A clown band plays at a children's hospital in Washington, D.C.
Ilargi: If there's one reassuring light flickering in this collapsing tunnel, it must be that you have the courage and audacity to leave control of the rescue and repair of our economic systems in the hands of the same ass clowns who confidently led you into that tunnel.
That takes guts. Still, I'm not quite sure what the reasoning behind it is. People like Greenspan, Bernanke, Paulson and Gordon Brown have either consistently missed out on a zillion signs that something was going awfully awry, or they have consistently lied to your face.
What makes you think that they will either start recognizing the $800 trillion gorilla now, or that they will all of a sudden begin to tell the truth? Wouldn’t it make sense to quiz them on what exactly it is they know about the matters at hand, and/or hook them up to a polygraph for a while?
Every single member of the power gang will tell everyone willing to listen that none of what is going wrong at the moment could have been foreseen. That is something we know to be a load of bull; yours truly, and many others, have been warning for years that it would come to this. Still, you leave the steering wheel in the hands of a rag tag bunch of incompetent liars. As I said, it’s brave, but I can't figure out how it would be smart too.
And it's of course not just on the level of governments, houses of representatives and central banks that insincere stupidity rules. Every citizen of the western world can be confident to have lost around 30% of their retirement savings at this point at the hand of fund managers. Every town, county and state is losing money fast. Not only through decreasing tax revenues, what's likely to be an even harder blow are the losses through bad investments by fund managers.
The most ironic thing of all will be that while you lose your jobs and your homes, the ass clown gang will either keep theirs or leave with golden handshakes and huge retirement benefits. You might want to think about that, and you might want to stop taking it all lying down.
A large number of clowns knew very well what was going on, and did indeed foresee much of it. The rest are dumb followers. Letting that very group now handle the issues makes you a dumb follower too.
They are spending trillions of dollars of your money on schemes that are guaranteed to fail and misfire; if they had the capacities needed to solve the problems, then there would be no such problems in the first place. It's either that, or they have intentionally designed and caused them. That's the only two options there are.
It's time to look at all the ass clowns through the prism of our legal systems, to hold them accountable for any and all intentional mismanagement of the public's interests. If it turns out they are merely stupid and ignorant, you fire them, since you don't want borderline cuckoos to manage your affairs. If they are not stupid, they've been lying, and should go to jail.
Start out by challenging the claims that none of the mayhem could have been foreseen; we know it could have been, because it was. Start with that, and then take it from there. That is what the judiciary branches of democratic societies are for, and if the laws of the land are not properly applied, there no longer is a democracy. It really is that simple.
Oh, and I have a little math question. The IMF has $200 billion in funds. It uses $2 billion on Iceland’s 300.000 citizens. Pakistan has 175 million people. What's missing in this picture?
Seriously, though, the billions that will go to Pakistan are going to make life very hard over there. The IMF and World Bank mafia is taking over the entire control over the nation's finances, in a version of economic martial law that looks all too familiar to those who know what happened in South America, Asia and Russia in the past five decades. Pakistan will become the new test lab for the disaster doctrine of the world's top ass clowns. You have been warned.
U.S. has plundered world wealth, says Chinese paper
The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies. A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.
The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper. Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.
"The grim reality has led people, amidst the panic, to realise that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University. Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.
"The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organisation, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.
Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account. A two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries was set to open on Friday. Though few analysts expect much in the way of concrete agreements, Shi said it could prove momentous.
"How can Europe and Asia grasp each other's hands and together confront the once-in-a-century global financial crisis sparked by the U.S.; how can they construct a new equitable and safe international financial order?" he said. "The world is waiting for this Asian-European meeting to achieve big results in financial cooperation."
This is a singularly arresting chart:
It’s Bloomberg’s chart of the day and has been reproduced by Paul Kedrosky on his blog, Infectious Greed. Kedrosky writes:The following more or less supports what some have been saying for a while — that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over — but it’s still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks’ prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won’t take much to tip banks over into insolvency again.
This is frightening stuff. Not least because the Fed’s own balance sheet is not looking healthy. Via Brad Setser at the CFR, here’s Paul Swartz’s latest graph:
The balance sheet is likely to grow further too. Jan Hatzius, Goldman’s chief economist has pointed out that during the Japanese credit crisis of the 1990s, the Bank of Japan ended up with a balance sheet equivalent to 30 per cent of GDP. The Fed’s is currently 12 per cent.
And on Wednesday the Fed made this announcement:The Federal Reserve Board on Wednesday announced that it will alter the formula used to determine the interest rate paid to depository institutions on excess balances.
Previously, the rate on excess balances had been set as the lowest federal funds rate target established by the Federal Open Market Committee (FOMC) in effect during the reserve maintenance period minus 75 basis points. Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points. This change will become effective for the maintenance periods beginning Thursday, October 23.
Which is an admission, basically, that the Fed lost control of the Federal Funds Rate. And if that needed proving, take a look at the graph from the New York Fed:
States' Tax Receipts Fell Sharply in Latest Quarter
State tax receipts were down sharply during the most recent quarter, representing what is likely to be their biggest decline in more than six years, according to a new report that highlights a widening fiscal crisis in state government.
The Center for Budget and Policy Priorities surveyed data from revenue departments for 15 states that had available figures, and found the median state experienced an inflation-adjusted 5.5% decline in total tax revenue during the quarter that ended in September. Total revenue was down in 14 of the 15 states, after adjusting for inflation. The organization, a liberal think tank based in Washington, estimates states will face a total budget gap of $100 billion by fiscal 2010, which starts in the middle of next year, or about 15% of their budgets.
The decline in state tax receipts has potentially broad economic significance. The federal government is expected to keep spending relatively steady to prop up the failing economy. But states generally have rules requiring balanced budgets, and so must either cut spending or raise taxes -- both the opposite of what many economists, including some deficit hawks, say is needed during the current economic downturn.
In addition, states often take measures that exacerbate the difficulties created by the recession, such as tightening Medicaid eligibility at a time when workers lose their jobs and health insurance. Cuts in state spending "will take demand out of the overall economy and worsen the economic downturn," said Nicholas Johnson, co-author of the Center's new paper and director of the group's State Fiscal Project.
"Furloughing teachers, or cutting reimbursements to Medicaid providers, or cutting grants to nonprofit social-service providers or raising tuition at public colleges, these are all things that take dollars out of families' pockets, and that's money they can't spend in their local economies."
The new report found that states reported a median, inflation-adjusted decline of 7.3% in sales-tax revenue, driven by the drop in consumer spending. Personal income-tax revenue, which had kept growing until recently, was down 2% in the median state, after being adjusted for inflation, the report found. The drop in personal income taxes was driven by mounting job losses, which last month increased at the fastest pace in five years, according to the Labor Department.
The state reporting the biggest decline in tax revenue was Washington, which had an inflation-adjusted drop of 11.3%. More broadly, the report found that 39 states have publicly announced budget problems for the current fiscal year or are projecting them for next year. In California, for example, officials are looking to plug an estimated $3 billion shortfall this year -- out of a total budget of $103 billion, said H.D. Palmer, a spokesman for the state's Department of Finance. In Pennsylvania, Gov. Ed Rendell last month ordered a statewide 4.25% cut in most departmental budgets.
Chris Edwards, director of tax-policy studies at the libertarian Cato Institute, said the recession should prompt states to tighten their belts and overhaul programs. "Private companies do it all the time, and I think it's beneficial," he said. "Recessions come and go -- we survive."
Treasury to Purchase Stakes in Insurers, Carmakers, Regional Banks in Expansion of Capital Injection
The U.S. Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections targeted at regional banks and other financial companies, a person briefed on the plan said.
A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.
An initial $125 billion out of the $700 billion approved by Congress was allocated last week to buy shares of nine of the largest U.S. banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Treasury Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.
"We had a problem that turned into a panic, and now the government is running around trying to put out the fires," said James Angel, a finance professor at Georgetown University in Washington. "If you need capital, it might be the only game in town." Paulson has shifted the financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers two days ago.
The Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, pressed Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government. "The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market," wrote Steve Bartlett, the group's president, in a letter yesterday to Kashkari.
Separately, a group of insurance companies -- mainly life insurers -- asked the Treasury earlier this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion. Some life insurers have asked the government to make the participation mandatory because firms don't want to identify themselves as needing funds, the person said.
Among regional lenders, PNC Financial Services Group Inc. of Pittsburgh said yesterday it is buying Cleveland-based National City Corp. for about $5.2 billion in stock after getting a $7.7 billion infusion from the Treasury. First Horizon National Corp., Tennessee's largest bank, said yesterday it obtained preliminary approval to receive about $866 million. The board of SunTrust Banks Inc., Georgia's largest lender, earlier this week authorized the sale of $1.6 billion to $4.9 billion in preferred shares to the Treasury.
The rescue law requires that Treasury's investments be publicly revealed within 48 hours. It isn't clear whether that means from the time the bank is approved or from when it receives the funds. Under the Treasury's rules for the capital injection program, some U.S. insurance companies -- those with a banking business -- are eligible to request an equity investment from the TARP. The Standard & Poor's 500 Insurance Index yesterday rose 2.31, or 1.7 percent, to 139.66. The broader S&P 500 Index fell 31.34, or 3.5 percent, to 876.77. A number of insurance companies have been battered by the recent market downturn.
