Comment:: Banks lining up for bailout

Well it seems that all types of banks are lining up to for a piece of the government's $250 billion nationalization plan, according to Treasury Secretary Henry Paulson. Many analysts believe there are many more banks out there in trouble and that the administration will eventually have to ask for more bailout money.

Economist Nouriel Roubini said that probably the government will have to at least double the current amount for bank recapitalization.

On the bright side, Federal Reserve chief Ben Bernanke endorsed a new economic stimulus plan to help jump start the economy. The Bush administration already disbursed about $100 billion to tax filers this year in hopes they would spend the money and generate more production. However, one has to think that a smart person at this time would be putting the extra money into savings for a bit of future security. Indeed President George W. Bush bluntly called on Americans to quickly spend their stimulus checks once they received them. It's just part of the consumerism world view that caused this mess in the first place.

Venture capital down

A newly released DLA Piper survey of technology and venture capital executives indicates that 66 percent of technology companies are reducing revenue forecasts. A National Venture Capital Association and PriceWaterhouseCoopers report shows a drop in venture capital deals during the third quarter.

Venture capital investment fell 7 percent to $7.1 billion in the third quarter, compared with $7.7 billion during the second quarter, according to data from Thomson Reuters. During the third quarter, 907 deals were closed, compared to 1,033 deals for the second quarter of the year. The amount of financing going to early start-ups raising their first rounds of funding dropped to its lowest level since 2004.

United Press International

Lots of banks interested in bailout - Paulson
CNNMoney.com - 1 hour ago
By Tami Luhby, CNNMoney.com senior writer NEW YORK (CNNMoney.com) -- Banks of all sizes are interested in a piece of the federal government's $250 billion fund to recapitalize financial institutions, Treasury Secretary Henry Paulson said Monday.
Paulson outlines $250B capital injection plan Bizjournals.com
UPDATE 3-US Treasury urges banks to deploy new govt capital Reuters

Labels: bailout, banks, ben bernanke, economic stimulus plan, financial crisis, henry paulson, venture capital

Comment: Just like in the movies

A third of the way through this video they have Max Keiser's prediction on al-Jazeera more than a year ago that Iceland's debt bubble would burst. A spokesperson from one of Iceland's recently nationalized banks is featured in the video.

Also, featured is a British economist who notes how saving one's money over the last several years was strongly discouraged in the Wall Street economic model. People and companies were supposed to spend, not only all the money they had earned, but they were to borrow feverishly to spend even more.

Spending and borrowing in America was even pushed as patriotic, and therefore saving one's earned money and not spending borrowed money could be seen as unpatriotic.

This reminds me of the old Frank Capra movie "It's a Wonderful Life," an American favorite during the holiday season. In the movie, a small family bank, in the days before the start of the Great Depression, provides housing loans for hard-working people who had saved enough to make their down payments. The loans were possible because of others who saved their money in interest-bearing accounts waiting for the day that they too could purchase their own homes.

However, the big evil banking family in town is involved in get-rich-quick real estate schemes. Yes, there was plenty of real estate speculation leading up to the Great Depression as well.

After an unfortunate accident, the big banking family gets an opportunity to put the squeeze on the small banking family. However, in the end all those people that had been helped by the latter in buying their homes come to the rescue. They all contribute a bit to help bail out the small-guy honest family who had played by the rules.

The difference with the current situation is that it is the big bankers -- the Wall Street tycoons -- who are getting bailed out, not by the citizens of Smallville but by their friends in Washington.

Like the small town families in "It's a Wonderful Life," who owned much to the local honest banker, the Washington politicians are deeply "indebted" to the Wall St. fat cats who have funded their campaigns.

However, in this real life version, the little guy ends up getting kicked in the pants. The mortgage owners are getting little or no relief. Apparently they committed a grave error in not keeping the good times rolling when they couldn't meet their balloon payments.

Labels: banks, great depression, it's a wonderful life

Bank nationalization could worsen inflation

US President George W. Bush's $250 billion plan to nationalize banks will infuse money into the system and could trigger an increase in inflation.

The trend indicates that probably much more money will be needed in the future, so the money supply will continue to grow at a rapid rate as debt climbs. Interest rates will likely be kept low further putting pressure on inflation.

