Busted: Bankers and The Global Economy

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

September 25, 2008

U.S. Political Infighting Threatens Bailout

rushing to "secret meeting"

rushing to secret meeting

Tempers are aflair in Washington on the eve of what authorities hoped would be the salvation of Wall Street and the U.S. economy. What Democrats declared as a breakthrough Wednesday evening seems a bust. The nation was led to believe that agreement had been reached and the Federal Reserve and the U.S. Treasury could begin the work of applying the agreement. Negotiations toward a massive bailout for Wall Street has just fallen into disarray on after Democrats said they learned in a White House meeting that presidential candidate Senator John McCain is backing a new plan differing markedly from one that has been under discussion. So much for bipartisan political agreement and cooperation that McCain advertised in the U.S. bailout.

Now, the feeling is that a new plan could be another week in the making as Republicans retired to an unknown location to plow through their ideas for the bailout. The Republican plan may involve a mortgage insurance plan as an alternative to the Bush plan, which has encountered criticism on Capitol Hill. Republicans also argued that the Treasury Department should charge premiums to holders of securities to finance the insurance.

Until Thursday’s White House meeting, Republicans had not brought up an alternative plan for the Wall Street bailout, including during previous meetings and Senate hearings. Is this political grandstanding or a far better concept? What does this mean, if anything, for the nation? If a negative catastophic reaction occurs will U.S. citizens hold Republicans responsible for the result? This portends to be a big stakes gamble for McCain which could catapult him to great heights or destroy his chances at winning the presidency. Only time will tell whether what Republicans are doing is a boon or a bust as some U.S. politicians seem to have forgotten that global confidence is more important to sustain the ailing U.S. economy than the opinions of the U.S. taxpayer. This reality isn’t opinion, but fact.

Meanwhile, the global central bankers of the G8 continue to dump dollars to encourage global dollar liquidity, thus increasing the pitch of inflation and further devaluing the dollar between the dollar and other currencies as the U.S. becomes indebted to foreign central bankers through the Federal Reserve. The dollar has less buying power and increased pressure toward inflated pricing across the board. The dollar is overheating, which will easily evolve into hyperinflation along with pressures that would force the Fed to admit the truth of that inflation. Even though central bankers are essentially holding a gun to the head of the U.S. national economy, they can’t seem to stop themselves in the name of dollar liquidity. In the end, foreign central bankers don’t want to be stuck with devalued dollars anyway. The International Society of Bankers are looking at global monetary policy and their own corporate profits.

Global reaction to a bailout is not very positive overall as the U.S. economy remains on life support. The German Finance Minister reacted, “The United States will lose its superpower status in the world financial system.” How the world reacts as the morning and day wears on in Europe and Asia remains to be seen. Ultimately, outside global and sovereign financing is what the U.S. economy is dependent on. How the world reacts is of great importance.

~ E. Manning

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