Phishing scams’s security phishing email

While businesses throughout the US have been holding their breath as
stocks tumbled, fraudsters have been working on phishing scams
attempting to capitalize on the pervading uncertainty.According to
GoodMail Systems, a number of phishing scams have been circulating
recently which attempt to lure people in with sensational headlines
relating to the stock market tumble arising in the wake of the
collapse of Lehman Brothers earlier this week.The email security firm
advised that fraudsters often use high profile events to further their
efforts to commit identity theft and fraud, with large-scale campaigns
launched in the aftermath of Hurricane Katrina and more recently the
earthquakes in China.”Phishers know how to make use of people’s
vulnerabilities during times of stress,” warned Peter Horan, chief
executive officer of the firm.Other recent high profile phishing scams
have included one claiming to divulge details of a sex scandal
involving Barack Obama, in addition to one reporting details of
supposed military action in Iran.

Multiple flaws found in Firefox – 9.24.2008A number of web security
vulnerabilities have been identified in Mozilla’s Firefox browser.

Data security strategies are outdated – 9.23.2008Many businesses are
putting sensitive information at risk because of outdated perceptions
about data security, a new study has claimed.

Whalers go after big fish – 9.19.2008The number of whaling attacks –
also known as spear phishing – is on the increase, according to
reports.

Palin suffers email security breach – 9.18.2008Republican vice-
presidential nominee Sarah Palin has learned the importance of email
security the hard way after hackers hijacked her account.

Brad is the Pitts for email security – 9.18.2008Searching for Brad
Pitt or Beyonce during the lunch break could leave staff in hot water,
research has shown.

Wall street stearns in operation repo matt

When Chase Manhattan bought JPMorgan in the autumn of 2000, many
thought the deal would trigger a series of mergers in the investment
banking business. Senior bankers predicted that other Wall Street
firms such as Bear Stearns, Lehman Brothers and Merrill Lynch would
have to join forces with larger lenders or risk being marginalised.

Eight years on, those predictions are finally coming true. After an
extraordinary weekend on Wall Street, Lehman yesterday filed for
bankruptcy protection while Merrill Lynch rushed into the arms of Bank
of America, its larger rival. Combined with the collapse of Bear
Stearns earlier this year, the ranks of the Wall Street banks have
been cut in half. Among the so-called “pure” investment banks, only
Goldman Sachs and Morgan Stanley remain.

Operation repo is staged’s banks securities loans

More than 200 years after it was born at the base of a buttonwood
tree, Wall Street as we have known it is ceasing to exist.

The rapid demise of 158-year-old investment bank Lehman Brothers
Holdings Inc., together with the takeover of 94-year-old Merrill Lynch
& Co., represents a watershed in the banking industry’s biggest
restructuring since the Great Depression.

For decades, the world of banking was divided largely into two kinds
of businesses. Commercial banks took deposits and made loans, eking
out a decent return under the burden of heavy regulations designed to
protect depositors. Standalone securities firms such as Lehman,
Merrill and the now-defunct Bear Stearns Cos. took no deposits and
were lightly regulated, freeing them to take big risks and make fat
profits at the cost of occasional losses. More recently, some of the
biggest institutions, such as UBS and Citigroup, combined the two.

Now, as many securities firms are consumed in the wake of a disastrous
foray into financial wizardry, the balance of power is shifting. On
the wane are the heavy borrowing and complex securities that
financiers embraced in recent years. On the rise is a more old-
fashioned business of chasing customer deposits and building branch
networks, conducted with the backing of federal insurance programs.

Of the five major independent investment banks that existed a year
ago, only two – Goldman Sachs Group and Morgan Stanley – remain
standing. Two others, Merrill and Bear Stearns, have been acquired by
big deposit-taking institutions, Bank of America Corp. and J.P. Morgan
Chase & Co. Other giant commercial-banking players, such as Wells
Fargo & Co. in the United States, as well as Germany’s Deutsche Bank
AG and Spain’s Banco Santander, have emerged as some of the most
powerful players in an industry that is likely to be safer but less
lucrative for shareholders.

Banks are heading “back to basics – to, if you like, the core purpose
of the system with less bells and whistles,” says Douglas Flint,
finance chief at HSBC Holdings and co-chairman of the Counterparty
Risk Management Policy Group, a task force of finance executives
working on a framework to prevent systemic financial shocks. “There is
a recognition that when the dust settles … the construct of the
industry will be different.”

Evidence of the new importance of bread-and-butter banking is
appearing around the globe. Deutsche Bank, which had been focused on
building its global investment-banking business, last week agreed to
pay nearly $4.3 billion in a two-stage deal to acquire the 850
domestic branches of Deutsche Postbank, the retail banking arm of the
German postal system. Santander, which also wooed Postbank, paid $2.26
billion in July for troubled U.K. mortgager Alliance & Leicester.

The shift reflects a broader reassessment of how best to do the
essential business of banking, which plays a crucial role in the
economy by turning short-term liabilities – savers’ cash and deposits
– into longer-term investments such as mortgages and corporate loans.
In recent years, commercial banks moved a lot of that business off
their regulated balance sheets and into the realm of securities firms.

The investment banks packaged the loans into an array of ever more
complex securities, which they kept on their books or sold to a broad
range of investors – including hedge funds and bank-affiliated funds
known as conduits and structured-investment vehicles. To fund their
activities, the securities firms and investors borrowed heavily in the
commercial-paper market and the so-called repo market, where borrowers
put up securities as collateral for short-term loans.

This alternative banking system proved profitable, in part because
participants weren’t required to meet commercial banks’ more rigid
reserve requirements against potential losses. But these banks’
strategies backfired with the onset of the credit crunch last summer,
as heavy losses on mortgage and other investments in some cases proved
too much for their thin capital bases, and the markets on which they
relied for funding dried up.

A bankruptcy court filing by Lehman this week in New York highlights
the quick spiral. As of May 31, Lehman depended on repo loans for $188
billion in borrowings. But as the value of the securities Lehman had
put up as collateral for the loans fell amid the broader market
turmoil, its lenders started demanding increased lending restrictions.
Because the amount it could borrow against its securities kept
falling, Lehman was forced to dip ever deeper into its cash reserves,
prompting ratings firms to consider cutting its credit ratings,
according to the filing. Lehman’s efforts this month to raise money by
selling an investment-management firm proved too late.

As repo loans and other market-based funding on which investment banks
rely becomes more expensive, the question becomes whether independent
broker-dealers, unattached to big banks with ample deposits, will
survive.

The new financial order also highlights the lasting impact of the
elimination of the Glass-Steagall Act, a Depression-era law that
prevented U.S. commercial banks from doing investment-banking
business. The repeal of Glass-Steagall, in 1999, allowed commercial
banks to break into the securities business and gain the heft to
compete with the likes of Bear Stearns and Merrill.

This universal banking model has proved hard to manage, with the likes
of Citigroup and UBS knitting together a vast empire of operating
units. These and other big deposit-taking banks that are required to
maintain bigger cushions against losses, such as Bank of America, have
so far survived the credit crunch better than some of the stand-alone
securities firms.

Thanks in large part to government programs that insure them, deposits
have been a rare bright spot during the credit crunch. In the United
States, savings and small time deposits – two important classes of
customer money – stood at $6.9 trillion at the end of August, up 7.6
percent from a year earlier, according to the Federal Reserve. The
U.S. market for the IOUs known as asset-backed commercial paper, a key
source of short-term funding for the bank and brokerage industry, has
shrunk by more than a third since the crisis began last year, to $780
billion as of Sept. 10.

Sticking to the basic banking model hasn’t worked for everyone.
Smaller banks in the United States and Europe have suffered because
they lack the scale and diversification to absorb heavy losses
generated by growing defaults on mortgage and corporate loans.

