Infinite Unknown

The financial events of recent weeks have filled many of us with shock and panic. Surely no one could have predicted that we would be in this mess? Well, actually, they did. Here are ten people who saw the financial meltdown coming…

1. Vince Cable - deputy leader of the Liberal Democrats

Here is a question Mr Cable’s posed to Gordon Brown, then Chancellor, during Treasury Questions back in November 2003: “The growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level. What action will the Chancellor take on the problem of consumer debt?”

Mr Brown did not answer how he would solve the problem, merely replying that: “We have been right about the prospects for growth in the British economy, and the hon. Gentleman (Mr. Cable) has been wrong.”

2. Christopher Wood - chief strategist of CLSA, a broking firm in the Asia-Pacific Market.

In October 2005 Mr Wood wisely declared: “Investors should sell all exposure to the American mortgage securities market.” In an interview in 2007, he said: “Some institutions have been behaving like leveraged speculators rather than banks… The UK economy is heading for a sharp shock. It just remains to be seen how bad.”

3. Founders of www.stock-market-crash.net - website aimed at investors

The writers of this site claim that predicting crashes is, in fact, easy: “One of the greatest myths of all time is that market crashes are random, unpredictable events. The lead up to a market crash is often years in the making. Certain warning signs exist, which characterize the end of a bull market and the start of a bear market. By learning these common warning signs, you can liquidate your investments and prosper by shorting the market.”

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Tags: Bank of England, Credit Crisis, credit crunch, Economy, Fannie Mae, financial crisis, Freddie Mac, Gordon Brown, Government, mortgage crisis, Mortgages, Nouriel Roubini, Politics, Ron Paul, Stock Market, U.S.

A string of countries face the risk of “going bust” as financial panic sweeps Asia, Eastern Europe, and Latin America, raising the spectre of a strategic crisis in some of the world’s most dangerous spots.

Nuclear-armed Pakistan is bleeding foreign reserves at an alarming rate leading to fears that it could default on its loans.

There are mounting fears that Ukraine, Kazakhstan, and Argentina could all now slide into a downward spiral towards bankruptcy, while western banks exposed to property bubble across Eastern Europe have seen their share price crushed.

The markets are pricing an 80pc risk that Ukraine will default, based on five-year credit default swaps (CDS) - an insurance policy on a country being able to pay its debts.

The country’s banking system has begun to break down after years of torrid credit growth; its steel mills are shutting as demand collapses; and the political crisis is going from bad to worse.

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Tags: Argentina, BNP Paribas, Brazil, China, Commodities, Derivatives, Derivatives market, Economy, financial crisis, IMF, India, Kazakhstan, Pakistan, Politics, Russia, Standard & Poor's, Stock Market, Treasury, U.S., Ukraine

Government set to become biggest shareholder in top banks as Japanese weigh bid for Morgan Stanley

THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline.

The unprecedented move will make the government the biggest shareholder in at least two banks.

Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call.

Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion.

Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants £7 billion, while Barclays needs £3 billion.

The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.

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Tags: AIG, Bank of England, Barclays, Citigroup, Credit Crisis, credit crunch, Deutsche Bank, Economy, G7, Goldman Sachs, Government, HBoS, HSBC, JPMorgan, Lehman Brothers, Lloyds TSB, Morgan Stanley, mortgage crisis, Mortgages, Politics, RBS, Stock Market, U.K.

Strauss-Kahn said rich nations had so far failed to restore confidence

The world financial system is teetering on the “brink of systemic meltdown”, the head of the International Monetary Fund (IMF) has warned in Washington.

Dominique Strauss-Kahn said rich nations had so far failed to restore confidence, but he endorsed a new action plan by the G7 group.

He also said the IMF was ready to lend to countries in dire need of capital.

The 15 eurozone leaders will meet in Paris later to try to establish a common approach to the markets crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present a number of proposals at the summit to ease the credit freeze that has caused the collapse of several leading international banks.

But after meeting in Paris on Saturday, the two leaders said the summit would not result in a joint financial rescue fund for Europe, in the model of a $700bn rescue by the US government.

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Tags: Angela Merkel, Banks, Economy, financial crisis, G7, George Bush, Gordon Brown, Government, IMF, Meltdown, Nicolas Sarkozy, Politics, Stock Market, U.K., U.S.

By PAUL CRAIG ROBERTS

Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.

Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.

Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.

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Tags: Alan Greenspan, bailout, Credit Crisis, credit crunch, debt, Economy, Fed, Federal Reserve, financial crisis, Foreclosures, Government, Henry Paulson, Military, mortgage crisis, Mortgages, Paul Craig Roberts, Politics, Recession, Stock Market, Treasury, U.S., Unemployment, Wall Street

Lehman Brothers, the bust investment bank, triggered one of the biggest corporate debt defaults in history yesterday as it emerged that the US Federal Reserve is harbouring grave concerns about whether Washington’s $700 billion (£413 billion) bailout fund will avert a financial meltdown.

