Credit Crunch

Downey Seized, Sold to U.S. Bancorp as Mortgage Fallout Spreads

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Nov. 22 (Bloomberg) — Seizure and sale of Downey Financial Corp. and two smaller lenders may cost the FDIC more than $2 billion as foreclosures rise and home prices extend declines in the worst housing slump since the Great Depression.

U.S. Bancorp acquired Downey and smaller PFF Bank & Trust, California thrifts crippled by bad mortgages, yesterday in a deal brokered by the Federal Deposit Insurance Corp. Community Bank of Loganville, Georgia, was also closed and its $611.4 million of deposits taken over by Bank of Essex in Tappahannock, Virginia.

Regulators this year have closed the most banks since 1993 as mortgage defaults and tightening credit froze markets. The collapse of IndyMac Bancorp Inc. was among the biggest in history, costing the FDIC $8.9 billion. The agency expects Downey’s demise to deplete its Deposit Insurance Fund by $1.4 billion, with PFF costing $700 million and Community $240 million.

Read moreDowney Seized, Sold to U.S. Bancorp as Mortgage Fallout Spreads

The global economy is being sucked into a black hole

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This Is Not A Normal Recession

Moving on to Plan B

“The Winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide.” Economists Paul Davidson and Henry C.K. Liu “Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy”

The global economy is being sucked into a black hole and most Americans have no idea why. The whole problem can be narrowed down to two words; “structured finance”.

Read moreThe global economy is being sucked into a black hole

Jobless ranks hit 10 million, most in 25 years; unemployment hits 14-year high

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Sunny Yang, left, a masters degree student from Shanghai and employed banker in New York City, speaks with World Bank representative Roberto Amorosino about opportunities for unemployed friends of his during a career fair at Columbia Univeristy Friday, Nov. 7, 2008 in New York. The U.S. unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace. (AP Photo/Julie Jacobson)

WASHINGTON (AP) — The nation’s jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It’s only going to get worse.

The unemployment rate soared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.

Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.

The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.

Read moreJobless ranks hit 10 million, most in 25 years; unemployment hits 14-year high

UK: Perilous state of economy revealed by MPC’s shock move

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The perilous state of the UK economy was exposed as the Bank of England’s Monetary Policy Committee made an unprecedented 1.5 percentage point cut in interest rates.


Winston Churchill meets the Queen in 1955. Photo: PA

The shock vote brought interest rates down to 3pc for the first time since January 1955, when Winston Churchill was prime minister. Economists forecast that the cut could pave the way for further reductions – with some claiming that rates could hit a historic low of 1pc.

Thursday’s move was interpreted as a desperate attempt to protect the UK economy from a severe recession.

“There has been a very marked deterioration in the outlook for economic activity at home and abroad,” said the MPC in an explanatory statement, adding that the threat of inflation was now receding.

It warned that after the most serious crisis in the global banking sector for almost a century, households and businesses were likely to find it difficult to obtain credit “for some time.” The MPC counted falling share prices, a sharp reduction in UK output, and a squeeze on household budgets among a nasty cocktail of circumstances that have combined to hit both businesses and consumers hard.

The MPC’s decision came amid a raft of gloomy news and data emerged. Figures from Halifax, the UK’s biggest mortgage lender, showed that house prices have fallen by 15pc over the past 12 months.

It was the sharpest drop since the survey began in 1983 and brought the average house price down to £168,176 in October, compared with almost £200,000 in the same month last year.

Read moreUK: Perilous state of economy revealed by MPC’s shock move

Jobs lost in 2008: 1.2 million

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Payrolls shrink by 240,000 in October, 10th straight month of cuts. Unemployment soars to 6.5%

chart_job_losses2.03.jpg

NEW YORK (CNNMoney.com) — The government reported more grim news about the economy Friday, saying employers cut 240,000 jobs in October – bringing the year’s total job losses to nearly 1.2 million.

According to the Labor Department’s monthly jobs report, the unemployment rate rose to 6.5% from 6.1% in September and higher than economists’ forecast of 6.3%. It was the highest unemployment rate since March 1994.

“There is so much bad in this report that it is hard to find any silver lining,” said Morgan Keegan analyst Kevin Giddis.