To be sure, some stand-alone investment banks, such as Goldman Sachs,
are well funded. And some innovations and markets will rebound when
the credit crunch fades. Consumer debts such as mortgages, credit card
balances and student loans will still be packaged into securities.

But such securitization, analysts say, will likely happen in smaller
volumes and in more conservative forms, such as so-called covered
bonds. Many of the instruments central to the current crisis were
created and sold by banks with no stake in their performance. In
contrast, covered bonds have payments that are bank-guaranteed
regardless of how poorly the packaged loans perform. Some analysts
predict a U.S. market could grow to $1 trillion in the next few years.

Operation repo is staged’s rs per metal

NEW DELHI: Gold prices bounced on the bullion market on Saturday on
emergence of buying by stockists influenced by a firming global trend,
placing the precious metal higher by Rs 170 at Rs 12,770 per ten gram.
Buying activity gathered momentum after repo rts that metal prices
staged a sharp recovery in the international market where it touched
at $876.50 an ounce from $857.

Gold remained extremely volatile in overseas markets due to the
financial crisis triggered by the collapse of biggest US bank Lehman
Brothers, which declared itself bankrupt. The metal strengthened as
people invested in bullion, considering it to be a sa fe-haven during
such a crisis.

Standard gold and ornaments which lost Rs 520 each in previous day’s
trading, bounced back by Rs 170 each to Rs 12,770 and Rs 12,620 per
ten gram, while the sovereign gained Rs 50 at Rs 10,350 per piece of
eight gram. In a similar fashion, silver ready shot up by Rs 200 to
Rs 19,700 and weekly-based delivery by Rs 450 to Rs 19,650 per kg.
Silver coins also rose by Rs 200 to Rs 28,200 for buying and Rs 28,300
for selling of 100 pieces on increased off-take by coins makers. – PTI

Operation repo is staged’s money banks banking

Jeremy Warner’s Outlook: Paulson’s $700bn bailout hangs in the
balance. But even if it passes, will it save the system from meltdown?

With Hank Paulson’s $700bn plan to save the global banking system
still in the balance, the fundamental question remains the same: will
it work?

The plan was again in trouble last night, with Congressmen from both
sides of the political divide queueing up to express their dissent. To
Republicans it looks like socialism, while to Democrats it looks like
the worst possible use of taxpayers’ money – bailing out the fat cats
of Wall Street. Yet despite the almost universal revulsion, you have
to assume that such is now the extreme nature of the banking crisis,
that it will eventually get approved, if only in compromise form.
Lawmakers have little option. The money markets are almost completely
frozen, and stock markets are again falling like a stone. Policymakers
have warned of economic catastrophe if it doesn’t pass, and even if
that prophecy always looks a little suspect, it now becomes self
fullfilling if the Administration fails to get its way.

These are uncharted waters, so you would expect policymakers to make
mistakes as they attempt to navigate through the rocks. With
hindsight, it was a misjudgement to allow Lehman Brothers to go to the
wall. The effect has been to make the money markets freeze up almost
entirely, with banks hoarding money and refusing to lend to each other
except at very short maturities. If Lehman’s can be allowed to fail,
so can others. The prevailing mood has therefore become that it is
better to keep your cash under the mattress, earning no interest at
all, than lend it to a private sector bank.

As detailedin our analysis, an extreme flight to safety occurred in
the wake of this collapse, with money seeking the lowest risk
repositories available, from the Bank of England to US Treasuries,
gilts, gold and anything else that provides shelter from the storm.

In the British retail market, the phenomenon has manifested itself in
a perverse migration of money away from banks perceived as potentially
“unsafe” and into Northern Rock, which after nationalisation is
underwritten by the taxpayer. Like the original run on Northern Rock
before depositors were guaranteed by the Government, this is a
rational response to the crisis. The retail depositor will take no
lectures from regulators on the “irresponsibility” of such action. The
money men of the wholesale markets have already run for the hills and
withdrawn their funding, leaving only the little guy, the Government
and the Bank of England standing between some of these banks and
oblivion.

Mr Paulson must have known it was a gamble when he refused to support
Lehman’s, and it is one he seems to have lost. In attempting to draw a
line in the sand and say “no more bail-outs”, he is now widely seen as
having made a bad mistake, leading to the $700bn plan to bail out the
system as a whole. Yet though the Lehman’s decision brought matters to
a head, it seems likely that the crisis would have ended in some such
generalised bail-out in any case.

For months now, it has been obvious that a state-sponsored fund to
take the bad debts off the banks’ balance sheet must be part of the
solution. It’s been tried and tested in banking crises before, and
generally it works. The alternative had become buying up the
organisations at the heart of America’s banking and insurance
industries one by one as each in turn was driven to the brink. Once
the markets had finished with one organisation, they merely moved on
to another. Removing their bad debts instead should ultimately prove a
cheaper and better solution.

But I don’t want to apologise for Mr Paulson. The main criticism of
his proposal remains as it was at the start – a breathtaking
lack of detail. Small wonder after the way they were bulldozed into
financing the Iraq war that congressmen were not going to sign a blank
cheque. Mr Paulson, a former chairman of Goldman Sachs, was demanding
carte blanche to spend the money as he wanted, and for legal immunity
in so doing to boot.

Having somewhat naively agreed the plan last Friday in the heat of the
moment, lawmakers returned to their constituencies for the weekend
where they were rightly given a rocket, and returned filled with fire
and fury. Ordinary Americans don’t want to bail out bankers, they want
to string ’em up. That’s to come. Hundreds will go to jail for this in
a purge that dwarfs Enron and other corporate scandals of the early
Noughties.

Congressmen may win concessions on pay-offs, oversight, and recompense
for taxpayers, but in the end they have little option but to agree, if
only to the staged bailout fund, with separate tranches of money being
voted on individually as they become necessary, being talked of as a
possible compromise last night. If they don’t, it is sayonara the
American banking system, which though superficially a not unattractive
proposition would disrupt the wheels of commerce to such an extreme
degree that even the Great Depression look mild by comparison. Nobody
likes the Paulson plan. Bailing out the miscreants is offensive and
objectionable in almost every respect.

It is also possible that different policy decisions at an early stage
may have made the crisis less severe. But given where events have got
to, it’s hard to see what the alternatives might be.

George Soros, the billionaire speculator whose constant lecturing on
the crisis is a bit rich given that he’s a founding father of the
unbridled capital markets which gave us the credit crunch, thinks the
solution lies in recapitalising the banks with taxpayers’ money,
rather than buying their bad debts. This strikes me as both
impractical and unlikely to succeed. Never mind the absent detail on
Mr Paulson’s plan, it would take months and possibly years to decide
on an equitable scheme for the showering of bankers with taxpayer
funded equity that Mr Soros seems to propose. The crisis in markets
involves problems of both liquidity and solvency, yet one of its
lessons is that you can have as much regulatory capital as you like,
but once confidence is shot, the funding that banks need to stay in
business goes too. Providing more capital doesn’t solve the bad debt
problem.

As America’s 51st state, back here in Britain we are unfortunately
joined at the hip to the crisis. If the Paulson plan fails, then our
banks are going to be in jeopardy too. Arguably, several of them
already are. To save HBOS, the Government has had to suspend its
competition rules and agree a massive consolidation of the banking
market. There will be a lot more of that before the crisis is over.
Bradford & Bingley’s days as an independent company are plainly
numbered. The only question is whether shareholders can salvage
anything at all.

