Credit Crunch – Page 3 – Infinite Unknown

Goldman to Cut 10% of Jobs as Downsizing Wave Grows

October 23, 2008 by Infinite

The Goldman Sachs Tower dominates the Jersey City, N.J. skyline.

Goldman Sachs Group Inc. is preparing to cut about 10% of its 32,500 employees, according to people familiar with the matter, a sign of deepening job losses on Wall Street.

The cuts, expected throughout the New York-based company, underscore how much even the mightiest securities firms have been shaken by the 16-month credit crisis. Despite avoiding the catastrophic mistakes that sank Bear Stearns Cos. and Lehman Brothers Holdings Inc., Goldman is suffering from the drought in investment banking and trading.

Deep recession fears slam Wall Street

October 22, 2008 by Infinite

Traders work on the floor of the New York Stock Exchange, October 22, 2008.
REUTERS/Brendan McDermid

NEW YORK (Reuters) – Stocks tumbled to 5 year lows on Wednesday as investors grappled with an increasingly dire outlook for the global economy following a raft of disappointing profits and outlooks from major U.S. companies.

Plummeting commodities prices sent energy and materials company shares sharply lower. Exxon Mobil was the top drag on the Dow, down almost 10 percent.

Boeing Co’s shares fell 7.5 percent after the aircraft maker reported a steep drop in quarterly profit and warned it might need to provide financing to some of its customers in 2009.

Ron Paul: We could take our lumps, save money, pay our bills, restore liberty, and in a year we could have the most booming economy ever

October 27, 2008October 21, 2008 by Infinite

Ron Paul, whose libertarian-leaning candidacy for the Republican presidential nomination spurred millions of supporters, says the federal government could do much to repair the economy short of regulating.

While running for the Republican presidential nomination, Rep. Ron Paul of Texas frequently sounded the alarm regarding the nation’s fiscal health. Years ahead of the current economic crisis, Paul was questioning the nation’s debt level, now an acutely pressing issue amid all the recent stock market volatility.

With the Treasury Department and the Federal Reserve rapidly moving toward more government intervention in the marketplace while trying to stabilize the nation’s banks and shore up its financial institutions, Paul has argued for a hands-off approach. He opposed both versions of the financial rescue plan that came before the House – the first one, which was rejected, and the second, which was passed and signed into law.

Politico’s David Mark interviewed the 10-term congressman, who has still not endorsed Republican John McCain for president. Here are some excerpts.

Q: With the stock market still in flux and the risk of massive financial failures growing, what’s the worst-case economic scenario you envision over the next couple of years?

A: The worst part could be that this would linger for a decade or more. In fact, a very serious recession or depression is on schedule. You cannot avoid it. Eventually it has to come, but it doesn’t have to end badly. We could take our lumps, save money, pay our bills, restore liberty, and in a year we could have the most booming economy ever. But it would take a complete change in attitude.

If we continue to believe it’s freedom, capitalism and private markets that are the problems, we’re in for very bad times.

The Problem Was Never Liquidity, But Insolvency . . . And We Should Let Insolvent Banks Fail

January 2, 2009October 20, 2008 by Infinite

The problem was never really liquidity.

Says who?

Says Anna Schwartz, co-author of the leading book on the Great Depression, and someone who actually lived through it.

The Wall Street Journal ran an interview with Schwartz last weekend:

Most people now living have never seen a credit crunch like the one we are currently enduring. Ms. Schwartz, 92 years old [but still sharp as a tack], is one of the exceptions. She’s not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, “A Monetary History of the United States” (1963). It’s the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.

***

Federal Reserve Chairman Ben Bernanke has called the 888-page “Monetary History” “the leading and most persuasive explanation of the worst economic disaster in American history.” Ms. Schwartz thinks that our central bankers and our Treasury Department are getting it wrong again.

Read moreThe Problem Was Never Liquidity, But Insolvency . . . And We Should Let Insolvent Banks Fail

Ron Paul on The Alex Jones Show: A Global Financial Order

October 19, 2008 by Infinite

Ron Paul on The Alex Jones Show”A Global Financial Order”1/2
Added: Oct. 17, 2008

Source: YouTube

Ron Paul on The Alex Jones Show”A Global Financial Order”2/2

Added: Oct. 17, 2008

Source: YouTube

Probe of Lehman collapse escalated: NYT

October 18, 2008 by Infinite

NEW YORK (Reuters) – Prosecutors have stepped up the investigation into the collapse of Lehman Brothers, with at least a dozen subpoenas being issued including one to the investment bank’s chief executive, Richard Fuld, The New York Times reported on Saturday.