U.S. life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms' liquidity and force them to raise capital. MetLife Inc., the biggest U.S. life insurer, raised about $2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc. said it would raise $2.5 billion from Allianz SE.
The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. Insurers invest policyholder premiums in bonds before paying claims.
American International Group Inc., once the world's largest insurer, accounts for about $48 billion of the declines. AIG, which posted three straight unprofitable quarters because of bad bets on the housing market, agreed last month to turn over an 80 percent stake to the U.S. in exchange for an $85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed $90.3 billion. AIG may need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22 on PBS's "The NewsHour With Jim Lehrer."
Insurers including Allstate Corp., Prudential Financial Inc., Lincoln National Corp., MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.
Iceland to get $2 billion IMF loan
The Icelandic Government has become the first Western country for 30 years to take an emergency loan from the International Monetary Fund by accepting a £1.3bn bail-out. Prime minister Geir Haarde said he expected the IMF to grant the loan within the next 10 days, allowing the country to withdraw £500m from the bail-out pot and refloat its collapsed currency within two weeks.
The loan's terms have not yet been finalised, but are likely to include restrictions on Iceland's monetary policy after the government was forced to nationalise its three biggest banks. Britain was the last European country to require an IMF loan, when it was forced to borrow from the global lender of last resort in 1976.
Iceland's emergency cash injection is intended to stabilise its currency, bolster the nationalised banks and strengthen its tax system, with repayments likely to begin between 2012 and 2015. The IMF praised the "ambitious economic programme" put forward by Iceland, promising a loan nearly 12 times the Nordic nation's contributions to the fund despite a policy of granting just five times each country's quota.
Paul Mathias Thomsen, an IMF delegate, said one of the aims was to decrease inflation by 4.5pc by the end of next year – down from 14pc last month – and restore the value of the krona. "The domestic bank exchange has been working well, but the external trade is severely affected," he said.
Speaking at a press conference with foreign minister Ingibjorg Gisladottir, Mr Haarde confirmed that Scandinavian governments were likely to come to the country's aid. "Once the IMF money is received it will be a lot easier for other governments to come in to the picture with loans." A Norwegian delegation has been in talks with the government in Reykjavik this week and the country has currency swap agreements in place with Norway, Denmark and Sweden.
Olafur Isleifsson, a former IMF committee member and economics professor at Reykjavik University, said the proposals was very favourable to Iceland and not unduly strict. "It is likely to garner the support of all Iceland's creditors," Prof Isleifsson said. "It is also very important that the IMF has not put down any conditions about the framework for talks between Iceland and Britain about the Icesave accounts."
Iceland IMF deal leaves British depositors out in the cold
Iceland is poised to receive a bailout loan from the International Monetary Fund (IMF) without giving the UK Government assurances about how it will reimburse thousands of British savers with money in Icelandic banks.
Geir Haarde, Iceland’s Prime Minister, said yesterday: “Our dealings with Britain over Icesave are not included in the talks. Those will be resolved on another level and we are at present not prepared to commit to British demands apart from those to which we are legally bound.” Iceland’s decision to go ahead without first securing a deal with the UK will come as a blow to the British Government, which has had to spend billions guaranteeing UK savings in Icelandic banks.
The Treasury has become embroiled in an increasingly bitter war of words. This week, Iceland released a transcript of a telephone conversation between Alistair Darling and Icelandic officials, showing that, contrary to Mr Darling’s claims on October 8, Iceland did not categorically refuse to compensate British savers.
The Chancellor said yesterday that he wanted the IMF money to be made conditional on a plan to reimburse Britain. Mr Darling said: “I was left in no doubt when I spoke to them at the beginning of this month that the British depositors were not going to be included. I’m afraid, as of today, the Icelandic Government has not done that.”
Mr Haarde and Ingibjorg Solrun Gisladottir, Iceland’s Foreign Minister, said yesterday that the country had secured a preliminary agreement from the international lender of last resort to borrow $2 billion, with the first $800,000 tranche due within ten days. Iceland’s foreign currency reserves have run dry and the island nation desperately needs dollars to pay for crucial imports including food, medicine and fuel.
The IMF is expected to impose tough conditions on Iceland in return for its loan, including the stipulation that the Government deleverage its nationalised banks soon. But Mr Haarde insisted there were no conditions in the IMF loan “that require any fundamental changes in the structure of Icelandic society”. The Icelandic Government said that it hoped Russia and Japan would give “follow-up” loans once the IMF money, a fraction of what is needed, was in place.
Mr Haarde continued his verbal assault on the UK Government, which appropriated assets from Kaupthing, the Icelandic bank, two weeks ago and is set to instruct Ernst & Young, the accountancy firm, as administrator of the UK assets of Landsbanki, the country’s other nationalised bank. “We still do not know what prompted the British Government’s shameful decision to put Iceland on a ‘terror list’ and apply terrorist law to freeze Icelandic assets in Britain,” said Mr Haarde. He added that his government was still considering suing Britain over its appropriation.
The Guernsey Government said that it will not bail out the subsidiary Landsbanki Guernsey, which has more than 2,000 savers’ accounts. UK savers who have accounts with Kaupthing Singer & Friedlander on the Isle of Man are also facing uncertainty over how much of their money will be safe, as the Goverment there has not yet decided whether to put the subsidiary into liquidation. The vast majority of British savers with deposits in Icesave will get their money back next month, the Financial Services Compensation Scheme announced yesterday.
IMF’s decision on Pakistan package next month
The International Monetary Fund will consider a rescue package for Pakistan on Nov 7 during a meeting of its board of governors in Washington. Diplomatic sources in the US capital say the Fund has agreed in principle to help Pakistan avoid defaulting on its foreign debt repayments but a final decision can only be taken by its governors.
The IMF has estimated that Pakistan has unmet funding needs of around $4 billion and needs some extra cash to meet its other urgent requirements. The Fund is willing to provide up to $6 billion. On Thursday, Finance Adviser Shaukat Tareen told reporters that Pakistan needed up to $4.5 billion within the next 15 to 30 days to avoid a default.
If IMF’s board of governors approves a rescue package for Pakistan on Nov 7, the country can meet its balance of payment requirements on time but this may not be enough to jumpstart its ailing economy. Pakistani officials believe that IMF’s endorsement will not only bring the much-needed cash advance but will also encourage other donors to come forward and help.
But a credit-rating company, Standard & Poor’s, warned on Thursday that the IMF bailout package might not be enough to save Pakistan from further credit-rating cuts. “It doesn’t mean they are out of the woods,” said Agost Benard, a Singapore-based associate director at S&P, which cut Pakistan’s debt rating on Oct 6 to CCC+, seven levels below investment grade. “It’s just the first step in the right direction, or the only direction Pakistan has to go now.”
IMF tells Pakistan to cut army
The International Monetary Fund yesterday ordered Pakistan to cut military spending by almost a third as fears grew that the nuclear-armed nation's economic crisis was now so bad that its role in the war against al-Qa'ida and the Taliban was imperilled.
The secret IMF demand - one of several measures that the bankrupt country is being asked to agree to for a bailout of its tanking economy - was disclosed as President Asif Ali Zardari prepared to go cap in hand to Saudi Arabia for help. Also yesterday, it was announced that US General David Petraeus would travel to Islamabad next week for talks.
Amid reports that General Petraeus was planning the same strategy for Pakistan and Afghanistan that he used in Iraq, it emerged that the boss of Islamabad's spy agency, the ISI, General Ahmed Shuja Pasha, was in Washington to mend fences over his organisation's double-dealing with the militants.
A senior military source in Islamabad told The Weekend Australian last night: "A cut to military spending of anything like that magnitude - even 10per cent, let alone the more than 30per cent that is being demanded - would rip the heart out of the army and its ability to operate effectively in a situation where it is in the front line of the battle against al-Qa'ida and the Taliban ... If we go, al-Qa'ida wins. Is that what the IMF wants to see?"
The country is now rated as among the worst credit risks in the world, ahead of only the Indian Ocean Seychelles islands in the Standard & Poor's index. The military pay cut is just a part of IMF demands. What was being sought in exchange for a bailout was effectively what had been termed "economic martial law".
Six IMF directors and two World Bank directors would oversee all preparations for the country's budget, and would have direct intervention in the running of the State Bank of Pakistan. IMF officials would also be imposed even at the provincial level to monitor tax collection.
The number of pensionable government jobs could be cut by almost half. After agreeing to the conditions, Pakistan would get $US9.6billion ($14.5billion) from the IMF over three years. Last night, Mr Zardari asked where money given to Pakistan since September 11, including a handout of $US10billion from the US to be used in the war against terrorism, had gone.
"We could have averted the present difficult economic situation if tens of billions of dollars received in assistance and foreign remittances during the past several years after 9/11 had been wisely spent on infrastructure development instead of importing consumer goods," he said. He might have found his answer in newspaper reports yesterday that a cabinet reshuffle remained stalled as would-be ministers from rival coalition parties wrangled over who would get the most lucrative posts.