Economists surveyed by Briefing.com had forecast a loss of 200,000 jobs in the month. October’s monthly job loss total was less than September’s revised loss of 284,000. Payroll cuts in August were revised up to 127,000, which means more than half of this year’s job losses have occurred in the last three months.

September had the largest monthly job loss total since November 2001, the last month of the previous recession and just two months after the Sept. 11 terrorist attacks.

With 1,179,000 cuts, the economy has lost more than a million jobs in a year for the first time since 2001 – the last time the economy was in a recession. With most economic indicators signaling even more difficult times ahead, job losses will likely deepen and continue through at least the first half of 2009.

Read moreJobs lost in 2008: 1.2 million

Citigroup, Goldman Said to Begin Eliminating More Than 12000 Jobs

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Nov. 6 (Bloomberg) — Citigroup Inc. and Goldman Sachs Group Inc., faced with a weakening economy and the prospect of mounting losses, began firing workers as part of the firms’ plans to cut more than 12,000 jobs, people with knowledge of the matter said.

Goldman, which converted last month from the biggest U.S. securities firm into a commercial bank, yesterday began telling about 3,200 employees, or 10 percent of its workforce, they were out of a job, according to one of the people who declined to be identified because the decisions were confidential.

Citigroup has been notifying staff this week who are affected by the bank’s plan to discard 9,100 positions over the next 12 months, or about 2.6 percent of its headcount, another person said.

The ousted workers add to the swelling ranks of Wall Street’s unemployed, their lives upended by the credit crisis. Both New York-based firms have already cut staff, and are among the banks and brokerages worldwide that have shed almost 150,000 jobs since the subprime mortgage market collapsed last year. Led by Chief Executive Officer Lloyd Blankfein, Goldman said in April it would fire more after culling about 1,500 underperformers. Vikram Pandit, Citigroup’s CEO, shed 12,900 over the past year.

“We haven’t hit bottom yet,” said Henry Higdon, managing partner at Higdon Partners LLC, a New York-based search firm specializing in financial services. “They have to adjust the size of their businesses to the realities, not only today, but what it’s going to look like in the next two or three years.”

Read moreCitigroup, Goldman Said to Begin Eliminating More Than 12000 Jobs

U.S. Stocks Post Biggest Post-Election Drop on Economic Concern

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Traders work on the floor of the New York Stock Exchange in New York, Nov. 5, 2008. Photographer: Ramin Talaie/Bloomberg News

Nov. 5 (Bloomberg) — The stock market posted its biggest plunge following a presidential election as reports on jobs and service industries stoked concern the economy will worsen even as President-elect Barack Obama tries to stimulate growth.

Citigroup Inc. tumbled 14 percent and Bank of America Corp. lost 11 percent as the Standard & Poor’s 500 Index and Dow Jones Industrial Average sank more than 5 percent. Nucor Corp., the largest U.S.-based steel producer, slid 10 percent after bigger rival ArcelorMittal doubled production cuts amid slowing demand. Boeing Co., the world’s second-largest commercial planemaker, lost 6.9 percent after UBS AG forecast a 3 percent drop in global air traffic next year.

Read moreU.S. Stocks Post Biggest Post-Election Drop on Economic Concern

Boeing, Airbus May End Up With 200 Planes `Parked in Desert’ Amid Crunch

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Nov. 6 (Bloomberg) — Airbus SAS and Boeing Co. may end up with as many as 200 new planes without buyers next year because airlines are unable to obtain funds to pay for them amid a global credit squeeze, a consultant said.

“There’s a funding gap and we don’t really know where the money is coming from,” Eddy Pieniazek, a director of aviation adviser Ascend, said at a conference in Hong Kong yesterday. “If the money doesn’t arrive, you can quite easily see 200 new aircraft, or whitetails, parked in a desert.”

Airbus and Boeing, the world’s two-biggest airplane makers, will probably deliver about $65 billion of large commercial aircraft next year, according to a report by JPMorgan Securities Inc. Leasing companies and banks, which will account for about 60 percent of the aircraft financing market in 2008, are likely to “pull back substantially,” creating a funding gap as wide as $20 billion, the report said.

“Nobody is getting out of this alive,” said Bill Cumberlidge, director of aviation asset finance at Allco Finance Group, which on Nov. 4 handed over operations to outside managers after warning it may default on its debt. “The debt market is dead.”

