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The credit crunch -- Saving the system

cosmoyx(万事俱备，只欠老婆)
本文发表在 rolia.net 枫下论坛The credit crunch
Saving the system

Oct 9th 2008
From The Economist print edition
At last a glimmer of hope, but more boldness is needed to avert a global economic catastrophe


CONFIDENCE is everything in finance. Until this week the politicians trying to tackle the credit crunch had done little to restore this essential ingredient. In America Congress dithered over the Bush administration’s $700 billion bail-out plan. In Europe governments have casually played beggar-my-neighbour politics, with countries launching deposit-guarantee schemes that destabilise banks elsewhere. This week, however, saw the first glimmers of a comprehensive global answer to the confidence gap.

One clear sign was an unprecedented co-ordinated interest-rate cut on October 8th by the world’s main central banks, including the Federal Reserve, the European Central Bank, the Bank of England and (officially a coincidence) the People’s Bank of China. Various continental European countries also set about recapitalising their banks. But the most astounding developments were in America and Britain. The Fed doubled the amount of money available to banks on a short-term basis to $900 billion and announced that it would buy unsecured commercial paper directly from corporate borrowers. More surprisingly, Gordon Brown’s government, hitherto the ditherer par excellence, produced the first systemic plan for dealing with the crisis, not just providing capital and short-term loans to banks but also offering to guarantee new debt for up to three years (see article).

This is certainly progress, but it is not enough (see our extended finance section). The world’s finance ministers and central bankers, gathering in Washington, DC, this weekend for the annual meetings of the IMF and World Bank, should deliver a simple message: more will be done. The world economy is plainly in a poor state, but it could get a lot worse. This is a time to put dogma and politics to one side and concentrate on pragmatic answers. That means more government intervention and co-operation in the short term than taxpayers, politicians or indeed free-market newspapers would normally like.
The patient writhing on the floor

If the panic that has choked the arteries of credit across the globe is not calmed soon, the danger will increase that output in rich economies will not simply shrink, but collapse. The same could happen in many emerging markets, especially those that rely on foreign capital. No country or industry would be spared from the equivalent of a global financial heart attack.

Stockmarkets are in a funk. But the main problem remains the credit markets. In the interbank market the prices banks pay to borrow money from each other are still near record highs. Meanwhile corporate borrowers have found it hard to issue commercial paper, as money-market funds have fled from all but the safest assets. In emerging markets bond spreads have soared and local currencies plunged. And whole countries have begun to get into trouble. The government of Iceland has had to nationalise two of its biggest banks and is frantically seeking a lifeline loan from Russia. Robert Zoellick, president of the World Bank, says there could be balance-of-payments problems in up to 30 developing countries.

The damage to the real economy is becoming apparent. In America consumer credit is now shrinking, and around 159,000 Americans lost their jobs in September, the most since 2003. Some industries are hurting badly: car sales are at their lowest level in 16 years as would-be buyers are unable to get credit. General Motors has temporarily shut some of its factories in Europe. Across the globe forward-looking indicators, such as surveys of purchasing managers, are horribly gloomy.

If the odds of a rich-world recession have risen towards a near certainty, the emerging world as a whole is slowing rather than slumping. China still seems fairly resilient. Taken as a whole, though, growth in the world economy seems likely to slow below 3% next year—a pace that many count as recessionary. So the prospects are grim enough, but a continuing credit drought would make this much worse.
Lessons old and new

The lesson of history is that early, decisive government action can stem the pain and cost of banking crises. In the 1990s Sweden moved to recapitalise its banks quickly and recovered quickly; in Japan, where regulators failed to tackle toxic debt, the slump lasted for most of the decade. The twist is that this credit crisis is deeper (it affects many more types of markets) and broader (many more countries). Any solution has to be both more systemic and more global than before. One country trying to mend one part of its banking system will not work.

The idea of a comprehensive solution sounds simple, if expensive. But politicians have found it hard to grasp. Europeans have remained stubbornly wedded to the notion that the mess was “Made in America”; John McCain and Barack Obama talk as if it was all down to the greed of modern bankers. But financial excesses existed centuries before a brick had been laid on Wall Street. As our special report this week lays out, today’s bust—and the bubble that preceded it—had several causes besides dodgy lending, including a tide of cheap money from emerging economies, outdated regulation, government distortions and poor supervision. Many of these failures were as evident outside America as within it.

With a flawed diagnosis of the causes of the crisis, it is hardly surprising that many policymakers have failed to understand its progression. Today’s failure of confidence is based on three related issues: the solvency of banks, their ability to fund themselves in illiquid markets and the health of the real economy. The bursting of the housing bubble has led to hefty credit losses: most Western financial institutions are short of capital and some are insolvent. But liquidity is a more urgent problem. America’s decision last month to let Lehman Brothers fail—and the losses that implied to money-market funds that held its debt—prompted a global run on wholesale credit markets. It has become hard for banks, even healthy ones, to find finance; large companies with healthy cash flows have also been cut off from all but the shortest-term financing. That has increased worries about the real economy, which itself adds to the worries about banks’ solvency.

This analysis suggests that governments must attack all three concerns at once. The priority, in terms of stemming the panic, is to unblock clogged credit markets. In most cases that means using central banks as an alternative source of short-term cash. This week the Fed took another step in that direction: by buying commercial paper, it is now in effect lending direct to companies. The British approach is equally bold. Alongside the Bank of England’s provision of short-term cash, the Treasury says it will sell guarantees for as much as £250 billion ($430 billion) of new short-term and medium-term debts issued by the banks. That is risky: if left for any length of time, those pledges give banks an incentive to behave recklessly. But a temporary guarantee system offers the best chance of stemming the panic, and if it were internationally co-ordinated it would be both more credible and less risky than a collection of disparate national promises.

The second prong of a crisis-resolution strategy must aim to boost banks’ capital. A new IMF report suggests Western banks need some $675 billion of new equity to prevent banks from rapidly reducing the number of loans on their books and hurting the real economy. Although there is plenty of private capital sloshing around, there is a chicken-and-egg problem: nobody wants to buy equity in an industry without enough capital. It is becoming abundantly clear that government funds—or at least government intervention—will be necessary to catalyse the rebuilding of banks’ balance sheets. Initially, America focused more on buying tainted assets from banks; now it seems keener on the “European” approach of injecting capital into their banks. Some degree of divergence is inevitable, but more co-ordination is needed.

Third, policymakers should act together to cushion the economic fallout. Now that commodity prices have plunged, the inflation risk has dramatically receded across the rich world. With asset prices plummeting and economies shrinking, deflation will soon be a bigger worry. The interest-rate cuts are an important start. Ideally, policymakers would not use only monetary policy. For instance, China could do a lot to help the rest of the world economy (and itself) by loosening fiscal policy and allowing its currency to appreciate more quickly.
A long wait

Even in the best of circumstances, the consequences of the biggest asset and credit bubble in history will linger. But if the panic is stemmed, it could be a manageable problem, cushioned by the economic strength in the emerging world. Efforts at international economic co-operation have a patchy record. In the 1980s the Plaza and Louvre accords, designed respectively to push the dollar down and to prop it up, met with mixed success. Today’s problems are deeper and more countries are involved. But the stakes are also much higher.更多精彩文章及讨论，请光临枫下论坛 rolia.net
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Last Updated: 2008-10-10
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  • ZT: 美元利率掉期市场很麻烦！ -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {5136} (#1095@52)
    本文发表在 rolia.net 枫下论坛流动性和偿付风险导致短期利率上扬，并导致交易量下降，融资市场空前紧张。

    在IMF刚刚公布的《全球金融稳定报告》中，重点讨论的议题之一就是如何看待不断加剧的银行同业拆借市场压力，以及银行同业拆息不断高企的背后推手。

    尤其值得注意的是，对此前已经备受业界质疑其真实性和准确性的LIBOR(伦敦同业拆解利率)，其基准作用是否已然失效的问题，IMF也有自己的研究结论。

    “无论如何，考虑到与LIBOR和Euribor(欧洲银行同业拆借利率)挂钩的衍生产品和其它金融工具的规模异常巨大，这些基准利率还是应该保存下来。”IMF称，银行同业市场与利率衍生产品的关系异常紧密，从而与期货和掉期产品关系也非常紧密。

    据估计，目前全球共有超过400万亿美元的未偿还本金是LIBOR相关的利率掉期产品！

    这无疑是一个异常巨大的数字。不仅如此，由于银行同业拆息对资本市场的作用也越来越广泛，比如，大部分固定收益工具的信用区间的计算是根据基于LIBOR和 Euribor的利率掉期曲线来做的，这可以方便在交叉市场和交叉货币之间进行对比，因为这些产品的发行人和投资者是利用基于LIBOR的衍生工具来对冲和转移利率和货币风险的。

    质疑LIBOR

    一般来说，LIBOR主要是由其成员银行主动向英国银行家协会进行报价而得出，该报价在伦敦时间上午11点公布。

    这一报价的意思是，该成员银行为了获得银行间贷款而愿意支付的利率水平。但由于这一报价并非真实的交易价格，而只是“愿意”支付的价格，因此，在全球金融动荡的背景下，不久之前，对于LIBOR的可靠性的质疑开始出现。

    该质疑的逻辑在于，由于这些大型的会员银行本身也极有可能面临较大的流动性和信用风险，因此，在报价过程中极有可能故意压低报价，用不愿意高息拆入资金来掩盖自身流动性紧缺的现实，避免陷入困境，换句话说，存在流动性压力的银行可能不愿意披露它们实际上需要面对的更高的市场利率而“谎报军情”，即LIBOR 很可能已经失真。

    数据显示，从2008年1月到4月，LIBOR成员银行的短期CDS(信贷违约掉期)波幅远超过3个月美元LIBOR- OIS(隔夜拆借指数掉期)的波幅，而在2007年8月之前，这两者的变动是非常接近的，但自从那时起，尤其是从今年1月份以后，CDS的波幅就已经远超过LIBOR-OIS(LIBOR与OIS的息差)，然而，成员银行表示，CDS波幅在每日短期贷款决策中的作用很小甚至没有。

    实践中，LIBOR主要用来反映货币政策的预计通道，以及信用、流动性以及其它风险的溢价，而OIS则反映市场对隔夜拆息的估算，以及美元、欧元、英镑等的政策性利率。因此,LIBOR-OIS可以去除政策性利率预期的影响，只衡量银行同业拆借的紧张和信贷关注程度。

    问题是，究竟什么样的指标才能准确的衡量市场融资压力，结论不一而足。

    “LIBOR和Euribor作为传统的、有信誉的衡量银行在批发货币市场上无担保融资的边际成本的方式还是有价值的，尽管长久以来作为主要短期融资活动的无担保银行同业借贷的规模已经大幅下降。”IMF表示。

    而在高盛看来，某些情况下，OIS利率更适合作为基准，因为它们更能代表零风险利率，并能更好的反映政策行利率的变动。

    然而，“考虑到有超过400万亿美元的产品是以LIBOR为基准的，因此要改变这一做法无疑是一项足以让人望而却步的艰巨任务，并且，以OIS为基准也有不好的方面。比如，以OIS为基准的隔夜拆解利率可能会出现巨大的波动性，而当银行融资的边际成本成为衡量指标的时候，以银行实际融资成本为准的基准是最合适的。”IMF称。

    “所以，一个可能的结果是，银行可能会更谨慎的考虑各种基准利率。”IMF称，应该对LIBOR和Euribor计算过程有所修订，来更加广泛地反映银行在批发货币市场上的无担保融资成本，而不是仅仅在银行同业拆借市场，这样能够保证有关指数可以代表实际的无担保批发银行融资成本。

    息差高企之谜

    究竟是什么在推高LIBOR-OIS的息差范围？

    该研究指出，对违约风险的担忧是造成今年来美元LIBOR-OIS上扬的最主要的原因，而外汇掉期上扬则是Euribor-OIS和英镑LIBOR-OIS上扬的原因，这表明美元流动性压力正向其它货币传导。

    IMF称，无担保银行同业拆息的高企主要是由于对金融机构危机(包括信贷风险和流动性风险)的担忧所致，据称，这一因素对银行同业拆息高企的影响约在30%-45%。而对欧洲银行来说，美元流动性压力的影响也非常关键，该因素的影响约在30%-35%。

    数据显示，自从去年中以来，银行间货币市场显示这种压力并没有下降苗头。不仅仅是绝对水平，而且是动荡程度，都在提高。

    由于银行同业拆息高企主要是由于银行危机所致，因此，永远较容易的从央行获得紧急贷款不太可能缓解持续的银行同业融资的压力。

    IMF 指出，一般来说，大型商业银行的资产负债表是分层的，第一层是资本金，包括股票、次级债或者两者兼具，另外加上中期和长期的高级债务；接下来一层则包括客户存款，尽管可以不提前通知而随时提取，但仍通常被认为是具有“黏性”的；最后一层包括各种短期债务，比如商业票据、存款证、回购协议、掉期外债、批发存款等。由于这一层的各组成和期限一般会随着现金流需求和市场情况变化而急剧变动，因此，这一层需要动态管理。

    目前，在最后一层中，无担保银行同业拆借已经成为一个相对小的组成部分。

    “有时候，大多无担保银行同业拆借的到期日是一个星期或者更少，主要是隔夜拆借。这反映了货币市场活动的一个趋势。”IMF称，欧洲央行调查显示，最近几年，大约有70%是隔夜拆借，而一个月或者短于一个月的拆借几乎占了差不多所有的拆借活动，这一比例竟高达95%！

    目前大部分银行短期融资是从非银行来的，比如说货币市场资金、证券借贷再投资组合、央行外汇储备等。然而，该融资来源正日益转变为定期贷款和衍生结构产品，比如，贷出隔夜拆借再利用利率衍生产品如OIS进行货币市场配置。

    银行同业拆息的高企对货币政策的传导具有严重的影响。

    央行政策性利率，通常是隔夜利率，主要是用来通过银行同业市场以及货币市场利率的传导，最终影响消费和商业性贷款利率，从而影响内需。

    由于银行对批发融资市场的依赖越来越重，并从获取稳定的存款转变到越来越多的获取短期融资，IMF指出，过去一年来，政策利率与贷款利率之间的和谐关系无疑已经被明显改变，尤其是美国。

    “从2007年中期到2008年六月份，对美国以及欧元区贷款利率预测的可靠性已经恶化，美国尤其如此。”IMF称。更多精彩文章及讨论，请光临枫下论坛 rolia.net
    • The U.S. Treasury: The World's Biggest Hedge Fund -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {5052} (#1096@52)
      本文发表在 rolia.net 枫下论坛What is the difference between the U.S. Treasury and a gigantic hedge fund?

      Beats us.

      Deal maker Hank Paulson has transformed the Treasury Department into a larger, more powerful form of Goldman Sachs, with extensive direct lending abilities and profit-making stakes in companies including Fannie Mae, Freddie Mac and American International Group, all financed using debt. Now Treasury is considering a new solution to the financial crisis that would leave the department even more intertwined in the business of the financial markets: directly taking stakes in troubled U.S. banks.

      Duke University finance Prof. Campbell Harvey asks why the Treasury should stop there. He says the Treasury should instead inject capital into all U.S. banks through a single, centralized fund. Just putting money into troubled banks may stop the bleeding, but it won’t heal the wounds of the credit crunch, he says. To get the economy on its feet, the Treasury needs to support good small and midsize banks, who grease the wheels of small businesses that drive the economy. “In order for the equity injection capital to multiply and create credit, you need to target good banks, not just bad banks,” said Harvey, who wants the government to take passive equity stakes for injecting as much as 2% to 5% of the equity capital into each bank.

      Deal Journal talked with Harvey about his plan.

      Wait. First, what’s wrong with TARP?:
      Harvey says Treasury will end up paying rich prices for troubled mortgage securities. In addition, the troubled assets relief program will take a few weeks to get organized, and it “suffers from the ‘throwing good money at bad’ problem–i.e. the premium price will effectively bailout some distressed financial institutions that should simply fail,” Harvey said. It also isn’t clear to many people how TARP–which is to buy mortgage securities at the highest level–would help clear the credit markets. “Right now the credit system is considered frozen,” Harvey said. “Unfreezing the commercial paper market won’t help because many are too small to use it.”