A leading Karachi banker warned "without external assistance, Pakistan doesn't have the resources to meet its obligations," and added: "Pakistan should seek the IMF's assistance now instead of waiting for the eleventh hour. It is already 10:55." Cricketer-turned-politician Imran Khan said the country was facing an economic crisis of a magnitude never seen before. "Unless we change, we are heading towards a disaster. The only way we can change is if we have an independent judiciary checking the abuse of power," he said.
Japan, China Leaders Agree to Stem Dollar's Plunge
Leaders of Japan and China agreed Friday that the two countries will cooperate to stem the dollar's further plunge and overcome the U.S.-originated global financial crisis.
Japanese Prime Minister Taro Aso, in separate meetings with Chinese President Hu Jintao and Chinese Premier Wen Jiabao, confirmed that the two nations will strive to maintain the current monetary system with the U.S. dollar playing the role of the world's key currency. Aso told Hu that the further deepening of the current financial crisis would undermine national interests of the two countries. Aso stressed that world countries must take their respective measures to stabilize their financial systems.
Hu replied that countries must cooperate in dealing with the current crisis including in an emergency summit of the Group of 20 countries in Washington next month, which will be joined by the two countries. After meeting with Hu and Wen, Aso told reporters that Japan and China are not hoping for a further plunge in the dollar and a meltdown of the dollar-based currency regime, adding the two countries should contribute to maintaining the currency regime.
The dollar, which dived to a 13-year low below 91 yen in London Friday, made China and Japan nervous because they are the world's top two holders of foreign exchange reserves. The nations are believed to have invested massively in dollar-denominated securities. In a move to beef up the mutually beneficial strategic relationship, Aso and Hu agreed that they will hold telephone talks frequently. They confirmed that Japan and China are permanent neighbors and are in mutually beneficial ties.
In the meeting with Wen, Aso stressed the importance that China pay attention to consumers' worries about and distrust in Chinese food products and wipe them out, referring to a string of problems caused by Chinese foods, including those tainted with melamine, a toxic chemical. Urged by Aso to strengthen food inspections, Wen promised that Beijing will address the issue.
Aso and Wen agreed that the two countries will cooperate in six- party talks aimed at making North Korea give up its nuclear ambition. Aso asked Wen for China's help in resolving the issue of past abductions of Japanese nationals by North Korean agents. Wen only expressed hopes for a solution.
Furthermore, Aso and Wen agreed that Japanese, Chinese and South Korean leaders will launch a three-way summit in Japan by year-end. The first three-way summit is likely to take place in the southwestern Japan city of Fukuoka in mid-December. A string of meetings took place on the sidelines of a two-day summit of the Asia-Europe Meeting, or ASEM, forum that just started here. Each of the talks lasted for over 40 minutes.
Asia Backs Sarkozy Push for Financial-Market Revamp
Asian and European leaders called for an overhaul of global banking rules that date to World War II, lending support to French President Nicolas Sarkozy as he presses the U.S. to join an effort to resolve the financial crisis.
The heads of state and government "pledged to undertake effective and comprehensive reform of the international monetary and financial systems," according to a statement released at a meeting in Beijing that ended today. Chinese Premier Wen Jiabao told a press conference after the gathering of more than 40 Asian and European Union leaders that "we need even more financial regulation to ensure financial safety."
The two-day summit was the first meeting of Asian and EU chiefs since calls for coordinated action mounted along with bank failures and plunging stock prices that began last month. The U.S. will host the Group of 20 industrialized and developing nations on Nov. 15 at the urging of Sarkozy.
South Korea said it "highly valued" Sarkozy's "strong leadership." The French president has compared the effort to the 1944 Bretton Woods conference in New Hampshire that fixed exchange rates, hitched the world to the gold standard and created the International Monetary Fund and World Bank. The EU has floated the ideas of including more bank supervision, stricter regulation of hedge funds, new rules for credit-rating companies and changes at the IMF.
"The IMF, World Bank and other agencies are falling behind the times," said Jeon Hyochan, a researcher at Samsung Economic Research Institute in Seoul. "The agencies need to strengthen their ability to take pre-emptive measures." The Washington-based IMF is considering an emergency program to prevent a collapse of emerging markets by almost doubling borrowing limits for members and waiving its standard demands for economic austerity measures. The agency agreed yesterday to lend Iceland $2.1 billion in accordance with existing rules after the island nation's banking system collapsed, threatening a prolonged economic contraction.
"There is a unanimous consensus to push forward reform," said Kazuo Kodama, a spokesman at Japan's Ministry of Foreign Affairs. No agreement has been reached on the details of that reform, he said. Japan wants the IMF to be able to act in a "nimble, speedy, timely manner" and "without excessively stringent conditions" when helping poorer nations, said Osamu Sakashita, a spokesman for Prime Minister Taro Aso. The EU and Asian leaders were less specific in their statement, which says the "IMF should play a critical role in assisting countries seriously affected by the crisis."
Sarkozy's campaign for an overhaul threatens to expose differences with the U.S. over global financial governance. That may provoke tensions and bog down talks while individual countries continue to act on their own to limit the fallout. Sarkozy said the mid-November meeting in Washington will involve regulatory decisions because EU and Asian leaders agree that action is needed. He and Wen said China will be an "active" participant. "We have all understood it would not be possible to simply meet and have a conversation," Sarkozy said. "We needed to turn it into a decision-making forum."
The gathering to be hosted by President George W. Bush will be the first of a series of financial summits that will also address foreign-exchange rates, according to Sarkozy, who said talks about currencies may be put off until after Nov. 15. "It is simply impossible to talk about the financial crisis without discussing currencies and the way in which they interact." The pound and the euro have both lost more than 20 percent against the dollar in the past three months, and more than 30 percent against the yen. Aso said derivatives products that "flow around the world" should also feature on the agenda.
South Korea stressed the importance of trans-Atlantic unity in taking any actions. "If Europe and the U.S. become united, it would enhance whatever countermeasures are taken," South Korean President Lee Myung Bak said, according to his spokesman, Lee Dong Kwan. The credit crisis is choking off funds to companies and people, undermining business and consumer sentiment. Economists at Deutsche Bank AG expect the Group of Seven economies to contract 1.1 percent next year, the worst since the Great Depression, and global growth to be the weakest since the 1980s.
Stock markets and commodities have tumbled along with currencies this year amid growing concern that governments, central banks and finance ministers are powerless to counter eroding corporate earnings and a global recession. Oil-producing nations haven't escaped the carnage as crude plunged 56 percent from its July peak to $64 a barrel. More than $10 trillion has been erased from the market value of equities so far this month, accounting for about one-third of the total value wiped off stocks this year. MSCI's index of developed and emerging stock markets plunged 48 percent in 2008 and is heading for its worst year on record as credit-related losses topped $660 billion.
The Standard & Poor's 500 index is down more than 40 percent this year, poised for its worst annual retreat since 1931. The S&P 500 has lost 26 percent since U.S. investment bank Lehman Brothers Holdings Inc. declared bankruptcy on Sept. 15, while the U.K.'s FTSE 100 has fallen 25 percent, Japan's Nikkei 225 has tumbled 37 percent and Germany's DAX has dropped 29 percent.
Mortgage Threat From Hedge Funds Irks Democrats
Several Democratic lawmakers lashed out Friday at hedge funds that have threatened to block attempts to renegotiate mortgages for struggling homeowners. At least two funds, Greenwich Financial Services and Braddock Financial, have told banks that they may take legal action if loans are renegotiated in a way that hurts the funds’ financial interests.
Many hedge funds have purchased securities backed by mortgages. The New York Times reported Friday that Greenwich Financial and Braddock Financial, and possibly other funds, were resisting attempts to renegotiate the loans. Several Democratic lawmakers, including Representative Barney Frank of Massachusetts, sent a letter to William Frey, the chief executive of Greenwich Financial, and Harvey B. Allon, the head of Braddock, asking them to testify about their positions at a hearing next month before the House Financial Services Committee. Mr. Frank heads that panel.
In their letter, the lawmakers expressed outrage that funds were threatening to block the renegotiation of troubled home loans. The letter also urged the funds to voluntarily withdraw their opposition. “For the hedge fund industry, which has flourished from much of the past decade, to take steps so actively in opposition to what is currently in the national interest is deeply troubling,” the letter stated.
The clash highlights the type of conflicts that are likely to intensify as government intervention in the mortgage market widens. The Bush administration is working on a plan under which the government would absorb some of the losses resulting from modifying home loans.
Rich-Poor Gap Widens in Europe, North America
The Paris-based Organization for Economic Cooperation and Development (OECD) released a study Tuesday showing clearly that the gap between rich and poor is widening in Europe and North America. The report, which covers developments spanning 20 years in 30 countries, contains some interesting nuggets:
- The U.S. has the greatest inequality in the OECD after Mexico and Turkey -- and the gap has grown rapidly since 2000. The richest 10 percent of Americans earn an average of $93,000 (highest in the OECD) - whereas the poorest 10 percent of Americans earn an average of $5,800 (about 20 percent lower than the OECD average).
