Busted: Bankers and The Global Economy

February 23, 2009

PM Brown: New Global Economy

pm-brown-berlusconi-romeBritish Prime Minister Gordon Brown has stressed the importance of April’s G20 ‘Economic Recovery Summit’ in London in the bid to strike a “global deal” that will “speed up the recovery of the world economy”. He and other European Union members are advocating a new global financial system, but have backed off somewhat due to the reluctance of U.S. support. His recent statement in Rome revealed that all nations need to inject resources into their own economies as well as agree on ways to reform international institutions.

Currently, he is recommending new policies that he calls ‘fairness principles’ against “old excesses” in the banking community, a standard of stewardship instead of speculation. In the meantime, Brown and other European Union members are advocating unity in opposing moves towards protectionist trade policies. They see the U.S. as a major opponent where such policies are concerned.

Back in the United States, international bank holding company, Citigroup continues its precipitous decline. The U.S. government is looking at boosting its’ controlling interest in the banking firm to boost confidence and maintain solvency from toxic debt, part of the speculation that PM Gordon Brown was referring to.  Britain is dealing with similar issues relating to the Royal Bank of Scotland. ~ E. Manning

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October 29, 2008

Financial Perversion Gets New Meaning

Overspending in the United States is legendary. The economy is in such a state that the Federal Reserve lowered interest rates again in the hope of somehow spurring on the banking economy by offering interest at below inflation rates.

Unlike the United States, Britain has stringent limits in place to avoid overspending. With Britain and much of the world moving into recession, the British government is feeling the pinch and the need to spend more than ever to keep stability and guarantees in place. Reuters specifies that British conservative politicians are furious. “Alistair Darling’s speech achieved the worst of both worlds. He scrapped the fiscal rules that Gordon Brown based his reputation on, but put absolutely nothing in their place.” The chancellor called sticking to the old rules “perverse.”

Prime Minister Gordon Brown mandated fiscal rules a decade ago which tame British government spending at 40 per cent of GDP. Now the United Kingdom has joined the United States on spending without limits.

Arguably, the idea of overspending by government is considered by many parties to be perverse or in the United States, unconstitutional based on founding documents. Now the reverse is true. Failure to spend when there is an overarching crisis and need is perverse. So far, British government has proved to be quite responsible. Whether this remains the case remains to be seen, despite a case of global financial influenza. How the global digital economy, the sum total and unity or all economies, fits into global summit plans will be interesting to see indeed. ~ E. Manning

October 28, 2008

Upside-Down in Your Home? (Poll)

Years ago, because of the huge amount of money owed on car loans, coupled with low down-payments and “loan rollover”, becoming upside-down on your vehicle or owing more than it was worth at any given time was an increasingly common occurrence. With the contraction of the U.S. and the British economy, more and more homeowners are finding themselves in the same predicament.

In many cases, recent predatory lending meant less down payments and loan qualifications. However, the mortgage housing bubble has lead to downward spiraling values, resulting in owing more to a bank or lender than the house is worth. This has been highlighted in the media and now the United Kingdom is reeling from the same housing contraction.

Reports are that house prices have dropped faster in Britain than in the United States, producing an increase for a prolonged recession. Considering that most citizens have most of their asset value wrapped up in their homes, falling values, especially for recent home buyers is a real financial issue. The media has indicated that American homeowners are leaving their homes, not simply because of affordability issues, but because of refusing to pay for declining home values versus their home loans. Is this really true and could this reasoning pass beyond the United States? ~ E. Manning

October 13, 2008

Is a New Era of Economic Finance on the Way?

Britain taking charge

Britain taking charge

While many nations muddle undecisively about their part in the looming global finance crisis, Britain has increasingly taken bolder and more decisive steps in an effort to stem the tide of ruin. Now Prime Minister Gordon Brown is calling for a new financial accord to refashion banking and finance rules for the modern era. “We must now create the right new financial architecture for the global age.”

Many governments in Europe has agreed to follow Britain’s lead by recapitalizing banks and guaranteeing interbank lending. The G-8, of which Britain is a part, are in the planning stages for a meeting soon. “We must now reform the international financial system around agreed principles of transparency, integrity, responsibility, good housekeeping and co-operation across borders.”

Under the British plan, banks that are rescued with taxpayer money will be forced to cease bonuses that have encouraged excessive risk-taking in the past as well as terminating dividends to shareholders. The down side to the bank rescues is that there is currently no incentive for investment and little hope for immediate growth, both hallmarks of the “for profit” market.

While bailing out bankers will sustain the economies for the time being, the end result will be recession coupled with nasty inflation and economic stagnation in some countries if moves are not made to bolster job creation, wages and check price increases. So far, because of credit dependence, nations can expect stymied growth, triggering more defaults and a continuation of tightening lending terms. Nations have been hesitant to guarantee interbank lending because of the trust factor. The pressure is on as the global goal becomes the prevention of a global economic depression.

U.S. economic growth next year will be the weakest since 1954, with unemployment expected to rise to 8.5 percent.

Large corporations are increasingly under the economic gun. American automakers are considering mergers and General Electric is considering a bank charter to provide better funding. Bank lending remains locked down despite flooding the market with monetary credit and interest rate reductions. A continued lockdown will likely result in the depression that scrambling governments are seeking to avoid. Indications are that we are in a global vicious circle of economic decline. The alternative is breaking the cycle. Who is going to break the cycle and how?

British money manager Paul Niven remarked, “We have now entered a new era for global banking. In return for taxpayers’ money, the state will gain a level of control over their governance, pay, and lending practices.” Is Niven’s statement a reality or the work of wishful fiction?