      How would Treasury inject money into all U.S. banks?
      “The equity stakes would be short-term, five to seven years, and completely passive,” Harvey said. So wouldn’t Treasury just be a big hedge fund or private-equity fund? “You can think of it as a giant hedge fund that specializes in the financial sector. It’s almost identical to setting up a hedge fund. The difference, of course, is that the primary contributor is the government, and they can set their own terms,” Harvey said. “What could be interesting is that you could open it up to private investors. You know that just about every hedge fund would have loved to do the AIG deal, but they couldn’t do it. But if you open it up to them as a centralized fund, they could contribute investments. It might be hedge funds, large investors, it might be Warren Buffett, it might be sovereign funds. All of this would reduce the upfront cost of the taxpayer, but we would expect the taxpayer to get a return on this.”

      Why all U.S. banks?
      “If we want to get the maximum on the capital, you have to get good banks, not just the bad ones,” Harvey said. “You can imagine that a ‘bad bank’ takes the capital and does nothing with it; we need to spur lending and growth. If you’re a bank at the margin, you do not deserve a special equity injection, because it’s not going to do anything. You don’t want to throw that money into a bad bank….Our strategy has been to put one fire out after another, which is a reactionary strategy rather than pointing out this stuff at the beginning. I prefer a passive strategy rather than the government running AIG.”

      This sounds just like what Sweden did:
      Indeed it does, with a big difference: Sweden was helping out far fewer banks. But when the country unwound their positions, they made a decent return for the taxpayer, Harvey noted.

      What about saving the “too big to fail” banks?
      Harvey said spending all that money on saving big financial institutions is a big mistake, akin to one Japan made in the 1990s. “The growth does not come from large organizations, it comes from the small- and medium-growth businesses, so we need something that generates the credit-generation processes to fuel small and medium businesses. Treasury helping small and midsize banks will also help companies that depend on them. To bail out some troubled bank, it’s not clear that will have the multiplier effect that you want,” he said.

      Hank Paulson will be leaving soon. Who at Treasury would be savvy enough to manage this?

      Economist Vernon Smith noted today of TARP, “Treasury has no expertise in this ridiculous new venture” of auctioning mortgage securities. Harvey said “hedge funds pick winners and losers.” By making a blanket investment, Treasury wouldn’t have to choose as hedge funds do.

      On the bright side, Treasury might win more fans among free-market capitalists as a hedge fund than as a Soviet-era politburo.更多精彩文章及讨论，请光临枫下论坛 rolia.net
      • The $700 Billion Bailout's No Confidence Vote -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {1483} (#1097@52)
        本文发表在 rolia.net 枫下论坛President Bush signed the $700 billion rescue bill into law Monday.

        So far this week, the Dow Jones Industrial Average and S&P 500 are down roughly 12%. The markets have spoken and clearly there clearly is little confidence in the ability of the plan to prevent the financial crisis from spilling over into the broader economy.

        So now the Treasury is considering ways to inject capital directly into banks, possibly by taking equity stakes.

        This plan, according to Yves Smith at Naked Capitalism, “is a far better use of funds than buying toxic assets, which is a very indirect and costly way to achieve the same end.”

        Of course, having the government buy stakes in banks is exactly what numerous academics argued for, as Justin Fox over at the Curious Capitalist points out.

        It seems Congress was correct to insist on giving the Treasury the authority to buy equity as part of the bill. Writes Portfolio.com’s Felix Salmon: “Barney Frank, it seems, has been proven more far-sighted than Hank Paulson.”

        So what bank will be the first to be nationalized? Salmon believes it will be Morgan Stanley.

        “If Morgan Stanley was in distress back in mid-September, it’s much worse today, trading as low as $12.50 a share: that’s just 40% of its stated book value. Clearly the market is very skeptical that the injection of cash from Mitsubishi UFJ Financial Group is going to happen–or that even if it does happen, it will be sufficient to stave off insolvency更多精彩文章及讨论，请光临枫下论坛 rolia.net
        • The Financial Crisis: Views From the Private-Equity Front -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {3607} (#1098@52)
          本文发表在 rolia.net 枫下论坛Our friends at sister Dow Jones publication Private Equity Analyst asked a number of people in the private-equity industry what they make of the debt crisis and its likely effect on the business. Here’s a sampling of those responses:


          Buyout

          Robert S. Morris, managing partner, Olympus Partners

          If the current drama does not end with there being only one U.S. bank, one U.S. auto manufacturer and one U.S. insurance company, each of which report to government-appointed Soviets to make operating decisions, then buyout opportunities will continue to appear. Private ownership continues to demonstrate itself to be the superior method for nursing the future of companies while looking after shareholder interests. The outside board of luminaries that advised A Man in Fuld at Lehman, the Merrill Lynch team and the team at AIG failed to serve as the voice of reason as leverage reached 33 to 1, a level at which no buyout deal nor home mortgage could ever come into being. The S&L collapse of the 1980s, the Drexel Burnham bankruptcy, the HLT [highly leveraged transaction] restrictions, the bursting of the Internet bubble all created excellent investment opportunities for patient capital managers willing to spend the time required to clean up problem assets. The sizeable gains following these periods were largely due to buying right, improving earnings and selling at expanded multiples, not due to large dollops of leverage. Certainly the reaction to recent events will be a careful extension of credit, but on a risk-adjusted basis the near term will be the best period for lenders since the HLT period of 1990-91. Sponsor “selection” by lenders will become an important near-term lending criteria. For the long term we are doomed to forget the lessons of history and repeat the excesses of the recent fiasco again.


          Limited Partners

          Mike Powell, head of alternatives, Universities Superannuation Scheme

          We are witnessing unprecedented dislocation in financial markets, from which private equity cannot be expected to be immune. However, private equity can be an important stabilizing factor in markets starved of capital. Its access to patient capital’ from its investors enables the industry to take a longer-term view than most other market participants. I continue to expect late 2008/2009 vintage transactions to generate some of the best returns of all private equity vintages. Longer term, there is no doubt that the financial crisis will leave some scars and the private equity industry will look different than it does today. The age of leverage has come to an end and we are unlikely to see its like again. I expect to see smaller fund sizes, longer investment and holding periods and a focus on adding value through operational improvement, rather than financial engineering. GPs may end up actually having to spend their management fees to run their businesses.


          Debt Providers

          Gregg Smith, senior managing director and group head of investment-banking services, CIT Group

          In the short term, firms that do get deals done are those with flexibility in their LP agreements that allows them to use more equity. The impact on middle-market lending is reflected in the overall availability of senior debt, volume of covenants and the cost of debt. On average, lending to the middle market will become more expensive by at least 100 basis points. In the long term, private equity will become a more traditional asset class and go back to its knitting, which is to buy companies when they are down and out, get them back in shape and sell them at higher prices.更多精彩文章及讨论，请光临枫下论坛 rolia.net
          • CME Pitches Credit-Default Swaps the Safer Way -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {6817} (#1099@52)
            本文发表在 rolia.net 枫下论坛The market for credit-default swaps is huge–$55 trillion–but was largely unknown to most of the populace until the downfall of Bear Stearns and the federal rescue of insurer American International Group.

            Now, with their central role in the credit crunch, these little-regulated “insurance policies” that enable investors to bet on whether a company will go bankrupt have gone mainstream. Thethe New York branch of the Federal Reserve has called a meeting for Friday to smooth out the tangles in the market once and for all.

            Among those jostling to get a bigger portion of the CDS market is CME Group, parent of the Chicago Mercantile Exchange that handles the bulk of U.S. futures trading. CME is trying to capitalize on the chaos in the market by grabbing more trading from broker-dealers like Goldman Sachs Group, Morgan Stanley, Merrill Lynch and Lehman Brothers, who typically handle the CDS business by acting as counterparties to every trade. The financial crisis has changed their business models and increased uncertainty as Bear Stearns and Lehman were wiped off the map and Merrill awaits a takeover by Bank of America.

            This week, CME agreed to form a CDS trading platform with the hedge fund Citadel Investment Group. CME hopes to lasso more revenue by “clearing” CDSs, meaning that the CME would get involved as a counterparty in every CDS trade and manage the credit exposures from the time the trade is made to when the trade is officially settled. Clearing also means ensuring delivery of the securities and making sure trades are settled legally and according to the rules of the market, even if the buyer or seller becomes insolvent. Though technical, the fees can be lucrative; CME recorded $458 million in clearing and transaction fee revenue in the second quarter, a 9% boost from a year earlier. Deal Journal talked to CME CEO Craig Donohue recently–well before he announced the deal with Citadel–and an edited version of our conversation is below. This is part 2 of a two-part interview; you can read part 1 here.

            Deal Journal: How is CME faring in this financial crisis?
            Craig Donohue: At the highest level, one would say that there’s that appetite for insuring transparency and avoidance of systemic risk, and that’s right in our wheelhouse. Most of what people are talking about in terms of better regulation is what we do today: we have large trader data, and open and transparent pricing mechanism on our products. At the end of the day, they’re driving more regulation, more market integrity and lower risk. The pressure is going to be balance sheets, allocation of capital for trading and dealing purposes, lowering leverage ratios, lowering operational costs and operational risk. Processing manually the CDS trade that is being done, the inability to know the net exposure of the bank and not very strong collateralization of obligations–that world is not going to survive. People are going to need to make better use of their capital.

            Deal Journal: How do you protect yourself?
            Donohue: It’s worth pointing out that we have a very active risk-management program and oversight of our member firms. We have tremendous confidence in the system. We have a twice daily mark-to-market system where we evaluate what the firms have on a real-time basis. They have to pay us twice a day at least. It helps flush losses. The other thing that is valuable is that we have complete segregation of customer funds from the proprietary accounts of the firm. At a minimum, there’s an absolute necessity for more of this business to be centrally cleared. The banks are constrained in terms of balance-sheet strength and leverage ratios, and they need the central counterparty clearing we offer. The question is how the market might benefit from a more regulated counterparty [like CME]. There’s tremendous growth for [the market in listed derivatives]. There’s no greater need for risk management today than in the past. We are just in a situation where we have much more uncertainty geopolitically and economically than we’ve had any time in the past. That driver of our products has increased, not decreased in my view.

            Deal Journal: Is this a good time to enter the credit-default swap market?
            Donohue: CDS is an area where we have not been active in the past, but we’ve never had a default and never lost money because a customer had a default. We’ve been working on CDSs for a year, and we’re close to being offer these services to the CDS market. These will be better regulated, more transparent and have more risk through the counterparty trading system. Clearly what we will do is bring a higher level of market integrity and risk level.

            Deal Journal: You may end up seeing more business if regulators do end up doing heightened regulation. Will the CDS market continue to grow as quickly as it has?
            Donohue: I fundamentally believe that it can. I believe that when you have a more open market with price transparency, competition and a significantly lower risk profile and cost of doing business, that market will expand in a way that reflects lower risks. The cost of capital is increasingly less attractive given what is going on in the marketplace, and at the end of the day, you don’t have a very high degree of price transparency given what you have in the market.

            Deal Journal: Where are you expanding the business?
            Donohue: We’re growing on global basis, throughout Europe, Asia, Latin America and the Middle East. Investable assets are increasing in Asian sovereign-wealth funds and central banks. Some of the biggest growth we’ve had is in electronic trading outside of North America and outside the North American trading day. We’re working hard on India, China and other Asian partnerships. Globalization will be a significant driver of growth for us.

            Deal Journal: A lot of what has happened recently seems to bode badly for the entire business of taking risk, which is at the heart of what Wall Street does.
            Donohue: As I’m sure you recognize, there’s a fundamental distinction between the exchange-traded derivatives market like CME and the risk embodied in these less transparent, less regulated, bilateral markets that are not centrally cleared. You’re continuing to see the marketplace embrace our model. Where you’ve seen people exiting, it’s been in these more complex markets and instruments where they can’t value this stuff properly. They have one counterparty, whereas when you trade on our exchange, you trade anonymously with many parties. I think what you’re going to see is people increasingly standardizing more of the over-the-counter trade so that you can have price transparency so you can clear it and risk-margin it correctly, which is a change from what we’ve seen over the past 20 years.更多精彩文章及讨论，请光临枫下论坛 rolia.net
            • Off a cliff --- Markets in America, Asia and Europe plummet, as fears grow over financial and economic conditions -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {5764} (#1101@52)
              本文发表在 rolia.net 枫下论坛Oct 10th 2008 | NEW YORK, TOKYO
              From Economist.com

              Shutterstock

              MARKETS in Asia and Europe plummeted on Friday October 10th. Japan’s stockmarket ended the week in disarray: the Nikkei 225-share index fell by 24% on the week, twice the weekly fall of the 1987 crash. It is now at five-and-a-half-year lows. Europe followed suit. London’s FTSE 100 slumped by more than 10% within minutes of opening; by mid-morning European stocks were also down, with Germany's DAX index down by more than 8%. Amid widespread anxiety the oil price also tumbled, to around $81 a barrel, its lowest level in a year.

              The falls underline that stockmarkets, traumatised by the near-paralysis in credit markets, the collapse of once-mighty banks and the prospect of global recession, are suffering what has been dubbed a “cascading crash”: a series of blows which, added together, are stomach-churning.

              Wall Street is unimpressed by the TARP, America’s much-vaunted $700-billion bail-out. The Dow Jones Industrial Average had plunged by 679 points, or 7.3% on Thursday. Nor are markets reassured by a bevy of bank rescues, a co-ordinated rate cut by the world’s leading central banks, the Federal Reserve’s radical decision to buy commercial paper, Britain’s £500 billion ($861 billion) bail-out package, nor the raft of piecemeal rescues by other European governments. On Thursday the International Monetary Fund activated a procedure to offer emergency loans to threatened countries, such as Iceland, which took over its largest bank on Thursday.

              In Asia, which had been relatively insulated from recent woes, panic selling set in, as markets slumped in Hong Kong, South Korea and Taiwan, among others. Indonesia's fell by 10.4% on Wednesday before regulators suspended trading. (Equity trading was also suspended in several European exchanges, including those of Russia, Austria and Iceland.)

              At the start of this latest phase of the credit crisis, Japan's financial markets had seemed to float over the top of the global turmoil. Lehman Brothers' collapse, admittedly, had shut off the samurai market used by overseas companies to issue yen-dominated bonds, while overseas banks had trouble getting overnight funds until the Bank of Japan stepped in with assurances. Otherwise Japan's financial markets had functioned pretty smoothly, with well-capitalised banks lending freely to each other and, in the case of Mitsubishi UFJ, one of the big three, snapping up the apparent bargain of a 21% stake in Morgan Stanley for $9 billion. (Morgan Stanley's shares tumbled by 25% on Thursday as investors once again bet that its days as an independent firm are numbered.)

              Now all hope that Japan might remain aloof is gone. Overseas hedge funds have been panic sellers of shares. Even cast-iron Japanese government bonds are being shunned in favour of cash—leaving questions about how the government is to refinance a lot of debt coming due over the next month or more. On Friday Yamato Life, a medium-sized insurer, filed for bankruptcy, the first Japanese life insurer to go under in seven years.

              In America the scale of the fall is dramatic. A year ago the Dow, resilient in the face of what then seemed only a subprime-mortgage crisis, hit an all-time high of a whisker over 14,000. It is now some 40% lower, having fallen double the distance that signals a bear market. In the past seven trading days alone it has lost 21% of its value.

              There is a good deal of bewilderment, as well as fear. Many had assumed that the strenuous, if belated, actions by governments to restore confidence in debt markets would bring a semblance of calm. But these efforts have so far done little to convince markets that the worst is over.

              Private-sector predictions of the pain to come are getting darker by the day: Weiss Research reckons that more than 1,600 American banks and thrifts, with $3.2 trillion of assets, are at risk. AIG, an American insurer that had already needed an $85 billion loan, has tapped the Federal Reserve for a further $38 billion to keep itself liquid. And cracks have appeared in the industry’s last remaining pillars of strength as it becomes clear that big losses are coming in consumer and corporate credit as well as mortgages. There were signs on Thursday that confidence was ebbing in another relatively unscathed American titan, Wells Fargo, whose shares finished down by some 15%.