As the Paulson package wobbled, the UK banking system too seemed to
grind to a halt. Interbank lending at maturities of any more than a
week has virtually dried up, and whereas there is as yet little sign
of the distress Mr Paulson refers to in the US economy, with even big,
non-financial companies experiencing difficulties with their overnight
funding, in the absence of a solution, it may be only a matter of
time. UK banking has become highly dependent on overseas, wholesale
money to fund its lending, and right now, there’s not much of it
about. Instead, the gap is again going to have to be filled by the
Bank of England. In the next few days, the Bank will be forced to
increase sharply the amount of “repo” money it lends at longer
maturities of up to three months. Overnight money is no longer a
problem, so much so that there is actually an excess which the Bank is
being forced to drain from the system. In the flight to safety, banks
are also putting some of this excess on deposit with the Old Lady of
Threadneedle Street, even though they are being forced to accept 100
basis points below base rate for the privilege.

Longer-term money, on the other hand, is becoming ever harder to come
by. The amount of one-week money the Bank of England had out on loan
soared to an unprecedented £66bn last week. As at other critical
stages in the credit crunch, the Bank may be forced to offer
approaching the same in three-month money.

These facilities are being buttressed by the Special Liquidity Scheme,
which, somewhat belatedly given the snowballing nature of the crisis,
was recently extended for a further three months. Already, the SLS has
lent more than £100bn of three-year money to the banking system.
All these measures help to ease the pain, but as in the US, a
permanent solution may have to be found.

At this stage, ministers believe there will be no need for a Paulson-
type plan in the UK. On one level, they are right. UK banks have taken
on a lot more of the US’s toxic mortgage and other forms of
securitised debt than they should, but as far as the UK economy is
concerned, there is as yet no underlying bad debt problem, or at least
none which the banks cannot absorb. As a consequence, there are no bad
debts the Government could legitimately buy.

Yet there is a funding crisis, at present being addressed by lending
the banking system money, and this is being accentuated by the fear
that we may be only months behind the US in developing similar levels
of default. It has already driven one bank – Northern Rock
– into government ownership. If the Paulson plan fails, others
may follow. Regrettably, the UK’s public finances are already
stretched enough, and are therefore even less capable of absorbing
liabilities on such a scale than those of the US.

Offensive or abusive comments will be removed and your IP address
logged and may be used to prevent further submissions. In submitting a
comment to the site, you agree to be bound by Independent.co.uk’s

Soros is right as usual. To let the banks fail like dominoes does no
one any good, but the con men who got the system into this mess should
not be allowed to stay in place, and the shareholders who financed it
should lose their collective shirts. Either let the banks go under or
nationalise them. Giving the existing managements taxpayers’ dosh is
stupid. * A comparison with the British motor industry is opportune.
Thatcher had the courage to let it go bankrupt. End result: more cars
than before were made in the UK – but under competent Japanese
management as opposed to incompetent British management. This was a
win for Britain as a whole – but an individual loss for the
incompetent British managers who lost their jobs when the Thatcher
pulled the plug on paying them to make lousy cars no one wanted to
buy. * Effectively, bankers have turned the entire housing market into
a giant Ponzi scheme. Who was responsible for that? Blair and Brown,
Bush and Greenspan of course

The bail-out will not take place, and even if it by some miracle did,
we would have hyperinflation not seen since the 1920s!

some very sensible comments which shows that not everyone is as stupid
as our government/ main stream media makes it out to be. There is
nothing I can see would save the day however accountability and
bringing those responsible to justice must be done otherwise after the
storm the same will take over again.

Private institutions shouldn’t be allowed to get so big that they have
huge influence on a nations stability, without the nation having a say
in what the company is doing and how it is run. I believe in free
markets but I think this banking crisis is a lesson to us all. Perhaps
companies of such importance should be forced to become co-operatives
or have a significant government stake. Unfortunately I think it is
only sensible that this applies to water, rail and gas companies as
well. With regard to banking, why has it been acceptable to put your
money in a private institution i.e. a bank and let them play roulette
with it, in the belief they know what they are doing? Theres always a
chance the company may fail, but we don’t appear to have a complete
mechanism to deal with the situation when they do fail. Some form of
banking bail out is now necessary but the fundamentals of the banking
system have to now change to save future generations from the bankers
selfishness.

No & its going to be long, strong & very absorbing ( hopefully
moistley soft ) Its not going to work it will not work in the long
run.

Thomas Jefferson’s Warning To America : “I believe that banking
institutions are more dangerous to our liberties than standing armies.
If the American people ever allow private banks to control the issue
of their currency, first by inflation, then by deflation, the banks
and corporations that will grow up around [the banks] will deprive the
people of all property until their children wake-up homeless on the
continent their fathers conquered. The issuing power should be taken
from the banks and restored to the people, to whom it properly
belongs.” Written by Jefferson in a letter to the Secretary of the
Treasury Albert Gallatin (1802). Well you draw your own conclusion
now!!!

Write down the ” Assets” to a realistic level based on the likely fall
in House Prices and then seek a Rights Issue based on the true value
of the Business. If this results in a very low value for Executive
Share Options then that is a bonus!

How does the balance sheet look, for starting wars in Iraq,
Afghanistan, and multiple other interferences around the globe, by
comparing income seized against cost ? As well as fiscal greed at
home, the fiscal greed exported militarily, is combining to ruin the
worldwide respect held for a previously honourable nation, and ruin
the economic stability for the USA’s population. Those beneath the
pantomimic veneer of USA politics, who dictate the national strategy
for their own gain, will eventually be rooted out, but probably only
by the eventual and inevitable calamity through which the nation will
pass. This is ‘Americanism’ running rampantly to self destruction. The
wider tragedy is that the entire ‘western’ world has aspired to and
progressively adopted this philosophy.

“The UK for instance has quadrupled their holding of US securities in
12 months, and the pound will suffer tremendously.” because the uk and
the usa are batting for the same side-the bankers. all of this was
predicted on every single one of the so called “conspiracy” sites on
the www over a year ago. thankfully we now know conspiracy means the
truth. unfortunately, the general public have been hoodwinked as
usual. as in the case of gordon’s selling of our gold assets, we have
been siphoning funds to the USA to for over a year to help them and
their criminal cartels in wall street knowing the full extent of this
fiasco. there is a hell of a lot to answer for here. pity the american
and british taxpayers whatever happens with this bailout. the biggest
scam in history is upon us now. hang em high i say!

Bankers can create as much imaginary money as they like but none of it
will change any of the geochemical or gepophysical realities of the
planet we live on, which is running out of oil, running out of fresh
water, running out of decent soil, running out of fish stocks to
plunder etc. -the real generators of wealth for the present economic
system. Traditional economic growth is not possible in a world of
diminishing energy and diminishing natural resources. Creating new
debt mechanisms may prevent an immediate financial meltdown, but
delaying the enivitable will simply result in even greater financial
carnage at a later date, whilst worsening our environmental
predicament.

