Busted: Bankers and The Global Economy

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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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.

April 8, 2008

UK: The Tight Credit Effect

Filed under: banking, central bank — Tags: , , , , , , — digitaleconomy @ 12:55 pm

The credit market has grown tight. Refinancing is more difficult. As a result of the scarcity, housing prices in the United Kingdom have began to fall. The numbers fell about 3% last month. Compared to the 10% – 20% fall in the U.S. housing market, the British situation appears small and is very early in the process.

British bankers are concerned. When buyers cannot get a mortgage, most buyers don’t buy a house. Then housing prices fall because the mortgage market deflates the housing market. Apparently, the confidence levels of UK bankers is questionable. They have been directly comparing their economy to the economy of the U.S. before the mortgage crisis. They are alarmed by the larger debt of British citizens compared to American citizens and the market is cooling dramatically.

The global banking economy has been shaken. National bankers are worried about having a repeat of the U.S. mortgage crisis. Expressed fear has a way of operating as a self-fulfilling prophecy.

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