Tell Tale Sign of Recession

at this rate asset prices will be dirt cheap very soon. and why should american taxpayer be saddled with unperforming loan the the debtor has walkout and declared himself bankrupt anyway? to add to the injury, the mortgaged property have been sold at cheaper price, or would be soon. usa govt better of use that usd700billion to help the NINJA ( no income,no job, no asset) by increasing govt purchases (housing, training, public work, education etc). even if they provide interest free loan to homeless, poor people etc to get housing, training and education that would be better than the current plan. the economy would stand up again sooner.

you see the lesson here..
wealth is a mirage, we shoud strive for the Hereafter.

Money-Market Rates Climb After U.S. Congress Rejects Bailout

By Gavin Finch and David Yong

Sept. 30 (Bloomberg) -- Money-market rates in Europe jumped to records after the U.S. Congress rejected a $700 billion rescue plan for financial companies, heightening concern more banks will fail, and as lenders hoarded cash as the third quarter ends.

The euro interbank offered rate, or Euribor, that banks charge each other for one-month loans climbed to a record 5.05 percent today, the European Banking Federation said. Rates on three-month loans in dollars were as high as 10 percent as of 10:50 a.m. in London, said Ronald Tharun, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned lender. The dollar Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose.

``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''

Credit markets have seized up, tipping banks toward insolvency and forcing U.S. and European governments to rescue five banks in the past two days, including Dexia SA, the world's biggest lender to local governments, and Wachovia Corp. Money- market rates climbed even after the Federal Reserve yesterday more than doubled the size of its dollar-swap line with foreign central banks to $620 billion. Banks yesterday borrowed the most since 2002 at the ECB's emergency rate.

Libor Rate

The two-month Euribor rate reached 5.13 percent today, also an all-time high, the EBF said.

The London interbank offered rate that banks charge each other for three-month dollar loans increased 12 basis points to 3.88 percent yesterday, the highest level since Jan. 18. Libor, set by 16 banks including Citigroup Inc. and UBS AG in a daily survey by the British Bankers' Association, is used to calculate rates on $360 trillion of financial products worldwide, from home loans to credit derivatives.

Funding constraints are being exacerbated as companies try to settle trades and buttress balance sheets over the quarter-end, balking at lending for more than a day.

The three-month interbank offered dollar rate in Singapore jumped to an eight-month high of 3.90 percent. The three-month rate in Hong Kong rose by the most in almost a week to 3.664 percent. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate reached 98 points, close to a six-month high. The gap has averaged 45 basis points this year.

`Counterparty Fear'

Dexia got a 6.4 billion-euro ($9.2 billion) state-backed rescue, according to a statement from Belgian Prime Minister Yves Leterme today. The U.K. Treasury yesterday seized Bradford & Bingley Plc, Britain's biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg extended a lifeline to Fortis, Belgium's largest financial-services firm. Hypo Real Estate Holding AG received a loan guarantee from Germany, and Iceland agreed to rescue Glitnir Bank hf.

``Counterparty fear in the banking sector is at a new extreme,'' said Greg Gibbs, director of currency strategy at ABN Amro Holding Bank NV in Sydney. ``Credit conditions are as tight as a drum. Unless this settles down, central banks would need to cut rates globally to bring funding costs down.''

Futures on the Chicago Board of Trade show a 66 percent chance the Fed will trim its 2 percent federal funds target rate by 50 basis points in October, surging from zero percent a month ago. The odds of a quarter-point reduction are 34 percent.

Hoarding Money

Banks yesterday borrowed 15.5 billion euros from the ECB at the emergency overnight marginal rate. The ECB's marginal lending rate is 5.25 percent. The Bank of Japan injected more than 19 trillion yen ($182 billion) into the country's system over the past two weeks, the most in at least six years. The Reserve Bank of Australia pumped in A$1.95 billion ($1.6 billion) today and has injected more than A$2 billion a day on average since Sept. 15.

The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, stood at 233 basis points, showing cash scarcity is at a record.

The difference between what banks and the U.S. Treasury pay to borrow money for three months, the so-called TED spread, was at 331 basis points today after breaching 350 basis points for the first time yesterday. The spread was at 110 basis points a month ago.