Citing people close to the probe who requested anonymity, the Times said federal prosecutors in Brooklyn, Manhattan and New Jersey were examining events leading to Lehman’s collapse and bankruptcy filing.

One person said New Jersey prosecutors were looking into whether Lehman executives including Fuld misled investors involved in the $6 billion infusion of capital announced by Lehman in June about the bank’s condition, the Times said. That infusion came as Lehman disclosed a $2.8 billion third-quarter loss, which caused its shares to plunge.

Citigroup’s $13bn writedown raises fears of a crisis beyond Wall Street

October 17, 2008 by Infinite

America’s leading banks continued to announce hefty losses yesterday as Citigroup reported a further writedown of more than $13 billion (£7.5 billion) for the third quarter and Merrill Lynch took another $9.5 billion hit.

The latest writedowns brought Citigroup’s total hit from the credit crunch to about $60 billion and left it with an overall group loss, of $2.8 billion, for the fourth consecutive quarter.

Merrill Lynch, which has clocked up about $50 billion of credit-crunch related charges, reported its fifth consecutive quarterly group loss, of $5.15 billion, for the third quarter. The group agreed a fire sale to Bank of America last month to boost its capital reserves.

Citigroup’s loss was larger than the $2.2 billion deficit the bank recorded the year before, but considerably smaller than the $3.8 billion loss analysts had collectively forecast for the period. Group revenues fell 23 per cent to $16.7 billion.

Although Citigroup’s results came in ahead of expectations, analysts were concerned that they provided further evidence that the financial crisis was spreading from Wall Street to Main Street.

Financial crisis: Christine Lagarde warned Hank Paulson to bail out Lehman Brothers

October 17, 2008 by Infinite

Christine Lagarde, the French finance minister, warned her US counterpart Hank Paulson that he had to bail out US investment bank Lehman Brothers or face global financial collapse, but her advice went unheeded.

Financial crisis: France's finance minister Christine Lagarde
Christine Lagarde, the French finance minister, warned her US counterpart Hank Paulson that he must bail out US investment bank Lehman Brothers or face global financial collapse, but her advice went unheeded. Photo: Reuters

Sources close to Mrs Lagarde said that she had called the US Treasury Secretary – a close personal friend – well before the ailing bank’s collapse imploring him to act, but he chose not to.

Lehman Brothers’ demise sparked the biggest shake-up on Wall Street in decades and sent shock waves around the world that triggered a massive bailout plan in Britain and Europe.

Mrs Lagarde – attributed with playing a key role in brokering a bailout deal among G7 finance ministers in Washington last weekend – dubbed Mr Paulson’s decision to let the bank go under “horrendous” as it triggered panic in markets and banks to the brink of a 1929-style financial meltdown.

In an interview with the Daily Telegraph, she warned that the world’s hedge funds could be the next institutions to be hit by the financial turmoil.

Mrs Lagarde, a perfect English speaker, said that governments must be “vigilant” over the health of hedge funds. “Initially everybody thought the hedge fund sector would be the first one to actually cause the collapse. They are vastly unregulated, they have been operating at the fringes, at the margin, and we need to be careful that there is no contamination effect,” she said.

Her warning will send a shiver through the $2 trillion (£1.15billion) hedge fund industry, which has doubled in size in the last three years and proved to be one of the most powerful forces in the global financial system.

Run on Russian bank heightens fears

October 17, 2008 by Infinite

Globex on Wednesday banned depositors from withdrawing their money as confidence in the Russian banking system began to show signs of evaporating.

Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, £2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.

At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.

An economist with a leading western bank in Moscow said Globex was probably the first in what could be a number of bank panics, if the government did not take concerted action soon. “I think there are a large number of small and medium sized banks that are in the same situation,” she said.

Despite a Kremlin promise of $200bn in relief funds – $87bn this week – the fall-out of a stock market plunge and the global credit crunch appears to be worse than anticipated, analysts say.

So far, the crunch has not affected the living standards of ordinary Russians, but a rash of bank failures could.