- Since 2000, income inequality has grown fastest in Germany, although Germany's gap remains below the OECD average.
- British inequalities have been falling since 2000, but the rich-poor gap there is still wider than in three-fourths of OECD countries.
- The rise in inequality is generally due to the rich improving their incomes relative both to low- and middle-income people.
- Older people are much less likely to be poor than in the past. Poverty has shifted from pensioners to young adults and families with children.
The report is likely to fuel popular resentment on both sides of the Atlantic about what is widely perceived to be the essential unfairness of this month's rapid, massive bank bailouts engineered by governments in response to the financial crisis. This week Ulrike Mascher, President of Germany's largest social welfare advocacy organization, drove the point home: "People ask themselves why 500 billion euros can be mobilized very quickly to recapitalize banks while an effective poverty-fighting program is rejected due to budgetary concerns."
The study offers fodder to those like Mascher who argue that the bailouts must now be followed by economic stimulus efforts. In the U.S., Democrats are pushing for such a package, and both President Bush and Fed Chairman Bernanke have voiced support. In Europe opinions are mixed, but many are watching the U.S. debate. Anticipation of a U.S. growth package has already pushed the dollar to its highest level against the euro since the summer of 2007.
The OECD report also offers a caution, however, to those arguing that the best way to curb poverty and reduce inequalities is for government simply to redistribute wealth through social policies. Such approaches are proving to be less effective because technological progress and globalization are making it harder for low-skilled workers to find work. Studies by the IMF and many other sources confirm that better access to education and training is more likely to close income disparities.
So who bucked the trend? According to the report, the big winner was France - where income inequalities have fallen as fast as the country's integration into the global economy has risen. C'est incroyable.
Emerging markets turmoil engulfs UK listed banks
The spread of financial turmoil to emerging markets caused investors to flee the shares of HSBC and Standard Chartered, the UK banks previously seen as most resilient amid the ongoing credit crisis. Debt markets are signalling that investors fear a blow-up of one or more emerging economies, and the International Monetary Fund was working on an emergency plan yesterday to prop up governments facing a cash crunch.
The global sell-off in equities was particularly pronounced in several developing markets, compounding problems in what until recently had appeared to be one section of the global economy that might escape the worst of the crisis. HSBC fell 13.5 per cent to a five-year low of 696p, while Standard Chartered dropped 16 per cent to 758p, its lowest since April 2002. The banks' big exposures to fast-growing Asian and emerging economies had helped insulate them from the financial storm hitting Western financial markets – until now.
Morgan Stanley analysts cut their earnings estimates for the two banks, citing slowing growth in Asia, where HSBC makes over half its profit and Standard Chartered gets about 80 per cent of earnings. Both banks have big businesses in Hong Kong, whose economy is slowing sharply. Standard Chartered is also a major player in South Korea, where the government was forced to prop up the banking system last week.
"We question how long the [HSBC] shares can tread water in the face of falling earnings and increased pressure on capital, and we think the dividend is exposed," Morgan Stanley said. Both HSBC and Standard Chartered have strong capital positions compared with UK rivals. They also more than cover their lending with deposits, unlike competitors who rely on shaken wholesale markets. But with the crunch hitting emerging economies hard, concerns are increasing that Asia could see a repeat of the financial crisis that devastated the region 10 years ago.
Shares in Santander, the owner of Abbey in the UK, also fell heavily, losing 10 per cent. Spain's biggest bank has until now not only weathered the crisis but taken advantage of it,mopping up Alliance & Leicester and Bradford & Bingley's deposits business. However, Santander is a big player in Latin America, where fears about sovereign debt defaults are rising after Argentina nationalised its private pension system to give it reserves that it can use in case it can't refinance its debts on the global markets. HSBC also has a large Latin American business, particularly in Brazil and Mexico.
The Brazilian stock market was among those down sharply yesterday, falling a further 8 per cent, as the central government struggled to prop up its currency, the real, which has already lost a third of its value against the US dollar this year. On Thursday, the government said it would put a quarter of its foreign reserves on the line to defend the real. Other emerging market governments that have been trying to boost their plunging currencies include Russia and Mexico. Trading on the Russian stock exchange was once again halted yesterday afternoon, because of fears over its economy now that oil prices have collapsed.
The cost of insuring emerging market debt, as measured by credit default swap spreads, has soared to a level not seen since the brief financial panic of autumn 2002. Economists predict that a weakening global economy will crimp demand for their exports, especially commodities, which have already plunged in price. A sharper-than-expected fall in Chinese economic growth this week snuffed out hopes that emerging markets might now be big enough to continue growing strongly without Western demand.
Making matters worse, institutional investors overseas, who had put money into emerging markets during the economic boom, are now pulling back. The phenomenon has been particularly acute among hedge funds, many of which have been locked in a downward spiral of widening losses and investor redemptions since the Lehman Brothers collapse triggered the market meltdown.
John Lonski, the chief economist at Moody's Investors Service in New York, said: "It's the old cliché of a butterfly flipping its wings somewhere in Africa and eventually changing the air pressure so that we get a nasty hurricane in North America. It is hard to argue that if the developed economies, which are the principle markets for their products, slow sharply, emerging market countries won't be adversely affected."
The tumult in emerging markets has brought the IMF – the global lender of last resort – back into the spotlight. Yesterday, it was debating plans to relax the rules that usually govern its loans and which often include an insistence on market-oriented reforms. The fund has $200bn to lend and countries as disparate as Hungary, Ukraine, Iceland and Pakistan have all approached it to help tide them over during the chaos in credit markets, where they would raise debt in more normal times.
Iceland, whose three biggest banks have collapsed with more liabilities than its government could shoulder, said it had won agreement for a $2.1bn loan from the IMF, which could be rubber-stamped within ten days. Meanwhile, Ban Ki-moon, the United Nations secretary general, called for more action. He said the financial crisis "compounds the food crisis, the energy crisis, the crisis of development in Africa. It could be the final blow that many of the poorest of the world's poor simply cannot survive."
A 21st-Century Bretton Woods
There wasn't much to see in Bretton Woods in July 1944, when delegates from 44 countries checked into the sprawling Mount Washington Hotel for the United Nations Monetary and Financial Conference. Almost a million acres of New Hampshire forest surrounded the site; there were free Coca-Cola dispensers, but few other distractions.
In this scene of rustic isolation, 168 statesmen (and one lone stateswoman, Mabel Newcomer of Vassar College) joined in history's most celebrated episode of economic statecraft, remaking the world's monetary order to fend off another Great Depression and creating an unprecedented multinational bank, to be focused on postwar reconstruction and development. At the Final Plenary, a sea of black-tied delegates gave a standing ovation to British economist John Maynard Keynes, whose intellect had permeated the three weeks of talks. Lord Keynes paid tribute to his far-seeing colleagues, who had performed a task appropriate "to the prophet and to the soothsayer."
The Bretton Woods conference has acquired mythical status. To economic-history buffs, it's akin to the gathering of the founding fathers at the constitutional convention. To politicians anxious to make their marks upon the world, it's a moment to be richly envied. The recent calls from British Prime Minister Gordon Brown and French President Nicolas Sarkozy for a new Bretton Woods conference, to which the Bush administration has acceded, have caused TV crews to descend upon the old hotel, which has undergone a $50 million facelift. But Bretton Woods revivalism is nothing new. Indeed, it's a long tradition.
After the onset of the Latin debt crisis in 1982, U.S. Treasury Secretary Donald Regan floated the idea of a new Bretton Woods to steady the hemisphere's currencies. The following year, reeling from three devaluations of the franc, French President Francois Mitterrand declared, "The time has really come to think in terms of a new Bretton Woods. Outside this proposition, there will be no salvation." Mitterrand persisted in this grandiloquence over the next two years. He finally quieted down in 1985, when Margaret Thatcher dismissed his proposal as "generalized jabberwocky."
In the wake of the emerging-market crises of 1997-98, Bretton Woods nostalgia broke out again -- this time in post-Thatcher Britain. "We should not be afraid to think radically and fundamentally," Tony Blair opined. "We need to commit ourselves today to build a new Bretton Woods for the next millennium." The precise content of Mr. Blair's millennial ambition was, shall we say, vague. But no fellow leader was rude enough to say so.
Among acts of international economic statesmanship, perhaps only the Marshall Plan has been invoked more frequently. There have been calls for a Marshall Plan for postcommunist eastern Europe, a Marshall Plan for Africa, a Marshall Plan for the inner cities. Indeed, anybody wanting Washington to splurge finds Marshall exceedingly convenient.
But Bretton Woods has a richer and more rarefied cachet. It was about reordering the international system, not just mobilizing money for an enlightened cause. And whereas the Marshall Plan was an example of the unilateralism for which the U.S. is known, the Bretton Woods conference was a triumph of multilateral coordination. It featured countries as diverse as Honduras, Liberia and the Philippines (Keynes spoke disdainfully of a "most monstrous monkey-house"), though it did not include South Korea or Japan, important voices in today's economic summitry.