              Not only are buyers of stocks conspicuously absent, but much of the selling is forced. All agree that there will be no meaningful recovery until the credit markets are unclogged. The rates at which banks lend to each other are still at or near records. The rate at which companies can borrow over short periods is starting to fall, but only slightly. Longer-term borrowing markets are still mostly shut.

              Fixing credit markets could prevent a depression, but a nasty recession looks all but guaranteed. Among those expected to be most affected are retailers, who have been slashing profit forecasts, and the already beleaguered carmakers. The latter have used customer-finance to prop up sales in recent years. General Motors’ shares went into free-fall on Thursday, dropping 31% after a rating agency threatened to downgrade its debt. The once mighty firm now has a market capitalisation of just $2.7 billion.

              Finance ministers of the group of seven rich countries are set to meet in Washington, DC, on Friday. The rest of the world’s finance ministers and central bankers join them this weekend for the annual meetings of the IMF and World Bank. As the damage to the real economy is becoming apparent, the challenge is to come up with a comprehensive, co-ordinated intervention that might just begin to restore confidence.更多精彩文章及讨论，请光临枫下论坛 rolia.net
              • The worst financial crisis since the Depression is redrawing the boundaries between government and markets. Will they end up in the right place? -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {13748} (#1102@52)
                本文发表在 rolia.net 枫下论坛THE WORLD ECONOMY
                When fortune frowned

                Oct 9th 2008

                The worst financial crisis since the Depression is redrawing the boundaries between government and markets, says Zanny Minton Beddoes (interviewed here). Will they end up in the right place?

                AFTER the stockmarket crash of October 1929 it took over three years for America’s government to launch a series of dramatic efforts to end the Depression, starting with Roosevelt’s declaration of a four-day bank holiday in March 1933. In-between, America saw the worst economic collapse in its history. Thousands of banks failed, a devastating deflation set in, output plunged by a third and unemployment rose to 25%. The Depression wreaked enormous damage across the globe, but most of all on America’s economic psyche. In its aftermath the boundaries between government and markets were redrawn.

                During the past month, little more than a year after the financial storm first struck in August 2007, America’s government made its most dramatic interventions in financial markets since the 1930s. At the time it was not even certain that the economy was in recession and unemployment stood at 6.1%. In two tumultuous weeks the Federal Reserve and the Treasury between them nationalised the country’s two mortgage giants, Fannie Mae and Freddie Mac; took over AIG, the world’s largest insurance company; in effect extended government deposit insurance to $3.4 trillion in money-market funds; temporarily banned short-selling in over 900 mostly financial stocks; and, most dramatic of all, pledged to take up to $700 billion of toxic mortgage-related assets on to its books. The Fed and the Treasury were determined to prevent the kind of banking catastrophe that precipitated the Depression. Shell-shocked lawmakers cavilled, but Congress and the administration eventually agreed.

                The landscape of American finance has been radically changed. The independent investment bank—a quintessential Wall Street animal that relied on high leverage and wholesale funding—is now all but extinct. Lehman Brothers has gone bust; Bear Stearns and Merrill Lynch have been swallowed by commercial banks; and Goldman Sachs and Morgan Stanley have become commercial banks themselves. The “shadow banking system”—the money-market funds, securities dealers, hedge funds and the other non-bank financial institutions that defined deregulated American finance—is metamorphosing at lightning speed. And in little more than three weeks America’s government, all told, expanded its gross liabilities by more than $1 trillion—almost twice as much as the cost so far of the Iraq war.

                Beyond that, few things are certain. In late September the turmoil spread and intensified. Money markets seized up across the globe as banks refused to lend to each other. Five European banks failed and European governments fell over themselves to prop up their banking systems with rescues and guarantees. As this special report went to press, it was too soon to declare the crisis contained.
                Anatomy of a collapse

                That crisis has its roots in the biggest housing and credit bubble in history. America’s house prices, on average, are down by almost a fifth. Many analysts expect another 10% drop across the country, which would bring the cumulative decline in nominal house prices close to that during the Depression. Other countries may fare even worse. In Britain, for instance, households are even more indebted than in America, house prices rose faster and have so far fallen by less. On a quarterly basis prices are now falling in at least half the 20 countries in The Economist’s house-price index.

                The credit losses on the mortgages that financed these houses and on the pyramids of complicated debt products built on top of them are still mounting. In its latest calculations the IMF reckons that worldwide losses on debt originated in America (primarily related to mortgages) will reach $1.4 trillion, up by almost half from its previous estimate of $945 billion in April. So far some $760 billion has been written down by the banks, insurance companies, hedge funds and others that own the debt.

                Globally, banks alone have reported just under $600 billion of credit-related losses and have raised some $430 billion in new capital. It is already clear that many more write-downs lie ahead. The demise of the investment banks, with their far higher gearing, as well as deleveraging among hedge funds and others in the shadow-banking system will add to a global credit contraction of many trillions of dollars. The IMF’s “base case” is that American and European banks will shed some $10 trillion of assets, equivalent to 14.5% of their stock of bank credit in 2009. In America overall credit growth will slow to below 1%, down from a post-war annual average of 9%. That alone could drag Western economies’ growth rates down by 1.5 percentage points. Without government action along the lines of America’s $700 billion plan, the IMF reckons credit could shrink by 7.3% in America, 6.3% in Britain and 4.5% in the rest of Europe.

                Much of the rich world is already in recession, partly because of tighter credit and partly because of the surge in oil prices earlier this year. Output is falling in Britain, France, Germany and Japan. Judging by the pace of job losses and the weakness of consumer spending, America’s economy is also shrinking.

                The average downturn after recent banking crises in rich countries lasted four years as banks retrenched and debt-laden households and firms were forced to save more. This time firms are in relatively good shape, but households, particularly in Britain and America, have piled up unprecedented debts. And because the asset and credit bubbles formed in many countries simultaneously, the hangover this time may well be worse.

                But history teaches an important lesson: that big banking crises are ultimately solved by throwing in large dollops of public money, and that early and decisive government action, whether to recapitalise banks or take on troubled debts, can minimise the cost to the taxpayer and the damage to the economy. For example, Sweden quickly took over its failed banks after a property bust in the early 1990s and recovered relatively fast. By contrast, Japan took a decade to recover from a financial bust that ultimately cost its taxpayers a sum equivalent to 24% of GDP.

                All in all, America’s government has put some 7% of GDP on the line, a vast amount of money but well below the 16% of GDP that the average systemic banking crisis (if there is such a thing) ultimately costs the public purse. Just how America’s proposed Troubled Asset Relief Programme (TARP) will work is still unclear. The Treasury plans to buy huge amounts of distressed debt using a reverse auction process, where banks offer to sell at a price and the government buys from the lowest price upwards. The complexities of thousands of different mortgage-backed assets will make this hard. If direct bank recapitalisation is still needed, the Treasury can do that too. The main point is that America is prepared to act, and act decisively.

                For the time being, that offers a reason for optimism. So, too, does the relative strength of the biggest emerging markets, particularly China. These economies are not as “decoupled” from the rich world’s travails as they once seemed. Their stockmarkets have plunged and many currencies have fallen sharply. Domestic demand in much of the emerging world is slowing but not collapsing. The IMF expects emerging economies, led by China, to grow by 6.9% in 2008 and 6.1% in 2009. That will cushion the world economy but may not save it from recession.

                Another short-term fillip comes from the recent plunge in commodity prices, particularly oil. During the first year of the financial crisis the boom in commodities that had been building up for five years became a headlong surge. In the year to July the price of oil almost doubled. The Economist’s food-price index jumped by nearly 55% (see chart 1). These enormous increases pushed up consumer prices across the globe. In July average headline inflation was over 4% in rich countries and almost 9% in emerging economies, far higher than central bankers’ targets (see chart 2).

                High and rising inflation coupled with financial weakness left central bankers with perplexing and poisonous trade-offs. They could tighten monetary policy to prevent higher inflation becoming entrenched (as the European Central Bank did), or they could cut interest rates to cushion financial weakness (as the Fed did). That dilemma is now disappearing. Thanks to the sharp fall in commodity prices, headline consumer prices seem to have peaked and the immediate inflation risk has abated, particularly in weak and financially stressed rich economies. If oil prices stay at today’s levels, headline consumer-price inflation in America may fall below 1% by the middle of next year. Rather than fretting about inflation, policymakers may soon be worrying about deflation.

                The trouble is that because of its large current-account deficit America is heavily reliant on foreign funding. It has the advantage that the dollar is the world’s reserve currency, and as the financial turmoil has spread the dollar has strengthened. But today’s crisis is also testing many of the foundations on which foreigners’ faith in the dollar is based, such as limited government and stable capital markets. If foreigners ever flee the dollar, America will face the twin nightmares that haunt emerging countries in a financial collapse: simultaneous banking and currency crises. America’s debts, unlike those in many emerging economies, are denominated in its own currency, but a collapse of the dollar would still be a catastrophe.
                Tipping point

                What will be the long-term effect of this mess on the global economy? Predicting the consequences of an unfinished crisis is perilous. But it is already clear that, even in the absence of a calamity, the direction of globalisation will change. For the past two decades the growing integration of the world economy has coincided with the intellectual ascent of the Anglo-Saxon brand of free-market capitalism, with America as its cheerleader. The freeing of trade and capital flows and the deregulation of domestic industry and finance have both spurred globalisation and come to symbolise it. Global integration, in large part, has been about the triumph of markets over governments. That process is now being reversed in three important ways.

                First, Western finance will be re-regulated. At a minimum, the most freewheeling areas of modern finance, such as the $55 trillion market for credit derivatives, will be brought into the regulatory orbit. Rules on capital will be overhauled to reduce leverage and enhance the system’s resilience. America’s labyrinth of overlapping regulators will be reordered. How much control will be imposed will depend less on ideology (both of America’s presidential candidates have promised reform) than on the severity of the economic downturn. The 1980s savings-and-loan crisis amounted to a sizeable banking bust, but because it did not result in an economic catastrophe, the regulatory consequences were modest. The Depression, in contrast, not only refashioned the structure of American finance but brought regulation to whole swathes of the economy.

                That leads to the second point: the balance between state and market is changing in areas other than finance. For many countries a more momentous shock over the past couple of years has been the soaring price of commodities, which politicians have also blamed on financial speculation. The food-price spike in late 2007 and early 2008 caused riots in some 30 countries. In response, governments across the emerging world extended their reach, increasing subsidies, fixing prices, banning exports of key commodities and, in India’s case, restricting futures trading. Concern about food security, particularly in India and China, was one of the main reasons why the Doha round of trade negotiations collapsed this summer.

                Third, America is losing economic clout and intellectual authority. Just as emerging economies are shaping the direction of global trade, so they will increasingly shape the future of finance. That is particularly true of capital-rich creditor countries such as China. Deleveraging in Western economies will be less painful if savings-rich Asian countries and oil-exporters inject more capital. Influence will increase along with economic heft. China’s vice-premier, Wang Qishan, reportedly told his American counterparts at a recent Sino-American summit that “the teachers now have some problems.”
                The enduring attraction of markets

                The big question is what lessons the emerging students—and the disgraced teacher—should learn from recent events. How far should the balance between governments and markets shift? This special report will argue that although some rebalancing is needed, particularly in financial regulation, where innovation outpaced a sclerotic supervisory regime, it would be a mistake to blame today’s mess only, or even mainly, on modern finance and “free-market fundamentalism”. Speculative excesses existed centuries before securitisation was invented, and governments bear direct responsibility for some of today’s troubles. Misguided subsidies, on everything from biofuels to mortgage interest, have distorted markets. Loose monetary policy helped to inflate a global credit bubble. Provocative as it may sound in today’s febrile and dangerous climate, freer and more flexible markets will still do more for the world economy than the heavy hand of government.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                • The credit crunch -- Saving the system -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {9338} (#1103@52)
                  本文发表在 rolia.net 枫下论坛The credit crunch
                  Saving the system

                  Oct 9th 2008
                  From The Economist print edition
                  At last a glimmer of hope, but more boldness is needed to avert a global economic catastrophe


                  CONFIDENCE is everything in finance. Until this week the politicians trying to tackle the credit crunch had done little to restore this essential ingredient. In America Congress dithered over the Bush administration’s $700 billion bail-out plan. In Europe governments have casually played beggar-my-neighbour politics, with countries launching deposit-guarantee schemes that destabilise banks elsewhere. This week, however, saw the first glimmers of a comprehensive global answer to the confidence gap.

                  One clear sign was an unprecedented co-ordinated interest-rate cut on October 8th by the world’s main central banks, including the Federal Reserve, the European Central Bank, the Bank of England and (officially a coincidence) the People’s Bank of China. Various continental European countries also set about recapitalising their banks. But the most astounding developments were in America and Britain. The Fed doubled the amount of money available to banks on a short-term basis to $900 billion and announced that it would buy unsecured commercial paper directly from corporate borrowers. More surprisingly, Gordon Brown’s government, hitherto the ditherer par excellence, produced the first systemic plan for dealing with the crisis, not just providing capital and short-term loans to banks but also offering to guarantee new debt for up to three years (see article).

                  This is certainly progress, but it is not enough (see our extended finance section). The world’s finance ministers and central bankers, gathering in Washington, DC, this weekend for the annual meetings of the IMF and World Bank, should deliver a simple message: more will be done. The world economy is plainly in a poor state, but it could get a lot worse. This is a time to put dogma and politics to one side and concentrate on pragmatic answers. That means more government intervention and co-operation in the short term than taxpayers, politicians or indeed free-market newspapers would normally like.
                  The patient writhing on the floor

                  If the panic that has choked the arteries of credit across the globe is not calmed soon, the danger will increase that output in rich economies will not simply shrink, but collapse. The same could happen in many emerging markets, especially those that rely on foreign capital. No country or industry would be spared from the equivalent of a global financial heart attack.

                  Stockmarkets are in a funk. But the main problem remains the credit markets. In the interbank market the prices banks pay to borrow money from each other are still near record highs. Meanwhile corporate borrowers have found it hard to issue commercial paper, as money-market funds have fled from all but the safest assets. In emerging markets bond spreads have soared and local currencies plunged. And whole countries have begun to get into trouble. The government of Iceland has had to nationalise two of its biggest banks and is frantically seeking a lifeline loan from Russia. Robert Zoellick, president of the World Bank, says there could be balance-of-payments problems in up to 30 developing countries.

                  The damage to the real economy is becoming apparent. In America consumer credit is now shrinking, and around 159,000 Americans lost their jobs in September, the most since 2003. Some industries are hurting badly: car sales are at their lowest level in 16 years as would-be buyers are unable to get credit. General Motors has temporarily shut some of its factories in Europe. Across the globe forward-looking indicators, such as surveys of purchasing managers, are horribly gloomy.

                  If the odds of a rich-world recession have risen towards a near certainty, the emerging world as a whole is slowing rather than slumping. China still seems fairly resilient. Taken as a whole, though, growth in the world economy seems likely to slow below 3% next year—a pace that many count as recessionary. So the prospects are grim enough, but a continuing credit drought would make this much worse.
                  Lessons old and new

                  The lesson of history is that early, decisive government action can stem the pain and cost of banking crises. In the 1990s Sweden moved to recapitalise its banks quickly and recovered quickly; in Japan, where regulators failed to tackle toxic debt, the slump lasted for most of the decade. The twist is that this credit crisis is deeper (it affects many more types of markets) and broader (many more countries). Any solution has to be both more systemic and more global than before. One country trying to mend one part of its banking system will not work.

                  The idea of a comprehensive solution sounds simple, if expensive. But politicians have found it hard to grasp. Europeans have remained stubbornly wedded to the notion that the mess was “Made in America”; John McCain and Barack Obama talk as if it was all down to the greed of modern bankers. But financial excesses existed centuries before a brick had been laid on Wall Street. As our special report this week lays out, today’s bust—and the bubble that preceded it—had several causes besides dodgy lending, including a tide of cheap money from emerging economies, outdated regulation, government distortions and poor supervision. Many of these failures were as evident outside America as within it.