Banks Hoard Cash as Credit Card Defaults Rise

October 16, 2008 by Infinite

Consumers are increasingly unable to pay off their credit cards, forcing banks to hoard cash to protect against future losses and lend to fewer people, according to reports yesterday from several of the nation’s largest banks.

These financial disclosures showed a spike in credit card loans going bad, putting further pressure on already-stressed balance sheets. J.P. Morgan Chase said the number of credit card loans in default rose 45 percent in the third quarter from the comparable period a year ago and predicted that default rates would sharply accelerate through 2009, with 7 percent of credit card loans going bad.

“We have to be prepared that it gets a lot worse,” J.P. Morgan chief executive Jamie Dimon said about the overall economic outlook.

Financial crisis: Moscow supermarket shelves increasingly empty in Soviet era reminder

October 16, 2008 by Infinite

Russian shoppers have been served an uncomfortable reminder of the Soviet era after finding shelves in some Moscow supermarkets empty, a further sign that the woes of the financial markets have begun to affect the mainstream economy.

For a generation of Russians who queued daily in the snow for the most basic of staples, the symbolism of a bare supermarket shelf is so powerful that it could potentially destroy the reputation of Vladimir Putin, the prime minister, as saviour of the world’s largest country.

The shortages are not yet widespread. Even so, goods have begun to vanish from dozens of Moscow supermarkets over the past fortnight.

At a branch of the supermarket chain Samokhval in southwestern Moscow, a handful of shoppers pushed their trolleys through empty rows of shelves that once groaned under the weight of imported wares.

The deep freezes hummed, although there was nothing to freeze. Only a row of baked beans, a few jars of olives and sealed cupboards filled with vodka and cheap wine interrupted the void.

Crisis spreads to Eastern Europe as Ukraine, Hungary and Serbia call IMF

October 16, 2008 by Infinite

Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe.

A team of IMF trouble-shooters rushed to Kiev on Wednesay to draw up a possible standby loan to help Ukraine stabilize its bank after a panic run on deposits this month.

Birmingham on the brink of bankruptcy

October 16, 2008 by Infinite

With $3.2 billion in debt, the county that is home to Alabama’s largest city is about to go bust. How the credit crisis went South.

(Fortune Magazine) — Bob Riley wanted to help. It was Sunday, Oct. 5, and the Alabama governor was on the phone with Neel Kashkari, a Treasury Department official who the next day would be named by Treasury Secretary Hank Paulson as interim leader of the government’s just-approved $700 billion Troubled Asset Relief Program. But Riley couldn’t wait for Kashkari’s role to become official. He needed to impress upon the new bailout boss the seriousness of the exploding financial crisis in Jefferson County, home to Birmingham. Riley argued that it was urgent that the federal government come to the aid of his state – now.

As he would describe it in a follow-up letter to Kashkari, the situation in Jefferson County was “the single biggest threat to the municipal bond market today and a poster child for how the subprime mortgage crisis is hurting Main Street America.”

For months now, Riley and other civic leaders in Alabama have been battling to avert what appears almost certain – that Jefferson County will file for Chapter 9 protection, in what would be the largest municipal bankruptcy in our nation’s history. The county has fallen hopelessly behind on payments to service the $3.2 billion it borrowed – on reckless terms – from Wall Street over the past decade to build a new sewer system. As Fortune went to press, the Jefferson County Commission was days away from a vote that could make the bankruptcy official.

Switzerland Bails Out UBS; Credit Suisse Raises Funds

October 16, 2008 by Infinite

Pedestrians walk past a branch of the UBS bank in Bern, Switzerland, on Thursday, Oct. 2, 2008. Photographer: Adrian Moser/Bloomberg News

Oct. 16 (Bloomberg) — Switzerland gave UBS AG, the European bank with the biggest losses from the credit crisis, a $59.2 billion rescue and pushed Credit Suisse Group AG to raise funds, joining authorities around the world in shoring up banks.

UBS will get 6 billion Swiss francs ($5.2 billion) from the government and put as much as $60 billion of risky assets into a fund backed by the central bank, the Zurich-based company said. Credit Suisse Group AG raised 10 billion francs from investors including Qatar and Tel Aviv-based Koor Industries Ltd.

Switzerland is the last of the world’s financial centers to pour cash into ailing financial institutions after losses on bad debts reached $647 billion globally and credit markets froze. The Swiss government plans to raise deposit guarantees and is ready to back the short- and medium-term interbank loans of the nation’s banks, after countries across Europe took similar measures.