Both sides of the Bretton Woods achievement seem alluring today, yet both may be chimerical. The conference rebuilt the economic order by creating a system of fixed exchange rates. The aim was to prevent a return to the competitive devaluations best illustrated by the "butter wars." In 1930 New Zealand secured a cost advantage for its butter exports by devaluing its money; Denmark, its main butter rival, responded with its own devaluation in 1931; the two nations proceeded to chase each other down with progressively more drastic devaluations.
This beggar-thy-neighbor behavior added to the protectionism that brought the world to ruin, and the Bretton Woods answer was simple. In the postwar era, the dollar would be anchored to gold, and other currencies would be anchored to the dollar: No more fluctuating money, ergo no competitive devaluation. To undergird this system, the Bretton Woods architects created the International Monetary Fund, which was far more central to their ambitions than their other legacy, the World Bank. If a country's fixed exchange rate led it into a balance of payments crisis, the IMF would bail it out and so avert devaluation.
Today the idea of another monetary rebirth has much to recommend it. The credit bubble that has wreaked havoc on the world's financial markets has its origins in a two-headed monetary order: Some countries allow their currencies to float, while others peg loosely to the dollar. Over the past five years or so, this mixture created a variation on the 1930s: China, the largest dollar pegger, kept its currency cheap, driving rival exporters in Asia to hold their exchange rates down also. Thanks to this new version of competitive currency manipulation, the dollar-peggers racked up gargantuan trade surpluses. Their earnings were pumped back into the international financial system, inflating a credit bubble that now has popped disastrously.
Persuading China to change its currency policy would be a worthy goal for a new Bretton Woods conference. But currency reform is low on the agenda of the summit that the Bush administration plans to host on Nov. 15. (The administration styles this gathering a "G-20 meeting," ignoring the European talk of a Bretton Woods II.) The British and French leaders who pushed for the meeting want instead to talk about financial regulation -- how to fix rating agencies, how to boost transparency at banks and so on. But many of these tasks require minimal multilateral coordination.
If the Europeans shrink from demanding that China cease pegging to the dollar, it's perhaps because they anticipate the concession that would be asked of them. China isn't going to give up its export-led growth strategy for the sake of the international system unless it gets a bigger stake in that system -- meaning a much bigger voice within the International Monetary Fund and a corresponding reduction in Europe's exaggerated influence. When you strip out the blather about bank transparency and such, this is the core bargain that needs to be struck. Naturally, the Europeans aren't proposing it.
It will be up to the two great powers -- the U.S. and China -- to fashion the deal that brings China into the heart of the multilateral system. Here, too, is an echo of the first Bretton Woods, for underneath the camouflage of a multilateral process there was a bargain between two nations. Britain, the proud but indebted imperial power, needed American savings to underpin monetary stability in the postwar era; the quid pro quo was that the U.S. had the final say on the IMF's design and structure. Today the U.S. must play Britain's role, and China must play the American one.
There's a final twist, however. In the 1940s the declining power practiced imperial trade preferences; the rising power championed an open world economy. When Franklin Roosevelt told Winston Churchill that free trade would be the price of postwar assistance, he was demanding an end to the colonial order and the creation of a level playing field for commerce. "Mr. President, I think you want to abolish the British empire," Churchill protested. "But in spite of that, we know you are our only hope."
Today it is the rising power that pursues mercantilist policies via its exchange rate. China's leadership, which sits atop an astonishing $2 trillion in foreign-currency savings, could trade a promise to help recapitalize Western finance for an expanded role within the IMF. But China may simply not be interested. The future of the global monetary system depends on whether China aspires to play the role of Roosevelt -- or whether it prefers to be a modern Churchill.
Recession: just how bad can it really get?
It was a day that left economists scrambling for the right doom-laden adjective. “Shocking”, “dire” and “horrific” were just some of the words used to describe official confirmation that Britain is halfway towards its first recession since Margaret Thatcher was being turfed out of Downing Street and into the Lords.
But as equity, currency and bond markets suffered intense volatility, it was Charlie Bean, one of the Bank of England’s own deputy governors, whose language managed to eclipse all the City professionals. “This is a once-in-a-lifetime crisis, and possibly the largest financial crisis of its kind in human history,” he said, in a stark abandonment of the measured, cautious language that is a hallmark of central bankers around the world.
And, as a highly-respected professional economist, the official figures for the UK’s gross domestic product for the third quarter will have left him with a furrowed brow. True, the fact that the economy is heading for recession is of little surprise. The pillars of the UK economic boom – rising house prices, a flourishing financial services sector and unprecedented consumer spending – have all been unravelling faster and faster for much of the past 12 months.
Yesterday, it sped up again. The 0.5pc contraction in GDP was the first since the third quarter of 1990, and twice as bad as economists had pencilled in. Farming and government services were the only two sectors to escape a decline in output, rising by 0.5pc and 0.4pc respectively.
But it was the 0.4pc shrinking in the services sector – which accounts for the lion’s share of the economy – that sounded the loudest alarm among economists. “For the services sector to shrink for the first time since 1992 marks a turning point in the economic fortunes of the UK,” said Hetal Mehta, senior economist from the Ernst & Young ITEM Club. The sharp contraction in a sector that spans everything from hotels to retail means that those economists who were deemed pessimists about the economy’s outlook will now rapidly become the consensus view.
And, as David Shepherd, professor of economics at the University of Westminster’s Westminster Business School , said, the pessimists will be those who now predict unemployment will move even higher than the 12pc seen in the early years of the first Thatcher Government. While there is disagreement over how many jobs Britain will lose over the next 18 months, no one disputes that the rate is heading north. Unemployment jumped the most in 17 years in the three months to August, rising by 164,000 to 1.79m, leaving the rate at 5.7pc.
David Blanchflower, the member of the Bank of England’s Monetary Policy Committee whose once- pessimistic view is now becoming the consensus, predicts unemployment will reach 2m. Bank of America expects 2.6m people to be out of work during the second half of next year, while Capital Economics is forecasting unemployment to reach 3m by the end of 2010. Despite the Government’s £500bn bail-out of the British banking system and its desperate efforts to get banks lending again to each other and to UK Plc, most expect job losses to spread beyond the financial services sector.
Mr Bean admitted as much, telling the Scarborough Evening News that “in terms of impact on the real economy we are still in early days”. GlaxoSmithKline, the country’s biggest pharmaceutical company, has reduced its workforce in recent weeks and Marks & Spencer is in consultation over job cuts. “We are in for a testing time over the next year which will see more people faced with unemployment and redundancy across the whole socio-economic spectrum including the construction, manufacturing, financial and services industries,” said Stephen Gifford, chief economist at Grant Thornton.
The weakening of the economy since the onset of the credit crisis has resulted in a loss of output worth £15bn, assuming the economy had expanded at the estimated long-term sustainable growth rate of 2.75pc . The third quarter’s drop represents about £1.6bn in lost output alone. And with unemployment set to rise across the economy, few believe house prices are near the bottom. With the mortgage market still in deep freeze, the country’s battered banks are unlikely to revive lending in dramatic fashion over the next couple of years, despite the Government’s demands that they do.
Economists at Capital Economics only expect we will hit the bottom in house prices after a 35pc fall. Once again, it’s a bearish forecast but one that could become mainstream. Mortgage approvals are down almost 60pc in the past 12 months, according to the latest figures from the British Bankers’ Association. With the economic picture rapidly deteriorating, pressure on the Bank of England to try to limit the pain with a series of aggressive interest rate cuts is growing.
Andrew Sentance, a member of the MPC, admitted yesterday that “we’ve had some quite deep and severe recessions in the UK before. Hopefully we can avoid that sort of situation in the current circumstances, but the risks of that have increased”. The CBI and Institute of Directors are urging another half percentage point cut at next month’s MPC meeting. Some economists believe there is a chance Governor Mervyn King and company will make an unprecedented cut of a full percentage point in a bid to revive the rapidly falling confidence of both businesses and consumers alike.
Chancellor Alistair Darling said: “I’ve lived through the recessions this country saw in the 1970s, 80s and 90s. The difference is this time we are determined to do everything we can and as soon as we can to help people so that if they lose their jobs they can get back into work.” The Chancellor, too, appears to be admitting that the prospects of getting away with a shallow recession have receded.
Georgia's Alpha Bank & Trust Seized as U.S. Closings Rise to 16
Alpha Bank & Trust in Alpharetta, Georgia, with $346 million in deposits, was seized by regulators and closed as the collapse of the housing market and loan defaults claimed a 16th U.S. bank this year. Alpha, with $354 million in assets, was shut by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corp. sold the deposits to Stearns Bank N.A., of St. Cloud, Minnesota. Alpha's two offices north of Atlanta will open on Oct. 27 as branches of Stearns Bank, the FDIC said yesterday.
Regulators have closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. About 4.4 percent of Alpha's assets were defaulted real-estate loans it took back on its balance sheet, quadruple the total for most U.S. banks, based on data compiled by Charlottesville, Virginia-based SNL Financial.
Alpha "could no longer meet the regulatory minimum to ensure safety and soundness," Robert Braswell, commissioner of the Georgia Department of Banking and Finance, said in an interview. He declined to discuss what activities or failed investments led to the bank's collapse.