In the end, at least $1 trillion in additional money may be needed to prevent widespread bank failure through nationalization i.e., by shares in failing financial institutions. The law of supply and demand suggests that when money floods into the system, prices rise.

Inflation may actually ease in the short run as oil prices have dropped on fears that the slowing economy will decrease demand for petroleum. However, oil-producing countries have been hit hard and are likely to decrease production to lessen the impact on their own economies. This should stabilize oil prices.

Times Online
Bush Defends Bank Nationalization
Washington Post, United States - 3 hours ago
The government's $250 billion direct investment into banks in essence forces nine of the largest to accept what amounts to a partial nationalization. ...
US Follows Europe in Partial Bank Nationalizations Spiegel Online
Burst of optimism and a record rally Chicago Tribune
BROADER BAILOUT PLAN Hartford Courant

Labels: bank nationalization, banks, financial bailout, financial crisis, inflation

US market 'fear index' high

Going into the earnings season next week, the "fear gauge," a measurement of investor jitters is at an all-time high.

The Chicago Board Options Exchange Volatility Index (VIX) measures investor fear by the cost of insurance options bought to protect against declines in the S&P 500.

On Friday, the VIX closed at 69.95, the highest point in its 18-year history. That represented a 9.434% increase over Thursday's close, which was also broke the previous record.

Value for VIX:IND


Chart the Performance of VIX:IND

http://www.bloomberg.com/apps/quote?ticker=VIX%3AIND

The lack of a strong coordinated response at the G-7 meeting is also worrying investors. There was a lack of agreement among members although there is some growing consensus on a recapitalization of major banks.

One problem is that an uncoordinated response could cause damaging fluctuations in the market. For example, when Ireland unilaterally guaranteed bank deposits, people in Britain began withdrawing their savings in British banks and transferring them to Irish banks.

Many are worried that Britain's decision to guarantee inter-bank loans could have the same effect of siphoning off money from other nations without such protection in place.

Labels: banks, fear gauge, g-7, inter-bank lending, vix, volatility index, wall street

Comment: US govt continues to throw money into meltdown fix

There are those who say its like trying to smother a fire with bales of kindling, but the administration again shoveled money into the financial furnace.

The latest plan by Treasury Secretary Hank Paulson is to directly inject money into faltering banks by buying shares with money from the $850 billion bailout package. The purpose is clear. They want to make money quickly available for credit purposes.

But what about the bad mortgages? Again, the government is trying to solve one debt problem by introducing more debt.

And anytime large amounts of money are injected rapidly into the system, we can expect inflation.

Max Keiser, the controversial American financial activist who appears mainly in overseas media, believes that the next debt meltdown will come in the credit card industry. Inflation will cause many people who survive day-to-day to prioritize their expenses.

Water, food, housing, heating bills will be high on the priority list. Credit card bills will be relatively low on that list. After all, defaulting or becoming irregular on credit card debt at the most means losing the credit card and some harassment by collection agencies. You can survive all that of course.

If credit card debt gets hurt, institutions in the credit card business, like Bank of America, will be hurt as well. Basically inflation will just spread the damage putting more businesses in the bailout mode.

Consumers will tighten up spending at least until they see inflation settling, so the overall economy will slow.

Interestingly, the government no longer provides stats for M3, the overall money supply, probably because it fears the numbers would curb support for its easy money policy.

One website, shadowstats.com, has estimated these and other statistics that have been impacted by changes in government economic information collection and reporting. Their chart shows the estimated sharp rise in money supply arising from the flood of corporate welfare being spent by the government since official M3 statistics ended.

Money Supply

Charts of M1,M2 & M3 Levels

Labels: banks, capital injection, credit card debt, credit crunch, inflation

Germany backs bank deposits

Shortly after its largest bailout in history, Germany guaranteed bank deposits for its citizens in a further attempt to address the credit crunch crisis.

Last week, Ireland and Greece backed bank deposits, and the UK raised its insurance cap from 35,000 pounds to 50,000 (US $88,400).