Feds investigate Washington Mutual failure

October 15, 2008 by Infinite

A sign at a Washington Mutual Bank (WaMu) branch is shown in San Francisco, California September 26, 2008. REUTERS/Robert Galbraith

NEW YORK (Reuters) – Federal investigators have opened an investigation into the collapse of Washington Mutual Inc, the largest U.S. banking failure.

Jeffrey Sullivan, U.S. attorney for the western district of Washington, said in a statement on Wednesday that he has set up a task force that includes investigators from the FBI, the U.S. Securities and Exchange Commission, the Federal Deposit Insurance Corp and the Internal Revenue Service’s criminal investigations unit.

“Given the significant losses to investors, employees and our community, it is fully appropriate that we scrutinize the activities of the bank, its leaders and others to determine if any federal laws were violated,” Sullivan said in a statement. He said the probe comes on the heels of “intense public interest in the failure of Washington Mutual.”

U.S. Stocks Drop Most Since Crash of 1987 on Recession Concerns

October 15, 2008 by Infinite

A trader looks up at monitor while working on the floor of the New York Stock Exchange in New York on Oct. 15, 2008. Photographer: Jin Lee/Bloomberg News

Oct. 15 (Bloomberg) — U.S. stocks plunged the most since the crash of 1987, hammered by the biggest drop in retail sales in three years and growing doubt that plans to bail out banks will keep the economic slump from deepening.

Exxon Mobil Corp. and Chevron Corp. tumbled more than 12 percent as commodity prices declined on concern the slowing economy will hurt demand. Wal-Mart Stores Inc. retreated 8 percent after the Commerce Department said purchases at chain stores decreased 1.2 percent last month. Morgan Stanley lost 16 percent after Oppenheimer & Co. analyst Meredith Whitney said the government’s bank rescue is not a “panacea” solution.

The Standard & Poor’s 500 Index sank 90.17 points, or 9 percent, to 907.84, with nine companies declining more than 20 percent. The Dow Jones Industrial Average retreated 733.08, or 7.9 percent, to 8,577.91, its second-biggest point drop ever. The Nasdaq Composite Index lost 150.68, or 8.5 percent, to 1,628.33. About 37 stocks fell for each that rose on the New York Stock Exchange.

CNN’s Glenn Beck and Peter Schiff: Inflation Nation and Martial Law

October 15, 2008 by Infinite

Added: Oct. 13, 2008

Source: YouTube

JPMorgan Net Income Drops 84 Percent on Writedowns

October 15, 2008 by Infinite

Oct. 15 (Bloomberg) — JPMorgan Chase & Co., the largest U.S. bank by market value, said third-quarter profit fell 84 percent on about $5.8 billion of writedowns, losses and credit provisions.

Net income dropped to $527 million, or 11 cents a share, from $3.4 billion, or 97 cents, a year earlier, the New York- based bank said today in a statement. Shares of the company rose as earnings beat the 18-cent loss analysts predicted on average in a survey by Bloomberg.

JPMorgan took $18.8 billion of writedowns and credit costs before today, less than a third of what Wachovia Corp. and Citigroup Inc. reported. Chief Executive Officer Jamie Dimon has capitalized on the market crisis by taking over Bear Stearns Cos. and Washington Mutual Inc. as they collapsed earlier this year. JPMorgan will get $25 billion from the U.S. government under a bank rescue plan announced yesterday.

Roubini: US Will Suffer Worst Recession in 40 Years

October 14, 2008 by Infinite

Oct. 14 (Bloomberg) — Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, driving the stock market lower after it rallied the most in seven decades yesterday.

“There are significant downside risks still to the market and the economy,” Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. “We’re going to be surprised by the severity of the recession and the severity of the financial losses.”

The economist said the recession will last 18 to 24 months, pushing unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

``This will be the first round of recapitalization of the banks,” Roubini said. “The government has to decide to intervene much more directly in the provision of credit and the management of these companies.”

U.S. 2008 Budget Deficit at Record $455 Billion

October 14, 2008 by Infinite

Oct. 14 (Bloomberg) — The U.S. government posted a record budget deficit for 2008 as financial market strains slowed economic growth and spending rose the most since 1990.

