Archive for the ‘defaults’ Category

The Next World War? It Could Be Financial.

October 12, 2008

By Peter Boone and Simon Johnson
The Washington Post
Sunday, October 12, 2008; Page B01

The global financial outlook grows more dire by the day: The United States has been forced to shore up Wall Street, and European governments are bailing out numerous commercial banks. Even more alarmingly, the government of Iceland is presiding over a massive default by all the country’s major banks. This troubling development points not only to an even more painful recession than anticipated, but also to the urgent need for international coordination to avoid something worse: all-out financial warfare.

The ramifications of Iceland’s misery are probably more serious than people realize. The country’s bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.

But there’s a broader concern. With European governments turning down his appeals for assistance, Iceland’s prime minister, Geir Haarde, warned last week that it was now “every country for itself.” This smacks of the financial autarchy that characterized defaulters in the financial crisis in Asia in the late 1990s. Similarly, when Argentina defaulted on its debt in 2001-’02, politicians there faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia after the crises of 1998, local enterprises and banks took the opportunity of the confusion to grab property, then found ways to ensure that courts sided with them.

This is a natural outcome of chaotic times. Iceland’s promise to guarantee domestic depositors while reneging on guarantees to foreigners may be just a first step. British Prime Minister Gordon Brown’s decision last week to sue Iceland over this issue may escalate the crisis. The use of counterterrorist legislation to take over Icelandic bank assets and operations in the United Kingdom also has a potentially dramatic symbolic effect.

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Asian stocks tumble on Bear Stearns news

March 17, 2008

NOTE:   Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street that his company was not in trouble, he was forced on Sunday to sell the investment bank to competitor JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million. Just a few days ago Bear Stearns was valued at $30.00 a share.

Just one year ago, Bear Stearns was valued at $172.00 per share.

A man leaves a Bear Stearns' office in Hong Kong's Central ...
A man leaves a Bear Stearns’ office in Hong Kong’s Central district March 17, 2008. JPMorgan Chase & Co said on Sunday it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal that values the U.S. investment bank at the centre of the credit crisis at about $236 million.REUTERS/Victor Fraile (CHINA) 
 
A Financial analyst told Peace and Freedom on Monday that the Bear Stearns building in New York City is worth more than $240 million.

The sale on a Sunday was almost unprecedented.

A few hours later the Federal reserve approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. In an example of the urgency of the situation, the Fed said the new lending facility will be available to big Wall Street firms on Monday.
Federal Reserve Chairman Ben Bernanke testifies before the House ... 
Federal Reserve Chairman Ben Bernanke testifies before the House Financial Services Committee about the latest measures to heal the U.S. economy, on Capitol Hill in Washington in this file photo from Wednesday, Feb. 27, 2008.
(AP Photo/J. Scott Applewhite)

This bold action Sunday evening is meant to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
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By KELLY OLSEN, AP Business Writer

SEOUL, South Korea – Asian stocks plunged and the dollar sank Monday after JPMorgan Chase said it would buy troubled U.S. investment bank Bear Stearns, signaling to investors the depths of the credit crisis.
Bear Stearns headquarters

Bear Stearns headquarters

Oil prices hit a record in Asian trading and U.S. stock index futures were down sharply, suggesting Wall Street would open lower Monday after sinking Friday.

JPMorgan said Sunday it would acquire Bear Stearns for $236.2 million — or $2 a share — in a deal that represents a stunning collapse for one of the world’s largest and most venerable investment banks.

The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system sparked by defaults in the U.S. subprime mortgage market.

But to Asian investors the move suggested that the credit woes are far from over and fanned worries that other big American banks are facing serious troubles.

“There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted,” said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

“Just buying an investment bank does not solve the problem,” he said. “Markets are prodding (the U.S. government) to inject public funds.”

News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.

Japan‘s benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. In Seoul, the Korea Stock Price Index fell 1.6 percent to 1,574.44 after sagging as much as 3.9 percent.

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ZbUPzJYBOs0NUE

By John E. Carey
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This bold action Sunday evening is meant to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

But the news sent the dollar tumbling to a record low against the euro as investors worried that there would be more casualties in the widening U.S. financial crisis.

And Asian stock markets reacted with concern and dismay.

A trader stands on the floor of the Philippine Stock Exchange which closed down 3.88 percent on Monday.
Photo by Darren Whiteside (Reuters).

Asian stocks plunged and the dollar sank Monday in early trading.
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Japan’s benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. In Seoul, the Korea Stock Price Index fell 1.6 percent to 1,574.44 after sagging as much as 3.9 percent.
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And there is a ripple effect across Asia.
US dollar and pound sterling banknotes. The pound has posted ... 

Take Vietnam for example.  The communist state has had the second strongest economy, after China, for the last two years.  But in December alone, inflation in Vietnam was at 50%.

This past week Vietnam announced a drastic draw down in exports.
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A year ago, Vietnam’s exports were rising at a rate of 29.2 percent.  Economic analysts said this year’s rise would exceed 32%.  But because of the weaker U.S. dollar and the slower world-wide economy, Vietnam’s exports in the first quarter would only grow 23.7 percent from a year earlier

In China, manufacturing and exports were way off for the first quarter.  But China said much of that was due to the staggering snowfall and cold this past winter.

“There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted,” said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

“Just buying an investment bank does not solve the problem,” he said. “Markets are prodding (the U.S. government) to inject public funds.”
Bear Stearns's headquarters overlooks the flag for neighboring ... 
Bear Stearns’s headquarters overlooks the flag for neighboring JP Morgan Chase headquarters in New York on Friday, March 14, 2008. The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis. JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.
(AP Photo/Mark Lennihan)

There is, of course, good news.  There always is.

If you sell your gold jewelry right now you’ll make a record profit.  Reuters reports that gold prices shot up more than 3 percent Monday to fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial woes.

“This morning’s moves by the Fed clearly tell how serious the situation is in the United States. Gold is drawing a lot of safe-haven demand as you can’t buy stocks or currencies because of this volatility,” said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd. Mr. Sugata wa quoted by Reuters.

Gold’s attraction as an alternative investment has helped boost the precious metal’s price by more than 20 percent this year alone, as it hit successive record highs along the way.

Gold was up 32% in 2007.
Gold bars are displayed at the headquarters of Mitsubishi Materials ...

Gold bars are displayed at the headquarters of Mitsubishi Materials Corporation in Tokyo, January 9, 2008. Gold prices shot up more than 3 percent on Monday to hit fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial trouble.(Toru Hanai/Reuters)