French President Nicolas Sarkozy in which Germany, France, Italy and the U.K. is working on a unified European Union response to the problem

Times Online

Germany guarantees private deposits
MarketWatch - 57 minutes ago

By Steve Goldstein, MarketWatch LONDON (MarketWatch) -- Germany became the latest, and by far the biggest, European country to explicitly guarantee the deposits in banks held by their citizens, in a move announced Sunday.

Hypo Real Gets EU50 Billion Government-Led Bailout (Update1) Bloomberg
Germany Moves to Shore Up Confidence in Economy New York Times

Labels: banks, deposit insurance, european union, germany

German bank announces collapse of rescue plan

With the $700 billion passed and actually swollen by another $150 billion in tax cuts, observers will be watching the markets closely.

Earlier bailout attempts did not work, and the hope here is that by handling all the highest risk mortgages at once, the government can turn things around.

There are, however, many things the plan does not cover. Overseas, for example, a major German real estate bank is involved in the largest rescue operation of the country's history.

German bank announces collapse of 35 billion euro rescue

Sat Oct 4, 4:01 PM ET

BERLIN (AFP) - German bank Hypo Real Estate (HRE) said Saturday that a planned 35-billion-euro (48-billion-dollar) rescue had fallen through after the banking consortium involved pulled out of the deal.

The rescue bid was the biggest in German history and came after HRE was sucked into the global financial turmoil through its inability to refinance debt, one of many high-profile European emergency cases in the past two weeks.

HRE said in a statement that a consortium of German banks taking part in the rescue had "refused to provide liquidity lines" and that it was seeking new measures.

The property lender said it was in the process of "determining the consequences" of the consortium's withdrawal on various divisions and that it would seek other solutions.

Earlier in the day, the Welt am Sonntag newspaper said in a report to appear on Sunday that the bailout plan would have to be reworked because the bank's cash needs had been underestimated.

The biggest German Bank, Deutsche Bank, had reportedly evaluated that HRE would need 20 billion euros in fresh capital by the end of next week.

Deutsche Bank warned in addition that "by the end of the year, there will be a shortfall of up to 50 billion euros and even of 70 to 100 billion by the end of 2009," the newspaper said.

Deutsche Bank issued the warning late Friday during a telephone conference with representatives of the German banking and insurance sector, the report said.

The rescue plan had comprised an immediate cash injection by private banks and by the European Central Bank, which was to be backed by a 35-million-euro guarantee.

Most of the backing, 26.5 billion euros, was to be provided by the German government, with the rest covered by private banks.

It was announced on September 29 following weekend talks between German officials and the banks, and given the green light on Thursday by the European Commission.

The Commission had hailed Berlin's bailout plan as "part of the solution" to the current financial crisis.

HRE was hobbled by debts incurred by a German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for high-risk, or subprime, mortgages.

Depfa specialises in the financing of public works projects.

The parent real-estate bank found itself unable to refinance operations owing to a credit squeeze that worsened after the US investment bank Lehman Brothers declared bankruptcy in September.

HRE shares had lost three-quarters of their value last Monday, and though they clawed back some ground over the week, they closed on Friday at 7.51 euros, down a hefty 44.4 percent from their level one week earlier.

In Paris meanwhile, German Chancellor Angela Merkel was attending European crisis talks on the financial crisis when it was announced that the HRE rescue plan had fallen through.

Merkel had told media earlier that "each country must take its responsibilities at a national level," and added: "It is important to act in a balanced way, and for countries not to cause harm to each other."

That comment appeared to be aimed at Ireland, which has issued a blanket guarantee to bank depositors without consulting its ne

ighbours.

Labels: banks, germany, hyp real estate, rescue plan, run on the bank

World News Blog

Monday, October 20, 2008

Comment:: Banks lining up for bailout

Friday, October 17, 2008

Comment: Just like in the movies

Tuesday, October 14, 2008

Bank nationalization could worsen inflation

Saturday, October 11, 2008

US market 'fear index' high

Thursday, October 09, 2008

Comment: US govt continues to throw money into meltdown fix

Money Supply

Sunday, October 05, 2008

Germany backs bank deposits

Saturday, October 04, 2008

German bank announces collapse of rescue plan

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