“Zero Liquidity”

Read moreBoeing, Airbus May End Up With 200 Planes `Parked in Desert’ Amid Crunch

France threatens to seize banks, German bail-outs escalate

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The French state has threatened to seize control of the country’s banks and fire top staff unless they do their part to stabilise the economy by stepping up lending to companies in need.

“The banks have got to open up credit to business: they have the means to do it,” said prime minister Francois Fillon, accusing lenders of hoarding cash. “We don’t think the banks are stepping up to task as necessary. We can withdraw the credit that we have extended to them under the state’s contract with the banks, and that will put them in difficulty. At that moment the question arises whether we should take an equity stake, change their managers, and assume control over their strategy.”

Speaking on French television, he warned: “Broadly speaking, we’ll be able to judge over the next 10 days whether they are playing the game as they should, or not.”

Read moreFrance threatens to seize banks, German bail-outs escalate

Seoul earmarks $11bn to stir demand

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South Korea on Monday unveiled an $11bn stimulus package to boost stagnant domestic demand in Asia’s fourth-largest economy as export growth slows amid the global downturn.

Data released on Monday showed that exports, the main growth driver, grew at the slowest pace in 13 months in October, hit by falling demand from China.

Read moreSeoul earmarks $11bn to stir demand

VeraSun Seeks Bankruptcy Protection

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VeraSun Energy Corp., one of the nation’s largest ethanol producers announced late Friday that it is filing for Chapter 11 bankruptcy protection.

The South Dakota-based company says it expects to continue normal operations and pay its workers regular salaries while it reorganizes. According to a company news release “the filing was precipitated by a series of events that led to a contraction in VeraSun’s liquidity, impairing its ability to operate its business and invest in production facilities.”

VeraSun made bad bets on the corn market over the summer as grain prices reached record highs, resulting in significant losses for the company. That came just as the U.S. economy began deteriorating.

“Worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the Company’s liquidity position,” the company said.

Read moreVeraSun Seeks Bankruptcy Protection

Florida’s Freedom Bank Is 17th in U.S. to Be Closed This Year

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Nov. 1 (Bloomberg) — Freedom Bank of Bradenton, Florida, became the 17th U.S. bank seized by regulators this year as the deepest housing slump since the Great Depression triggers record foreclosures and mounting losses.

Freedom, with $287 million in assets and $254 million in deposits, was shut yesterday by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corp. was named receiver. Fifth Third Bancorp of Cincinnati will assume the deposits and buy $36 million of assets, the FIDC said. Freedom’s four offices will open Nov. 3 as Fifth Third branches.

Read moreFlorida’s Freedom Bank Is 17th in U.S. to Be Closed This Year

Panic Strikes East Europe Borrowers as Banks Cut Franc Loans

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The Hungarian National Bank stands in Budapest, Hungary, on Oct. 16, 2008. Photographer: Balint Porneczi/Bloomberg News

Oct. 31 (Bloomberg) — Imre Apostagi says the hospital upgrade he’s overseeing has stalled because his employer in Budapest can’t get a foreign-currency loan.

The company borrows in foreign currencies to avoid domestic interest rates as much as double those linked to dollars, euros and Swiss francs. Now banks are curtailing the loans as investors pull money out of eastern Europe’s developing markets and local currencies plunge.

“There’s no money out there,” said Apostagi, a project manager who asked that the medical-equipment seller he works for not be identified to avoid alarming international backers. “We won’t collapse, but everything’s slowing to a crawl. The whole world is scared and everyone’s going a bit mad.”

Foreign-denominated loans helped fuel eastern European economies including Poland, Romania and Ukraine, funding home purchases and entrepreneurship after the region emerged from communism. The elimination of such lending is magnifying the global credit crunch and threatening to stall the expansion of some of Europe’s fastest-growing economies.

Read morePanic Strikes East Europe Borrowers as Banks Cut Franc Loans

World is facing a natural resources crisis worse than financial crunch

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• Two planets need by 2030 at this rate, warns report
• Humans using 30% more resources than sustainable

The world is heading for an “ecological credit crunch” far worse than the current financial crisis because humans are over-using the natural resources of the planet, an international study warns today.