                  With a flawed diagnosis of the causes of the crisis, it is hardly surprising that many policymakers have failed to understand its progression. Today’s failure of confidence is based on three related issues: the solvency of banks, their ability to fund themselves in illiquid markets and the health of the real economy. The bursting of the housing bubble has led to hefty credit losses: most Western financial institutions are short of capital and some are insolvent. But liquidity is a more urgent problem. America’s decision last month to let Lehman Brothers fail—and the losses that implied to money-market funds that held its debt—prompted a global run on wholesale credit markets. It has become hard for banks, even healthy ones, to find finance; large companies with healthy cash flows have also been cut off from all but the shortest-term financing. That has increased worries about the real economy, which itself adds to the worries about banks’ solvency.

                  This analysis suggests that governments must attack all three concerns at once. The priority, in terms of stemming the panic, is to unblock clogged credit markets. In most cases that means using central banks as an alternative source of short-term cash. This week the Fed took another step in that direction: by buying commercial paper, it is now in effect lending direct to companies. The British approach is equally bold. Alongside the Bank of England’s provision of short-term cash, the Treasury says it will sell guarantees for as much as £250 billion ($430 billion) of new short-term and medium-term debts issued by the banks. That is risky: if left for any length of time, those pledges give banks an incentive to behave recklessly. But a temporary guarantee system offers the best chance of stemming the panic, and if it were internationally co-ordinated it would be both more credible and less risky than a collection of disparate national promises.

                  The second prong of a crisis-resolution strategy must aim to boost banks’ capital. A new IMF report suggests Western banks need some $675 billion of new equity to prevent banks from rapidly reducing the number of loans on their books and hurting the real economy. Although there is plenty of private capital sloshing around, there is a chicken-and-egg problem: nobody wants to buy equity in an industry without enough capital. It is becoming abundantly clear that government funds—or at least government intervention—will be necessary to catalyse the rebuilding of banks’ balance sheets. Initially, America focused more on buying tainted assets from banks; now it seems keener on the “European” approach of injecting capital into their banks. Some degree of divergence is inevitable, but more co-ordination is needed.

                  Third, policymakers should act together to cushion the economic fallout. Now that commodity prices have plunged, the inflation risk has dramatically receded across the rich world. With asset prices plummeting and economies shrinking, deflation will soon be a bigger worry. The interest-rate cuts are an important start. Ideally, policymakers would not use only monetary policy. For instance, China could do a lot to help the rest of the world economy (and itself) by loosening fiscal policy and allowing its currency to appreciate more quickly.
                  A long wait

                  Even in the best of circumstances, the consequences of the biggest asset and credit bubble in history will linger. But if the panic is stemmed, it could be a manageable problem, cushioned by the economic strength in the emerging world. Efforts at international economic co-operation have a patchy record. In the 1980s the Plaza and Louvre accords, designed respectively to push the dollar down and to prop it up, met with mixed success. Today’s problems are deeper and more countries are involved. But the stakes are also much higher.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                  • Lifelines -- the tricky job of saving the financial system -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {12631} (#1104@52)
                    本文发表在 rolia.net 枫下论坛Global finance

                    Oct 9th 2008
                    From The Economist print edition
                    A special section on the crisis looks at prospects for the global economy, individual countries and markets. It begins with the tricky job of saving the financial system

                    THIS was the week when governments and central banks around the world finally began to face up to the scale of their problems. As they did so, conventions toppled almost as fast as the banks they were trying to save.

                    On October 8th six central banks, including the Federal Reserve, the Bank of England and, notably, the hawkish European Central Bank, took the unprecedented step of announcing co-ordinated cuts in lending rates, with most trimming by half a percentage point. As European governments scrambled to shore up confidence, the ECB further upped the ante, saying it will offer banks as much cash as they want at its benchmark interest rate from October 15th. On October 7th America’s Federal Reserve lent unsecured to companies for the first time in its history and, a day later Britain unveiled the most ambitious effort yet to bail out a national banking system.

                    Even so, it was also the week that global finance almost stopped. There may not have been lines of customers queuing up outside banks to withdraw their savings, but in dealing rooms and corporate treasuries, the lines of trust that bind banks to one another and to their clients and creditors were snapping. “The global financial market has ceased to function,” declared Gordon Brown, Britain’s prime minister.

                    There was no mistaking the urgency of official action. Across the world, banks wobbled as they struggled to tap money markets for short-term loans. “A growing number of banks are being subjected to a wholesale version of a bank run, with access to [wholesale funding] evaporating in a matter of days, if not hours,” warned analysts at Citigroup. Those banks that could raise money were paying an exorbitant price (see chart). Markets for commercial paper were shut, starving companies of funding and sending stockmarkets tumbling. The contagion then spread to insurers, which own large slugs of shares.

                    Almost every country’s banking system is stricken with three interrelated problems: having taken huge losses, the banks need capital; because they cannot borrow in the longer-term paper markets, they are short of the funds they need to finance the share of their assets not covered by their deposits; and because the short-term money markets are closed, the banks are cut off from their main source of liquidity.

                    Most bail-out efforts have attacked this three-headed monster from one side or the other. The British plan assaulted it on all fronts. To recapitalise its banks, Britain will inject as much as £50 billion ($87 billion) directly into them in exchange for preference shares. The government has not yet said what level of capital it now expects banks to hold against bad times. But analysts reckon the first stage of the plan, involving an investment of £25 billion, could increase their core Tier-1 capital ratios, the equity and reserves that are the purists’ measure of a bank’s cushion against unexpected losses, by up to two percentage points, to more than 7%. Britain’s biggest banks have all signed up to the new capital requirement, whatever that may be (although the strongest of them, such as HSBC, have said they will reach it without government help).

                    The second leg of the British plan is to help free up the market for short-term liquidity by lending to banks for up to three months. The idea is to double an existing £100 billion Bank of England programme to give banks highly liquid instruments in exchange for gummed-up mortgage-backed securities and other illiquid assets.

                    The third leg is to try to kick-start lending to banks over lengthier periods, of up to about three years, an eternity at a time when lenders’ horizons stretch no farther than the next day. The plan proposes to get the market working again by guaranteeing about £250 billion of new bank debt that will be issued as old borrowing matures. The government will charge for its guarantee on unspecified commercial terms, but it will be open only to those banks that have increased their capital.

                    Will the plan work? One possible weakness is its failure to buy bad assets from the banks. But there was relief at such sweeping action from a country with some of the world’s largest banks, one of the worst house-price bubbles and a record of dithering over failures like Northern Rock. Although shares in most British banks fell on the fear that investors will be diluted, the cost of insuring bank debt also dropped sharply.
                    No plan is an island

                    That is fine as far as it goes, but the plan will only prove itself a success if it can weather the storms to come and if other countries also act. “These measures, by themselves, are unlikely to be enough to end the financial crisis,” says Michael Saunders, an economist at Citigroup. “It is unlikely that the actions of any one country can return financial conditions in that country to normal.” By this measure, the picture is mixed.

                    America has been more inventive than anywhere else in combating the crisis. As psychotherapists in New York City tout for business treating the financially crushed, the Fed has pinned the American financial system to the couch. This week it increased its discount-window lending programme for banks to $900 billion. It also began paying interest on the reserves that banks park with it overnight (see article). This will make it easier for the central bank to manage interest rates as it sprays the markets with liquidity.

                    On October 7th the Fed waded into the market for commercial paper, the short-term debt issued by banks and companies. It even stooped to lending without demanding collateral. Action was needed. Overnight interest rates on commercial paper had doubled in less than a month, to around 4%, and the market had shrunk dramatically, as former buyers of the paper flocked to the shelter of government bills. Worryingly, the central bank’s move had mixed results. Overnight commercial-paper rates fell, but one-week rates jumped as lenders continued to worry about taking on longer exposures.

                    The intervention reflected the first signs that the paralysis in the money markets is spreading beyond banks and starting to affect the rest of the economy. A growing number of states and municipalities, which borrow in the commercial-paper markets against future tax revenues, have found themselves shut off from their usual sources of finance. Companies in America and beyond are cutting spending and are adding to the pressure on banks by drawing down their existing overdraft facilities whether they need the money or not—as if “buying booze on fears of prohibition,” says CreditSights, a research group.

                    As the misery spreads, the authorities are twisting and turning. American International Group, an insurer rescued by the government, looks as if it may run through its $85 billion credit line and may need to borrow billions of dollars more. The much-trumpeted American bail-out plan, approved on October 3rd, is being criticised for concentrating on buying toxic assets. It looks increasingly likely to put new equity into the banks too (see article).

                    The rescues in continental Europe have been no tidier—and they commit the extra offence of looking grudging and makeshift to boot. The deposit guarantees announced in Ireland, Germany, Greece and elsewhere since October 1st have been a mix of legislation (worth something) and solemn prime-ministerial pledges (worth very little). By and large, the guarantees were designed in haste and without consultation with other European countries.

                    It did not help Europe’s cause when its two biggest bank rescues to date unravelled before being stitched together again. Hypo Real Estate, a German commercial-property lender, had to beg for more money from a consortium of private and official lenders. Attempts to address the solvency of Fortis, a Belgo-Dutch bank, also went awry. As much as half of the €4 billion ($5.5 billion) of capital that the Dutch government pledged to inject into the bank’s network in the Netherlands on September 29th immediately “walked out the door” in the form of electronic withdrawals by consumers, says someone close to the bank. The Dutch ended up fully nationalising Fortis’s operations in the Netherlands. On October 5th BNP Paribas snapped up the rest.
                    Eyes wide shut

                    Continental European governments have yet to take a systemic or co-ordinated approach to the three-headed monster—solvency, funding and liquidity, though the banks are calling on them to follow Britain’s lead. Their reluctance reflects not just politics, but also two flawed assumptions. The first is that the financial system is chiefly suffering from transatlantic contagion. That view fails to take account of their own slowing economies and the slumping housing markets in countries such as Spain and Ireland. And it fails to acknowledge European banks’ dependence on wholesale funding.

                    Governments also assume that they would inevitably have to pay more through a European fund to bail out banks than through their own national schemes. In the land of the Common Agricultural Policy, that is a powerful argument. But going it alone may not work, and the eventual cost of a continued freeze in credit markets, or of the collapse of a large cross-border European bank, threatens far to outweigh the eventual cost of recapitalising Europe’s most vulnerable banks.

                    Almost in spite of themselves, however, European governments have been drawn into taking ever larger steps. In Spain, where bank regulators have been more conservative than most, the government is setting up a €50 billion fund to buy bank assets. Germany’s surprise decision to guarantee retail deposits came after it loudly denounced Ireland’s beggar-thy-neighbour decision to guarantee the liabilities of its banks. Germany’s volte-face may have been prompted by large numbers of electronic withdrawals of deposits at the weekend, says Nigel Myer, an analyst at Dresdner Kleinwort in London. Denmark has issued a complete guarantee of deposits. France is planning to create a body to take stakes in failing banks. Like America, Europe may ultimately end up with a comprehensive approach that will probably include taking equity stakes in many banks, reckons Holger Schmieding, an economist at Bank of America.

                    That raises an unpleasant question: how much capital will be needed to restore the solvency of American and European banks? The IMF has tried to find an answer by forecasting a large set of factors, including how loans will sour and the effect of banks taking off-balance-sheet assets back onto their books. The fund assumes that bank bosses act sanely, cutting dividends and allowing assets to shrink as loans mature. On this basis, using a target core Tier-1 ratio of 8%, the banks need $675 billion of new capital, perhaps two-thirds of it in Europe. Simon Samuels, an analyst at Citigroup, reaches a similar conclusion using a slightly different approach: he estimates Europe’s shortfall at $400 billion.

                    These are huge numbers. But next to the world’s capital markets they are less daunting. Total worldwide proceeds from initial public offerings in all sectors in the past decade were $1.5 trillion, according to Dealogic, a data provider. The IMF’s estimate represents 2% of global stockmarket value. The private sector could afford to recapitalise the banking industry if it wanted to.

                    Whether it will on its own, even with liquidity support from governments, remains to be seen. You can count on one hand the number of Western banks in a position to rescue big rivals by buying them. Only a very few other lenders think they command enough market confidence to try to raise equity without government support, among them UniCredit, a big Italian bank, and Bank of America.

                    Most other banks that are short of capital are likely to need government money. The hope is that this stimulates a parallel flow of private money. Faced with dilution by the state, some shareholders may conclude that stumping up more cash is the lesser of two evils. And the prospect of investing alongside governments may finally persuade private-equity firms and sovereign-wealth funds to reopen their bulging wallets. Waiting for them to come to the rescue is, however, no longer an option. When global finance stops, only governments can get it started again.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                    • The world economy -- Bad, or worse -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {6167} (#1105@52)
                      本文发表在 rolia.net 枫下论坛Oct 9th 2008 | WASHINGTON, DC
                      From The Economist print edition
                      At best, the world economy is on the brink of recession

                      DEPRIVE a person of oxygen and he will turn blue, collapse and eventually die. Deprive economies of credit and a similar process kicks in. As the financial crisis has broadened and intensified, the global economy has begun to suffocate. That is why the world’s central banks have been administering emergency measures, including a round of co-ordinated interest-rate cuts on October 8th. With luck they will prevent catastrophe. They are unlikely to avert a global recession.

                      According to the IMF’s most recent World Economic Outlook, published on October 8th, the world economy is “entering a major downturn” in the face of “the most dangerous shock” to rich-country financial markets since the 1930s. The fund expects global growth, measured on the basis of purchasing-power parity (PPP), to come down to 3% in 2009, the slowest pace since 2002 and on the verge of what it considers to be a global recession. (The fund’s definition of global recession takes many factors into account, including the rate of population growth.) Given the scale of the financial freeze, the fund’s forecast looks optimistic. Other forecasters are convinced that a global recession is inevitable. Economists at UBS, for instance, expect global growth of only 2.2% in 2009.

                      The rich world’s economies were either shrinking, or close to it, long before September. Recent weeks have made a rich-world recession all but inevitable. America’s economy lost steam throughout the summer. Temporarily buoyed by fiscal stimulus and strong exports, output grew at a solid 2.8% annualised rate between April and June. But as the stimulus wore off, the job market worsened, credit tightened and consumer spending slid.

                      That slide became a rout in September. The economy lost 159,000 jobs, the most in a month since 2003. Car sales fell to a 16-year low as would-be buyers were unable to get credit. The economy may already have shrunk in the third quarter. The rest of the year is likely to be worse. Some economists expect consumer spending to fall at its fastest pace since the 1980 recession. Add in other gloomy evidence, such as a survey of purchasing managers that suggests manufacturing is extremely weak, and it is clear that output is now falling. America’s recession may not yet be official, but it is well under way.

                      In Europe the outlook is equally grim. The British economy, which stalled in the second quarter, is now unmistakably falling into recession. The IMF’s forecasts suggest that Britain will see the worst performance of any big economy in the year to the fourth quarter of 2008. The economies of the euro area, too, are struggling badly. Figures released on October 8th showed that output in the euro area fell at an annualised rate of 0.8% in the second quarter. GDP shrank in the currency zone’s three largest countries—Germany, France and Italy. The fourth largest, Spain, barely grew.

                      As elsewhere, the most recent figures have grown grimmer still. Business confidence has turned down and a closely watched survey of purchasing managers points to a further contraction in activity over the summer months. Even the European economies that are less directly affected by housing busts, such as Germany, have been hard hit. The big hope for the euro area was that German shoppers, relatively free of debt and with scope to save a little less, would make up for weakness in debt-laden economies such as Spain. But household spending in Germany has been falling since the end of last year.

                      Japan, too, is looking weak. Its economy shrank at an annualised rate of 3% in the second quarter as exports fell, investment slowed and high food and fuel prices dented consumer confidence. Japanese banks are less embroiled in the financial crisis than those in Europe and America, but with other economies falling into recession and the yen soaring, the prospects for Japan’s exports and economy are dark.

                      This gloomy backdrop explains why the co-ordinated rate cuts were so essential. Even without the financial seizure, the case for cheaper money was becoming abundantly clear. With commodity prices falling sharply (the price of a barrel of crude was down to $88 on October 8th) and economies suffering, inflation risks are evaporating in the rich world. If oil prices remain at around today’s levels, headline inflation will be below 1% in America by next summer. Deflation is an increasing risk. That suggests more rate cuts will be needed, particularly in Europe.

