Sunday, October 12, 2008

Scramble To Avoid Collapse

Scramble to avoid collapse
By Chris Giles and Alan Beattie in Washington and Ben Hall in Paris
Published: October 12 2008 01:17 Last updated: October 12 2008 18:54


World leaders are scrambling to finalise rescue plans for their banking systems before stock markets open on Monday, amid fears that the global financial system is on the brink of collapse.

In Europe, France and Germany were close to announcing dramatic plans to shore up their banks while in Britain, the government was preparing a radical state recapitalisation of some of the country's biggest banks.

In the US, officials were also working to finalise a plan to recapitalise their banks and other financial institutions.

In the Asia Pacific, Australia and New Zealand announced guarantees for all bank deposits, as did the United Arab Emirates, while elsewhere in the Middle East, Saudi Arabia cut its interest rates.

The extraordinary series of moves, which followed record market falls last week, came amid grave concern over the weekend that investors would start scrambling for cash this week, threatening the implosion of financial institutions across the world.

As world leaders and bankers gathered in Washington for the weekend Group of Seven and global financial body meetings, Dominique Strauss-Kahn, International Monetary Fund managing director said: “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

Josef Ackermann, head of Deutsche Bank and chairman of the Institute of International Finance, representing nearly 400 of the world's largest banks, said the next 24 hours was a ”critical moment” for the world financial crisis. ”If we miss this opportunity we will have more deterioration” in markets, he said.

G7 ministers in Washington produced a broad-brush plan on Friday to stop banks failing, unfreeze bank funding, inject capital into banks, reform deposit insurance and unblock markets for securitized assets.

It appeared at first that they would not produce specific measures but as the weekend progressed, a determination to act quickly emerged.

Christine Lagarde, the French finance minister said a hastily arranged Eurozone summit in Paris on Sunday would “put meat, muscles on the bones of that [G7] skeleton and to develop, follow up and execute upon it”.

Officials said the eurozone leaders were discussing a draft document likely to agree to follow the broad outlines of the British bailout plan - the state taking stakes in banks, guaranteeing new bank borrowing and providing extra liquidity - but adapting the tools to national circumstances.

In addition the European Central Bank would create an unsecured lending facility to buy commercial paper from banks, similar to the move by the US Federal Reserve last week, providing, in effect, guaranteed funding for banks.

Alistair Darling, the British chancellor said all government needed “to act now … The threat is blindingly obvious. You can't stabilise economies unless you have a stable banking system”.

The German finance ministry said it would outline its detailed plans on Monday. A spokesman for the Finance ministry said:” ”The aim is for an orderly but quick legislative process aimed at averting risks for our economy”.

Some financial markets in the Middle East were open on Sunday, giving a mixed response to the weekend's developments. In its first trading sine last Tuesday, Israeli shares were down only 3.8 per cent, having opened 8 per cent lower. Stocks tumbled another 5.4 per cent in Dubai, but only 0.8 per cent in Bahrain.

With emerging markets becoming engulfed in the world financial turmoil, the IMF also said on Sunday it was exploring ways to provide emergency loans without the normal delays and long lists of conditions attached to its standard lending programmes.

Copyright The Financial Times Limited 2008

17 comments:

Susanne said...

Love reading your blog. Wanted to hear your opinion on something.... You are absolutely correct in that the US consumer is tapped out and cannot borrow enough money anymore, therefore not enough new money is manufactured that way, and that per se is going to lead to a deflationary collapse. However, as we've seen with the 700 billion bailout, if the citizens cannot borrow and request new money anymore the government will just do it for them, in their name and on their credit tab, which would lead to hyperinflation. As this time around there are no more gold standard limitations, or any other limitations including legal ones, on how much the government can borrow in the name of their citizens. Other than, of course, how much of this new debt the market (foreigners etc.) are still willing to buy... once they stop buying our debt anymore it's game over for the US Dollar... but that too would not be deflation but a currency collapse. So why do you think gold is not a good investment right now, and that it'll collapse in price? Just wondering... I realize that if society were to collapse, that it doesn't matter much anymore what gold is worth, just trying to understand why you are in the deflation camp instead of at least deflation interlaced with inflation....

HYPERTlGER said...

Gold is being inflated in price by dollars...when the production of dollars slows...the price will eventually collapse.

I don't answer investment questions...gamblers call themselves investors so do get rich quick speculators...So when you say investor...I have no idea what you are talking about

The 700 billion is not new money.

consumers request commercial banks to manufacture money...over the past 64 years they have requested commercial banks to manufacture 50.8 Trillion dollars of new money...51,000 Billion dollars.

In the same period of time the US Governemnt has issued 9.8 Trillion dollars worth of Treasuries and have BORROWED 9.8 Trillion of the 51 Trillion dollar money supply...and since it's credit it's also debt...No new money has been created.

in 1945 the the money supply of the USA was 355 Billion and teh amount of that...that the US government had borrowed was 258 Billion.

or The US Government had borrowed about 72% of the money supply to run WW2.

Currently the public debt is 10.1 Trillion dollars and the money supply 51 Trillion dollars

Or 19.8%.