Operation repo schedule’s credit system bps

Page 1 of 4 CREDIT BUBBLE BULLETIN Misdirected credit runs unabated
Commentary and weekly watch by Doug Noland When I titled last week’s
piece Too big to suffer a loss I had no real inkling of what this past
week would have in store. Actually, I had presumed that the Treasury
and Fed wouldn’t allow Lehman Brothers to fail. Lehman, after all,
was one of the major players in the precarious daisy chain of Wall
Street risk intermediation. A failure by any key player in this
realm would immediately have this historic credit crisis jumping the
firebreak from the rugged terrain of mortgages and “risk assets”
into the hallowed land of perceived safe and liquid contemporary
“money.” The consequences of such a lurid escalation were so
potentially catastrophic that I believed that Paulsen and Bernanke
were prepared to use the overwhelming force of fleets of aerial
supertankers to ensure our “money” tinderbox was not set ablaze. It
now appears they didn’t appreciate the ramifications for Lehman going
under – how this would quickly ignite a run on the core of our
monetary system. It wasn’t long, however, before the horror of
watching the entire system going up in flames prompted a mad
scramble to conjure the equivalent of monetary firefighting shock
and awe. What an incredible week. On Thursday, the administration
presented Congress a US$700 billion plan to stem the credit and,
increasingly, economic crises. Wall Street and the banking system
have been rapidly burning through their entire “capital” buffer, as
the risk intermediation community suffers enormous and unending
losses. The bursting of the credit bubble is proving catastrophic
for many that intermediated the risk between trillions of risky loan
assets funded by the issuance of trillions of perceived safe and
liquid money-like liabilities. For awhile, the global sovereign
wealth funds, speculators, and some investors were content to step
up and lead a recapitalization process. As time passed, however,
this was increasingly recognized as a classic case of throwing good
“money” after bad. As losses escalated and sources of additional
“capital” dried up, focus quickly turned to escalating losses being
suffered by some gigantic and highly leveraged players (such as
Lehman, Merrill Lynch, and American International Group). At least
in the case of Lehman, a run on their money market liabilities
(especially “repos”) had commenced. Bankruptcy by Lehman – with the
extreme market uncertainty associated with unprecedented losses to
bondholders, creditors and counterparties – immediately froze the
credit default swap (CDS)marketplace. Dislocation in the CDS market
was a deathblow for AIG and many hedge funds. The Lehman
contagion quickly incited panic throughout the money fund complex, a
to-this-point bulletproof sector that had, after a year of enormous
growth, become an even more vital pillar to the sacred domain of
contemporary “money.” Exposure to Lehman forced the Primary Reserve
Fund, a venerable money market operation, to mark down its portfolio
3%. Primary Reserve saw 60% of its fund (almost $40 billion)
redeemed in just two days, as trading in even the lost “liquid”
short-term money market instruments seized up. A modern day electronic
“run” on contemporary “money” had commenced; the system had reached
the brink of collapse. To stabilize the system at such a point
required nothing less than unprecedented measures. The Treasury and
Federal Reserve would have to become major buyers of last resort –
both the providers of massive marketplace liquidity and the
underwriter of massive credit losses. With the monetary system
breaking down, the federal government saw no alternative than to fill
the void left by the impaired risk intermediators. Or, from a more
theoretical perspective, our government would have to guarantee the
“moneyness of credit” – assume the spiraling losses between the
trillions of risky system loans and the trillions issued of
perceived safe and liquid “money.” No systemic federal guarantee,
no more “moneyness” – and an immediate end to the last bastions of
credit growth that have been sustaining the US bubble economy. So
what’s the problem with the government stepping to guarantee
“moneyness”? How can it be inflationary, when credit growth has
slowed so dramatically, assets prices have come under such pressure,
and confidence in the system has been so shaken? Well, I continue to
believe that some overriding issues are today lost in the
discussion; lost in all the pontificating; lost in the frenzy of
panicked policymaking. I am not surprised that our policymakers
nationalized Fannie Mae and Freddie Mac. It was predictable that the
Treasury and Federal Reserve were forced into wholesale bailouts and
unprecedented liquidity operations. That Washington had to step up
and guarantee money fund deposits is not all too surprising. Ditto
with the upwards of $1 trillion of congressional authorizations, with
policymakers bumbling through various measures in hopes of stabilizing
the system. Over the years, we’ve been pretty cognizant of the
extreme nature of excesses; the extent of system vulnerability; and
the expensive bill that would come due with the arrival of the bust.
But I want to be especially clear on one thing: I am shocked and
incredibly alarmed that all these measures became necessary at such
an early stage of financial and economic adjustment. After all, the
Dow remains above 11,000 and gross domestic product expanded 3.3%
last quarter. And this gets right to the heart of the matter –
where the analytical rubber meets the road. A massive inflation of
government obligations; a major government intrusion into all
matters financial and economic; and an unprecedented circumvention
of free market forces has been unleashed – but to what end? I
believe it is a grave predicament that such a rampage of radical
policymaking has been unleashed in order to maintain inflated asset
markets and to sustain a bubble economy. Normally, such desperate
measures would be employed only after a crash and in the midst of a
major economic downturn – not in efforts specifically to forestall
the unwind. Not only will such measures not work, I believe they
will only exacerbate today’s already extreme global monetary
disorder. They will definitely worsen the inevitable financial and
economic dislocation. I have over the past several years
repeatedly taken issue with the revisionist view that had the Fed
recapitalized the banking system after the ’29 stock market crash
the Great Depression would have been avoided. Some have suggested
that $4 billion from the Fed back then would have replenished lost
banking system capital and stemmed economic collapse. But I believe
passionately that this is deeply flawed and dangerous analysis.
An injection of a relatively small $4 billion would have mattered
little. What might have worked – albeit only temporarily – would
have been the creation of many tens of billions of dollars of new
credit required to arrest asset and debt market deflation and refuel
the bubble economy. Importantly, however, at that point only
continuous and massive credit injections would have kept the system
from commencing its inevitable lurch into a downward financial and
economic spiral. Importantly, market, asset and economic bubbles
are voracious credit gluttons. I would argue that the system today
continues to operate at grossly inflated – bubble – levels. The
upshot of years of credit excess are grossly distorted asset prices,
household incomes, corporate cash flows and spending, government
receipts and expenditures, system investment and economy-wide spending
and, especially, imports. So to generally stabilize today’s
maladjusted system will, as we are now witnessing, require massive
government intervention. Enormous government-supported credit growth
will be necessary this year, next year, and the years after that. To
be sure, a protracted and historic cycle of misdirected credit runs
unabated. Present efforts to sustain the bubble economy create an
untenable situation. Washington is now in the process of spending
trillions to bolster a failed financial structure, while focusing
support on troubled mortgages, housing, and household spending.
Regrettably, this is a classic case of throwing good money after
bad. Not yet understood by our policymakers, literally trillions of
new credit will at some point be necessary to finance an epic
restructuring of the US economic system. Our economy will have no
choice but to adjust to less household spending, major changes in
the pattern of spending (this is, less “upscale” and services),
fewer imports, more exports, and less energy consumption.
Moreover, our economy must adjust and adapt to being much less
dependent on finance and credit growth – which will require our
“output” to be much more product-based as opposed to
“services”-based. We’ll be forced to trade goods for goods. The
current direction of bubble-sustaining policymaking goes the wrong
direction in almost all aspects. At some point, the markets will
recognize this bubble predicament, setting the stage for a very
problematic crisis of confidence for the dollar and our federal debt
markets. WEEKLY WATCH Just when you thought you’d seen it all… Yet
how wild could it have been with the Dow down only 0.3% (down 14.1%
y-t-d) and the S&P500 up 0.3% (down 14.5%)? Amazingly so. The
Transports gained 0.5% (up 11.6% y-t-d), and the Morgan Stanley
Cyclicals added 0.2% (down 13%). The Utilities were hit for 3.3%
(down 17.6%), and the Morgan Stanley Consumer index declined 2.5%
(down 7.4%). The broader market rallied sharply. The small cap
Russell 2000 jumped 4.7% (down 1.6%), and the S&P400 Mid-Caps gained
2.1% (down 6.2%). The NASDAQ100 declined 1.2% (down 16.3%), and the
Morgan Stanley High Tech index dipped 0.9% (down 16.4%). The
Semiconductors rallied 3.7% (down 18.2%); The Street.com Internet
Index added 0.6% (down 10.4%); and the NASDAQ Telecommunications index
gained 0.6% (down 9.7%). The Biotechs were little changed (up 2.8%).
Financials were unbelievably volatile and ended the week up big. The
Broker/Dealers jumped 7.6% (down 31%). The Banks surged 16.3%,
slashing y-t-d losses to 6.8%. With bullion rocketing $108 higher,
the HUI Gold index rallied 11.5% (down 20.9%). September 19 –
Bloomberg (Dakin Campbell): “Treasuries tumbled, sending two- year
note yields up the most in 26 years, after Treasury Secretary Henry
Paulson and Federal Reserve Chairman Ben S. Bernanke announced plans
to help stem a collapse in financial- market confidence.” One-
month Treasury bill rates traded as low as one basis point yesterday
before closing the week at 0.69%, down 66 bps Three-month yields
collapsed 47 bps to 0.99%. After today’s sell off, two-year
government yields ended the week down only 4 bps to 2.17%. Five-year
T-note yields rose 9 bps this week to 3.04%, and 10-year yields
increased 9 bps to 3.81%. Long-bond yields gained 7 bps to 4.38%.
The 2yr/10yr spread increased 13 to 163 bps. The implied yield on
3-month December ’09 Eurodollars added 5.5 bps to 3.375%. Benchmark
Fannie MBS yields rose 11 bps to 5.40%. The spread between benchmark
MBS and 10-year T-notes widened 2 to 159 bps. Agency 10-yr debt
spreads were 17 wider to 64 bps. The 10-year dollar swap spread
increased 5 to 66.25. Corporate bond spreads moved wildly. An index
of investment grade bond spreads ended somewhat wider at 163 bps,
and an index of junk bond spreads widened to 636 bps. I saw only
one debt issue this week, a $500 junk borrowing by Sungard Data
Systems. German 10-year bund yields added 2 bps to 4.21%. The German
DAX equities index declined 0.7% (down 23.3% y-t-d). Japanese
10-year “JGB” yields fell 5 bps to 1.48%.
Continued 1 2 3 4