                      All told, the IMF expects the rich-world economies to grow by only 0.5% in 2009. Its forecast of 3% global growth depends on reasonably robust expansion in emerging economies. The fund expects developing countries, as a group, to grow by 6.1% in 2009, more slowly than their blistering 8% pace of recent years, but far from recession. That would imply an unprecedented growth gap between the rich and emerging world (see chart).

                      Some emerging economies, notably China, have shown remarkable resilience to the financial storm (see article). Many other markets, however, are being hit hard by the widening crisis as investors flee risk. Analysts at Morgan Stanley estimate that capital flows to emerging economies could fall to $550 billion in 2009 from around $750 billion in 2007 and 2008. Such a sharp drop would hit economies that rely heavily on foreign finance: more than 80 developing countries are likely to run current-account deficits of more than 5% of GDP this year.

                      The links in the real economy could also be stronger than many imagine. Exports will be hit as recession grips the rich world. Falling commodity prices bode ill for the countries that produce them, notably in Latin America. The Brazilian real has fallen by more than a quarter against the dollar in the past month. Thanks to more disciplined macroeconomic policies and large cushions of reserves, many emerging economies have strong defences against a rich-world downturn. But they will not escape unscathed. A mild global recession is the best that can be hoped for.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                      • America’s bail-out -- TARP priority -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {4438} (#1106@52)
                        本文发表在 rolia.net 枫下论坛Oct 9th 2008 | NEW YORK
                        From The Economist print edition
                        Expect more give and less take from the mortgage rescue

                        AP Problem not solved

                        THE signing into law of America’s $700 billion bail-out was never likely to save the financial system. In the event, it did not even come close. The Troubled Asset Relief Programme (TARP) could still do some good but to maximise its effectiveness, the Treasury will almost certainly have to stray from its core mission of buying distressed mortgage-related assets.

                        It has that option, thanks to a clause in the TARP that allows it to buy almost anything in the interest of stability, including direct stakes in banks, as long as it notifies Congress. Tellingly, a group of regulators issued a rare statement on October 6th, pointing out that the Treasury could “directly strengthen” bank balance-sheets. Hank Paulson, the treasury secretary, later said he would use “all of the tools” at his disposal, presumably including shoring up capital-starved banks with large dollops of preferred stock. He had played down this idea when the TARP was being drawn up, but the continuing deterioration of the financial system appears to have forced a rethink.

                        Meanwhile, the Treasury is acting quickly. In response to market turmoil, the selection of the firms to manage TARP’s assets was squeezed into a single week. The winners are expected to begin work in mid-October. Overseeing them will be Neel Kashkari, a 35-year-old assistant treasury secretary and a former banker at Goldman Sachs, who helped Mr Paulson to craft the TARP. The first purchases are expected in four to six weeks, perhaps even sooner.

                        The original idea, and still the stated goal, was to free banks and other financial firms of the most noxious loans and securities on their books by purchasing them in auctions. The hope is that a big buyer (ie, the government) will end up paying more than today’s fire-sale prices, temporarily depressed by the lack of buyers, but less than their “intrinsic” value if held to maturity (so the taxpayer does not lose). But designing the auctions will be tricky, given the complexity and mix of structured financial products. “These are not tulips or roses,” says one securitisation lawyer.

                        The government faces hard choices. Which is likely to do more: buying a lot from a few big banks, or a bit from everyone? The clamour from banking’s lower ranks is growing louder. Thousands of small community banks are desperate to offload the duff loans they made to shopping malls and small businesses.

                        Another question is whether to keep the focus tightly on mortgages, even as other parts of the economy head south. According to analysts at JPMorgan Chase, the severity of losses on securities tied to car loans could rise close to those on subprime mortgages. And defaults on junk bonds and other commercial debt are soaring. Relieving banks of these assets may become more urgent over time, but that would leave less to spend on dodgy mortgages, points out Alec Phillips of Goldman Sachs.

                        Another dilemma is whether to hold assets or sell them. By holding assets to maturity, the government could benefit if they rise in value. But selling them to private investors would free up more money to help straitened banks. One option reportedly being considered is to sell assets to special vehicles jointly owned by private investors and the government, with the latter financing part of the sale to make the assets more attractive. This worked well after the 1980s savings-and-loan crisis. But distressed-debt buyers may balk at missing out on part of the upside. Joseph Mason of Louisiana State University thinks most of them would prefer to buy into banks that have been stripped of their worst assets.

                        The biggest question hanging over the plan is whether it does enough to restore and maintain banks’ capital. The woes of Lehman Brothers, Washington Mutual and Wachovia suggest that many banks are still carrying assets at unrealistically high values. For these institutions, selling to the government, even at a price above distressed levels, could deplete their capital as they crystallise their losses. Those that take out insurance on their loans, another option under the Treasury’s plan, would neither gain nor lose capital, but would have to start paying premiums. In any event, putting in fresh capital may now be more pressing than pulling out ropy assets.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                        • China's economy -- Domino or dynamo? -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {4877} (#1108@52)
                          本文发表在 rolia.net 枫下论坛Oct 9th 2008 | HONG KONG

                          China is pretty well placed to cushion a global downturn

                          CHINA has become the main engine of the world economy, accounting for one-third of global GDP growth in the first half of this year. Will it keep humming? Compared with many other emerging economies, notably Brazil and Russia, which have recently suffered big capital outflows, China has so far largely shrugged off the global credit crunch. But there are signs that China’s economy is sputtering. Export volumes have slowed markedly; the growth of industrial production dropped to a six-year low in the 12 months to August; car sales fell by 6% in the same period; and China’s property boom seems to be turning to bust.

                          Some of the recent slowdown reflects the temporary closure of factories around Beijing during the Olympic games, which cleared the air but made China’s statistics even hazier than usual. Yet the underlying economy has also weakened, especially in the housing market. Property sales in big cities have shrunk by around 50% over the past year. In Shenzhen prices of new luxury apartments have fallen by up to 40%. Average prices nationwide have started to slide, although they were still up by 5.3% in the year to August. Falling sales and a rising stock of new homes mean that prices are set to decline in more cities in 2009.

                          Predictions that average house prices could fall by up to 50% have recently grabbed the headlines. But they seem much too gloomy. After all, there has been no nationwide house-price bubble. Since 2000 average home prices have actually decreased relative to average incomes, in contrast to the surge in America until 2006 (see chart). As a result, average home prices are unlikely to fall for long.

                          China’s banks should also be able to withstand falling house prices better than their American counterparts. In America it was easy to get a mortgage for 100% or more of the value of a home, but Chinese buyers must put down a minimum deposit of 20-30%, depending on the home’s size, and as much as 40% on second homes. This provides banks with a large buffer as prices fall. Loans to property developers are riskier and banks’ profits will be hurt as developers go bust. But according to Wang Tao, an economist at UBS, these loans account for only 7% of total bank lending.

                          More generally, China’s banks should be better insulated from the global credit crunch than Western banks because the country’s system is funded through deposits rather than capital markets. Chinese banks’ loans amount to only 65% of their deposits, compared with far higher ratios in America and western Europe.

                          A fall in house prices will in any case hurt Chinese consumers much less than their American counterparts because Chinese households are not up to their necks in debt. Total household debt amounts to only 13% of GDP, against 100% in America. Chinese consumer spending actually strengthened this summer, with retail sales rising by 17% in real terms in the year to August. The main impact of the property downturn will be to depress construction.

                          The government also has room for manoeuvre. Inflation, which had been its main concern, fell to 4.9% in the year to August from 8.7% in February. This was largely thanks to lower food prices, but the growth in money supply has also slowed. Goldman Sachs forecasts that inflation will fall to 1.5% in 2009, which gives the central bank scope to ease monetary policy. Interest rates were cut for the second time in a month on October 8th, to 6.9%, and the government is expected soon to ease credit controls, especially for property.

                          China’s GDP growth slowed to an annual rate of a mere 10.1% in the second quarter of this year, from 12.6% a year earlier, and most economists expect it to drop to 8-9% in 2009. But this slowdown should partly be welcomed, because the economy had been exceeding its speed limit for several years. Better still, China’s growth next year will come entirely from domestic demand, as its trade surplus shrinks. If the global downturn forces China to switch the mix of growth from exports to consumption, it would also help to make its future growth more sustainable.

                          The government is expected to supply a fiscal stimulus to keep growth above 8%. The package will include tax cuts and extra infrastructure spending. Economists are also urging increased spending on social welfare to encourage consumers to save less and spend more. China has ample room for a stimulus because it boasts the healthiest fiscal position of any big economy. According to Stephen Green, an economist at Standard Chartered, it has a budget surplus of 2% of GDP, if measured in the same way as in rich economies, and public-sector debt is a mere 16% of GDP. China’s readiness to use fiscal lubrication is the best reason for hoping that its economic motor will not stall.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                          • Emerging markets -- All fall down -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {4270} (#1109@52)
                            本文发表在 rolia.net 枫下论坛Oct 9th 2008

                            Firms in developing countries struggle to escape their roots

                            STOCKMARKET bubbles often take a genuine improvement in economic or corporate performance, and then vastly overestimate its effect. Equity investors in emerging markets must wonder if they have once again been suckered into giving developing countries the benefit of the doubt. Prices have fallen by almost half this year. On October 6th emerging-market shares recorded their biggest one-day fall in at least 20 years, prompting all-too-familiar scenes of chaos followed by enforced inactivity, as trading at some bourses was suspended.

                            For bullish investors one attraction of emerging economies was the fact that they had started with better public finances and balance-of-payments positions than in previous cycles. How resilient those positions are is now being tested, as plunging commodity prices sap export earnings and capital flows dry up. Even sound economies may still be dragged down. As Stephen Jen, an economist at Morgan Stanley, points out, in a crisis “bad things happen to good countries”.

                            Equity investors’ enthusiasm also reflected a more novel idea—that the quality of emerging-market companies had improved. Rather than an old guard of conglomerates with hazy ownership and accounting, the thesis ran, there was a new generation of large, well run, globally competitive “mega-cap” firms. Indeed, these might even be less risky than their homelands’ governments. And just as the Dutch economy has little bearing on Royal Dutch Shell’s share price, or the British economy on Vodafone’s, the hope was that these firms might eventually transcend their domestic markets.

                            Some of the claims were over the top. In April 2007 Gazprom, an energy firm controlled by the Kremlin, made a Dr-Evil-style prediction that its market value would reach $1 trillion (ten times today’s level). But there was substance too, exemplified by the wave of credible bids for Western companies before the credit crunch, such as the multibillion approach by Vale, a Brazilian miner, for Xstrata.
                            EPA Just like the old days

                            Why then, have most emerging stockmarkets fallen by more than Western ones, particularly in the past month? There are some plausible fundamental explanations. They may have been more overvalued to start with. Even after their tumble, the aggregate price-earnings ratio is in line with developed markets, rather than at the discount that has been the historical norm. The composition of most indices also makes them vulnerable. Almost two-fifths of the earnings of the FTSE emerging-markets benchmark are from highly cyclical energy or basic-materials companies—twice the share in developed markets—so earnings forecasts are falling faster than for developed peers. Most indices under-represent mainland China, which has been relatively resilient in recent weeks, on the grounds that it is hard for foreigners to invest there. And the top 20 companies account for just over a quarter of the FTSE emerging-markets index. Although that is a higher proportion than in developed economies, it still leaves a long tail of smaller firms which may be less well run.

                            As well as quirks of composition and valuation, the harsh reality is that, as in previous crises, investors are not discriminating much. Most “mega-cap” companies have been penalised more heavily than rich-world peers in the same industry. Credit-default swaps, a type of insurance against bankruptcy, suggest that the borrowing costs of big emerging-markets firms have spiked along with those of their home countries’ governments. This is despite the fact that emerging-market industrial companies in aggregate, like their governments, have lower debt levels than their Western equivalents. Shares of emerging-market banks, which with the exception of a few places such as Russia are in reasonable shape, have plunged in sympathy with their Western peers.

                            There may well have been structural improvements in emerging economies, but just now markets are having none of it. That could present a buying opportunity. But if capital remains scarce for too long, and big companies struggle to refinance their foreign debt, investors’ gut reaction could become a self-fulfilling prophecy.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                            • The banking bust and the book bubble -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {2421} (#1110@52)
                              本文发表在 rolia.net 枫下论坛ONE man’s pain is another man’s pleasure. It will be no comfort to beaten-up bankers that their plight has spawned a mini-boom in publishing. The Economist counts at least 18 books on the crisis that are either in the works or already in the shops. With publishers still sniffing out possible authors and agents hawking proposals from grizzled hacks, expect at least another dozen to join them.

                              Those already published range from the populist (“Plunder” by Danny Schechter) to the highbrow (“The Subprime Solution” by Robert Shiller, of home-price-index fame). The publisher of “Plunder”, Alexander Dake, admits that the book was “kind of a rush job”—though, he insists, impeccably researched. Others have benefited from good fortune: Charles Ellis’s “The Partnership”, a weighty history of Goldman Sachs, appeared just as the investment bank took centre-stage. A history of finance by Niall Ferguson, a Harvard professor, was also well timed (see article).

                              Mr Dake says a race is on to sign up authors. Like any good bank in the pre-crash days, some publishers are splashing out to secure talent. Penguin’s American arm has been particularly eager, bagging four inky-fingered “stars” in the past month, reportedly at a cost of over $2m in advances.

                              One of Penguin’s catches, Joe Nocera, promises “a book for the ages”. Not everyone is so cocky. Indeed, there is a whiff of panic at some publishing houses as events spiral. Some authors who began work on books about historic events, such as the collapse of Bear Stearns, have ripped up their work and hurriedly switched to a broader perspective as their subject has been dwarfed by later dramas.

                              “It’s a fast-moving target,” says Hollis Heimbouch of Collins Business, which has signed up CNBC’s strident scoopster, Charlie Gasparino, to dish the dirt, “but it’s a whale of a story.” This is, she says, the best chance in years to repeat the success of “Barbarians at the Gate”, the 1990 bestseller about the takeover of RJR Nabisco.

                              Perhaps. But the publishing industry is in decline, and a deep recession could hurt sales further. And those books by the best-known writers will not be out for a year or two. By then the mass appeal of commercial paper and credit-default swaps may have waned. One or two books may do very well. But the rest are likely to prove hard to shift and go on to inflict heavy losses. Sound familiar?更多精彩文章及讨论，请光临枫下论坛 rolia.net
                              • A financial history of the world -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {5798} (#1111@52)
                                本文发表在 rolia.net 枫下论坛Oct 9th 2008

                                One way to make sense of the present financial chaos is to look back at the past

                                THE typical career of a Wall Street banker lasts about a quarter of a century, enough to span just one big financial crisis. As Niall Ferguson explains in his new book, “The Ascent of Money”, which will be published next month, today’s senior financiers would have started out in 1983, fully ten years after oil and gold prices first began the surge that had ruined the previous generation of money men. That, he concludes, is a “powerful justification for the study of financial history.”

                                Mr Ferguson is right. The world needs a book that puts today’s crisis into context. It is too late now to warn investors about expensive houses and financiers about cheap credit. But perhaps the past can help make sense of the wreckage of banks, brokers and hedge funds that litters the markets. Looking back may help suggest what to do next. And when the crisis is over and it is time for the great reckoning, the lessons of history should inform the arguments about what must change.

                                This rushed, uneven book, by a British-born Harvard University professor who made his name a decade ago with a history of the Rothschild banking dynasty, will contribute less than expected to that debate. It has strengths, including a tidy account of the run-up in housing markets and of the symbiotic rivalry between America and China. But in the earlier chapters—the history, oddly enough, where you would expect Mr Ferguson’s ambitions for his subject to quicken his judgments—the words rarely come to life, either as a source of ideas or as narrative.

                                Perhaps the book was bound to be flawed, given the pace with which today’s crisis has torn through the markets. As the debacle has unfolded, from a housing crisis, to a credit bust, a bank run and what now looks ominously like a global recession, each episode has posed different questions. Finishing his manuscript in May this year, Mr Ferguson must have been dizzy with the unravelling of certainties. And yet, he is at his strongest in his reading of the news. His story of what is happening today shows prescience, even if it is necessarily incomplete.

