Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Calderon Busts Mexican Electrical Workers UnionFrom Laura Carlsen on the Americas Program blog:Calderon Government Sends in Police to Take Over Electrical Company and Bust UnionRead Carlsen’s full post here. And check out Reuters’ very objective take on the same situation, headlined “Mexico takes aim at capital’s bloated power company” here. Labels: Americas Program, Calderon, Laura Carlsen, Mexican Electrical Workers Union (SME), Mexico, Reuters, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Playing Chicken with the Fed, by John KempThis Reuters piece contains a lot of rather technical, but important information:February 4th, 2009 Playing chicken with the Fed By: John Kemp Tags: General, bond rates, federal debt, federal open market committee, Federal Reserve, fomc, interest rate policy, John Kemp, stimulus package, u s treasury, yield curve, zero interest John Kemp is a Reuters columnist. The opinions expressed are his own Yields on long-term U.S. Treasury debt continued to surge higher yesterday as the market braced for a future upturn in inflation and a tidal wave of long-dated issues that will be needed to fund the bank rescues and the emerging stimulus package. Yields on three-year notes are up by around 47 basis points from their mid-December low. But yields on ten-year paper have soared 82 points and rates on the 30-year long bond have surged 114 points. Long-bond rates have retraced more than half their decline since the autumn Back-end yields would probably have risen even further were it not for persistent hints the Federal Reserve is thinking about buying longer-dated issues to cap them. But the market has started to call the Fed's bluff. Read the rest of the article Labels: bailout, bond market, financial crisis, John Kemp, Reuters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Banks and Low Interest RatesReuters on a conundrum banks face in hard times. Given the deleveraging and subsequent asst-writedowns the banks are still facing, this old problem makes the outlook for that sector even more dire.Falling rates renew old problem for U.S. banks Wed Dec 3, 2008 3:35pm EST Reuters By Jonathan Stempel - Analysis NEW YORK (Reuters) A plunge in U.S. interest rates to levels not seen since Dwight Eisenhower's presidency means troubled banks must cope with an old problem they thought they had licked. The yield fell below 2.7 percent this week for the first time since 1955 on the benchmark 10-year Treasury note. That happened after Federal Reserve Chairman Ben Bernanke said the central bank might buy longer-term Treasuries to help pull the economy out of a year-long recession. An improved economy could help banks by limiting credit losses from the housing slump and other consumer and commercial debt, as banks work to reduce risk on their balance sheets, or deleverage. Capital infusions from the Treasury Department's $700 billion bailout package could also ease rate pressures. Yet falling long-term rates make it harder for banks to boost lending margins--the difference between what a bank earns on loans, and pays on deposits and to borrow --and make money. Read the rest of the article Labels: bailout, banking system, financial crisis, Reuters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Meredith Whitney: $2 trn credit lines to be cut?From Reuters. This is especially disturbing, inasmuch as the Obama administration, in the words of Analole Kaletsky, decided last week that "the Fed could refinance essentially the whole of the US mortgage and consumer credit market..."Credit card industry may cut $2 trillion of lines: analyst Mon Dec 1, 2008 6:29am EST Reuters (Reuters) The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said. The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted. "In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent." Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said. A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said. Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said. "...We are now beginning to see evidence of broad-based declines in overall consumer liquidity." "In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated November 30. She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels. "Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said. (Reporting by Neha Singh in Bangalore; Editing by Vinu Pilakkott) Labels: bailout, Credit card industry, financial crisis, JP Morgan Chase, Meredith Whitney, Reuters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Paulson Changes Tack Yet Again on TARPIt's a good thing (for him) this guy doesn't have to face elections.From Reuters: Treasury backs away from plan to buy bad assets Wed Nov 12, 2008 11:51am EST WASHINGTON (Reuters) Treasury Secretary Henry Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds. Paulson, in an update on the Treasury's financial rescue efforts, said his staff has continued to examine the benefits of purchasing illiquid mortgage assets under the so-called Troubled Asset Relief Program. "Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources," Paulson told a news conference. When Treasury was selling the $700 billion bailout plan to Congress, it initially promoted it as a vehicle that would purchase illiquid mortgage assets from banks and other institutions to cushion potential losses. But it became quickly apparent that setting up such purchases would take time, and Treasury opted for the faster method of injecting capital directly into banks by buying preferred stock. The Treasury has allocated $250 billion of the fund to such purchases so far. Paulson said the Treasury is evaluating a second program that would provide government