1.US at a turning point 2.Oil market collapse waiting to happen
3.Islamabad rides a terror tiger 4.The end of a gilded age 5.All
change in the US’s Afghan mission 6.Tehran feels an Arab sting 7.What
a buzz 8.BOOK REVIEW:’We blew her to pieces’ 9.Iran plays the mediator
(Sep 19-21, 2008)

Head Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street
East, Central, Hong Kong Thailand Bureau: 11/13 Petchkasem Road, Hua
Hin, Prachuab Kirikhan, Thailand 77110

The operation repo schedule bank rate pounds

LONDON (Reuters) – The Bank of England said on Tuesday it would offer
20 billion pounds in a two-day repo market operation at 9:45 a.m., in
response to conditions in short-term money markets.

“The Bank will take actions to ensure that the overnight rate is close
to Bank Rate,” the Bank said in a statement. “Along with other central
banks the Bank of England is closely monitoring market conditions.”

The Bank offered 5 billion pounds in three-day funds at Bank Rate on
Monday. Financial markets have been in flux following fresh concerns
over the impact of the credit crunch after the demise of U.S.
investment bank Lehman Brothers.

Per cent rs in operation repo schedule

Money & Banking – Debt Market Bonds continue upward momentum
Liquidity squeeze eases; outlook uncertain on inflation concerns.

Bangalore, Sept. 14 Bonds continued their upward momentum, powered by
large purchases by banks for meeting their reserve requirements.

Traders said the sharp fall in global oil prices partially caused bond
yields to soften. Oil prices are off their highs and headed downwards
and ended the week at $101.18 a barrel. For India, this implied a
sharp drop in the import basket prices. Import basket prices are
already at the lowest level for this financial year at$96 a barrel.

Yet refineries continued to flock the foreign exchange markets.
Traders said that oil demand was mainly driven by hedging
requirements. Some refineries took advantage of the hedging window
opened by the Reserve Bank of India for securing their future oil
requirements, at the current low prices. In addition, large scale
selling by foreign institutional investors (FII) also pushed down the
rupee-dollar exchange rate to a low of $45.77. FIIs continued to
repatriate home to shore up the weak capital of their parents. FII
worries worsened in view of fears of an impending collapse of large
investment bank Lehman Brothers.

During the week, FIIs sold about $401 million. Despite the sharp
depreciation of the rupee by close to 15 per cent since the beginning
of April, the RBI showed little inclination to intervene in the
foreign exchange markets. This depreciation is unlikely to be
sustained for long. HDFC Bank, in its monthly commentary, Eco-Talk,
said, “Inflation remains well in double-digits and excessive
depreciation could offset the gains from lower commodity
prices.”

Moreover, the sharp fall in spot dollar not withstanding, forward
premia stood on its own. Forward premia for three days and one month
firmed to 7.87 per cent (0.27 per cent) per cent and 4.19 per cent
(2.16 per cent).

The sharp firming of the three-day premia was partly driven by the
Government auctions for Rs 8,000 crore. The firming of the 30-day
forward premia was largely driven by the refinery demand and corporate
debt service payments for cross border liabilities. However, at the
long end, exporters took cover. Exporter cover restrained six and 12-
month forward premia at 2.53 per cent (2.61 per cent) and 2.53 per
cent (2.41) per cent.

The liquidity squeeze in the markets somewhat eased during the week
stemming from large deposit mop-up from corporates through
certificates of deposits. The easing was evident from the low recourse
to the repurchase window at the weekend liquidity adjustment facility
(LAF) auctions. The combined recourse to the repo window from five
banks was Rs 12,215 crore. At least five banks took to the reverse
repo window at the auctions.

T-bill auctions
Moreover, at the weekly Treasury bill auctions, yields continued their
softening trend. The cut-off yield on the 91-day T-bill was 8.73 per
cent and the weighted yield was 8.69 per cent, off sharply from the
previous week’s levels of 9.02 per cent and 8.98 per cent
respectively. At the T-bill auction, the quantum of bids, from both
competitive bidders (banks and primary dealers) and non-competitive
bidders (mutual funds and insurers) were on the rise. Total bids for
the T-bills amounted to Rs 18,475 crore against a notified amount of
Rs 5,000 crore. The bids accepted were Rs 9,836 crore. The trend in
the 364 T- bill auction was identical, with yields falling below 9 per
cent to 8.86 per cent. As a result, both the 91 and 364 yields were
now below the repo rate of 9 per cent.

The softening yields benefited the Government borrowing programme,
amounting to Rs 8,000 crore. The 8.24 per cent 2018 was placed at 8.30
per cent and the 7.95 per cent 2032 at 8.70 per cent. But even before
the auctions had concluded, many of the foreign and primary dealers
had short sold the papers, booking profits in the bargain. This was
evident from the YTMs in the markets at the weekend’s close. PDs
sold the papers, the 8.24 2018 at an YTM 8.27 and the 7.95 per cent
2032 at 8.65 per cent. The firm trend, however, pulled down the
weighted average ten-year YTM to 8.36 per cent, down from the previous
week’s 8.47 per cent.

Narrow spreads
Trade volumes remained high, averaging Rs 8,700 crore per day. Spreads
remained narrow at just five basis points.

However, traders’ outlook remained uncertain. The uncertainty
was evident from the almost flat yield curve. Between one year and 27
years, the yield spread was inverted. The 27-year was lower than the
one-year by 8 basis points.

The uncertainty stemmed from two factors. Inflation remained a major
cause of worry, with rates remaining in the double digit domain, at
12.1 per cent. This implied that nominal yields were lower than the
WPI inflation up to 27 years by over 325 basis points, implying
widening negative real yields. Besides, RBI’s purchases of dated
securities confused the markets.

Traders said that unlike the special market operations (SMO) that were
largely money supply neutral, purchase of dated Government securities
tends to add liquidity into the banking system. The impact, however,
was small. There were also sales from the RBI’s counter.

Yet, markets were troubled by a shortage of SLR securities. The
shortage stemmed from large accretions to deposits.