Stearns is assuming Alpha's insured deposits and will acquire about $38.9 million, or 11 percent, of the assets as of Sept. 30, the FDIC said. Stearns didn't pay a premium, the FDIC said. The agency said it will retain the remaining assets and $3.1 million in uninsured deposits held in 59 accounts. Alpha Bank had $16.8 million in brokered deposits, excluded from the sale to Stearns, the FDIC said. Brokers will be paid by the FDIC for insured funds. Construction and development loans accounted for 76 percent of its $305.7 million in total loans.
The cost to the FDIC deposit insurance fund will be $158 million, the agency said. Alpha is the second Alpharetta-based bank closed by the government this year. In August, Integrity Bank was closed after failing to raise $40 million to cover losses on residential and commercial development loans. Stearns Bank had $723 million in deposits as of June 30, a 24 percent drop from a year earlier, and $1 billion in assets, a 21 percent decline from a year ago, according to FDIC statistics.
The FDIC oversees 8,451 institutions with $13.3 trillion in assets, and insures deposits of as much as $250,000 per depositor per bank and the same amount for some retirement accounts. The agency has proposed doubling premiums charged to banks for coverage to replenish its reserves amid forecasts bank failures through 2013 will cost almost $40 billion.
Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, agreed to be acquired by Wells Fargo & Co. for $11.7 billion, a deal that trumped an FDIC- brokered sale of banking operations to Citigroup Inc. PNC Financial Services Group Inc., the biggest bank in Pennsylvania, bought National City Corp. of Cleveland yesteday for $5.2 billion, with $7.7 billion from the Treasury bailout fund. National City dropped 83 percent in trading before today.
The Treasury is buying preferred shares in nine banks: Citigroup, Wells Fargo, JPMorgan, Bank of America Corp., Merrill Lynch & Co. Morgan Stanley, Goldman Sachs Group Inc., Bank of New York Mellon Corp. and State Street Corp. The FDIC is running a successor to California lender IndyMac, closed in July, and through this week had eased mortgage terms for more than 3,500 borrowers. The failure drained more than 10 percent from the U.S. insurance fund that had $45.2 billion at the end of the second quarter.
The agency in August said 117 banks were classified as "problem" in the second quarter, a 30 percent jump from the first quarter. The agency doesn't name the "problem" lenders. "Banks overall are very well-capitalized," FDIC Chairman Sheila Bair told the Senate Banking Committee on Oct. 23. "We have some banks with some challenges, but the vast majority are well-capitalized."
Another round of bloodletting
Stock market futures have triggered circuit breakers this morning, down the maximum they are allowed before the open. The SPX suggests the S&P will open down 9%. Everything is getting hammered in pre-market trading. Japan’s Nikkei was off 10% overnight to 7649. It had been over 18,000 just over a year ago. Britain announced a lower than expected GDP number, off 0.5% in the third quarter.
People are saying a lot of this is forced selling. There are too many overlevered players that have to sell everything to raise the cash they need to pay back investors. I guess that’s as good a reason as any for the violence in the markets. The trade out of commodities and into the dollar continues as my college friend Becky Jarvis is reporting on CNBC. Oil is down below $63, the Pound and Euro are getting clobbered as the dollar spikes.
Right now Treasuries and the dollar are a refuge, but what happens when there’s the inevitable reversal out of the dollar and dollar-based assets? Brad Setser published a fascinating piece a couple days back about the fundamental reversal of capital flows that have driven the world’s economies for decades. In a nutshell that relationship has been that they give us stuff, and we give them dollars, which they lend back to us to buy more of their stuff.
But what if they’re no longer benefiting from this trade flow and are forced to reverse it. What if they lose so much money on the dollar assets they’re holding that they decide to stop holding them? In the case of China, for instance, Brad quotes the following:“Charles Dumas of Lombard Street Research estimates that China makes 1-2 per cent on its (largely) dollar reserves. It then loses up to 10 per cent on the exchange rate and suffers a Chinese inflation rate of 6 per cent for a total real return in renminbi of about minus 15 per cent. That is a loss of $270bn a year, or a stunning 7-8 per cent of gross domestic product.”
When the Chinese decide it’s too expensive to keep recycling their dollars back into the U.S., what then? We could see a spike in U.S. interest rates as the demand for U.S. debt can’t come close to meeting supply. Where do people think the money is going to come from to fund trillions of dollars of bailouts and “stimulus?”
It has to be borrowed, which means we have to sell more Treasury bonds and hope people will buy them. Right now they are, because they perceive Treasuries as a safe haven in a violent market. But it’s my belief that, eventually, the supply of Treasury bonds will vastly outstrip demand to buy them.
That is to say, our need for borrowed money will eclipse the rest of the world’s ability to provide it. That will lead to higher interest rates and possibly a run on the dollar. It’s been said that the Chinese have to keep this reciprocal relationship going. They have no choice. If you owe the bank a little bit of its money, they own you. But if you owe them all of their money, you own the bank. But that sentiment ignores the obvious truism that unsustainable things do not sustain themselves.
We may own the Chinese, but if we go bankrupt, so do they. This Ponzi game we have going with them, where we spend to infinity and they lend to infinity, is just not sustainable forever. It will reverse. Maybe not today, maybe not tomorrow, but soon and–possibly–for the rest of our lives.
Peugeot Citroen and Chrysler wield the axe as demand for cars collapses
The French car giant PSA Peugeot Citroen has issued a profits warning and vowed to "massively" cut car production this quarter, in response to a dramatic deterioration in Europe's economy. Europe's second biggest car manufacturer revealed the drastic action after posting a 5.2 per cent slump in third-quarter sales to €13.3bn (£10.6bn).
The warning by PSA Peugeot Citroen came as the American car giant Chrysler said it will cut up to 5,000 administrative and temporary jobs before the end of December. Their rivals Renault, Daimler and Fiat have all slashed their financial targets recently, pointing to a deepening crisis in global sales of automotives. Industry experts forecast that some big manufacturers may have to merge to safeguard their future and speculation has linked Chrysler to talks with General Motors.
Peugeot Citroen said yesterday it would slash production by 30 per cent after a global "collapse" in demand for cars. The group expects Western Europe's automotive markets to fall 17 per cent in the fourth quarter of 2008. Peugeot Citroen said that given the "dramatic decline" in the macroeconomic environment in the second half of 2008, the group expects vehicle sales volumes to be 3.5 per cent below 2007 levels.
Christian Streiff, president of PSA Peugeot Citroen, said: "We have reacted very swiftly to this market collapse with exceptional measures to cut prod-uction, even though this is obviously detrimental to our 2008 operating margin. Massive production cuts will be made in the fourth quarter as it is vital that we are correctly positioned to face 2009."
Yesterday, Chrysler said it was likely that every facility Chrysler has around the world will be affected by the job cuts. On Thursday, the German car maker Daimler said that its remaining 20 per cent stake in Chrysler was now effectively worthless. It is still in talks to sell the share to the US giant's majority owner, the private equity firm Cerberus. In 1998, Daimler bought Chrysler, but last year sold an 80.1 per cent stake to Cerberus for $7.4bn, a huge loss on what it originally paid.
PNC's $5.2 Billion Treasury-Sponsored National City Purchase Is Takeover Template
PNC Financial Services Group Inc.'s taxpayer-backed $5.2 billion purchase of National City Corp. is a blueprint for regional bank takeovers pressed for by U.S. Treasury Secretary Henry Paulson, investors said.
PNC, led by Chief Executive Officer James Rohr, becomes the fifth-largest U.S. bank by deposits with its fourth acquisition in less than two years. Pittsburgh-based PNC announced the deal yesterday after getting $7.7 billion in government funds, part of the $125 billion the Treasury is doling out to regional banks to thaw frozen credit markets.
"It's going to start to become the template," said Michael Yoshikami, president of YCMNet Advisors in Walnut Creek, California, which manages $1 billion. Paulson already handed $125 billion to nine of the largest U.S. lenders, and says the remaining money can recapitalize ailing banks, fund takeovers and benefit the economy. The Treasury may also take stakes in insurance firms, a person briefed on the plan said yesterday.
Rohr, 60, began combing through Cleveland-based National City's books "months ago," he said on a conference call yesterday. The all-stock purchase of National City is on "solid footing" because of the Treasury funding, the bank said yesterday. Buying National City with stock instead of cash means PNC can use the government funds to boost Tier 1 capital ratio, measuring the ability to absorb losses, from 8.2 as of Sept. 30.
Rohr is taking advantage of a weaker rival to expand his reach into the Midwestern U.S. The deal will bring PNC to more than 2,500 branches in 13 states and Washington, D.C. "Speed is of the essence now," said Roger Cominsky, a partner at law firm Hiscock & Barclay in Buffalo, New York. "Everybody has a target on their back. A suitor one day can be a target the next day." PNC expects about $20 billion in losses from National City's lending portfolios, or almost 18 percent of the total. It anticipates $2.3 billion in merger-related charges and will cut $1.2 billion in costs in the combined bank.