The US Government is actually in better shape than in 1945

Basiclly the inflation you see now is as good as it's going to get...

without consumers willing and able to request comemrcial banks to manufacture new money...there's no driver for hyperinflation.

Other than cuts to supply faster than demand drops.

As for buying gold or silver coins...I don't see a problem with it...

And the only way the forigners are going to stop buying US debt is if US consumers stop producing it.

Otherwise their economies can't function without it...They are forced to buy it.

Susanne said...

Thanks, that makes sense. So what are your recommendation for preparing for the collapse of the current system, insofar that is even at all possible. You say you prepared years ago, I'd be interested to hear what you did or are doing. You mentioned you reduced your living expenses as far as possible, that is certainly an excellent and eventually inevitable idea. Here is my plan so far: Reduce montly rent to zero by moving into my lakeside log cabin next month... it is a summer home so in the winter it gets pretty cold there, so we still have to shell out money to the Top to heat it... a wood stove would probably be a good investment. In the garden we planted 8 new fruit trees, 12 fruit shrubs, berries and other perennials... more to come this fall, and I'll do a garden as well to grow vegetables. Basement is full of long term (>15 year) storable dehydrated and nitrogen sealed food stores, a year's worth for two people. One year of living expenses in Gold/silver/platinum/palladium in a Swiss bank safe. Two months of living expenses in cash in basement safe in CHF and EUR. Two nice used bicycles to ride around and into town without a car. Solar oven for the summer. A safe full of hunting rifles and ammo (my dad hunts). No debt. Of course I still depend on the labor market... but at least it's a start ....

Anonymous said...

Susanne: That sounds like a great retreat. Just don't forget the most important of all, forge relationships with likeminded people. You will need a community of people you can trust.

Susanne said...

Working on it, just moved there... after 6 years in California I am finally back in my German home town where my family lives, boyfriend to follow in a few weeks, I'm just getting to know the area again and reconnecting with old friends and hopefully many new ones....

Anonymous said...

the nutz have arrived.... I love the economic discussion but this store all your fud and get rdy for the apocalypse has been going on for tooo long. Hell I remember as a kid my grandparents buying all this canned crap for pennies on the dollar because it was stuff for nuclear winter. So we ate some freeze dried crap and fed the rest to the farm animals. Its good that you have trees and berries and all that jazz but please spare me with the end of time stuff. Yall worry so damn much. Perception becomes the reality, keep it up and you will get your end of time. Right now I am perceiving a stock rebound so I am making a little scrilla. I am also percieving me retiring near a tropical area and drinking lots of pina coladas....

Susanne said...

You are reading too much into this, collapse of the current system does not equal end times. Collapse, according to the dictionary, is defined as a significant reduction of complexity which, without doubt, is currently happening in the financial market. The result will be a lot of unemployment and widespread poverty, a new class of former middle class paupers. The end of times is not what I'm preparing for but rather a prolonged recession or depression, and being out of work for a year or more, and still getting by. Fruit trees and a garden are a nice way to save on expenses, and not paying rent helps when unemployed.

Anonymous said...

you know why folks jumped out of windows in the 30s? Because they were rich and became middle class. The tradgedy has always been from going filthy rich to middle class. To the rich middle class is poor. To those of us who came from modest backgrounds we know we will have jobs because we are not above working for a living. If the job market gets competitive then we just work harder. Its the privledge who realize they are no better than the working man/woman that cant take it. They have to learn how to whipe their fat arses again. The Okies you see in movies headed to California to pick in the fields were poor before they lost the farm.

low_five said...

I DEMAND MORE HYPERTIGER!

balag said...

I am a regular visitor of your blog and read all of it. I enjoy every word. for the past 10 days no new entry. What happend to you. are you ok?

low_five said...

the peasants are getting restless hypertiger. we are going to game over this blog soon.

Anonymous said...

I like reading this blog not because I believe a word of it, I just like reading different perspectives. Sometimes I think you gloom and doom folks have an adgenda.

I really would like for HT to delve into the CDS and crap. Gimmie some folks to blame for allowing speculators to trash 100year old institutions. Tell us some more history. The markets will keep going as long as there are zeros to add..... and looks like America will be in the lead for another century or 2. With Europe in a close 2nd.

Anonymous said...

cds= credit default swaps.

Anonymous said...

actually, hypertiger is wrong. gold is being held "down" in price, being "deflated". gold price is not being inflated. its anything but that according to GATA.

Pustaka Pohon Bodhi said...

What happened in Weimar Republic? Were Germanians really able to request so much new debt that brought their currency to hyperinflation? Or there were other ways to create money without consumer request new debt?

Cheryl-Lynné Rose Henderson said...

"low_five said...
the peasants are getting restless hypertiger. we are going to game over this blog soon."


I haven't had time to edit a new post. I promise to have one tomorrow night! :-)

Anonymous said...

I have said it before, gold is useless. You cant eat it or whipe your arse with it. All you can do is trade it or have it stolen. I would rather have something more useful than gold. Land, equipment, maybe even stocks that pay a dividend so I can buy something even more useful later on. Until they make gold toilet paper, I cant think of any use for it.