An auction of Lehman’s bonds yesterday determined that the bank’s borrowings were worth only 8.625 cents on the dollar. The valuation leaves the insurers of the debt a bill of about $365 billion. It is not clear whether the insurers, which are required to settle the bill in the next two weeks, will be able to pay - a development that could further undermine increasingly stressed capital markets.

The $365 billion default came as stock markets around the world suffered one of their worst days since the crash of 11 years ago. Panicking about the prospect of global recession, the FTSE 100 index of leading shares in London crashed within seconds of opening, losing 8.9 per cent of its value, its worse fall since October 1987.

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Tags: Banks, Economy, Fed, Federal Reserve, Government, Henry Paulson, Lehman Brothers, Meltdown, Politics, Stock Market, Treasury, U.S., Wall Street

Stock markets across the world are in a state of hysteria. The tidal wave of sell-offs, which began when Henry Paulson announced the Bush administration’s $700 billion bailout plan for the sinking banking system, has swelled into a global tsunami racing round the globe.

Shares fell sharply across Europe and Asia for the fifth straight day following a 679 drop on the Dow Jones.  Nearly $900 billion was wiped off the value of U.S. equities in just one trading day. The Chicago Board Options Exchange Volatility Index, the “fear index”, soared to a record 64.

Credit markets remain frozen. Libor, the London interbank offered rate, nudged up slightly on Thursday night, signaling even greater resistance to lending between the banks. Until there is relief in the credit markets, stocks will continue to slide. But trust has vanished. The 50 basis points rate cut that was coordinated with foreign central banks has had no effect. The market is being driven by fear and pessimism.

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Tags: Bush administration, Credit Crisis, credit crunch, Depression, Economy, FDIC, George Bush, Government, Great Depression, Henry Paulson, Liquidity, Nouriel Roubini, Politics, Stock Market, Treasury, U.S., Wall Street, Warren Buffett

Stocks closed a volatile week with the widest intraday swing on record, in a fitting end to one of the most turbulent five-day periods in financial history.

For the first time in its 112-year existence, the Dow Jones Industrial Average swung in a range of more than one thousand points on an intraday basis. The blue-chip gauge had dropped sharply in early trading, falling more than 600 points and dropping through the 8000 level for the first time in five years. But stocks quickly came off their lows, and by the afternoon the industrials jumped more than 300 points.

In the end, the Dow industrials declined 128.00 points, or 1.5%, to 8451.19. It was helped by jumps of 9.1% for Citigroup and 13.5% for J.P. Morgan Chase. Other major market indexes were mixed. The S&P 500 sank by 10.70 points to 899.22 and the Nasdaq Composite Index gained 4.39 points to 1649.51.

Despite the late turnaround, the Dow tumbled 18% this week, worst in its 112-year history. The industrials also shed more points in a week — 1874.19 — than they ever had previously. The Nasdaq dropped 15% and the S&P 500 declined 18% on the week.

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Tags: Citigroup, Derivatives, Derivatives market, Economy, Fed, Federal Reserve, JPMorgan, OPEC, Stock Market, Treasury, U.S., Wall Street

Oct. 10 (Bloomberg) — General Motors Corp., Ford Motor Co. and Chrysler LLC, the three biggest U.S. automakers, may be forced into bankruptcy as the global credit freeze damps U.S. sales, Standard & Poor’s analyst Robert Schulz said.

“Macro factors could overwhelm them at some point” even as GM, Ford and Chrysler vow to stick with their turnaround plans, Schulz, S&P’s lead automotive credit analyst, said today in a Bloomberg Television interview in New York. The companies said they have no plans to seek bankruptcy protection.

His assessment underscored the pressure on the industry as the worsening credit crisis makes it harder for buyers to get loans and dealers to finance their operations. S&P said yesterday it may further trim credit ratings for GM and Ford on forecasts for 2009 auto demand to fall to its lowest since 1992.

With all three companies working to boost cash, any bankruptcy filing would be a last resort, not a “strategic” decision, Schulz said.

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Tags: bankruptcy, Chrysler, Credit Crisis, credit crunch, Economy, Ford, General Motors, mortgage crisis, Mortgages, Standard & Poor's, Stock Market, U.S., Wall Street

NEW YORK - Stocks plunged in the final hour of trading Thursday, sending the Dow Jones industrial average down 679 points - more than 7 percent - to its lowest level in five years after a major credit ratings agency said it might cut its rating on General Motors Corp.

The Standard & Poor’s 500 index also fell more than 7 percent.

The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,198 on Oct. 9, 2007. The S&P 500, meanwhile, is off 655 points, or 41.9 percent, since recording its high of 1,565.15.

U.S. stock market paper losses totaled $872 billion Thursday and the value of shares overall has tumbled a stunning $8.33 trillion since last year’s high. That’s based on preliminary figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies’ stocks and represents almost all stocks traded in America.

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Tags: Bush administration, Dow Jones, Economy, General Motors, GM, NYSE, Standard & Poor's, Stock Market, Treasury, U.S., Wall Street