                                It may be that Mr Ferguson was too distracted by the present to pay enough attention to the past. Claiming to be “A Financial History of the World”, the book dutifully dabbles in societies, such as the Inca, who did not see gold and silver as money, and in the pre-Christian Mesopotamian clay tablets that served as credit notes for commodities. He traces the transformation of banchieri, named for the benches where money was changed, into the families that dominated the political and cultural life of Renaissance Italy and from there into modern bankers. He explains how the bond market had its origins in the state’s need for money to finance war. He describes how manias have repeatedly engulfed greedy investors over the centuries—concentrating on John Law, whose schemes ruined 18th-century France. And he rehearses the story of financial risk from its origins in Enlightenment Scotland.

                                Yet the reader is left wondering quite who the book is aimed at. The finance specialist will not find enough here to begin to compete with the work of Charles Kindleberger, an economic historian. And the reader who wants to know how finance is interwoven with general history would do better to turn to Jeffry Frieden’s excellent 2006 work, “Global Capitalism”.

                                Mr Ferguson may seem to be speaking to a general audience, given that he has taken his title from “The Ascent of Man”, Jacob Bronowksi’s book and television series of a quarter-century ago which analysed the contribution of science to civilisation. Yet these readers will be baffled by passages that breezily toss around ideas like “sterilisation”—the issue of bonds by a government to mop up the inflation-inducing money it prints to buy foreign currency. And they may be put off by Mr Ferguson’s attempt to be jolly. After two and half pages on the mathematics of bond yields, for example, comes this quip: “So how did this ‘Mr Bond’ become so much more powerful than the Mr Bond created by Ian Fleming? Why, indeed, do both kinds of bond have a licence to kill?”

                                Of far greater interest is Mr Ferguson’s general theory, which does not emerge until the end of the book. He thinks that finance evolves through natural selection. Although the professor cautions against the sort of Darwinism that sees evolution as progress, he believes that new sorts of finance are constantly coming into being as the environment changes. The sequence of creation, selection and destruction is what has generated many of the financial techniques that modern economies depend on.

                                This leads Mr Ferguson to make two timely points. One is to remember that evolution depends on extinction as well as creation. You have to allow ill-adapted techniques to fail if you are going to get something new. As the world rushes around rescuing every bank in sight, it is a reminder that the guarantor-state will later have to administer painful medicine.

                                The other is to observe the wonder of what financial evolution has created. Just now it is only natural to think of the “roller-coaster ride of ups and downs, bubbles and busts, manias and panics, shocks and crashes.” But Mr Ferguson sees something else too: “From ancient Mesopotamia to present-day China…the ascent of money has been one of the driving forces behind human progress: a complex process of innovation, intermediation and integration that has been as vital as the advance of science or the spread of law in mankind’s escape from the drudgery of subsistence agriculture and the misery of the Malthusian trap.” Amid this financial bust, cleave to that.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                • Hedge funds -- Collateral damage -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {4909} (#1112@52)
                                  本文发表在 rolia.net 枫下论坛Oct 9th 2008

                                  An industry suffers, and regulators have not helped

                                  HEDGE funds are supposed to hedge. This year, they haven’t. The fund-weighted composite index compiled by Hedge Fund Research, a firm that tracks the industry, fell by 4.7% in September, the second-worst month on record. Since the start of the year it has lost 9.4%. The industry’s promises of “absolute returns” for investors now ring rather hollow.

                                  To be fair to them, hedge funds have not been allowed to hedge. The restrictions on short-selling (betting on falling prices) imposed by regulators round the globe have played havoc with managers’ strategies in recent weeks.

                                  Take the worst-performing strategy, convertible arbitrage, which lost the average fund 12% in the month. Convertible bonds are fixed-income securities that can be exchanged for shares in the issuing company. Historically, these bonds have been underpriced, because too low a value has been placed on the right to convert them to equity. So arbitrage managers have tended to buy the bonds and sell short the shares. Thanks to the Securities and Exchange Commission’s ban on the shorting of more than 900 stocks from September 19th to October 8th, that strategy no longer worked. And since the managers could not short the shares, they had to sell the bonds. As a result, the bonds’ prices plunged.

                                  Perversely, issuing convertible bonds would have been one way for banks to raise capital. But that route has been cut off, a typical example of the unintended consequences of meddling with the markets in response to populist pressures.

                                  Another strategy that has suffered is statistical arbitrage, known in the trade as “stat arb”. Such funds use computer models to look for anomalies in the market, and exploit these wrinkles by buying and selling shares very rapidly. By doing so, they provide liquidity to the system, in effect acting as marketmakers.

                                  Without the ability to short many shares, stat-arb models have been disrupted. The cost of trading in such stocks (defined by the difference between the bid and offer prices) duly rose, more than doubling according to Credit Suisse. The market became less liquid, adding to the volatility of share prices in recent weeks.

                                  And then there is the most popular type of hedge fund, long-short equity. Such funds rely on the stockpicking ability of their managers, buying their favourite shares and shorting companies they dislike. If the managers make the right selections, they can protect investors from a falling stockmarket. In the first half of the year, for example, a popular strategy was to buy commodity-related stocks (such as miners) and short the banks.

                                  Again, the shorting ban disrupted that strategy, forcing managers to cut their long positions as well as their shorts. Because many in the market were well aware of the favourite positions of hedge-fund managers, prices of some of those shares have fallen rapidly–another unintended consequence of the shorting ban.

                                  Nor is that the end of the hedge funds’ problems. As an investment bank, Lehman Brothers was active in prime brokerage, a vital source of finance for hedge funds. When prime brokers lend money to hedge funds, the funds are required to put up collateral (Treasury bonds and the like). Lehman then used this collateral as security for its loans, a standard industry procedure known as “rehypothecation”. But the result has been that assets belonging to some hedge funds have been ensnared by Lehman’s bankruptcy. One leading lawyer describes this as “an unmitigated disaster”.

                                  In addition, the remaining prime brokers have become more cautious about their exposure to hedge funds. This week the IMF cited figures showing that funds are now required to put up collateral of 25-40% of the capital when trading in high-yield bonds, against 10-15% in April 2007.

                                  All this means that hedge funds have been unable to ride to the rescue of global markets. According to the IMF, the average cash balance of hedge funds has risen from 14% last year to 22%, while the amount of leverage (borrowed money) they use has fallen from 70% of capital to 40%. In theory, that gives them the firepower to buy now that prices have fallen; in practice, they may need their cash to repay clients that want to redeem their holdings. Charles MacKinnon of Thurleigh, a fund manager for private clients, says it has given notice on some 70% of its hedge-fund positions.

                                  Individual hedge funds will doubtless be brought down by this crisis. Their fall will have far less economic impact than that of either Lehman or Bear Stearns, although if they are forced to sell assets that will not help the banks. But the industry can feel justifiably aggrieved. It has not only been clobbered by a crisis that started in a regulated industry (investment banking), but it has been given a good kicking by the regulators too.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                  • The Fed tries its own version of quantitative easing -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {6172} (#1113@52)
                                    本文发表在 rolia.net 枫下论坛Not yet the last resort

                                    WHEN, on October 3rd, America’s Congress eventually approved the Bush administration’s $700 billion plan to buy troubled mortgage assets, lawmakers earned not only the gratitude of Ben Bernanke, but also a promise from him. The Federal Reserve, its chairman declared, would do its part with “all of the powers at our disposal”.

                                    He has certainly kept his word. On October 6th the Fed doubled, to $900 billion, the planned size of the loans it auctions to banks. A day later it said it would for the first time in its history make unsecured loans to companies, including banks, by buying commercial paper that they are unable to refinance. In theory, this tactic could be used to allow the Fed to make any kind of loan, including to state and local governments and in the interbank funds market. And a day after that it joined other leading central banks in cutting interest rates, lowering its target for the federal funds rate from 2% to 1.5%. It is unlikely to stop there. The rate could end up at zero.

                                    The rate cut was a conventional response to the growing risk of a deep recession. The other steps take the Fed farther into uncharted territory. They were made possible in large part by a provision of the bail-out law that permits the central bank to pay interest on reserves that commercial banks keep on deposit at the Fed. This is important because every time the Fed makes a loan, it creates additional bank reserves. Banks lend excess reserves to each other, putting downward pressure on the federal funds rate. To drain those reserves and offset that pressure, the Fed sells Treasury debt. But it has been lending on such a huge scale that it has used up the bulk of its Treasuries. Had it run out, its lending would have had to stop or the funds rate would fall to zero. Paying interest on reserves largely removes that risk, because it leads the banks to lend the money back to the Fed.

                                    None of this is certain to work. Share prices fell heavily this week, and the spread of interbank lending rates over the federal funds rate set new records. Yet the Bernanke doctrine is clear: the Fed will lend as much as it must and to whomever it must to contain the credit crisis. It is far from finished. The Fed’s balance-sheet has ballooned from $900 billion in August to $1.5 trillion on October 1st, and could soon pass $2 trillion. But even that sum equals just 14% of GDP. Vincent Reinhart of the American Enterprise Institute, a think-tank in Washington, DC, notes that at the high point of its policy of “quantitative easing”, the balance-sheet of the Bank of Japan (BoJ) equalled 30% of that country’s GDP.

                                    Indeed, the Fed’s latest actions have drawn comparisons to quantitative easing: having already cut rates to zero, the BoJ bought loads of government bonds between 2001 and 2006 in order to expand the supply of bank reserves. That helped reinforce the BoJ’s commitment to zero rates and bring down long-term rates. Its direct impact on lending, however, was much less clear.
                                    Made in America, not Japan

                                    In fact the Fed’s actions are fundamentally different. The creation of excess reserves (Fed liabilities) is merely the by-product of its actual goal, which is to expand loans (Fed assets). Frederic Mishkin, an economist at Columbia University who recently quit as a Fed governor, says quantitative easing is aimed at raising the overall level of liquidity in the financial system. By contrast, the Fed is aiming at the sectors that are encountering problems. “It does not want its targeted liquidity determining overall liquidity,” a job best left to standard monetary policy.

                                    The Fed does face some constraints. One is legal: like most central banks, it is generally prohibited from unsecured lending. It gets around this, in part, by lending to its own off-balance-sheet vehicle, which holds the unsecured commercial paper. Another is political: Americans may object to their central bank displacing private lenders. But Mr Mishkin says the political risks of doing too little and letting the economy slide are far greater. A final constraint, notes Kenneth Kuttner, an economist at Williams College, is that the Fed could in theory suffer loan losses so great that it needs recapitalisation, as central banks in Chile, Hungary and the Philippines have in the past. Fears of such losses were one reason why the BoJ did not purchase much private-sector debt earlier in this decade. In 2003 Mr Bernanke, then a Fed governor, argued that such concerns were misplaced because, unlike a commercial bank, a central bank cannot go bankrupt.

                                    Mr Bernanke seems set on a different path from the BoJ’s. Its quantitative easing came a decade after Japanese banks began to fail, when they were too weak to lend out the excess reserves the BoJ gave them. Most American banks can still lend, but uncertainty about their own and their customers’ access to funds holds them back. The Fed’s expanded liquidity thus has a better chance of being used and supporting the economy. “We have learnt from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased,” Mr Bernanke said on October 7th. “This is not the situation we face today…the great majority of financial institutions have sufficient capital and liquidity to return to their critical function of providing new credit for our economy.”

                                    That belief may be standing in the way of even more radical measures. Mr Bernanke has seen this crisis chiefly as one of illiquidity, not insolvency. He has thus pressed first for measures that improve liquidity, such as buying tainted assets from banks and expanding the Fed’s own lending, while being less keen than outside economists on injecting public capital into banks, as Britain did this week. Some sceptics note that banks will not seem so solvent once unavoidable loan losses are realised. Mr Bernanke may be coming round: he has played up the fact that the bail-out programme can also be used to inject capital.更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                    • At Morgan Stanley, Outlook Darkens -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {8457} (#1114@52)
                                      本文发表在 rolia.net 枫下论坛At Morgan Stanley, Outlook Darkens; Stock Tumbles 26%

                                      By SUSANNE CRAIG, MATTHEW KARNITSCHNIG and AARON LUCCHETTI

                                      The sharks are circling closer to Morgan Stanley.

                                      Shares of the financial behemoth sank 26% Thursday as concern escalated among investors about its future and other banks. Morgan Stanley depends on heavy borrowing and holds risky securities. The stock has plunged 77% this year to a 10-year low. Hedge-fund clients have pulled about one-third of their money from the firm in recent weeks. The cost of protecting against a Morgan Stanley default has surged. The firm can't issue new debt.
                                      [Mack, John]

                                      John Mack

                                      Morgan Stanley is hoping to ease the pressure with a planned $9 billion investment in the firm by Japanese bank Mitsubishi UFJ Financial Group Inc., set to close Tuesday. Investors are worried because Mitsubishi's purchase price of $25 a share now is roughly double Morgan Stanley's closing stock price Thursday. With Morgan Stanley shares so low, the $9 billion commitment for 21% of the firm two weeks ago could now buy a 65% stake.

                                      Though there is no break-up fee on the deal, Mitsubishi is bound by its contract with Morgan Stanley and would face potentially unlimited liabilities if it were to walk away. So the future of Morgan Stanley might rest on whether the Japanese bank will honor its word, despite billions of dollars of immediate paper losses it would suffer on its investment. Thursday, Morgan Stanley and Mitsubishi repeated that the deal was on track. Morgan Stanley shares fell $4.35 to $12.45 in 4 p.m. composite trading on the New York Stock Exchange.

                                      Late Thursday came more bad news. Moody's Investors Service placed the long-term debt ratings of Morgan Stanley (senior debt at single-A1) and its subsidiaries on review for downgrade and assigned a negative outlook to the long-term ratings of Goldman Sachs Group Inc. (senior debt at Aa3) and its subsidiaries.

                                      "Investor, counterparty and customer confidence is critical to the funding and profit generation of the firm, especially in a hostile market environment," the rating agency wrote in its report on Morgan Stanley. "During its review, Moody's will focus on the success of the actions that management takes to alleviate these confidence pressures and maintain customer franchises, while retaining key producers in a difficult environment."
                                      Related Article

                                      * Heard on the Street: The Meaning of Morgan Stanley

                                      The crisis marks a dramatic comedown for a white-shoe firm with a storied Wall Street past. It was created in 1935 to continue the investment-banking business of J.P. Morgan & Co. after the government forced institutions to separate their commercial and investment-banking businesses during the Depression.

                                      Morgan Stanley has come under scrutiny partly because many other of its large, heavily indebted rivals have required government rescues or shotgun mergers or have failed. These include the bankruptcy filing of Lehman Brothers Holdings Inc., the government takeovers of mortgage firms Fannie Mae and Freddie Mac, the government rescue of insurer American International Group Inc., the government-assisted takeover of Bear Stearns and the hastily arranged purchase of Merrill Lynch & Co. by Bank of America Corp.

                                      Morgan Stanley wasn't the only financial stock to get clocked in a steep, marketwide sell-off that sent the Dow Jones Industrial Average tumbling 7.3%. Merrill fell 26% despite its pending deal to be acquired by Bank of America, which isn't expected to be derailed; U.S.-traded shares of Credit Suisse Group dropped by 21%, and Wells Fargo & Co. fell 15%.

                                      In an attempt to combat the credit crisis, Morgan Stanley in recent weeks became a bank holding company, which will likely force it to use less borrowing to fund its trading operations and give the government more oversight into its businesses.

                                      The Federal Reserve has approved Mitsubishi's purchase of as much as 24.9% of the firm. The Japanese bank likely would be able to get further regulatory approval to buy a bigger stake in Morgan Stanley, but it would need to agree to greater regulatory oversights. The Federal Reserve could waive the waiting period for Mitsubishi to close its deal, but only by finding that immediate action is necessary to prevent the probable failure of the bank. The Fed already waived the lengthy public-comment period for the original stake, citing "unusual and exigent circumstances."

