Busted: Bankers and The Global Economy

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

August 10, 2008

Banks Eat Billions; Credit Crunch Expands

paranoid banking firms gamble on their importance

paranoid banking firms gamble on their importance

The Securities and Exchange Commission stepped in and decided that auction-rate securities have been improperly sold to the public. They haven’t said much else as they carefully watch over the fold of now paranoid bankers. Investment bankers have plenty of egg on their face with punitive action in the immediate future by the Feds.

Citigroup and Merrill Lynch have decided to buy back billions of dollars of securities without admitting liability officially because of state regulator pressure. Bank of America and Countrywide are firmly ensconced in trouble. Swiss giant UBS is in the throes of negotiating a payout that could be in the 25 billion dollar region. As private citizens and investors, we know the reality of the situation. Bankers have tried to play us for fools for the almighty dollar and perhaps investors bit off too much, too soon in the haste for profit.

In theory, when times get better larger investors and even banks should be able to sell off the securities once the markets ease and there’s more credit in the system. That is the public line, but the truth is probably altogether different. Selling off investments with major liquidity issues is a big maybe considering the quantity of these beleaguered banking instruments. Following the aftermath of the subprime mortgage debacle, this is yet another blow to the reputation of investment banks, who may struggle to sell such “sweet deals” in future times even at fire sale prices.

British banks are taking huge hits as a result of the credit crunch with increased pressure to perform for stockholders. Lloyds, Halifax and Alliance & Leicester have been fairly decimated profit-wise. Now RBS and Barclays are taking turns with profit thrashing. British banks haven’t found the credit crunch much easier than U.S. banks. Housing prices continue to drop in the U.S. and the United Kingdom. Foreclosures are a uniform blight in both economies while bankers and economies struggle to adjust. The U.S. market has lost nearly a million homes to foreclosure with more on the way: the worst since the Great Depression.

May 16, 2008

Don’t Be Spooked, Don’t Give Up

Filed under: banking, federal reserve, investment, money — Tags: , , , , , — digitaleconomy @ 12:18 pm

Federal Reserve chairman, Ben Bernanke, urged banks to prevent deeper damage to the economy by continuing to raise capital despite losses from the credit crisis. “Firms are hunkering down,” he told a conference in Chicago. “They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy.”

Mr Bernanke and the US Treasury secretary, Henry Paulson, have repeatedly said firms should keep increasing their funds, seeking to alleviate the impact of the credit crunch.

Raising investment capital is the only real hope (more…)

May 9, 2008

Some Say Inflation No Big Deal

Some are saying that inflation is of little or no importance and that the credit crunch should be first priority. “Inflation rates are expected to remain high for a rather protracted period of time before gradually declining again,” European Central Bank President Jean-Claude Trichet said at a press conference. That is the line many central bankers are saying.

As painful as higher prices are for Americans, there’s reason to believe that economic weakness (more…)

January 17, 2008

The Federal Reserve: Banking is Dirty Work

“Too many bubbles have been going on for too long…The Fed is not really in control of the situation.” Former Federal Reserve Chairman Paul Volcker admits the economic situation in the U.S. is out of control. Federal Reserve Bankers are generally secretive and like to speak “off the record”. When they speak, it is because they feel confident in what they say and can safely trust their judgment.

bernankenigelparry.jpgThe “new” Federal Reserve Chairman Ben Bernanke is cautious in what he says. According to the press, most of his interviews are “off the record”. After years of following what the Fed says, I have noticed that quotes are generally pretty vague in nature and typically news that is readily admitted after the fact. In a speech to the Women in Housing and Finance and Exchequer Club in Washington, D.C., Bernanke said the Fed was concerned about oil prices, housing issues and other threats to the economy. The Fed would be watching carefully and ready to act quickly. The New York Times surmised that concrete statements aren’t really Bernanke’s strong suit. Playing it safe in public is what the Society of Bankers (more…)

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