This financial year alone, accretion to time deposits was in the
region of about Rs 2.5 lakh crore.

The IDBI Gilts Treasury Head, Mr S. Srinivasa Raghavan, said,
“The accretion in deposits was partly due to the shift from
equities to debt.” Besides, domestic institutional investors
preferred to park their funds in debt and bank CDs, given the current
state of the equity markets. The accretions, in turn, created a rush
for SLR securities, bankers said.

Besides, traders said the shortage partly stemmed from banks parking
securities in the held-to-maturity category in droves early this year
to avert depreciation losses. Public sector banks were unwilling to
unwind from the HTM category. The reason: Profts from sale from the
HTM category would have to be part of the capital, unlike in the case
of the marked to market categories. In MTM holdings, profits are
treated as part of the profit and loss account.

But credit also expanded during the period, triggering fears of
another strong intervention from the central bank. Incremental credit
deposit ratio is currently about 51 per cent during the period. Credit
expanded by 25 per cent on a year on year basis. This was well above
the RBI’s desired target of 18-20 per cent. The high credit had
pushed up the money supply growth to 21 per cent. Clearly, another
hike in the liquidity ratio now appears imminent ahead of the peak
season credit policy announcement.

Stories in this Section Bonds continue upward momentum Centre asks
bank unions to call off stir plan ‘Banks should monitor
operational risk internally’

The operation repo schedule banks bank markets

As US politicians argued over the $700 billion rescue plan, economists
asked: does it go far enough?

On June 6, 1889, an accident with a glue pot in a Seattle carpentry
shop led to a fire that destroyed the city’s business district,
its railway stations and much of the port. Out of the ashes came the
Washington National Building Loan and Investment Association, set up
to refinance a charred economy.

Washington Mutual or WaMu, as the bank became known, went on to
survive two world wars and the Great Depression to become the largest
savings and loan firm in America with 2,200 branches, 43,000 employees
and $188 billion on deposit.

But recent events have levelled many a financial giant. Last week WaMu
became the latest big institution to fall to the fire raging through
Wall Street. Shut down by the regulators, it was sold for a song to JP
Morgan, one of the few banks to emerge from this turmoil able to buy
anything.

WaMu’s collapse marked another defining event in the worst
financial crisis in a century, eclipsing what had long been
America’s largest bank bust on record, the 1984 failure of
Continental Illinois.

Even if the past week could not match the drama of the previous one –
when Lehman Brothers filed for bankruptcy, Merrill Lynch sold itself
to Bank of America, AIG was rescued and the US Treasury secretary,
Hank Paulson, proposed his $700 billion plan to “save” the
US economy – it was still high-octane stuff.

WaMu’s fall came as politicians wrangled over Paulson’s
Troubled Asset Relief Programme (Tarp), designed to put banks on a
more secure footing by taking bad assets off their balance sheets.

There were dire warnings from President George Bush about the
consequences of not reaching a deal. But economists were beginning to
ask another question. Is the Paulson package enough, or is it an
expensive piece of sticking plaster that will not tackle the
underlying problems of inadequate US bank capital, grim economic
prospects and falling house prices?

“Why have Paulson and his colleagues taken markets to the brink
and invited lawmakers and others to take a peek into the abyss?”
said Stephen Lewis of Monument Securities. “It may be that if
they could have come up with a better plan it would have sold itself,
and they wouldn’t have had to sound so alarmist.”

That alarmism, and fears that the package might get stalled by
political opposition, badly spooked the markets. As the world waited
to find out what shape Paulson’s bailout plan would take, all
bets were off. The billions that flow from one bank to another in the
normal course of business were stopped dead. Banks would not lend to
one another for more than a day, bringing the global financial system
to a halt.

The Libor interest rate – the London interbank offered rate, or the
interest rates banks charge each other for money – climbed to its
highest level since the credit crunch began. The rate to borrow money
for three months reached its highest spread above Bank rate since
September 16, 1992 – Black Wednesday, the day Britain crashed out of
the European exchange-rate mechanism.

Corporate Britain had lost faith in the banking system, having
witnessed the Lehman Brothers collapse, and the fall of HBOS into the
hands of Lloyds TSB. Those who can are keen to hoard their cash.

One senior banker said: “People keep saying that banks are
scared to lend to one another, but that’s not quite it. The
money we lend is not ours, but our customers’. With everything
going on in the markets, our corporate customers are only willing to
deposit it overnight. It’s a corporate equivalent of all our
personal customers moving their savings into their current accounts in
case they need the money.”

Uncertainty about Paulson’s plans was not the only factor in the
crisis – timing was playing a role. The end of September is the end of
the third quarter when banks begin to fret about what their balance
sheets will look like by the end of the year.

Money loaned last week on a three-month basis would still be on the
balance sheet when the banks close off their full-year accounts. Given
the speed at which established institutions have unravelled, that
seemed too big a risk to take.

The seizure in the money markets led to problems for the broader
credit markets. “The credit markets are now completely
frozen,” said one adviser to a British pension fund. “I
know we’ve said that before, but this week they have completely
ground to a halt.”

Bond prices were being hammered across the board, leading to huge
losses for investors. General Electric is one of the few industrial
companies in the world with an AAA credit rating – its bonds would
normally be considered as safe as government bonds. On Friday, as the
market reacted to a profit warning from the giant American
conglomerate, its 10-year senior debt was changing hands at 75 cents
in the dollar. Only a few weeks ago it was trading close to par value.

The broader debt markets were crippled by fears on Friday after the
sale of WaMu. Unlike other recent bank deals, this one saw senior
creditors wiped out alongside shareholders – an unexpected blow.

Between now and the end of the calendar year more than $300 billion of
bonds are due to mature, according to figures from Dealogic. In the
next 12 months almost $1.5 trillion of debt is due to roll over.

The wipeout of WaMu bonds is likely to make it much more difficult for
any struggling US bank to raise new finance. If bondholders can be
wiped out so easily, there is little point in extending debt to
struggling firms. The added uncertainty is likely to make it harder
for all companies to renew their debt facilities, and put a further
squeeze on the price.

FOR the Bank of England, this month’s crisis has had a familiar
ring to it. A year ago, the clearest signal of the severity of the
crisis’s first phase was a sharp rise in money-market interest
rates. Three-month Libor rose strongly, posing severe problems for
banks trying to borrow in the markets – most notably Northern Rock –
and for companies; 60% of business borrowing in Britain is linked to
Libor.

Last week the crisis in the money markets was even more severe than a
year ago. Three-month Libor, which earlier this month dropped to 5.7%,
leapt sharply to just under 6.3%. Though Bank rate stayed at 5%, it
looked increasingly irrelevant.

“Capital-market conditions had begun to look very scary, with
liquidity in a number of instruments almost nonexistent,” said
Philip Shaw, an economist at Investec.

So on Friday morning the Bank wheeled out the big guns to address what
it described as “the ongoing pressures in funding
markets”. Along with the Federal Reserve, European Central Bank
and Swiss National Bank, it announced measures to inject immediate
dollar liquidity into the markets, and ease the upward pressure on US
Libor rates.

More significantly, it said that from tomorrow it would hold weekly
operations, so-called long-term repo operations, to provide three-
month money to the system. Tomorrow’s auction will be for
£40 billion, allowing banks to obtain liquidity against
collateral, including mortgage securities, until January next year,
thus taking them beyond the critical year-end, when liquidity is
expected to get even tighter.

The banks, which had been privately pressing the Bank of England to
take action, welcomed the move. Stuart Gull-iver, chief executive of
global banking and markets at HSBC, said: “It’s what the
market was looking for. It shows a willingness to listen and will
alleviate stresses in the UK bank system right through the year-
end.”

But, warned others, the dramas of the past two weeks and the White
House’s desperation to get the rescue approved, underlined the
extent to which the debate had moved on.