                                      Fed officials believe the Mitsubishi stake is on track to close as anticipated. But if the Mitsubishi deal were to fall through, the government could consider a range of options, including injecting capital into the firm or into another bank, which potentially could buy Morgan Stanley.

                                      Any decisions about a government capital injection or equity stake would be left to U.S. Treasury Secretary Henry Paulson, who made that decision with President George W. Bush in the case of Bear Stearns, Fannie Mae, Freddie Mac and AIG. Now, Mr. Paulson has authority under the $700 billion rescue package to inject capital into struggling banks. Mr. Paulson declined to comment.

                                      The Fed has considerable latitude to lend directly to Morgan Stanley if it faced an immediate funding crunch. Morgan has full access to the Fed's discount window, and the Fed in recent weeks has loosened its collateral restrictions for financial institutions to ease deepening strains in credit markets. Direct borrowing from the Fed soared to more than $400 billion outstanding last week.

                                      Morgan Stanley is well-capitalized enough to fund itself through the third quarter of 2009, analysts say. But debt markets now are effectively closed to the company, wrote Bernstein Research analyst Brad Hintz. In a filing Thursday, Morgan Stanley said market disruptions in September forced it to contingency funding plans that included selling assets and pledging collateral to federal government-sponsored lending programs. It said liquidity reserves have fallen since August, analysts estimated by around 25% or 30%, but the filing added that Federal Reserve policies and the company's change to a bank holding company will help it meet its requirements.

                                      The crisis at Morgan Stanley comes during a week in which the government has taken aggressive steps to revive global markets, from the potential of buying stakes in banks to lending to nonfinancial corporations to participating in a world-wide coordinated interest-rate cut.

                                      When speculation spread Tuesday that Mitsubishi might back out of its commitment, Morgan Stanley Chief Executive John Mack hit the phones, telling clients the deal was on course, according to people familiar with the matter. A memo sent to the New York company's 46,000 employees decried "the extreme volatility" of "a rumor-a-minute environment." Mitsubishi reiterated that the deal is expected to close Tuesday.

                                      Morgan Stanley executives are eager for the transaction to be completed, since the stake will bolster the firm's balance sheet and deepen its relationship with a large commercial bank. Now that Morgan Stanley has morphed into a bank holding company, it could benefit from close ties with Mitsubishi, traditionally one of Japan's most conservative banks.

                                      The Japanese bank wouldn't face a direct financial penalty if it walks. But any such move would likely sour Mitsubishi's relationship with U.S. banking officials. Those ties are important to the bank at the moment because it recently acquired all of UnionBanCal Corp., the U.S.'s 25th-largest bank.

                                      Any move to renegotiate the deal with Morgan Stanley for a larger stake would create other complications. Foreign ownership of 25% or more of a U.S. commercial bank counts as control. If Mitsubishi were to control Morgan Stanley, cross-guarantee rules would expose UnionBanCal to its liabilities. The Federal Deposit Insurance Corp. would be exposed to Morgan Stanley.

                                      Though Morgan Stanley has been swept up in an environment of "panic and fear and hysteria," the firm has "locked in a source of new equity with Mitsubishi, and we don't have any reason to believe that's not going to happen," says Scott Sprinzen, an analyst with Standard & Poor's.
                                      —Randall Smith, Sudeep Reddy and Deborah Solomon contributed to this article.

                                      Write to Susanne Craig at susanne.craig@wsj.com, Matthew Karnitschnig at matthew.karnitschnig@wsj.com and Aaron Lucchetti at aaron.lucchetti@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                      • Lehman CDS Settlement Disappoints -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {3195} (#1115@52)
                                        本文发表在 rolia.net 枫下论坛Lehman CDS Settlement Disappoints
                                        By EMILY BARRETT


                                        NEW YORK -- Initial results for Friday's settlement of the credit default swaps on Lehman Brothers have undershot expectations, setting the recovery rate on the bankrupt firm's senior debt at 9.75 cents on the dollar.

                                        Expectations had ranged in the double-digits, with consensus around 12 cents. The lower result means dealer banks that sold protection on Lehman's debt will end up paying more than they had expected -- 90.25 cents on the dollar. The total value of contracts, to be settled within the next couple of weeks, is estimated around $400 billion.

                                        The low rate qualifies this as one of the most expensive defaults ever in the credit derivatives market. Following the default of Italian food company Parmalat in 2003, its debt was valued at just below 10 cents on the dollar.

                                        The settlement of these complex derivative instruments is being widely-watched as a first major price discovery process at a time when markets are going through a major crisis of confidence about their counterparties' financial standing.

                                        Essential to this process is the notion of how much investors that insured against a Lehman default would have to pay their counterparties on these credit default swap contracts.

                                        Final results are due at 2 p.m. EDT.

                                        Stocks, already suffering through extremely volatile trade, tumbled after the initial results for the settlement were published. The Dow Jones Industrial Average was knocked down another 100 points, and in recent trade was off 360 points on the day at 8,218 points.

                                        The initial results shouldn't come as a painful surprise for the sellers of protection on Lehman. The price isn't far below what has been quoted in the market in the past couple of weeks, but those levels had bounced to the mid-teens on increased demand for notes to present at the auction.

                                        The government securities market, for one, wasn't surprised. T-bills and short-term Treasurys remained boosted and longer-term issues weaker on the prospect of more supply.

                                        "I believe people had a good idea of what their positions were with the company as time moved on since the announcement of their bankruptcy," said Robert Allen, managing director and head of the government trading desk at Banc of America Securities, "and positions have been gradually adjusted."

                                        Since Lehman's Sept. 15 bankruptcy filing, there had been considerable anxiety that dealers who had underwritten some $400 billion of credit default swaps on the bank would be caught short in a massive payout.

                                        But sharp market moves in the value of these insurance-like contracts would have obliged most sellers to post additional collateral to cover their potential losses. As a result, they should have sufficient funds set aside to handle their liabilities in this settlement.

                                        "Worries over ex-broker-dealer exposures and their knock-on impact are misguided," said Tim Backshall, senior credit analyst with Credit Derivatives Research.

                                        The preliminary results of the morning's auction were posted by administrators Creditex and Markit on www.creditfixings.com.

                                        Write to Emily Barrett at emily.barrett@dowjones.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                        • U.S. Weighs Backing Bank Debt -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {10597} (#1116@52)
                                          本文发表在 rolia.net 枫下论坛U.S. Weighs Backing Bank Debt -- Removing Deposit Insurance Limits Also on the Table

                                          By DAMIAN PALETTA, CARRICK MOLLENKAMP and JOHN D. MCKINNON


                                          WASHINGTON -- The U.S. is weighing two dramatic steps to repair ailing financial markets: guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits.

                                          If the two moves come to fruition they would mark the government's most extensive intervention yet in the financial system, as officials ponder increasingly far-reaching measures to stem the sprawling crisis.

                                          The top economic officials of the Group of Seven leading industrial nations will meet starting Friday in Washington where they intend to discuss a proposal from the U.K. government to bolster bank lending. Problems in the credit market have led to widespread dislocation in the financial system and the broader economy.

                                          Under the U.K.'s recently announced plan, which it is now pitching to the G-7 members, the British government would guarantee up to £250 billion ($432 billion) in bank debt maturing up to 36 months. The British concept to expand its proposal to other countries has a lot of support from Wall Street and is being pored over by U.S. officials, according to people familiar with the matter.

                                          White House spokesman Tony Fratto said the U.S. "is reviewing the idea and discussing it with our British counterparts."

                                          The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure.
                                          [Unlimited Possibilities]

                                          To remove the ceiling on deposit insurance, multiple government agencies would first need to agree that there was a "systemic risk" to the economy, thereby invoking a rarely used legal power. Amid repeated efforts by the federal government to prop up ailing institutions, some bank regulators say the move is justified.

                                          It's not clear that either idea will become reality, and U.S. officials downplayed expectations of any announcement this weekend. But as the crisis deepens and stocks continue to tumble, pressure is building on the Bush administration to find a solution that goes beyond the $700 billion financial rescue plan recently signed into law. Having the government back bank lending would effectively entail the U.S. being the backstop for the country's financial system.

                                          Western industrial powers have taken various ad hoc steps to stem the global crisis. Central bankers have cut interest rates, governments have agreed to strip toxic assets out of banks, and regulators are mulling how to directly inject capital into the banking sector. So far, the moves have failed to calm markets.

                                          They have also been mostly one-country-only solutions that lack a broad coordination, despite the fact that the global financial system is linked. A move by one country has lately forced the hands of others, as happened when Ireland moved to insure its bank deposits last week. The European Union has struggled to develop a common approach to the crisis, exacerbating the problem.

                                          "The interdependence of the major global financial markets has been established beyond the slightest doubt," said H. Rodgin Cohen, chairman of the law firm Sullivan & Cromwell and a top adviser to Wall Street firms. "As a consequence, it is essential that the major countries act collectively and cooperatively."

                                          One major flaw in the global banking system, and a sign that problems extend beyond whether U.S. homeowners can pay their mortgages, is the fact that banks don't trust each other enough to loan beyond an overnight period. That means that cash isn't being circulated through the financial system and banks are relying too heavily on short-term loans, which does little to help pay off looming debts. Banks are hoarding cash, both to cover their debts and to improve their year-end books.

                                          The plan in the U.K. was hammered out by Treasury Chief Alistair Darling as well as the chief executives of major British banks earlier this week after a sharp drop in U.K. bank stocks.

                                          In the U.S., some $99 billion in just one type of bank debt is coming due between now and the end of the year. Hundreds of billions of dollars will need to be paid in the U.S. and Europe. Government backing would make it easier to issue new debt to help pay for that.

                                          The problems in so-called interbank lending, or short-term loans made between banks, date to August 2007. Markets froze after a little-known German lender called IKB Deutsche Industriebank AG ended up with big debts it couldn't pay. More recently, the bankruptcy-court filing of Lehman Brothers Holdings Inc. sparked a new freeze in the interbank-borrowing market when money-market funds, laden with Lehman debt, yanked their cash out of the commercial-paper market, a vital cog in how companies fund their short-term obligations.

                                          The U.K.'s decision to guarantee bank debt sparked talk that the U.S. would need to make the same move. On Thursday, the three-month dollar London interbank offered rate, or Libor, hit 4.75%. On the Friday before Lehman filed for bankruptcy protection, the three-month rate was 2.81875%. A surging Libor could exacerbate larger economic problems because many mortgages are tied to rates that fall or rise depending on Libor.
                                          Insuring All Deposits

                                          Offering unlimited or steeply higher deposit-insurance limits in the U.S. would closely resemble what several European countries, including Germany, Denmark and Ireland, have done recently. Regulators would have discretion about whether to raise limits for just retail accounts or for corporate accounts as well. If they use the authority, it is expected to extend to all deposits, as the loss of large corporate accounts for banks can be devastating.

                                          "Our European friends have done it, so there will be great pressure to follow," former Federal Deposit Insurance Corp. Chairman William Seidman said.

                                          The FDIC has roughly $45 billion in its deposit-insurance fund to cover $5.2 trillion of insured U.S. deposits. Lifting the cap entirely would mean the FDIC would be guaranteeing the remaining $1.8 trillion of U.S. bank deposits. An element of the recently enacted bailout law gives the FDIC much broader authority to borrow money from the Treasury Department to backstop its fund if it became necessary.

                                          A blanket guarantee on deposits could present risks apart from exposing the FDIC to enormous costs. Guaranteeing all bank liabilities without doing the same for money-market mutual funds or insurance companies could prompt customers to move money from one sector to another, seeking the best protection.

                                          Yet not making such a move opens up the possibility that customers with large deposits in U.S. banks might withdraw their funds and move them overseas to jurisdictions that offer more insurance.

                                          The possibility of removing the cap on deposit insurance was raised last week by Treasury Department officials who asked lawmakers to consider giving the FDIC broad discretion to determine the level of government insurance. Lawmakers instead opted to temporarily raise the existing $100,000 federal limit to $250,000, feeling that anything higher could threaten passage of the bailout package.

                                          But the worsening condition of the banking sector has fueled discussions among government officials about whether they should be prepared to remove the limits entirely.

                                          "I think that lifting the cap entirely is something that may have to be done, really, just in the next few weeks," said Camden Fine, chief executive officer of the Independent Community Bankers of America, a trade group.

                                          Bank regulators believe the "systemic risk" clause in federal law gives them the authority to lift insurance limits, though it has never been used to do so before. "We believe that we have significant latitude, in consultation with Congress, under the systemic risk exception...to protect depositors and adopt other measures to support the banking system," FDIC spokesman Andrew Gray said.

                                          Last week, the FDIC invoked the risk clause for the first time when it agreed to take on some potential losses to assist in the sale of Wachovia Corp. to Citigroup Inc. That deal fell apart Thursday, though, when Citigroup backed out of the deal after a contentious legal dispute with Wells Fargo & Co.

                                          Comptroller of the Currency John Dugan, one of the nation's top bank regulators, said he supported the increased limit of $250,000. He added that policy makers had the power to back all deposits if necessary. "That is an important tool," he said in an interview.

                                          Such a decision would require endorsements from the FDIC, Federal Reserve and Treasury Department. It is still not certain such an approach will be taken.
                                          Bank Scares

                                          Federal deposit insurance was created during the bank scares of the Great Depression. Raising insurance levels is one way policy makers could try to assuage the public about the solvency of their financial institutions.

                                          Thirteen banks have failed so far this year, the highest number since 1994. In roughly half of those cases, the FDIC sold off all of the failed banks' deposits, which meant that no depositors lost money.

                                          But in several cases, acquiring banks purchased only the failed institutions' insured deposits. That meant customers with levels above $100,000 potentially lost large amounts of money, though some of it can often be recovered later through the liquidation process.

                                          The FDIC estimated that IndyMac Bancorp Inc., which failed on July 11, had roughly $1 billion of uninsured deposits held by 10,000 depositors.

                                          Customers' fears have spurred bank runs across the country, especially at wounded financial institutions. IndyMac and Washington Mutual Inc. collapsed, in part, because of late runs on their deposits. Wachovia, which came close to failing twice in recent weeks, has seen large outflows of deposits since last week, according to someone familiar with the matter. Wachovia declined to comment on its deposits.
                                          —Dan Fitzpatrick, Joellen Perry and Sudeep Reddy contributed to this article.

                                          Write to Damian Paletta at damian.paletta@wsj.com, Carrick Mollenkamp at carrick.mollenkamp@wsj.com and John D. McKinnon at john.mckinnon@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                          • Germany Considers Plan to Recapitalize Its Banks -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {2356} (#1117@52)
                                            本文发表在 rolia.net 枫下论坛By MARCUS WALKER and JOELLEN PERRY


                                            Germany is working on a plan to prop up its major banks that could include taking government stakes and measures to guarantee banks' access to liquidity, according to people familiar with the matter.

                                            No final decision had been taken on Friday, but Chancellor Angela Merkel's government could take a decision on the plan and announce it as early as this weekend, one person familiar with the government's thinking said.
                                            [Image] Getty Images

                                            Traders work at the stock exchange Friday in Frankfurt.

                                            The German plan could resemble the U.K. government's move to recapitalize major banks by taking government stakes. Options for ensuring banks' access to short-term funding could include government guarantees as well as direct loans from the government.

                                            A German move to recapitalize some of its major banks would mark a radical about-turn by Europe's biggest economy, which has so far tried to address the international banking crisis by stepping in to bail out stricken banks one at a time.

                                            Top German officials dropped strong hints Friday that Germany was planning a sector-wide bailout. Case-by-case responses weren't a solution, German Finance Minister Peer Steinbrück and Bundesbank President Axel Weber told reporters in Washington.

                                            Speaking about the situation facing governments around the world, Mr. Weber said: "We must provide far-reaching help for self-help to financial institutions." Mr. Steinbrück declined to comment on Germany's next move.

                                            But people familiar with the government's thinking say the U.K. move to partly nationalize major banks in order to bolster their capital has put Germany under strong pressure to follow suit. German bankers have been lobbying the government to come up with a plan to make sure the country's banks aren't at a disadvantage compared with British banks.