``We can be sure that funding pressures are not going to ease while there is so much uncertainty,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Cash is going to be at a premium. There's really no end in sight.''

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net
Last Updated: September 30, 2008 06:02 EDT

The Bailout Fails; House Reps Torpedoed the Plan

That is what I like about America. The President is not the Executive power. Maybe he is the executive, but the bailout is tantamount to interference of the market. Also this would create moral hazard, ie if big business take risk and fail, yet the USA Govt bail them out, them that create precedent, in the future big businesses would become reckless in taking risk. Because if you fail, USA Govt will bail you out.

So I am glad the The House of Reps vetoed this bailout plan, notwithstanding that this is good for the economy.

Why should taxpayers pay for the excesses of big businesses? You take risk, you reap the reward, vice versa.

This article from yahoofinance.


Dow posts biggest daily point drop in history


Reuters | Tuesday, 30 September 2008
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The Dow industrials plunged overnight in the blue-chip average's biggest one-day point drop ever after US lawmakers unexpectedly rejected a $700 billion financial bailout, spooking investors who saw it as essential to halting a global market meltdown.

The Dow lost about 778 points and posted its biggest daily percentage decline since the October 1987 stock market crash, while the benchmark S&P 500 also had its worst day in 21 years after the House sent the bailout plan to defeat by a vote of 228 to 205.

The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed.

The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks, added to serious concerns after the credit crisis claimed new victims, including Wachovia Corp and a bevy of European banks.

Fear was deep and widespread, as investors dumped stocks for the relative safety of US government bonds. The Chicago Board Options Exchange Volatility Index, Wall Street's main barometer of investor fear, jumped 39 percent to 48.40, a nearly six-year high, and was at 46.72 at the close.

"I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix," said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.

The Dow Jones industrial average sank 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index was down 106.59 points, or 8.79 percent, at 1,106.42. The Nasdaq Composite Index was down 199.61 points, or 9.14 percent, at 1,983.73.

An index of financial services shares lost 16 percent, while Bank of America Corp fell 17.6 percent to $30.25.

Goldman Sachs slid 12.5 percent to $120.70.

"This is bad in a lot of different ways," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston. "Short-term, the market is getting crushed, but more importantly, we are telling clients we could be at the beginning of a whole new down phase. There is the potential for the S&P 500 to go all the way down to 1,000."

The bailout's demise comes after US bank Wachovia was forced to sell most of its assets to Citigroup in a deal brokered by the Federal Deposit Insurance Corp.

That followed fast upon fresh signs that financial market turmoil was spreading around the world. European authorities in recent days were forced to step in and rescue a group of banks in Britain, Belgium, Germany and elsewhere.

Global money markets remained paralyzed, even as central banks, including the Federal Reserve, pumped cash into world markets in an attempt to boost liquidity.

Although there were doubts that the government's rescue package would be sufficient to shelter the economy and stem the spread of the turmoil, investors said it was a necessary first step to restoring confidence in financial markets.

"We know that whatever they do won't save all the ills from an economic perspective," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia. "But to sit and maintain this sort of limbo is not good, and financial markets are reflecting that."

Technology shares also took it on the chin with Apple Inc's 18 percent slide to $105.26 leading the way after several brokerages slashed their recommendations on the tech bellwether and maker of the iPod.

Shares of Google fell 11.6 percent to $381, near a two-year low hit earlier in the day.

The bailout plan met heavy resistance from Republicans, who balked at the price tag and voted against the bill by a margin of more than 2 to 1. A majority of Democrats voted in favor.

"The problem is the American public resoundingly said 'no,"' said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "It's such a difficult, complex and unprecedented situation, and maybe the average American either doesn't understand it or accept the ramifications of what might happen if (Congress) doesn't come through."

Volume was heavy on the New York Stock Exchange, where about 2.02 billion shares changed hands, above last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 2.80 billion shares traded, well above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by about 30 to 1. On the Nasdaq, decliners beat advancers by more than 6 to 1.

Biggest Bailout; Capitalism Helping its Capitalists

In some ways, I have this feeling that this big bailout would be scuppered, instead another plan would be devised to help the home owners and people who are forced out of their homes in foreclosures than helping the greedy investment bankers.