Up to now, all the interventions in the market have been about short-
term solutions to boost liquidity in the system – cash in hand
to solve day-to-day funding problems. By addressing the toxic assets,
Paulson’s scheme has acknowledged that there are problems with
bank capital as well as liquidity. In other words, banks are likely to
face real losses. To get the system moving again, these prospective
losses need to be dealt with, as well as the short-term funding issue.

Despite this, the UK Treasury is not encouraging the idea that there
could be a British version of the Tarp, and analysts are also
sceptical. Britain’s banks, they say, are generally in better
shape than their American counterparts and some with operations in
America will benefit from Paulson’s scheme, if it is adopted.

“While we wouldn’t rule out the possibility that UK
policymakers may eventually need to establish some kind of state-
funded bailout akin to the Tarp, for the moment it seems they are
content with making regular cash injections and weighing up when to
start cutting interest rates,” said Paul Dales of Capital
Economics.

The Treasury will this week receive a report from Sir James Crosby
which could recommend ways of kick-starting Britain’s frozen
wholesale mortgage markets. Officials cautioned against any early
decision on his recommendations, pointing out that policymakers were
mainly engaged in fire-fighting a sharp deterioration in the global
financial climate.

This weekend world markets are watching Washington, where the angry
debate over the Tarp has exposed raw differences. Free-market thinkers
slammed the White House pressure to get a deal done as soon as
possible. Jagadeesh Gokhale, a former consultant to the US Treasury
and now an economist with the Cato Institute, said constant talk of an
imminent financial crisis was making a self-fulfilling prophecy.

“We have seen this before whenever a Treasury secretary says he
is not supporting the dollar, the market immediately reacts.
It’s the same with financial markets.” He said it was hard
to tell what was caused by fundamental problems in the economy and
what was the fault of scaremongering.

Gokhale said there were two main questions with the Bern-anke/Paulson
plan that remain unanswered. “First, is it at all necessary?
What is the evidence that there will be an effect on the real economy,
that agriculture, mining and so on will freeze up because of a lack of
credit?” He said there was some evidence that availability of
credit was slowing in the wider economy but where were the
government’s numbers?

“The second question is, what if $700 billion isn’t
enough? I’m concerned that they will just be back in a couple of
months asking for another trillion dollars.”

That would not be out of line with the cost of previous bank rescues.
In the 1990s, Sweden rescued its banking system, when the loan losses
of banks reached 12% of GDP. The equivalent for the US would be $1.7
trillion, a trillion more than the Paulson rescue package.

But Sweden handled things differently. All-party agreement was quickly
reached on a plan under which all bank creditors, but not
shareholders, were guaranteed protection against loss. Two commercial
banks were temporarily nationalised. Profits of the nationalised banks
and their eventual sale cut the cost to taxpayers to less than 2% of
GDP.

Paulson’s plan may in time emerge with similar success but it is
having to overcome the resistance of a culture that is much more
suspicious of government bailouts.

“This is a failed bailout of a failed bailout,” said Peter
Boockvar, equity strategist for the New York trading firm Miller
Tabak. “We have to let the economic cycle run its course. Every
time the government gets involved there are unintended
consequences,” he said.

After the dotcom bubble the then Fed chairman Alan Green-span slashed
interest rates and created the housing bubble. Subsequent government
interference helped to fuel the spike in commodity prices and the
market conditions that led to the collapse of Bear Stearns and Lehman
and nearly brought down Goldman Sachs and Morgan Stanley, said
Boockvar. “I don’t think this is a good idea.”

The Paulson bailout is now seen as necessary to avoid collapse, but
few economists believe it is sufficient to generate a sustained
recovery.

“It is enough on its own to make the banks willing to lend or
households and businesses willing to borrow,” said Tony Dolphin,
director of economics at Henderson Global Investors.
“Deleveraging is still the most likely outcome. America is not
Japan in the 1990s but the debt-to-GDP ratio will fall and that is
going to be painful.”

The extent of the pain is still a matter of debate. At a Reuters
conference on Friday, Simon Davies of Blackstone warned that more
European companies would go bust over the next few years than in the
early 1990s because debt levels are higher.

“The credit expansion phase was so large and so long that it has
created a much more difficult restructuring arena,” said Davies,
a vice-president in the private equity firm’s European corporate
advisory unit.

But David Stark of Deloitte, another restructuring expert, told the
same conference that business failures in Britain would be lower than
in the early 1990s, though corporate problems might take longer to
work through.

“As the restructuring community sees it, we don’t think it
will go completely mental – whereas in 1993 it went very, very
busy,” he said. “There hasn’t been the big wave of
LBO [leveraged buyout] restructurings we were expecting to see.”

Whether that happens depends partly on whether the banks themselves
see any light at the end of the tunnel.

Big companies are concerned their loan facilities could be pulled.
Most borrow working capital through large loans, syndicated between a
number of banks. If banks representing half the value of the loans
claim there has been a “market disruption” they can pull
out of the agreement.

“These are easily bad enough conditions for the banks to claim
that there has been a market disruption, but no bank wants to be the
first to put its hand up,” said one legal source. “The
first bank that does this fears being tarred with accusations that it
is in trouble.”

WHAT THEY SAID ABOUT THE RESCUE PLAN President George Bush If money
isn’t loosened up, this sucker could go down.

US Treasury secretary Hank Paulson I share the outrage that people
have . . . It’s embarrassing to look at this. I think it’s
embarrassing to the United States of America. There is a lot of blame
to go around.

I understand the view that I have heard from many of you on both sides
of the aisle, urging that the taxpayer should share in the benefits of
this plan to bail out our financial system.

Let me make clear: this entire proposal is about benefiting the
American people, because today’s fragile financial system puts
their economic well-being at risk.

Chairman of the Federal Reserve, Ben Bernanke The financial markets
are in quite fragile condition and I think, in the absence of a plan,
they will get worse.

The intensification of financial stress in recent weeks, which will
make lenders still more cautious about extending credit to households
and business, could prove a significant drag on growth.

Republican presidential candidate John McCain I’m an old navy
pilot, and I know when a crisis calls for all hands on deck.

Democratic presidential candidate Barack Obama The crisis is the final
verdict on eight years of failed economic policy promoted by George
Bush and supported by Senator McCain

Republican congressman Jeb Hensarling I can put a gun to my
neighbour’s head and take his college fund for his children and
place a bet on a roulette table in Las Vegas and maybe, maybe,
I’ll triple his money. But that’s not a risk that my
neighbour voluntarily undertook.

Republican congressman Ron Paul They want dictatorship, they want to
pass all the penalties and suffering on to the average person on Main
Street.

When they say that if we don’t do exactly as they say and turn
over more of our money and more of our liberties and exempt themselves
from any court in the whole nation, they’re trying to intimidate
us and lead us into doing the wrong thing.

William Smith, president of Smith Asset ManagementYou’re talking
about the largest failure in banking history, so there is going to be
a negative reaction, right?

What you are going to see is the strong stronger, and the weak are
going to die off.

James K Galbraith, University of Texas economist A nasty recession is
possible, but the bailout will not cure that. It will delay a
disaster, given that you only have three months left in this
administration. But it will not cure the problem in the financial
industry.

Vince Cable, Liberal Democrat Treasury spokesmanThe angry congressmen
are right to demand very tough conditions. Taxpayers must not be left
with the risk while the profitable upside is left to the banks

TV satirist Jon Stewart Before we hand these unelected officials 700
billion no-strings-attached dollars there is one thing you should
know; this financial guru never saw it coming.

James Crosby the great leader who led the strategy that HBoS to its
doom… Wasn’t Alan Greenspan another of Team GB’s bubble class
advisors?