The Living Planet report calculates that humans are using 30% more resources than the Earth can replenish each year, which is leading to deforestation, degraded soils, polluted air and water, and dramatic declines in numbers of fish and other species. As a result, we are running up an ecological debt of $4tr (£2.5tr) to $4.5tr every year – double the estimated losses made by the world’s financial institutions as a result of the credit crisis – say the report’s authors, led by the conservation group WWF, formerly the World Wildlife Fund. The figure is based on a UN report which calculated the economic value of services provided by ecosystems destroyed annually, such as diminished rainfall for crops or reduced flood protection.

Read moreWorld is facing a natural resources crisis worse than financial crunch

Dow’s 2nd best day ever

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Dow rises 11% on big rally, but October is still shaping up to be one of the worst months in Wall Street history.

NEW YORK (CNNMoney.com) — The Dow rallied as much as 906 points during Tuesday’s session, as investors dove back into stocks near the end of one of the worst months in Wall Street history.

The Dow Jones industrial average (INDU) added 889 points after having risen as much as 906 points earlier in the session. It was the Dow’s second-biggest one-day point gain ever, following a 936-point rally two weeks ago. The advance of 10.9% was the sixth-biggest ever.

The Standard & Poor’s 500 (SPX) index gained 91.6 points or 10.8%, its second-biggest one-day point gain ever and its fifth-best one-day percentage gain.

The Nasdaq composite (COMP) rose 143.6 points or 9.5%. On a percentage basis, it was the fourth-best one-day gain ever for the tech-fueled Nasdaq. But on a point basis, it didn’t crack the top 10.

The broad advance occurred as the two-day Federal Reserve meeting got underway, with a decision on interest rates expected Wednesday afternoon. Policymakers are widely expected to cut a key short-term interest rate.

Stocks ended Monday’s session at the worst levels in more than five years, with the major gauges down more than 25% for October. Global markets had fallen too, as investors worldwide bailed out of stocks amid the credit crisis and weak economy.

Read moreDow’s 2nd best day ever

Europe on the brink of currency crisis meltdown

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The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Read moreEurope on the brink of currency crisis meltdown

FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt

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Oct. 27 (Bloomberg) — Joseph Ambrosini says the deal looked so easy. JPMorgan Chase & Co. bankers told him there was really no risk. All he had to do was sign a public financing contract, and the bank would give $280,000 to his school district in New Castle, Pennsylvania.

“They basically said, unless the world goes under the sea, we’d be in good shape,” says Ambrosini, the district’s business manager.

In September, Ambrosini says, his 3,400-student district went underwater. On Sept. 25, the week after Lehman Brothers Holdings Inc. collapsed, the New Castle Area School District’s interest rate on $9.7 million of financing arranged by JPMorgan hit 10.6 percent, more than doubling since the month began, as investors demanded skyrocketing returns for municipal debt.

While JPMorgan has been relatively unscathed by the subprime crisis that hit Bear Stearns Cos., Merrill Lynch & Co., Lehman and other Wall Street firms, a little-known part of the largest bank in the U.S. made a tidy profit peddling a different kind of corrosive debt to hundreds of counties and school districts earlier this decade.

As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street’s drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.

Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don’t have to pay for increased interest payments and penalties.

No Bailouts

These come in municipal bond and derivative deals that have turned poisonous. Unlike JPMorgan, which has benefited from federal bailouts, the towns and schools the bank has financed have received no help from Washington.

Read moreFBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt

Banks pull squeeze play on credit cards

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J.L. Fish thought she was a fine credit card customer, and that Wells Fargo shared that high opinion. That’s why the Mankato retiree was stunned to see the bank raise the interest rate on her Platinum VISA from 5.2 percent on her June bill to 17.69 percent come July.

Companies cracking down, even on those with good credit, leaving customers to face interest rate leaps, lower credit limits and even canceled cards.

“I nearly fainted,” said Fish, 61, who lives on about $1,400 a month from Social Security and a small disability pension. She has made the minimum payment each month without fail on about an $8,000 balance, she said. But the interest rate jump nearly doubled her monthly minimum from $115 to $198 –more than she can cover. So, she took the bank’s offer for an “opt out” — which involved canceling the card and then setting up a new billing schedule until she pays off her entire debt.

“I have never been late in my payments,” said Fish, noting payments are automatically deducted from her bank account. “Why did Wells Fargo do this to me?”

