A Visual Guide to the Financial Crisis
WallStats.com
Nov 13, 2008
http://blog.mint.com/blog/finance-core/
a-visual-guide-to-the-financial-crisis/
Almost overnight, the talking heads went from perpetuating the euphoria of investors to rushing to pronounce the economy dead. Last year, when lenders started dropping like flies as foreclosures rose and margins were called, the problems of Wall Street became more and more apparent, and lending guidelines were tightened to the point that many individuals were stuck in their time-bomb loans, and thus began a vicious cycle. But what led to this? Here is a visual guide to help you understand the events leading up to the bailout.
Click here for the Source Article
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Saturday, November 15, 2008
Friday, October 10, 2008
Central Banks Coordinate Global Cut in Interest Rates
Central Banks Coordinate Global Cut in Interest Rates
Carter Dougherty And Edmund L. Andrews
Oct 08, 2008
http://www.nytimes.com/2008/10/09/business/09fed.html
In a move of unprecedented scope, the world’s major central banks lowered their benchmark interest rates Wednesday, a coordinated effort to halt a collapse of share prices and a freeze in credit markets that threatens to set off the first global recession since the early 1970s.
The action failed to calm gyrating markets, however, amid the growing realization that a serious and prolonged recession may be difficult to avoid.
The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates.
In another monetary first, the Chinese central bank joined the effort — without explicitly saying it was doing so — by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending.
The Fed’s benchmark short-term rate now stands at 1.5 percent. The European Central Bank’s is 3.75 percent.
Taken together with other moves in the United States, Britain and Continental Europe in the last few days, the rate cuts look like part of a broader, global strategy that embraces aggressive use of monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among crisis-weary analysts.
Credit market conditions remained extremely tight, with the gap between yields on safe, three-month government securities and the rate that banks charge one another for loans of the same duration rising to more than 4 percentage points not long after the central banks acted — showing financial institutions remained deeply concerned about lending to one another.
The cut came despite what had been a divergence of views between the United States and Europe ever since the financial crisis erupted in August 2007. The European Central Bank had been much more reluctant to lower interest rates, because policy makers there tended to see the mortgage meltdown primarily as an American problem with secondary ripple effects in Europe.
But any lingering comfort outside the United States evaporated in the last week, as money markets froze up around the world and major corporations and banks across Europe began suffocating from their inability to do even routine financial transactions.
Making matters worse, none of the epic emergency measures taken in the United States — the passage of a $700 billion bailout plan to buy up distressed securities; a doubling and redoubling of emergency loan facilities at the Fed to $900 billion on Monday; and the Fed’s unprecedented decision on Tuesday to start buying up short-term commercial debt for businesses of all types — had prevented the stock markets from plunging at vertigo-inducing amounts day after day.
The central feature of the acute credit crunch, which began in the United States and is now spreading rapidly in Europe, is the reluctance of banks to lend at any rate because they have taken such heavy losses already and are hoarding cash.
Not only does that interrupt the normal flow of credit for activities as basic as modernizing production lines or meeting payrolls, it gums up the normal mechanisms central banks use to ease credit and stimulate economic activity.
After a rushed series of rate reductions last fall and early this year, bringing the overnight Fed funds rate down to 2 percent in April, the central bank had concentrated its efforts on injecting hundreds of billions of dollars into the financial system to keep banks lending to one another and to their customers. But policy makers held back from further reducing interest rates, which reduce the overall cost of money, because they were worried about rising inflationary pressures.
Consumer prices have climbed sharply, largely because of huge increases in energy and commodity prices. As recently as the Fed’s policy meeting three weeks ago, the central bank’s official position was that its concerns about slowing economic growth were roughly equal to its concerns about rising prices. In reality, many policy makers were more worried about the onset of a recession — which many private economists say has already arrived. But there were still disagreements among members of the Federal Open Market Committee, which sets interest rates.
Carter Dougherty And Edmund L. Andrews
Oct 08, 2008
http://www.nytimes.com/2008/10/09/business/09fed.html
In a move of unprecedented scope, the world’s major central banks lowered their benchmark interest rates Wednesday, a coordinated effort to halt a collapse of share prices and a freeze in credit markets that threatens to set off the first global recession since the early 1970s.
The action failed to calm gyrating markets, however, amid the growing realization that a serious and prolonged recession may be difficult to avoid.
The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates.
In another monetary first, the Chinese central bank joined the effort — without explicitly saying it was doing so — by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending.
The Fed’s benchmark short-term rate now stands at 1.5 percent. The European Central Bank’s is 3.75 percent.
Taken together with other moves in the United States, Britain and Continental Europe in the last few days, the rate cuts look like part of a broader, global strategy that embraces aggressive use of monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among crisis-weary analysts.
Credit market conditions remained extremely tight, with the gap between yields on safe, three-month government securities and the rate that banks charge one another for loans of the same duration rising to more than 4 percentage points not long after the central banks acted — showing financial institutions remained deeply concerned about lending to one another.
The cut came despite what had been a divergence of views between the United States and Europe ever since the financial crisis erupted in August 2007. The European Central Bank had been much more reluctant to lower interest rates, because policy makers there tended to see the mortgage meltdown primarily as an American problem with secondary ripple effects in Europe.