Could the world have the beginnings of a new global banking order or is this move simply an action involving separate economic nationalization of banking and finance to preserve the current financial structure? Perhaps we will know once clearer heads rule the roost. Bible prophecy indicates a new global system that portends to usher in a new era of security. Is there any stock to that? What say you? ~ E. Manning

October 12, 2008

International Bankers: Time is Short

the IMF in better times

the IMF in better times

The International Monetary Fund, an international organization that oversees the global financial system based on economic policies of its member countries, proclaimed that time is short for consensus on the international financial crisis. The finance members of industrialized nations failed to agree on absolute and unified measures to end the crisis. The IMF expects a systemic meltdown if stability in financial markets is not achieved. While the international body recommends “exceptional vigilance, coordination and readiness to take bold action,” the body is leaving the pressure and responsibility on the collective bodies of national Finance Ministers. All this from an international body that claimed in August that there would be no recession in the Eurozone.

Solvency concerns are cited as the chief concern. The reality is that solvency is determined by a set of regulations that can easy be changed, as has happened in the United States. Therefore, the definition of solvency to a reasonable extent is in the hands of Finance Ministers and national leaders. Where such a change is seen as beneficial, such a move buys time when developing a consensus is especially important.

While consensus has been difficult, developing effective means to counteract the global financial crisis has been no less elusive. Panicked Finance Ministers are looking for support from the IMF or other global authorities in a effort to deal with the crisis. Britain has developed an interbank lending guarantee that has other nations stressing to compete.

In general, G-7 and G-20 ideas are essentially the same and somewhat short on creativity. Whether injecting capital into financial institutions and insurance companies, effectively nationalizing them, or buying up worthless mortgage assets, groups of Finance Ministers are chiefly examining the importance of uniform national guarantees to protect individual economies and to avoid creating a currency run. Encouraging monetary liquidity through central banking auctions has become a mainstay in prime economies.

Most telling perhaps is a statement made by the Brazilian Finance Minister, Guido Mangega, “The problems we are facing today in the global economy must be solved by several countries, they can’t be addressed by only one country or a single continent.” Finance Minsters from the G-20, not wishing to be left out of the loop, want emerging economies to be included within the ranks of G-7 Finance Ministers or by implication, involved as part of a larger authoritarian body.

Even Arab nations, whose prosperity seemed to make them immune from catastrophe are now encountering monetary issues, property value declines and business funding problems that threaten the Arab economic fabric as in much of the world. The Arab nations are largely isolated within the Islamic banking community except from within the burgeoning oil market, which in recent years has fueled inflation rates as high as 25 per cent.

As a result of the growing crisis, the United States is seen on many fronts, notably among Muslim leaders, as having no credibility whatever. Resentment, which is already high in religious circles, is multiplying because of the perception of financial betrayal and lack of wisdom. The push for Islamic banking within Muslim circles will continue despite any devaluation of the dollar experienced.

The issue created by injecting capital into banks dilutes monetary value and ownership of individual banks. While these types of measure can create the appearance of stability, diluting monetary value creates an ongoing increase in national, as well as global inflation. With increases in credit and cash generated for financial rescues, the end result is always inflationary as the devaluation of currency sets in. The only short-term winners are holding the gold and living off the interest for their services: central bankers. Meanwhile, central banking policies are behind the continued growth in inflation because a flawed economic model that mandates liquidity through monetary production. This is currently central banking’s best hope for economic stability. ~ E. Manning

October 10, 2008

Dollar Rally Due to Global Inflation?

safe haven again?

safe haven again?

The U.S. dollar is once again holding its status as a safe haven because of deteriorating economic outlooks in the global economy and increases in inflation overseas. The recent adjustment in oil prices is due to the leveling effect that inflation is having on economies coupled with recent U.S. government intervention in commodities futures.

The crisis in Iceland, Britain and much of Europe and Asia has electrified the so-called G-7 Finance Ministers to meet to decide on unified actions and strategies to bolster sagging economies.  Iceland refused to stand behind their failed banking system, resulting in large losses to British depositors. Prime Minister Gordon Brown has frozen the assets of Iceland in Britain to insure that losses by British depositors are covered as much as possible. The European Central Bank has also summarized the idea that recent exchange rate imbalances are due to the current financial crisis. Globally, banks are becoming more imperiled as the system locks down due to financial fears and the unknown effect of bad securities globally.

The general consensus is that the goal of the G-7 meeting must be to promote liquidity and growth. Those kind of financial moves dilute monetary systems and boost inflation. Even so, inflation is considered as a back door issue. Today, only stability is king. ~ E. Manning

September 3, 2008

A New Banking Crisis for Britain and Europe?

British bankers have began to hoarde their reserves and have become reluctant to engage in the usual interbank lending process that commercial banking enjoys daily. The resulting freeze in liquidity and tightening of credit that will shortly result is reminiscent of the reaction of U.S. bankers during the initial stages of the U.S. mortgage and credit crisis before the Federal Reserve Auction was created.

Apparently, the pressure from bad securitized mortgage bonds continues to rack the United Kingdom bankers. As a result fearful bankers simply shut down the process of usual banking trust, freezing the free exchange of capital that the modern world has grown accustomed to.

In April, the Bank of England offered to take on shaky mortgage-backed bonds in an effort to liquify the frozen banking system. This effort has not worked. Bankers are instead working to prop up their own internal banking instead of dealing with the larger marketplace, another reaction similar to U.S. bankers.

The liquidity freeze points to the distinct possibility of more banking failures in the UK similar to Northern Rock, in which the British government nationalized the debt. Lack of confidence is once again becoming the buzz word in British banking as fears mount. Fears in the commercial banking community are showing their reflections once again as a global financial slowdown or recession looms. ~ E. Manning

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