investments that would match private investments in capital raisings. "In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program," Paulson said. He also said support was needed for the markets that securitize credit outside the banking system for products such as car loans, credit cards and student loans. The Treasury and Federal Reserve are exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities. "We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers' investment," Paulson said. (Reporting by David Lawder, Editing by Chizu Nomiyama) Labels: bailout, financial crisis, Henry Paulson, housing bubble, Reuters, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Credit Losses To Exceed 10% of US GDP?From Reuters:Credit losses may surpass 10 percent of U.S. GDP Wed Nov 12, 2008 12:07pm EST Reuters By Walden Siew NEW YORK (Reuters) - Credit losses from the financial crisis may exceed even dire estimates of $1.4 trillion, or more than 10 percent of U.S. economic output, according to the chief strategist of research firm CreditSights. Financial and non-financial loss estimates by the International Monetary Fund and World Bank may be too conservative as the economy weakens and companies and consumers focus on repaying debt, Louise Purtle said on Wednesday. "What does life after leverage look like?" asked Purtle, during a credit conference in New York. "We're not prepared for it. The great danger looking into 2009 is being too optimistic." Most indicators suggest no easy fix, she said. U.S. existing home sales indicate there are about 1 million extra homes that can't be sold. Defaults and delinquencies for home loans continue to climb, adding to the 6.9 million foreclosures over the past three years. U.S. consumer confidence is at its worst levels, exceeding pessimism seen during the 1970s, she said. "The impact is rolling from the finance sector into the real economy," said Purtle, who said growth trends point to a 1970s or 1980s-type recession. "We are facing something that is quite different" in terms of the type of recession the U.S. is entering, she said. One aspect of the current crisis is the slump in consumer sentiment that will weigh on any short-term recovery or rise in home sales. A second characteristic is the difficult unraveling of the huge debt binge undertaken by corporations and consumers over the past decade. Purtle said the question of whether credit markets are experiencing a reversion to trend in terms of leverage has already been answered. "The answer is not 'yes we can,' but the answer is "yes we are," she said. (Reporting by Walden Siew; Editing by Tom Hals) Labels: bailout, credit crisis, financial crisis, Reuters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Demand from New Admin: Claw This Back!From Reuters:U.S. banks owe billions in pay, pensions to executives: report Fri Oct 31, 2008 6:36am EST (Reuters) - Troubled financial giants getting cash infusions from the U.S. Federal Reserve owe their executives more than $40 billion for past year's pay and pensions as of the end of 2007, the Wall Street Journal said in an analysis. The sums owed are mostly for special executive pensions and deferred compensation, including bonuses, for prior years, said the paper. The Journal also cited investment banks Goldman Sachs Group Inc, which owes its executives $11.8 billion; JPMorgan Chase & Co, which has a payment of $8.5 billion pending; and Morgan Stanley, which owes between $10 billion and $12 billion to executives. Criticism of executive pay has gained momentum this election year with presidential candidates from both major parties lashing out over rich payouts for CEOs of companies that have suffered big losses in the U.S. housing market bust and ensuing credit crisis. As a result, the government has sought to rein in executive pay at banks getting federal money as part of the Bush administration's $700 billion bailout program. But overlooked in these efforts is the total size of debts that financial firms receiving taxpayer assistance previously incurred to their executives, which at some firms exceed what they owe in pensions to their entire work forces, the Journal said. For instance, nine banks paid out an estimated $50 billion of bonuses in 2007, based on the total compensation expense for the companies and assuming that for investment banks about 60 percent of total compensation was allocated for bonuses, and for commercial banks about 20 percent went to bonuses. Goldman Sachs, Morgan Stanley and JP Morgan Chase did not immediately return calls seeking comment. (Reporting by Shradhha Sharma in Bangalore; Editing by Kim Coghill) Labels: executive pay, financial crisis, financial crisis bailout, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Reuters, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Worst May Be Over...Markets worldwide are reacting favorably to (from Reuters):Interbank lending, stimulus provide hope in crisis Monday, October 20, 2008 By Daniel Trotta NEW YORK (Reuters) - Interbank lending emerged from deep freeze and Fed chairman Ben Bernanke gave his blessing to a second U.S. government stimulus package on Monday, providing hope the world's financial crisis may be easing. The three-month Libor rate fell more than one-third of a percentage point, its biggest one-day drop in nine months in one sign that banks may have the confidence to lend to each other again, crucial to reactivating the world economy. The chairman of the U.S. Federal Reserve told Congress on Monday that another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth. Read the rest of the article Labels: ben, financial crisis bailout, fiscal stimulus, interbank market, Reuters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