The shortfall widened to $455 billion in the fiscal year ended Sept. 30, compared with a $162 billion deficit a year earlier and the previous high of $413 billion in 2004, the Treasury said today in Washington. The gap was 3.2 percent of gross domestic product, up from 1.2 percent last year, the Treasury said. The 2008 deficit was the largest as a share of the economy since 2004, when it was 3.6 percent of GDP.

The excess of expenditures over receipts this year could get even worse. As the Treasury uses $700 billion to rescue the financial system from the credit crisis, Morgan Stanley chief economist David Greenlaw predicts the shortfall may almost quadruple to about $2 trillion.

Coming Soon: The 600 Trillion Derivatives Emergency Meeting

October 17, 2008October 14, 2008 by Infinite

Here is an update on the size of the derivatives market with the latest official figures (.pdf) from the Bank for International Settlements (BIS). Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency.

Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in comparison to the mushrooming growth of the derivatives market. According to figures released in the quarterly review of the BIS (pp A103) in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007.

Why should gold stop at $1,500?

October 14, 2008 by Infinite

LONDON (MarketWatch) — Euphoria over bank bailouts and the temporarily buoyant stock markets is masking a sober reality.

The piper still has to be paid.

One fairly sanguine estimate of the cost of salvaging Wall Street came Tuesday morning from analysts at Merrill Lynch. They figure the inflationary effect of all the bank bailout measures now underway will push gold to $1,500 an ounce and oil back to $150 a barrel. See related item.

The analysts don’t offer a timeline, but the way markets have been jumping around lately it could be any day now.

Perhaps the real question is: why stop at $1,500?

EU Nations Commit 1.3 Trillion Euros to Bank Bailouts

October 13, 2008 by Infinite

Oct. 13 (Bloomberg) — France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.

The announcements came as Britain took majority stakes today in Royal Bank of Scotland Group Plc and HBOS Plc. The coordinated steps followed a pledge yesterday by European leaders to bolster market confidence as the global economy slides toward recession.

“What it should do is stabilize the banking system,” said Peter Hahn, a fellow at London’s Cass Business School and former managing director at Citigroup Inc. “Will it stop us from having a recession? No, nothing is going to stop us from having a recession.”

States warned about impending mortgage crisis

October 13, 2008 by Infinite

Bush administration, financial industry thwarted efforts to curb greed

More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation’s top bank regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of “predatory” lending. They urged Hawke to give states more latitude to limit exorbitant interest rates and fine-print fees. “People out there are struggling with oppressive loans,” Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn’t budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the nascent fight against reckless real estate finance. The OCC “took 50 sheriffs off the job during the time the mortgage lending industry was becoming the Wild West,” Cooper says.

This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the heart of the current financial crisis. Federal officials brushed aside their concerns. The OCC and its sister agency, the Office of Thrift Supervision (OTS), instead sided with lenders. The beneficiaries ranged from now-defunct subprime factories, such as First Franklin Financial, to a savings and loan owned by Lehman Brothers, the collapsed investment bank.

Ten people who predicted the financial meltdown

October 12, 2008 by Infinite

The financial events of recent weeks have filled many of us with shock and panic. Surely no one could have predicted that we would be in this mess? Well, actually, they did. Here are ten people who saw the financial meltdown coming…

1. Vince Cable – deputy leader of the Liberal Democrats

Here is a question Mr Cable’s posed to Gordon Brown, then Chancellor, during Treasury Questions back in November 2003: “The growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level. What action will the Chancellor take on the problem of consumer debt?”

Mr Brown did not answer how he would solve the problem, merely replying that: “We have been right about the prospects for growth in the British economy, and the hon. Gentleman (Mr. Cable) has been wrong.”

2. Christopher Wood – chief strategist of CLSA, a broking firm in the Asia-Pacific Market.

In October 2005 Mr Wood wisely declared: “Investors should sell all exposure to the American mortgage securities market.” In an interview in 2007, he said: “Some institutions have been behaving like leveraged speculators rather than banks… The UK economy is heading for a sharp shock. It just remains to be seen how bad.”

3. Founders of www.stock-market-crash.net – website aimed at investors

The writers of this site claim that predicting crashes is, in fact, easy: “One of the greatest myths of all time is that market crashes are random, unpredictable events. The lead up to a market crash is often years in the making. Certain warning signs exist, which characterize the end of a bull market and the start of a bear market. By learning these common warning signs, you can liquidate your investments and prosper by shorting the market.”