                                            Mr. Steinbrück first hinted on Monday in a German radio interview that Germany needed to have a "Plan B", involving an "umbrella" for its banking sector if case-by-case bailouts didn't restore financial markets' confidence. The German government has had to stitch together two bailout plans for stricken Munich-based bank Hypo Real Estate Holding AG in the past two weeks.

                                            Write to Marcus Walker at marcus.walker@wsj.com and Joellen Perry at joellen.perry@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                            • Silicon Valley Feels Credit Squeeze -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {8257} (#1120@52)
                                              本文发表在 rolia.net 枫下论坛Silicon Valley Finds It Isn't Immune From Credit Crisis

                                              By PUI-WING TAM, BEN WORTHEN and ROBERT A. GUTH

                                              The technology industry, which had seemed immune to the financial crisis, is now getting squeezed on two sides: Established companies are struggling with slackening demand while venture capitalists are telling start-ups to cut costs and plan for a prolonged downturn.

                                              Sequoia Capital, which has invested in Silicon Valley stars such as Google Inc. and YouTube, gathered the chief executives of its portfolio companies this week and told them to focus on becoming profitable and take a hard look at expenses they could cut, according to people who attended the event.
                                              [Silicon Valley Feels Credit Squeeze] Reuters

                                              A salesman demonstrates a computer game in a display area of Nvidia Corp. at the 2007 Computex Taipei.

                                              Sequoia's partners, who began the special meeting with a slide that read "RIP: Good Times," pored over dire economic data and warned that the current downturn will be long and painful, according to people present. Sequoia declined to comment.

                                              Until a few weeks ago, the tech sector looked relatively insulated from a downturn, as tech companies rode still-strong international sales and benefited from a weak dollar. Tech companies also typically have little debt on their balance sheets, limiting their exposure to the frozen credit markets -- and leading to a certain complacence in Silicon Valley this summer as the credit crunch burned other industries.

                                              But the turmoil of the past few weeks has changed that momentum. Venture capitalists are running into trouble raising new funds and tech vendors are getting squeezed as businesses cut budgets, banks pull credit lines and consumers close their wallets.

                                              Benchmark Capital, a prominent Silicon Valley firm, recently sent a letter to its portfolio companies telling them that "financings as we know it just got a whole lot tougher."

                                              In the letter, Benchmark urged entrepreneurs to "be calm, but pragmatic" and added that "the rules of the game have changed."
                                              [Tech slowdown]

                                              The letter suggested that entrepreneurs should raise new cash sooner than later and added that they could potentially draw down bank lines now before the financing spigots shut. Benchmark didn't immediately have a comment.

                                              "It's like the perfect storm," says Andy Morning, chief financial officer of Mattson Technology Inc., a Fremont, Calif., maker of chip-manufacturing equipment.

                                              Last month, Mattson announced it was cutting its staff by 14% because of the poor business environment.

                                              Similar layoff notices are piling up across Silicon Valley. This week, eBay Inc. said that it would cut 10% of its work force, or about 1,000 full-time jobs. Last month, Hewlett-Packard Co. said it would cut 24,600 employees, or 7.5% of its work force, after a big acquisition, while chip maker Nvidia Corp. said it would lay off 6.5% of its workers.

                                              This week, Microsoft Corp. said it was reviewing its hiring plans for the current fiscal year, which began in July. In late September, Chief Executive Steve Ballmer cautioned that no company, even the software giant, is immune to the turmoil.

                                              Companies like InterDyn AKA show how quick the shift has been. InterDyn, which buys software from Microsoft and resells it to businesses, says it will cut back on purchases from Microsoft because customers are beginning to put projects on hold. Making matters worse, InterDyn's bank recently asked the company to pay back a $1 million credit line. "I've never seen a climate like this in my life," says Alan Kahn, co-CEO of the New York company. "We just got completely blindsided."

                                              All of this comes as some tech companies have been struggling to rev up growth and search for hot new products and services. While companies such as networking giant Cisco Systems Inc. produced quarterly revenue growth rates above 30% earlier this decade, that has slowed to 10% to 17% now as the company has matured. Even highfliers such as Google are seeing revenue growth tapering off, decelerating to 39% in its second quarter from 58% a year ago.

                                              There are still bright-looking spots in tech. On Wednesday, International Business Machines Corp. preannounced better-than-expected quarterly earnings and said it "remained confident" in its full-year outlook. And last month, Oracle Corp. posted a 28% jump in quarterly profit, and the software vendor said it didn't expect to be hurt by the meltdown among financial-service companies.

                                              When tech earnings season kicks off next week with Intel Corp.'s report, many tech companies' quarterly results are also expected to look strong. But many analysts are bracing for bearish predictions for the current quarter and next year. "There's compelling evidence that expectations -- particularly those for 2009 -- remain too high, and therefore negative revisions are likely to persist," says Richard Keiser, a tech strategist for Sanford C. Bernstein & Co.

                                              Venture capitalists who have been trying to raise money in recent weeks say their investors -- including pension funds, endowments and wealthy individuals -- are retreating from new investments because of the credit crunch.
                                              [Tech]

                                              More troubling, there is growing worry among venture capitalists that some of these investors may renege on commitments they've already made.

                                              John Steuart, a venture capitalist at Claremont Creek Ventures in Oakland, Calif., experienced some of the volatility firsthand when his firm recently sought to raise $175 million. Mr. Steuart says two investors asked to cut back on the amount of capital they had committed by at least 20% because of the credit freeze. While Claremont Creek had enough money raised from other investors, Mr. Steuart says, "the window for fund raising has closed."

                                              In response to the tightening environment, start-ups are battening down the hatches. Music Web site Lala.com, which is backed by Bain Capital and Ignition Partners, just decided to defer a lease on a new office space, cut back on marketing costs, renegotiate equipment leases and slow hiring significantly.

                                              "Up until recently we were still competing with Apple and Google for talent," says Bill Nguyen, a founder of the Palo Alto, Calif., company, which currently has 35 employees. "But now we just look at it and say we just can't do it." Instead, he wants to bank more money as reserves, in case the downturn becomes more protracted, he says.

                                              Meanwhile, the people at businesses who buy computers and software have also turned gun shy as the economy has slowed and liquidity has dried up, putting their tech purchases on hold and cutting their IT spending. The information-technology department at Brunswick Corp., a maker of recreational equipment such as motor boats and bowling balls, was recently told to cut its budget for 2009 by 35%, up from the 20% cut it was told to expect in June.

                                              As a result, the department won't be starting new tech projects anytime soon, says Cathy McClain, a division chief information officer at the Lake Forest, Ill., company. Among other things, that means Brunswick will freeze its plan to buy human-resources management software from Oracle.

                                              Next year "we'll just be keeping the lights on," Ms. McClain says. "It's brutal."

                                              Now the credit crunch is entering the picture as its own force, hitting the tech-financing industry. This corner of the tech world allows businesses to buy technology that they can't afford to pay for all at once. Financing technology purchases is on pace to be a $100 billion a year industry by 2010, according to research company IDC.

                                              But terms are tightening in the wake of the credit crisis. While tech purchases could previously be financed with no money down and repaid over as many as seven years in some cases, a tech company or bank is now more likely to extend a two-year loan, with a big payment due within 90 days, says Eliot Colon, president of Miro Consulting Inc., a software reseller and consulting company.
                                              —Don Clark, Yukari Iwatani Kane and Bobby White contributed to this article.

                                              Write to Pui-Wing Tam at pui-wing.tam@wsj.com, Ben Worthen at ben.worthen@wsj.com and Robert A. Guth at rob.guth@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                              • Dow Continues Historic Slide -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {7025} (#1122@52)
                                                本文发表在 rolia.net 枫下论坛TODAY'S MARKETS -- OCTOBER 10, 2008, 12:36 P.M. ET


                                                By PETER A. MCKAY


                                                Stocks' relentless slide continued Friday, leaving the Dow Jones Industrial Average poised to register the bloodiest weekly drop in its 112-year history.

                                                The Dow Jones Industrial Average fell more than 600 points shortly after the opening bell, sliding below the 8000 mark intraday for the first time since April 1, 2003. Blue chips quickly moved off those levels, and at one point managed to climb into positive territory. But in recent trade, the Dow was off about 300 points at around 8250.

                                                Biggest Point Drops

                                                Top 10 point drops in the Dow Jones Industrial Average (though Thursday's decline ranked 11th in percentage terms):

                                                Date Point Drop (%) Close
                                                9/29/08 -777.68 (-6.98%) 10365.45
                                                9/17/01 -684.81 (-7.13) 8920.70
                                                10/09/08 -678.91 (-7.33) 8579.19
                                                4/14/00 -617.78 (-5.66) 10305.77
                                                10/27/97 -554.27 (-7.18) 7161.14
                                                8/31/98 -512.62 (-6.37) 7539.06
                                                10/07/08 -508.39 (-5.11%) 9447.11
                                                10/19/87 -508.00 (-22.61) 1738.74
                                                9/15/08 -504.48 (-4.42) 10917.51
                                                9/17/08 -449.36 (-4.06) 10609.66

                                                Source: WSJ Market Data Group


                                                A sharp early rebound in financial stocks played a part in moving the market off its opening lows. But banks, insurers and other firms saw their shares sink back into negative ground after the initial results for an auction of credit-default swaps tied to Lehman Brothers bonds. The auction set the recovery rate on the firm's senior debt at 9.75 cents on the dollar, suggesting hefty losses for holders of the swaps.

                                                The S&P 500 Index was down about 38 points at around 872. The Nasdaq Composite Index lost about 58 points to trade around 1587. The Chicago Board Options Exchange Volatility Index surged 14%, climbing above 73 for the first time.

                                                The Dow is threatening to extend a seven-day losing streak during which it has shed nearly 21%. Heading into Friday, the average was down 17% this week. The stock market has so far avoided a one-day plunge of 10%, the traditional definition of a crash. But even in the two instances when such a single-day drop did happen, in 1929 and 1987, the full-week bloodletting was not as bad.

                                                "In some ways, this is worse than '87," said James D. Baer, a managing member at Uhlmann Price Securities, a Chicago brokerage. Alluding to the previous session's 678-point drop, he added: "Going down 600 points a day adds up, but you're not getting a one-day purge," to shake sellers out of the market and pave the way for a renewed rally.

                                                President Bush holds a news conference to address concerns about the economic crisis, saying the government is acting and will continue to act to restore stability to U.S. markets. He outlines the problems and steps the government will take. Courtesy Fox News. (Oct. 10)
                                                More Markets Videos


                                                Mr. Baer, who was a Treasury-futures trader on the floor of the Chicago Board of Trade in 1987, said, "I've never seen a credit market like this one. The fear has gotten way ahead of the fundamentals," including an unprecedented round of coordinated central-bank rate cuts this week that would normally prompt banks to increase their lending to one another.

                                                While the turmoil in equity markets around the world has been grabbing most of the headlines lately, many Wall Street veterans believe the root of the slide lies in the interbank lending market, where tensions aren't easing. Three-month Libor, a key lending benchmark for loans of U.S. dollars, climbed to 4.81875% Friday, the highest in nearly 10 months, up from 4.75% a day earlier. The jump overshadowed a sharp drop in the overnight rate.

                                                The losses for U.S. stocks followed a plunge Friday in international markets, which itself came after a late-day rout Thursday in the U.S. In Asia, Tokyo's Nikkei Index dropped 881.06 points, or 9.6%, to 8276.43, its lowest level since May 2003. Since the start of this week, the benchmark index has lost 24% of its value.

                                                In Hong Kong, the Hang Seng Index plunged 7.2% after falling by more than 9.5% intraday. Australia's S&P/ASX 200 ended down 8.3%, in its biggest one-day percentage loss ever. The U.K.'s FTSE 100 Index fell 8.4%.

                                                This week has seen an unprecedented coordinated rate cut by six central banks, a comprehensive bailout plan for U.K. banks and a move by the U.S. Federal Reserve to lend directly to borrowers in the commercial paper market. And yet markets have continued to plunge.

                                                "Despite the innovative and, in our view, comprehensive actions taken by the UK government and central banks, the sell-off in equity markets continues apace as relief in pricings of various credit and money markets have failed to materialise," says Robert Quinn, equity strategist at Standard & Poor's in London.

                                                After a late-Thursday warning from Moody's on the credit ratings of Morgan Stanley and Goldman Sachs, shares of the banks fell. Morgan Stanley recently slid 35% while Goldman dropped 19%. Goldman Sachs CEO Lloyd Blankfein commented that it is a time of "irrational pessimism" in the market.
                                                Markets on the Move
                                                [Markets Data Center]

                                                Track indexes and hot stocks, with roll over charting and headlines. Plus, comprehensive coverage of bonds, commodities and forex. Markets Data Center highlights:
                                                Most Actives, Gainers, Losers
                                                New Highs and Lows, Money Flows
                                                Intraday Futures and Currencies

                                                Citigroup rose 1.2% afer it said it would walk away from its efforts to buy Wachovia's banking operations, clearing the way for Wells Fargo to purchase the entire beleaguered bank. Wells Fargo slid 1.5% and Wachovia jumped 31%.

                                                General Electric rose 0.8% after it posted a 22% fall in third-quarter net profit, in line with the company's recent warning. Last week, General Electric raised $12.2 billion through a stock offering to help shore up its balance sheet and protect itself in case the market for short-term commercial paper runs into further trouble. It also got a $3 billion infusion from Warren Buffett's Berkshire Hathaway.

                                                Crude-oil futures continued a months-long slump, falling below $80 a barrel, and commodities generally suffered a broad-based selloff Friday.

                                                "The oil market is in the same carnage and liquidation that we have seen in other markets," said Peter Donovan, vice president with Vantage Trading, who was speaking from the trading floor at the New York Mercantile Exchange. "Everyday, we see the Dow Jones industrial get crushed, we are getting crushed," he said. Oil traders have ignored the news of OPEC's call for an emergency meeting on November 18.

                                                "There's such a herd mentality in every market, once the selling tide and wave starts, it's really hard to stop it," he said. While many believe the selloff in commodities is overdone, traders are still waiting on the sideline and reluctant to get back into the market as the general trend is pointing downward.
                                                —Carolyn Cui and Jeannie Clarke contributed to this article

                                                Write to Peter A. McKay at peter.mckay@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
                                                • 本周最后一篇： Connecticut Court Overturns Gay Marriage Ban -cosmoyx(万事俱备，只欠老婆); 2008-10-10 {1685} (#1123@52)
                                                  本文发表在 rolia.net 枫下论坛HARTFORD, Conn. -- Connecticut's Supreme Court ruled Friday that same-sex couples have the right to marry, making the state the third behind Massachusetts and California to legalize such unions.

                                                  The divided court ruled 4-3 that gay and lesbian couples cannot be denied the freedom to marry under the state constitution, and Connecticut's civil unions law doesn't provide those couples with the same rights as heterosexual couples.

                                                  "Interpreting our state constitutional provisions in accordance with firmly established equal protection principles leads inevitably to the conclusion that gay persons are entitled to marry the otherwise qualified same sex partner of their choice," Justice Richard N. Palmer wrote in the majority opinion that overturned a lower court finding.

                                                  "To decide otherwise would require us to apply one set of constitutional principles to gay persons and another to all others," Justice Palmer wrote.

                                                  Gov. M. Jodi Rell said Friday that she disagreed, but will not fight the ruling.

                                                  "The Supreme Court has spoken," Gov. Rell said in a statement. "I do not believe their voice reflects the majority of the people of Connecticut. However, I am also firmly convinced that attempts to reverse this decision -- either legislatively or by amending the state Constitution -- will not meet with success."

                                                  The lawsuit was brought in 2004 after eight same-sex couples were denied marriage licenses and sued, saying their constitutional rights to equal protection and due process were violated. They said the state's marriage law, if applied only to heterosexual couples, denied them of the financial, social and emotional benefits of marriage.更多精彩文章及讨论，请光临枫下论坛 rolia.net
    • 好高的楼啊~ are you building the knowledge bank? -appleclassical(自然醒); 2008-10-10 (#1119@52)
      • I am making notes of the HISTORY. -cosmoyx(万事俱备，只欠老婆); 2008-10-10 (#1124@52)

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