The answer is bigger than Fish. Banks nationwide are sweeping across their credit card accounts and tightening lending standards — leaving customers to face interest rate leaps, lower credit limits, and even canceled cards. A Federal Reserve Bank survey showed 83 percent of major card issuers tightening their lending standards in the third quarter of this year, up from 45 percent in the second quarter.

Economists partly blame the credit markets — where banks buy money to lend — which came to a virtual standstill as the world’s stock markets crumbled. But others hear an ominous echo of the subprime mortgage meltdown — with banks now backpedaling from similarly lax lending with credit cards that have left them with exploding losses.

“There is a credit card equivalent of a toxic subprime mortgage,” concluded a report earlier this month by Gregory Larkin, senior analyst at Innovest Strategic Value Advisors, an investment advisory firm in New York. “This is precisely what we need to be looking at right now.”

Read moreBanks pull squeeze play on credit cards

Congress: What Bernanke and Hank Aren’t Telling You

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Congress: Think.

Ben and Hank have both told you that the critical issue for the economy is for “lending to resume”, stating that it has dramatically contracted.

If this was the truth, then Ben and Hank would have come to you for $700 billion in the TARP, but instead of TARPing the money, they would have asked for permission to use it to capitalize 10 new banks which would be immediately IPO’d off to the public with the stake being in the form of some kind of super-senior debt that held a coupon high enough to encourage immediate (or nearly-so) replacement with private capital.

This would have resulted in an aggregate of seven trillion worth of new lending capacity in the economy, an amount that, incidentally, would allow the full replacement of Fannie and Freddie as holders of housing debt with about $2 trillion left over for credit cards, auto and business loans.

That would have immediately solved the “credit freeze” problem.

So why wasn’t this proposed?

This is the reason:

In short, it wouldn’t have done anything because the economy only grows at a rate of about 20 cents for every dollar of debt taken on. That is, it takes five dollars of debt to generate one new dollar of GDP.

The bad news is that once you reach the “$1 for $1” level you are no longer able to finance growth with debt, and it becomes inevitable that you will begin to finance debt with debt.

That, of course generates no GDP at all but precipitously tightens the spiral.

We crossed that Rubicon roughly around 1968, and you have had this fact concealed from you.

Congress, please listen:

The Truth is that we now require about $5 of debt to generate $1 of GDP.

Read moreCongress: What Bernanke and Hank Aren’t Telling You

INFLATION VS. DEFLATION… NOPE – STAGFLATION

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By Krassimir Petrov, PhD:

Once again the Fed, the mainstream media, and Bubblevision continue to relentlessly propagate the myth that the slowing U.S. and global economy will ease inflationary pressures. In addition, the current Credit Crisis and the ongoing collapse in commodity prices have encouraged deflationists to reiterate their beliefs that deflation is inevitable. These views represent two different approaches of the same myth. Investors should not fall for it.

Given the recent fall in prices in a broad range of commodities, we are assured that inflation is no longer a problem, indeed that the real threat is deflation; inflation is supposedly transitory and inflationary expectations are “well anchored”. We are led to believe that “recessions cure inflations.”

Nothing can be further from the truth. On the contrary, given the current macroeconomic environment, the massive government stimulus of hundreds of billions of dollars in rebate checks and a series of bailouts will most certainly translate in much higher inflation and little or no economic growth. One must prepare for the reality that the government’s “cure”, as Peter Schiff has repeated so often, will be worse than the disease.

In coming years, investors must expect a lot more inflation and adjust their portfolios accordingly – their survival depends on it. Our job here is to outline the importance of the inflation-deflation debate, interpret its meaning, provide some historical evidence, and present the arguments for future economic development with its investment implications.

1. Importance of the Inflation-Deflation Debate

For any investor, the most important issue in today’s macroeconomic environment is the correct forecast of future inflation. Its essence boils down to strategic asset allocation. In a strong deflationary environment, the prices of stocks, commodities, and risky bonds fall; cash, cash equivalents, and safe bonds are the winning investments. On the other hand, in an inflationary environment, cash, cash equivalents, safe bonds, and most stocks rapidly lose value for two reasons – due to rising interest rates and due to loss of purchasing power; commodities, gold, and other tangible assets are the winning investments.

