Busted: Bankers and The Global Economy

October 6, 2008

Crisis Floods Global Markets

not all love bailouts

not all love bailouts

Governments and central banks around the world grasped at measures to contain the fast-spreading financial crisis today. Investor confidence reflected on global stocks. According to the media, investors have finally decided that a recession is inevitable.

The more powerful members of the EU have reacted in panic as market volatility continues. Similar events continue to unveil with bailouts in the works. Even Fortis has new ownership. In panic, central bankers are dumping billions of euros on the market, creating another global monetary inflation hazard. A few national banks throughout the EU have moved to guarantee depositor funds causing a rash of capital movement to guaranteed banks and undermining financial security for others. More European governments followed Germany’s lead offering guarantees to savers in a frantic effort to calm fears among investors over the worst financial crisis in 80 years. The big losers portend to be the shareholders of these institutions.

economic bondage

economic bondage

The British government has promised on Monday to protect citizens in the face of global financial turmoil. Investors are terrified that the government will require partial ownership in exchange for the bailout.

For more than a week, the U.S. Federal Reserve has been working to find new ownership and capital to cover to bankrupt Wachovia Bank, even issuing and quickly retracting their statements as deals have fallen through. Right now, the Fed is trying to coax Citigroup and Wells Fargo to break up the Wachovia’s assets. Even the Fed is learning to temper its enthusiasm as deals are worked out.

While none of this is especially good news on the surface, the really bad news remains the now unseen seeds planted by central bankers as they flood the market with euros or whatever monetary unit is seen as useful. This simply weakens an already weak economy and further dilutes the value of the currency, creating more inflationary pressure.

The really bad news behind all of this news is that the United States bailout success hinges so much on foreign investment from overseas. With a global crisis in the works, only the Muslim and Saudi countries are not yet reporting huge problems beyond apparent hyperinflation caused by the huge $700 billion yearly influx of greenbacks from America. They have so many devalued dollars that spending them is a challenge. Therein lies the crux of the problem. A vicious circle of events is creating a downward global spiral that cannot be readily or quickly overcome without a reinvention or substantial revision of a new monetary system, an idea that is reportedly in discussion by the International Society of Bankers (the global central banking franchises) as an easier way out of the looming crisis if events become unmanageable. ~ E. Manning

October 3, 2008

E.U. Panic: the Edge of the Abyss

Interbank lending, credit to businesses and individuals have seized up. Central banks have injected billions of dollars to maintain some flow of funds, endangering the stability of the dollar.

French Prime Minister Francois Fillon is hosting an emergency summit with Italian, British and German leaders on October 4. Fillon claims that only collective action are capable of solving the financial crisis facing the European Union. He said he would not rule out any solution to stop the failure of the banking system.

Lax regulation and excessive lending have to a global debacle placing the world “on the edge of the abyss because of an irresponsible system,” according to the French Minister.

Finance Ministers in Europe will be working on proposals at the emergency meeting to unfreeze credit while coordinating economic and monetary strategies. While the U.S. has been focused on a massive bailout plan, the British government has been panicking in an effort to bolster their financial system. Bad news isn’t limited to the U.S. economy, now residing in the E.U. financial sector.

Ireland has offered guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks. Insurance giant Fortis has been broken up and nationalized to sustain it since no corporate rescuers were available. Swiss UBS has been plastered by its exposure to subprime debt. The banking and investment industry in Europe is shedding jobs. Meanwhile, turmoil over Ireland’s guarantees threatens the stability of the rest of Union according to many banking officials.

The U.S. economy has become thoroughly dependant on foreign investment. With much of the world is financial disarray, who will invest in America? According to authors of the American bailout plan, the plan is largely dependent on foreign investors to insure the success for the future. Otherwise, U.S. success in preventing a protracted deep recession is truly a wild card. ~ E. Manning

July 26, 2008

EU Wants Tighter Controls on Securitized Loans

The European Union has looked long and hard at the mortgage debacle in the United States and is planning to take regulatory action at home. Bankers have proved that they cannot be entirely trusted where profits and internal banking instruments are concerned. The European Commission is on top of the matter to avoid a management crisis by EU banking bodies. Naturally, bankers are concerned with their profit margins more than safety or the possibility of fraud.