Agree with Julian also Buy-outs work – bail-outs don’t The US has hit
the buffers and the new world order has started………………….

Yes I agree, the US Dollar is really on death row with this so-called
bailout. The 700 billion issued is simply based on nothing other than
more debt.. I’m pretty sure that central banks, the federal reserve
and others having been suppressing gold prices in order to make the
Dollar worh more.

Politicians around the world are huffing and puffing about who should
take the losses and take on the obligation to repay the debt. At the
end of the day the only one way for everyone, macro or micro to pay
off such massive liabilities, is for the ‘gurus’ to inflate the West’s
way out of trouble

There is no need for a bailout. Credit is available to all those who
want it but its price has gone up due to risk aversion. Eventually the
price will come down after the excesses have been washed out of the
system, and the economy in turn will be better off for it. Let’s give
credit a rest.

Julian Jordon, you are almost right . Dollar will crash to allow the
new Amero in. Look up North American Union. Swap dollars for silver
and gold.

So the US will print $700bn and in doing so devalue the $. Holders of
US$ switch to the Euro and further devalue the $ So the US will print
more Zimbabwean (sorry) US $’s and the whole cycle speeds up this
handcart to hell. Get it over with quickly; let the banks go to the
wall.

Richard Reed, co-founder of innocent drinks, on ethical business and
how that Wonderbra advert can guide us through the downturn

Take the stress out of finding a lawyer to help your business. Let
them find you with our new matching service

Financial banks securities in operation repo schedule

THE liquidity routinely provided by central banks has for years been
extended by a daisy chain of derivative transactions.

The credit squeeze which is tightening its grip on the world economy
is the result in large part of that chain being broken.

The asset write-downs being forced on the financial system are truly
gargantuan, reaching $US620 billion ($740 billion) at last count, with
the meter still ticking fast, but it has been the loss of liquidity,
not asset value, that brought the pillars of the world financial
establishment tumbling.

Lehman Brothers was forced to file for bankruptcy because confidence
in its ability to repay its debts evaporated, and financial markets
refused to advance it money.

AIG, Merrill Lynch, Bear Stearns, Fannie Mae, Freddie Mac, Northern
Rock and HBOS all faced the same agonising financial suffocation
before their assets were seized either by governments or larger
competitors, with their shareholders left for dead.

The loss of confidence in counterparty risk and a desire by financial
institutions to accumulate as much cash as they can are part of the
reason for the worldwide shortage of cash that is forcing up interest
rates on interbank and term debt markets.

Central banks are doing what they can to counter this, providing as
much cash to markets as they believe markets will absorb. But
financial institutions have been relying not only upon cash, but on a
myriad transactions leveraged by securities to fund themselves. That
business has dried up and it is probably beyond the scope of the
central banks to replace it.

Director of the Melbourne Centre for Financial Studies Professor Kevin
Davis says it has been puzzling that through the boom years, the broad
measure of money supply, M3, which includes currency and deposits in
both the banking and non-bank sectors, grew at a brisk, but not
excessive, annual average around 10 per cent.

When the financial crisis hit last year, it soared to more than 20 per
cent as organisations that were no longer able to fund themselves
using securities returned to the conventional banking system.

He cites research by Citigroup London analyst Matt King, penetrating
the smoke and mirrors in the last accounts of the five big New York
investment banks.

This shows that while they had a combined $US1.6 trillion in finance
secured by collateral on their balance sheets, the total blew out to
$US3.5 trillion by the time off-balance-sheet transactions are
included. The off-balance-sheet transactions are mainly collateral
they have received in “repo” deals, but then on-lent to someone else
(repos, or repurchase agreements, are essentially short-term secured
loans).

King explains how this funding disappears from the balance sheet. The
investment broker sells a hedge fund $100 million of stock in Company
A, providing a margin loan to finance it.

The hedge fund then short sells $100 million of shares in Company B,
and uses the proceeds to pay off the margin loan. The investment bank
now records no change in cash and no net receivable from the client,
so there is nothing on the balance sheet.

The investment bank needs to borrow the second stock so that the hedge
fund can deliver on its short sale, so it pledges the first, which it
is holding as collateral. The investment bank makes a margin on the
transactions, coming and going.

The reality of the transaction may be more complicated, but King says
this is the principle that explains how the investment banks have been
able to fund up to $US7 trillion in open positions maintained by hedge
funds.

King says you would not worry if the repo operations were conducted
using highly liquid assets such as treasury bonds. If the funding were
to disappear, the asset could simply be sold. However, securities used
for repo loans have been a mix of equities and convoluted credit
products.

In the US, the major source of securities for this funding has been
the “custodian” banks like State Street, which hold securities on
behalf of funds managers, and is known as “tri-party repo”.

At the Federal Reserve’s Jackson Hole conference last month, chairman
Ben Bernanke said he was encouraging banks to reduce their reliance on
tri-party repo funding for overnight financing of less liquid forms of
collateral.

“In the longer term, we need to ensure that there are robust
contingency plans for managing, in an orderly manner, the default of a
major participant,” he added, with subsequent events redefining the
meaning of “longer term”.

On Thursday night, Lehman Brothers administrator PwC said that hedge
funds who had pledged assets to the investment bank could not expect
to get them back.

In Australia, fund managers have contributed to this quasi-liquidity
through the lending of stocks to hedge funds.

Repo operations are not nearly such a large part of the financing of
Australian financial institutions, but still make up more than $20
billion of Macquarie Bank’s balance sheet.

The money-go-round has now seized up, and institutions can no longer
fund securities with securities. As positions become mismatched, there
is a desperate need for cash.

The plans being developed by the US Fed and Treasury for a trust to
take over the unwanted debts of the US banking system may do much to
restore financial market confidence.

But they cannot stop the squeeze on liquidity resulting from the
unwinding of the leverage built into the market for securities, and on
which large components of the world financial industry, including
hedge funds and investment banks, is based.

Australian regulators were trying to create a more robust liquidity
risk management system for the banks when their endeavours were rudely
interrupted by the crisis.

Until the crisis, liquidity risk management was thought of as
particular to individual institutions. Regulators wanted to ensure
that there were contingency plans afoot so that if, for whatever
reason, an institution lost access to financial markets for a period,
the risk could be managed.

However, the financial crisis has thrown up the risk that markets may
close for the entire financial system. APRA is planning to release a
discussion paper before the end of the year.

For the moment, the four major Australian banks are among the handful
of AA-rated banks left in the world. The liquidity shortage is raising
their costs, but they still have access to the funds they require. But
the crisis is adding urgency to the regulators’ “what-if” scenarios.

From here you can use the Social Web links to save Central bank
liquidity has aided by derivatives to a social bookmarking site.

Information provided on this page will not be used for any other
purpose than to notify the recipient of the article you have chosen.

Staff writers THE Australian competition watchdog said today it would
not oppose BHP Billiton’s proposed takeover of rival mining giant Rio
Tinto.

Andrew Colley IT took a few days but Hutchison 3 Mobile customers
finally have access to popular websites such as BigPond and Hotmail.

FAST food chain McDonald’s has consolidated its $65 million
advertising account with DDB, dumping rival agency Leo Burnett.

Bernard Lane THE University of New England may move to elect a new
chancellor as early as next month in the long-running leadership
crisis.

Michael Bloomberg will seek to overturn a term limits law so he can
run New York for another four years.

Mark Dodd AN Australian delegation visiting Croatia will today meet
its leaders to press for help in resolving the fate of Britt
Lapthorne.

Paul Kelly, Editor-at-large ROSS Garnaut’s report will be anathema to
the environmental lobby but it focuses on the achievable.

Avril Groom in Milan WITH couture taking a clobbering, shoes and
accessories are now at the pointy end of fashion