READ BLOOMBERG HERE

Let those banks go bankrupt, and instead of giving those bankers USD$700billions, use the money to help 2.5millions Americans to buy homes instead.

Too bad if those banks go bankrupt and some rich investors lose money. Being investor means that you also have some responsibility, ie choose your investment vehicle carefully. The inherent lesson in investment is that it has risk.

It would be better for the economy of USA if they use that money to help Americans into home ownership. Americans would be able to buy house at a lower price, most likely.

Article below is written by JOHN MINTO, HERE IS THE LINK.

Tuesday, September 23rd, 2008

Capitalism rescues its biggest parasites
Capitalism is under the spotlight with the so-called sub-prime mortgage collapse which has hit at the heart of the US economy.

The bankers and brokers so devastated may be capitalism’s finest but they exhibit in abundance that most unattractive of human qualities – greed. In recent weeks Wall Street has appeared more as a gathering of cockroaches exposed to the light when the cupboard door is opened.

I haven’t lost any sleep at the prospect of heavy financial losses for those who inhabit this arcane world of shareholdings, derivatives and hedge funds. No mere mortals, these are the high priests of capitalism who manipulate financial markets where the wealth created by those who toil for wages and salaries is traded.

For those of us not versed in the finer points of the financial markets the basic story is quite simple.

The US sub-prime mortgage fiasco resulted from banks and brokers lending big sums of money to low-income families wanting to purchase their own homes. No problems so far. However this was an untapped market promising big returns for investors and as it gathered pace practices developed which preyed on the vulnerabilities of these families. The houses being purchased were frequently over-valued. One insider has reported that half were 10% overvalued, another quarter were up to 20% over and the rest were “so overvalued they defied all logic”.

People were frequently loaned 95% of the value of the property so when they signed the mortgage papers they immediately lost the equity they used for their deposit. They were duped by the brokers, the banks and the agencies who approved the deals and who realised many of these families wouldn’t have a hope of paying the mortgage. This rapidly became a professional loan shark operation on a gigantic scale.

Once they were signed the mortgages were on-sold in complex but very profitable arrangements which over time enmeshed all the major US banks, financial institutions and insurance companies.

Despite many of these families being at high risk of defaulting, the deals were so lucrative for banks and brokers that a parasitic feeding frenzy took off whereby the lending became more and more risky, corners were cut and the whole ugly edifice started to teeter.

It began to topple last year when families started to default on impossible mortgage repayments. As default rates increased the problem became a crisis with major institutions failing.

Until quite recently pundits were talking of a market “correction” taking place. In fact it’s the financial equivalent of a bloodbath.

But despite the media reporting, the real crisis is not the collapse of banks or insurance companies. They deserve to lose the shirts off their backs. Instead it’s the 2.5 million US families who will be forced from their homes this year. Many have already simply walked out and posted the keys back to the bank. They have lost their life savings used to put the deposit on the house and to pay what become unsustainable mortgage payments. Petrol and food price increases added to problems in meeting mortgage repayments. These families are being stripped bare. They are the victims of corporate greed.

US President George Bush’s answer is to provide up to one trillion (one thousand billion) dollars to bailout the banks by purchasing their bad debts. In a dramatic celebration of one of the seven deadly sins, the greater the greed the greater the bailout.

It was a interesting twist to note a report on a Christian website calling for Christians to pray for the bankers because while they may be rotten, even Jesus loved the rotten. Even so it’s a pity they didn’t add a thought to pray for those who have suffered from the bankers’ sins.

Imagine for a moment if this trillion dollars were given to support the victims of this corporate fiasco rather than the perpetrators. George Bush’s trillion dollars represents the equivalent of nearly half a million dollars per family tossed onto the street. Helping these people out would never have crossed his mind.

New Zealand has had this same experience many times but on a smaller scale. While the government would never bailout a small local business which fails, nor the investors in Blue Chip or Bridgecorp, it did not hesitate with the billion dollar rescue of the Bank of New Zealand in the 1980s.

You have to be very big, very wealthy, very irresponsible and very greedy before you can expect a government bailout.

With his trillion dollar handout George Bush has reminded us once more that when it comes to the biggest parasites, capitalism looks after its own.