The EU wants to allow banks to buy so-called securitized loans, loans repackaged as securities, if the selling institution holds back 10 percent in reserves, says a European Union Commission draft for new banking rules. The intent is to implement the rules in the autumn. EU governments and the European Parliament have not approved the plan.

The plan has alarmed the financial industry. The industry claims that the ruling could restrict lending in Europe by driving up the price of loans for companies, home buyers and consumers. Banks think that Europe’s banking and financial market is at risk of becoming overregulated. Clearly, the EU knows that commercial bankers have their brains in their wallets.

Banks are also worried about EU plans to limit the size of loans for interbank lending. The draft plan requires banks to commit no more than a quarter of equity capital for interbank loans. Bankers fear that such a move would lead to new liquidity shortages in interbank dealings.

July 20, 2008

EU: RFID Reduces Fraud or Promotes Fraud?

RFID technology is being promoted as the final solution to security problems. Business, ranging from security to law enforcement to banking is researching the latest and greatest new ideas and creating newer and less expensive ways to employ RFID tracking. Mostly, the process is a waiting game with wary citizens as the idea of RFID becomes accepted over time.

In the past, the government authorities in the EU have told citizens that a nationwide identification card could reduce fraud, prevent illegal immigration and combat global terrorism.

The government in Britain has admitted that it had oversold (more…)

July 16, 2008

Recovery Slow in U.S., Inflation Out of Control

For some time, the Fed has remained hopeful of a quick recovery, despite lingering signs of trouble. The Fed is lining up with the current reality. Ben Bernanke is fighting hard to keep the economy growing with fighting inflation as his top priority per his testimony before the Senate Banking Committee. He still refuses to admit that the U.S. economy is in a recession. His goal is to strengthen the economy over the strength of the dollar. He is uncertain about the value of a second economic stimulus move.

Because of the turmoil in the economy and banking industry, Bernanke has flagged his optimism somewhat, announcing that growth will eventually pick up over the next two years.

Years ago, no one would have expected oil futures to be running the economy, yet (more…)

July 3, 2008

Inflationary Fears Explode in EU

The European Central Bank is fearful of an inflationary explosion. Political pressure has been to ease credit pressures and lower interest rates. The central bank explains that if the bank is not “resolute”, inflation will explode. Jean-Claude Trichet believes that the economic situation can be mastered. Apparently, the central bank believes by exercising discipline, inflation can be tackled. What central banks around the world, including the Bank of England and the Fed, fail to realize is that printing money or issuing monetary credit to bankrupted banking institutions or for politically expedient funding is driving up inflation.

In the past thirty years, central bankers have conveniently refused to acknowledge the cost of food and energy into their economic calculations for inflation. Recently, the high cost of these commodities have forced them to admit rising and uncontrolled inflation as well as revising their mathematical formulas.

Apparently, the global economic community wants to believe that high oil prices are driving inflation up. While market speculation looks like the cause for rising energy costs, what is really going on behind the scenes? Is it possible that runaway inflation is driving oil prices up? That is food for thought.

June 29, 2008

Panic in Support for the Euro Reported

Germans have begun to reject euro bank notes with serial numbers from Italy, Spain, Greece and Portugal. This reality is raising concerns that public support for the monetary union may be waning in the Germany, perhaps in reaction to Ireland’s rejection of EU’s founding attempts.

Bankers, being naturally detail oriented, have detected a curious pattern where customers are withdrawing cash directly from branches as they screen bank notes to determine the origin of issue. More Germans are asking for paper from the southern states to be exchanged for German notes.

Each country prints its own notes according to its economic weight in European Union under strict guidelines from the European Central Bank in Frankfurt. For example, German notes have an “X”‘ at the start of the serial numbers.

Some people clearly suspect that southern bank notes may lose (more…)

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