A total of 22 banks, including Capital One Financial Corp. and SunTrust Banks Inc., will get Treasury funds, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter. Steven Thorpe, a spokesman for Capital One, and Barry Koling, a spokesman for SunTrust, didn't return calls seeking comment on the report after business hours.
Koling said earlier yesterday that his bank "perceives the current environment is one of opportunity for strong banks like SunTrust," while saying the bank had no further announcement on whether it plans to participate in the Treasury program. Regions Financial Corp. and First Horizon National Corp., the biggest banks in Alabama and Tennessee, respectively, said yesterday they won preliminary approval to receive capital from the Treasury. Regions is selling $3.5 billion in preferred stock and warrants and First Horizon is slated for an $866 million injection, the companies said.
Lenders such as U.S. Bancorp said this week they may be interested in taking over ailing rivals. Richard Davis, CEO of the Minneapolis-based bank, is "more active and more interested than we might have been before," he said on an Oct. 21 conference call to discuss USB's 47 percent decline in third- quarter net profit. "One of the buyers I think you have to look to now is U.S. Bank," whose targets may include Colonial BancGroup Inc. in Montgomery, Alabama, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. "They will probably be looking to do deals," he told Bloomberg TV.
BB&T Corp., KeyCorp and Regions Financial Corp. have all expressed interest in raising funds by selling stock to the government, as PNC did when it sold preferred shares. Regions, Alabama's biggest bank, said it will raise as much as $3.5 billion. KeyCorp, the No. 3 Ohio lender, will seek between $1.1 billion and $3.3 billion. "If this is the model, it's something we can live with," said Douglas Ciocca, who oversees $1.8 billion as managing director at Renaissance Financial Corp. in Leawood, Kansas. "I like it in that it puts a little bit of a predatory undertone in this industry."
Goldman Sachs Group Inc. and Morgan Stanley, newly converted to bank holding companies from investment banks, may also be on the hunt for deposits, a stable source of funding. Goldman spokesman Michael DuVally said last week that the bank "intends to grow its deposit base both organically and through acquisitions." Morgan Stanley spokesman Mark Lake declined to comment. The firm's CEO, John Mack, told CNBC last week that he wanted to expand his asset management and retail financial advisory businesses.
Another savior for struggling lenders could be Canadian banks, which have said they may take advantage of the crisis to expand in the U.S. Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal already operate U.S. consumer banks. Royal Bank has spent more than C$2 billion ($1.57 billion) on U.S. acquisitions in the past two years, including Atlanta- based Flag Financial Corp. and Alabama National BanCorporation.
Toronto-Dominion, the No. 2 bank in Canada after Royal Bank, completed its $7.5 billion purchase of Cherry Hill, New Jersey- based Commerce Bancorp Inc. in March. The acquisition doubled the bank's U.S. branch network. CEO Edmund Clark said in June he'd add to his U.S. business if he found a "compelling" target.
Get ready for deep cuts in interest rates
Charles Bean, deputy governor of the Bank of England, took the prize for the most apocalyptic vision yesterday. The economic slump is still in its early stages, he said, as a result of "possibly the largest financial crisis of its kind in human history".
This is quite a statement from a senior Bank official and surely means that the monetary policy committee (MPC) - finally - has got the message about the severity of the coming recession. Get ready for deep cuts in interest rates. In the US they have been cut to 1.5%. In Britain, where the economic crisis suddenly looks more serious than in the US, rates still stand at 4.5%. The two figures should now close, rapidly.
Many of us watched in disbelief during the summer as the MPC declined to cut interest rates. Before this month's half-point reduction, taken in coordination with all the world's major central banks, the last cut in UK rates was in April. That is another era in the context of the financial crisis. As recently as August, one member, Tim Besley, actually voted for a quarter-point increase in rates.
The mistake made by most members of the MPC - David Blanchflower is the honourable exception - was to be dazzled by the prospect of inflation at 5%. That level, reached this month, will soon look a quirk. The price of every major commodity has been falling since the early summer (and a lot earlier in the case of wheat and many foodstuffs) and the greater danger now is deflation.
Read those MPC minutes from the summer again and you see members were worried that weakening the pound by cutting rates would import more inflation. Well, sterling has weakened anyway, falling 10% against the dollar this week. The financial markets are now expecting - and, in a sense, forcing - the rate cuts that should have come earlier.
Failure to cut rates soon might weaken sterling further: it would be taken as sign that the UK was still not accepting reality. So will it be a half-point cut or a full-point on November 6? The City's economists are divided. Either way, 3% by Christmas is a possibility. Inflation hawks will regard the idea as heresy. The problem is not the price of credit but its availability, they argue. It is true that one effect of cutting rates could be a serious bout of inflation two years from now. But that is tomorrow's problem, to be addressed at the time.
The immediate task is to limit the duration and depth of the recession. That means helping borrowers and consumers to repay their debts. A dose of wage inflation, or tax cuts for the low-paid, could be precisely what the economy needs. It is unfair on savers, but, sadly, this won't be the first or last time that the thrifty have been tricked.
Simon Ward, economist at fund management group New Star, has crunched the numbers on the "average" path of recessions using data from 1974-75, 1979-81 and 1990-91. If the current recession follows that path, we would see contraction of 2%-2.5% between the second quarters of 2008 and 2009. The economy would then move sideways for a year, recover in the second quarter of 2010 and finally regain its peak level of output in 2011.
The danger is that even these gloomy forecasts prove too optimistic. The difference with this recession is that it is complicated by the banking crisis and the disruption in the flow of credit to small businesses. Much is riding on the banks' behaviour. Appealing to their sense of public duty is one way. Cutting interest rates is more likely to be effective.
Citadel hedge fund admits 35% plunge in value since downturn
One of the world's biggest hedge fund managers, Citadel, told clients last night that two of its main funds have lost 35% of their value this year after rumours swept the market about its financial position. The Chicago-based firm, which has $20bn (£12.5bn) of funds under management, blamed "panic" and "dislocation" on global exchanges for its predicament.
Citadel is run by 40-year-old billionaire Kenneth Griffin, an investment prodigy who was married at Versailles palace and who once spent a reported $60m on a Cézanne painting. On a conference call with investors, Citadel's executives said the firm's liquidity remained strong, with $8bn of unused credit lines available. "We've made it through 18 years," Griffin said. "We will make it through the next six to eight weeks."
Troubled hedge funds have been blamed for aggravating recent falls in stockmarkets as they liquidate investments to fund withdrawals by clients. On Wall Street trading floors yesterday, a rumour circulated that Citadel was approaching the US government for help. But a Citadel spokeswoman denied this: "These rumours are categorically false and we continue to invest and operate."
Griffin began trading from his dormitory room at Harvard University two decades ago and has long been viewed as one of the sharpest operators in the industry. Citadel employs 1,200 people in the US, Bermuda, London, Hong Kong and Tokyo.
A US analysis firm, Hedge Fund Research, reported last week that the industry had suffered the worst quarter in its history, with investors withdrawing $31bn to reduce funds under management to $1.72tn. Some 350 hedge funds have shut down this year.
Although a handful of hedge funds have prospered by "shorting" banks and mortgage companies, many risk-taking investment firms have struggled to cope with unprecedented volatility in the markets. Meanwhile, Georgia's Alpha Bank and Trust yesterday became the 16th US lender to fail this year and a Minnesota bank will take over its $346m of deposits.
US pension benefit agency loses $5 billion
The head of the U.S. Pension Benefit Guaranty Corporation said that his agency is facing a shortfall because it has lost nearly $5 billion in stock investments at a time when more companies are inadequately funding their pension plans, forcing the PBGC to take them over.
"PBGC has faced many challenges, including economic contraction in certain industries that traditionally have provided defined-benefit pensions," PBGC Director Charles Millard testified before the House Education and Labor Committee Friday. PBGC reported earlier this week a $3.12 billion loss in equity investment during the 11 months ended August 2008. Those losses increased by roughly $1.7 billion in September alone, bringing the fiscal year 2008 total stock investment loss to $4.79 billion, according to documents released by the agency.
"With the current market turmoil, we have to ask the question whether it is wise to invest our nation's pension backstop in volatile equities," said House Education and Labor Chairman George Miller. The agency's negative financial report comes as lawmakers are demanding more transparency from PBGC officials with regard to investment and management policies. The financial crisis has pension watchdogs and lawmakers on edge, which has magnified PBGC's role in insuring pensions of millions of workers.
"The PBGC itself is actually sounder today than it was 12 months ago," Mr. Millard said. Still, PBGC's bond and stock investment income losses total about $4 billion. The federal agency said it expects a deficit of $10 billion to $12 billion for fiscal-year 2008, down from the previous year's $14 billion deficit. PBGC has total assets of $68 billion and $83 billion worth of liabilities. Mr. Millard told the panel the costs associated with the agency stepping in to take control of a pension plan when terminated by a company has contributed to the agency's deficit.
However, he said, "I want to emphasize that, despite the current economic slowdown, PBGC will be able to meet its benefit payment obligations for a number of years to come." He told the committee that "given the recent market turmoil...we expect that the [agency's] total return on investment in 2008 will be somewhere in the range of negative 6% to 7%." By comparison, PBGC saw a positive return on its investments of 4.2% in 2006 and 7.2% in 2007.
