson was under severe pressure to act, as the Chinese started selling Fannie and Freddie bonds while threatening further retribution. Common shareholders were left with nothing, while bondholders like Pimco and Asian central banks benefited. The small investor was stung again, as taxpayer dollars were used to bail out foreigners and wealthy Americans in a policy that Jim Rogers terms “socialism for the rich.”

Unfortunately, $200 billion is just the tip of the iceberg. As the government has assumed responsibility for Fannie and Freddie’s $5.4 trillion in liabilities, the Congressional Budget Office correctly states that these institutions “should be directly incorporated into the federal budget.” The Bush Administration has strongly opposed this move.

Read moreThe Dollar is Doomed

Army combat unit to deploy within U.S.

WASHINGTON (CNN) — The United States military’s Northern Command, formed in the wake of the September 11 terrorist attacks, is dedicating a combat infantry team to deal with catastrophes in the U.S., including terrorist attacks and natural disasters.


Soldiers preparing for a mission coordinated by Joint Task Force North, the U.S. Northern Command unit.

The 1st Brigade Combat Team of the 3rd Infantry, which was first into Baghdad, Iraq, in 2003, started its controversial assignment Wednesday.

The First Raiders will spend 2009 as the first active-duty military unit attached to the U.S. Northern Command since it was created. They will be based in Fort Stewart, Georgia, and focus primarily on logistics and support for local police and rescue personnel, the Army says.

The plan is drawing skepticism from some observers who are concerned that the unit has been training with equipment generally used in law enforcement, including beanbag bullets, Tasers, spike strips and roadblocks.

That kind of training seems a bit out of line for the unit’s designated role as Northern Command’s CCMRF (Sea Smurf), or CBRNE Consequence Management Response Force. CBRNE stands for chemical, biological, radiological, nuclear and high-yield explosive incidents.

Read moreArmy combat unit to deploy within U.S.

Germany to allow domestic military deployment

BERLIN (AP) – Germany’s governing coalition partners want to change the constitution to allow for military deployment within the country if needed to combat terrorism, officials said Monday.

The proposal would allow use of the military only if police are overwhelmed and cannot properly respond to a situation themselves.

“It is not to be used generally, but only in very specific cases,” Interior Ministry spokeswoman Daniela-Alexandra Pietsch said.

The center-left Social Democratic Party – which makes up half of Chancellor Angela Merkel’s coalition – had been opposed to the proposal but agreed late Sunday after working out an agreement that includes strict guidelines for domestic deployment.

Read moreGermany to allow domestic military deployment

Fed May See Companies, States as Next Crisis Fronts

Oct. 6 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month’s downfall of Wall Street titans: its spread to corporate America and state and local governments.

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp. to Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

A cash crunch on Main Street would endanger companies’ basic functions — paying suppliers, making payrolls and rolling over debt. The widening of the crisis suggests that Bernanke and Treasury Secretary Henry Paulson may have further fires to put out even as the Treasury sets up the $700 billion financial- industry rescue plan approved last week.

Read moreFed May See Companies, States as Next Crisis Fronts

Stricken Iceland sends out financial SOS

Economy is in turmoil as currency collapses and inflation soars

Iceland was seeking the financial help of the US and Scandinavian countries last night as politicians and businessmen scrambled to save the country’s economy.

Officials were locked in meetings for most of the weekend, with the Government hoping to come to some sort of resolution before stock markets open this morning. The country’s banking problems led to the nationalisation last week of Glitnir, one of its largest lenders, as depositors pulled out their funds.

Read moreStricken Iceland sends out financial SOS

Financial crisis: Stock market suffers its worst fall in history

The UK stock market has suffered its worst one-day fall in history as the banking crisis intensified.

The FTSE-100 index of Britain’s biggest companies dropped by 391.06 points – its steepest ever fall – to end the day down 7.9 per cent.

The FTSE’s tumble was mirrored across Europe, as markets in France, Germany, Italy and Spain all recorded heavy falls.

On Wall Street, the panic drove the Dow Jones Industrial Average down through the 10,000 level for the first time in four years. The Dow was off 4.6 per cent at 9580.68 by lunchtime in New York as the Standard & Poor’s 500 index lost 5 per cent. The mild euphoria that greeted the passage of the $700bn bail-out of Wall Street on Friday evaporated as traders digested the more bad news from Europe.

A statement by Alistair Darling, the Chancellor, to Parliament failed to calm nerves with the stock market taking a further dive as he spoke.

The Chancellor refused to outline firm plans to deal with the crisis – however, he confirmed the Government was working on a radical scheme which could be implemented in the coming weeks.

Read moreFinancial crisis: Stock market suffers its worst fall in history

Fed will provide as much as $900 in loans to banks

WASHINGTON (AP) – The Federal Reserve will provide as much as $900 billion in cash loans to squeezed banks in an urgent effort Monday to break through a dangerous credit clog that threatens the economy and has unhinged financial markets around the globe.

The Fed’s action is aimed at spurring spooked financial institutions, which are hoarding cash, to lend not only to each other but also to individuals and businesses.

Even as the Fed pledged to take “additional measures as necessary” to battle the worst credit crisis in decades, Wall Street was in a nosedive. The Dow Jones industrials plunged more than 500 points in morning trading. Fears spread around the globe about the ability of policymakers in the United States and abroad to turn around the situation.

The lending lockup is a key reason why the U.S. economy is faltering. Unable to borrow money freely or forced to pay a high cost to borrow, employers are cutting jobs and reducing capital investments. Consumers have retrenched.

Read moreFed will provide as much as $900 in loans to banks

Global Stocks Tumble: $2.5 Trillion Global Equities Erased

Credit Crisis Widens


Sam Farhood, left, and James Denaro work on the floor of the New York Stock Exchange prior to the Opening Bell in New York, on Oct. 6, 2008. Photographer: Andrew Harrer/Bloomberg News

Oct. 6 (Bloomberg) — Stocks tumbled around the world, the euro fell the most against the yen since its debut and oil dropped below $90 a barrel as the yearlong credit market seizure caused bank bailouts to spread. Government bonds rallied.

The Standard & Poor’s 500 Index retreated 5.9 percent, extending the worst weekly slump since 2001, as concern slower global growth will curb demand for commodities sent Alcoa Inc. and U.S. Steel Corp. down more than 7 percent. The MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil halted trading. Europe’s Dow Jones Stoxx 600 Index had its steepest decline since 1987.

Today’s plunge erased about $2.5 trillion from global equities after the German government was forced to bail out Hypo Real Estate Holding AG, overshadowing the $700 billion U.S. Treasury plan to revive credit markets. The euro weakened 6 percent against the yen, the most since 1999.

Read moreGlobal Stocks Tumble: $2.5 Trillion Global Equities Erased