Read moreINFLATION VS. DEFLATION… NOPE – STAGFLATION

Taiwan dumps Fannie Mae and Freddie Mac

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Despite bailout, GSE debt is eschewed by major foreign investor, and ally.

WHO LOST TAIWAN?

After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, “Who lost China?”

Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.

Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.

Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.

Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.

Read moreTaiwan dumps Fannie Mae and Freddie Mac

Roubini: Hundreds of hedge funds are going to go bust; Panic May Force Market Shutdown

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Oct. 23 (Bloomberg) — Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

“We’ve reached a situation of sheer panic,” Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. “There will be massive dumping of assets” and “hundreds of hedge funds are going to go bust,” he said.

Group of Seven policy makers have stopped short of market suspensions to stem the crisis after the U.S. pledged on Oct. 14 to invest about $125 billion in nine banks and the Federal Reserve led a global coordinated move to cut interest rates on Oct. 8. Emmanuel Roman, co-chief executive officer at GLG Partners Inc., said today that as many as 30 percent of hedge funds will close.

“Systemic risk has become bigger and bigger,” Roubini said at the Hedge 2008 conference. “We’re seeing the beginning of a run on a big chunk of the hedge funds,” and “don’t be surprised if policy makers need to close down markets for a week or two in coming days,” he said.

Roubini predicted in July 2006 that the U.S. would enter an economic recession. In February this year, he forecast a “catastrophic” financial meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a “sharp drop” in equities.

Read moreRoubini: Hundreds of hedge funds are going to go bust; Panic May Force Market Shutdown

Panic sets in as Wall Street plunges at the open

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The feverish pre-market atmosphere set in on the 79th anniversary of ‘black Thursday’, the start of the 1929 stockmarket crash

American stocks suffered a brutal slump within moments of the opening bell on Wall Street as a sell-off in Asian and European markets spread across the Atlantic.

The Dow Jones industrial average dropped by 450 points in the first 10 minutes of trading to reach 8242, although fears of a full-scale panic proved overblown.

In the run-up to the New York Stock Exchange’s official opening, stock futures had fallen so far that “limit” rules came into force and trading had to be halted. The feverish pre-market atmosphere set in on the 79th anniversary of “black Thursday”, the start of the 1929 stockmarket crash.

Shares pared their losses slightly after a drop of 6% in the Dow and a fall of 7% on the technology-dominated Nasdaq exchange.

“There’s a lot of panic out there today,” said Scott Fullman, director of derivatives investment strategy at WJB Capital Group in New York. “People have been saying that we’re in a recession. This is the realisation.”

Read morePanic sets in as Wall Street plunges at the open

Greenspan shocked at credit system breakdown

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Bush was probably equally shocked when he found out that invading other countries causes US soldiers to die.

The Fed under Greenspan and Bernanke has caused this mess in the first place.

Ron Paul warned years ago of exactly this financial crisis.

Now the dollar looks good again – and many say all points to deflation, which is a ‘understandable’ misunderstanding – but very soon you will see hyperinflation and the total destruction of the dollar and the US economy. The US are broke and the US will ‘fail’ in the not too distant future – but there will be no bailout.

And like magic – like the Fed creates dollars out of thin air – there will come forward a new ‘post dollar’ currency. Everything is already set up for that.
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Former Chairman of the Federal Reserve Alan Greenspan testifies before the House Oversight and Government Reform Committee on Capitol Hill in Washington October 23, 2008. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) – Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is “shocked” at the breakdown in U.S. credit markets and said he was “partially” wrong to resist regulation of some securities.

Despite concerns he had in 2005 that risks were being underestimated by investors, “this crisis, however, has turned out to be much broader than anything I could have imagined,” Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

“Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity — myself especially — are in a state of shocked disbelief,” said Greenspan, who stepped down from the Fed in 2006.

With a general election looming November 4, U.S. lawmakers were sharply divided along political lines in either blaming regulators or bickering for failure to prevent the crisis that has gripped financial markets around the world.

“The reasons why we set up your agencies and gave you budget authority to hire people is so you can see problems developing before they become a crisis,” Committee Chairman Henry Waxman, a California Democrat, told a panel that included Securities and Exchange Commission Chairman Christopher Cox and former U.S. Treasury Secretary John Snow.

“To say you just didn’t see it, that just doesn’t satisfy me,” Waxman said.

Read moreGreenspan shocked at credit system breakdown