Mr. Millard said that after consultation with an independent consultant in mid-2007, PBGC adopted a new investment policy in February that put 45% of its assets in equity investments, 45% of its assets in fixed-income and 10% of its assets in "alternative investments such as private equity." "This long-term, more-diversified strategy aims at generating better returns that provide a greater likelihood that the [PBGC] can meet its long-term obligations," Mr. Millard said. According to Mr. Millard, the new strategy is "very, very moderate, very sensible, very consistent with what other investors in the market would do."
But Rep. Miller said the new policy "dramatically shifts PBGC's investments away from fixed-income securities" and said the committee wants to "examine the rationale for such a change in light of the recent market meltdown." Mr. Millard told Rep. Miller the agency had attempted to diversify its assets. "We don't want to be subject to just what the S&P is doing on any given day," Mr. Millard said. "We don't want to be subject to what Treasury [bonds] are doing on any given day." However, the congressman called it "a little disingenuous to suggest that the equity thing is going swimmingly."
Mr. Millard responded, "I haven't suggested that anything is going swimmingly...Our equity investments are pretty much consistent with everyone else's equity investments." Despite Mr. Millard's position that the new investment policy is best for a long-term return on investments, Rep. Miller maintained he isn't convinced and Congress will continue to explore the validity of PBGC's investment strategies. PBGC's desire to have investment diversification isn't an acceptable answer considering the economic downturn and extensive loss of pensions, Rep. Miller said.
Calpers Sells Stock Amid Rout to Raise Cash for Obligations
The nation's largest public pension fund, known as Calpers, is unloading stocks in a falling market to make sure it has enough cash to meet its obligations.
The pressures come as the California Public Employees' Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners. The giant fund's predicament is another sign of how the market selloff is tightening the screws on pension funds nationwide. Many other pension funds have similar partnerships and could also confront liquidity strains.
Members of the board investment committee at Calpers held a closed-door session on Monday and discussed ways to raise more cash, according to people familiar with the matter. The issue was brought to the attention of the committee after members of the investment staff expressed concern, a person with knowledge of the matter said. Typically, Calpers keeps less than 2% of its assets in cash, but the recent demands have forced it to raise that level.
"Calpers receives more than enough cash from employers and members to cover its monthly benefit obligations" to retirees and other beneficiaries, a Calpers spokeswoman said Friday. Under normal conditions, pension funds count on some private-equity partners to distribute investment gains, while pensions owe some partners more capital. During the recent market selloff, however, distributions have dried up while capital calls continue. That's created a mismatch and a cash strain.
Since the credit markets have tightened up and real estate and alternative investments aren't very liquid, Calpers has been compelled to sell off stocks to raise large sums quickly. Those sales are turning paper losses into realized losses. Calpers said it had $188.8 billion under management as of Wednesday, down 21% from the end of June. The fund, which said it had about 63% of its assets in global stocks at the end of August, has been punished severely by the stock-market selloff.
Critics say that some of Calpers's troubles are of its own making. The pension fund is the main investor in a partnership that is expected to lose much of its nearly $1 billion investment in LandSource, a venture that owns thousands of acres of undeveloped residential land north of downtown Los Angeles and that filed for bankruptcy protection in June. The pension fund also has been without two of its top leaders, the chief executive officer and chief investment officer, since they resigned at midyear. The fund has been operating with interim people in those key positions.
Calpers initially tried to fill the CIO spot first, but without any luck. A former fund official said that candidates were reluctant to take the job while the permanent CEO position remained vacant. Calpers is now focusing on landing a CEO first, recently hired a search firm and hopes to have its new leader in place by December, people familiar with the matter say. The fund intends to have a CIO by no later than February.
Anne Stausboll, a politically well-connected attorney and the former California chief deputy treasurer, is serving as interim CIO. She appears to be the only top Calpers official vying for the CEO job, according to people familiar with the situation. She doesn't have the investment experience that is common for a CIO of a large fund, which critics say puts Calpers at a further disadvantage during this particularly severe market crisis. "Calpers's investment office is being capably managed by our interim CIO and her team of seasoned investment professionals," the spokeswoman said.
Calpers counts 1.6 million former and current public employees as members whose benefits are contractually guaranteed. If the fund suffers large investment losses, it has little choice but to hit up employers -- such as cities and counties -- to increase their contributions. Calpers recently indicated plans to raise the contribution level starting in 2010 and 2011, unless the recent investment losses can be reversed. The fund estimates that employers would have to pay an additional 2% to 4% of their payroll to Calpers if the June fiscal year ends with returns of negative 20%, which the fund recently hit.
So, will your job survive the economic crisis?
The credit crunch has already had a doleful impact on the jobs market. Unemployment is rising at its fastest rate in 17 years and is set to hit two million by Christmas. Some economists say it will climb to three million by the end of 2010. The Prime Minister and the Governor of the Bank of England have admitted that the economy is likely to slide into recession soon. They may keep their jobs at the end of all this – but will you?
Not the force it was but about three million jobs still depend on it. Short-time working at Nissan (Sunderland), Ford (Southampton) and Land Rover (Halewood, Merseyside) tell us all we need to know about the carmakers. Long-term decline in the face of low cost competition from China, India and elsewhere seems to be accelerating. Some firms, such as JCB, are deferring pay rises to help save jobs. About 60,000 jobs have been lost over the past 12 months.
Likelihood of being fired = 3/5
North Sea Oil
According to a survey by KPMG and the Recruitment and Employment Confederation (REC), the energy and mining industries saw a 23 per cent rise in vacancies in the past few months. However, that was when the price of a barrel of oil was more than $100, peaking at $147 in July. Although the industry tends to have long lead times and is highly seasonal – unexpected weather can stop work on oil rigs and gas platforms for long periods – the outlook must be gloomier now.
Likelihood of being fired = 3/5
Dismal. Cuts at Goldman Sachs are the latest in what will prove to be a long list of redundancies. The Hay Group, an employment consultancy, recently forecast that 111,000 jobs in the financial sector could be lost in the UK in the next year. There's been a 19 per cent decline in vacancies in the past month, a poor omen. Partial nationalisation may cushion the blow in some places but the gross overcapacity in the sector and a round of mergers will see the sector's largest ever rationalisation.
Likelihood of being fired = 4.5/5
Or "legal professionals", as the Office for National Statistics (ONS) describes them. Up by about 6 per cent on the year, they thrive in bad times as well as good. The collapse in conveyancing has hurt but the usual casualties of a credit crunch and a recession usually mean more misery-related work for our learned friends; bankruptcies, repossessions, class actions from disgruntled shareholders/savers and so forth.
Likelihood of being fired = 1/5
The vast majority of teaching staff are employed in the public sector, which is the place to be for the next few years if you value job security. Anecdotal evidence suggests some people are retraining as teachers, and the teaching bodies are hoping to capitalise on the crisis to boost numbers. Vacancies in the public sector generally are up by 8.7 per cent.
Likelihood of being fired = 0.5/5
Another engine of employment growth that has stumbled. It depends, though. At one extreme, this is not a good time to be a Porsche dealer, with sales down a third on 2007. Aldi and Lidl, by contrast, are reporting encouraging results. Most retailers say they'll be taking onfewer seasonal workers this Christmas. Vacancies were down 9 percent last month.
Likelihood of being fired = 3/5
IT and computing
Still growing strongly: the KPMG/REC Survey puts demand up by 46 per cent in September. Much IT and software work has been associated with financial services, so this may well see a sharp decline in coming months. Some of the slack, at least, ought to be taken up by major new public sector programmes such as the ID cards scheme and, possibly, national road pricing.
Likelihood of being fired = 2/5
More than 30,000 building workers have lost their jobs in the past 18 months, according to the ONS. The credit crunch has cut the volume of funds going into the property market by about 70 per cent, with predictably grim consequences. The only bright spot has been the resilience of public sector infrastructure projects. The Government has said it will bring forward work on Crossrail, the 2012 Olympics and nuclear power. The worst could soon be over, if only because it has been so bad.
Likelihood of being fired = 3/5
Hotels and catering
About 11,000 jobs were lost in the second quarter of the year. Going out less often is usually one of the first options for hard-pressed families, and the strength of the pound, which had been relatively robust until the summer, hasn't helped tourist numbers. However, if you can cook you're okay – demand for chefs is up and they're in short supply.
Likelihood of being fired = 4/5
Recent announcements of job cuts at ITV News, Channel 4, and the Express and the Metro newspapers confirms that the credit crunch is squeezing the sector both ways – from a meltdown in advertising revenues and from the decline in consumer demand. Trendy, but in jeopardy.
Likelihood of being fired = 4/5
Although the breakneck pace of spending on the health service is likely to slow in the next few years, the commitment of the Government to spend our way out of recession should help protect jobs in the NHS. The KPMG/REC Survey ranked nursing and medical care as the only category of job to register a rise in demand last month, for both permanent and temporary/contract staff.
Likelihood of being fired = 0.5/5
Likelihood of being fired = points out of 5 (5 being most likely to have employees end up on the dole)