But any lingering comfort outside the United States evaporated in the last week, as money markets froze up around the world and major corporations and banks across Europe began suffocating from their inability to do even routine financial transactions.
Making matters worse, none of the epic emergency measures taken in the United States — the passage of a $700 billion bailout plan to buy up distressed securities; a doubling and redoubling of emergency loan facilities at the Fed to $900 billion on Monday; and the Fed’s unprecedented decision on Tuesday to start buying up short-term commercial debt for businesses of all types — had prevented the stock markets from plunging at vertigo-inducing amounts day after day.
The central feature of the acute credit crunch, which began in the United States and is now spreading rapidly in Europe, is the reluctance of banks to lend at any rate because they have taken such heavy losses already and are hoarding cash.
Not only does that interrupt the normal flow of credit for activities as basic as modernizing production lines or meeting payrolls, it gums up the normal mechanisms central banks use to ease credit and stimulate economic activity.
After a rushed series of rate reductions last fall and early this year, bringing the overnight Fed funds rate down to 2 percent in April, the central bank had concentrated its efforts on injecting hundreds of billions of dollars into the financial system to keep banks lending to one another and to their customers. But policy makers held back from further reducing interest rates, which reduce the overall cost of money, because they were worried about rising inflationary pressures.
Consumer prices have climbed sharply, largely because of huge increases in energy and commodity prices. As recently as the Fed’s policy meeting three weeks ago, the central bank’s official position was that its concerns about slowing economic growth were roughly equal to its concerns about rising prices. In reality, many policy makers were more worried about the onset of a recession — which many private economists say has already arrived. But there were still disagreements among members of the Federal Open Market Committee, which sets interest rates.
Wednesday, October 1, 2008
With Wachovia Sale, the Banking Crisis Trickles Up
With Wachovia Sale, the Banking Crisis Trickles Up
Eric Dash
Sep 29, 2008
http://www.nytimes.com/2008/09/30/
business/30citi.html?ref=business
The crisis gripping the nation’s banks took a troubling turn on Monday as investors’ confidence in even the largest and strongest institutions spiraled lower.
Financial shares plunged 16 percent on one of the darkest days for the American stock market since the 1987 crash.
After the House of Representatives rejected a rescue for the financial industry Monday, fears grew that more banks, particularly small and midsize lenders, could run into trouble unless a new plan emerged quickly.
Even shares in the three banks that have survived the crisis as the largest in the industry — Bank of America, JPMorgan Chase and Citigroup — fell more than 10 percent Monday as anxiety gripped markets. Goldman Sachs and Morgan Stanley, which transformed into bank holding companies last week, fell more than 12 percent.
Regional banks were punished even more severely as investors scrambled to figure out which of them might fall next in the absence of a bailout plan. National City Corporation, Downey Financial Corporation and Sovereign Bancorp, lenders pressured by substantial exposure to soured mortgages, were especially hard-hit, falling 63 percent, 48 percent and 36 percent respectively on the heels of the government’s seizure Thursday of Washington Mutual, the largest savings and loan.
Eric Dash
Sep 29, 2008
http://www.nytimes.com/2008/09/30/
business/30citi.html?ref=business
The crisis gripping the nation’s banks took a troubling turn on Monday as investors’ confidence in even the largest and strongest institutions spiraled lower.
Financial shares plunged 16 percent on one of the darkest days for the American stock market since the 1987 crash.
After the House of Representatives rejected a rescue for the financial industry Monday, fears grew that more banks, particularly small and midsize lenders, could run into trouble unless a new plan emerged quickly.
Even shares in the three banks that have survived the crisis as the largest in the industry — Bank of America, JPMorgan Chase and Citigroup — fell more than 10 percent Monday as anxiety gripped markets. Goldman Sachs and Morgan Stanley, which transformed into bank holding companies last week, fell more than 12 percent.
Regional banks were punished even more severely as investors scrambled to figure out which of them might fall next in the absence of a bailout plan. National City Corporation, Downey Financial Corporation and Sovereign Bancorp, lenders pressured by substantial exposure to soured mortgages, were especially hard-hit, falling 63 percent, 48 percent and 36 percent respectively on the heels of the government’s seizure Thursday of Washington Mutual, the largest savings and loan.
Thursday, September 25, 2008
Bailouts will lead to rough economic ride
Bailouts will lead to rough economic ride
Ron Paul
Sep 23, 2008
http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html
Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.
Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.
Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.
These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.
Ron Paul
Sep 23, 2008
http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html
Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.
Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.
Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.
These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.
Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter
Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter
Jason Linkins
Sep 22, 2008
http://www.huffingtonpost.com/2008/09/22/
dirty-secret-of-the-bailo_n_128294.html
A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. [..] just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.
Jason Linkins
Sep 22, 2008
http://www.huffingtonpost.com/2008/09/22/
dirty-secret-of-the-bailo_n_128294.html
A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. [..] just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.
Wednesday, September 24, 2008
Paulson Debt Plan May Benefit Mostly Goldman, Morgan
Paulson Debt Plan May Benefit Mostly Goldman, Morgan
Jody Shenn
Sep 22, 2008
http://www.bloomberg.com/apps/
news?pid=20601087&sid=aUj_9.k13q7s
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.
Treasury Secretary Henry Paulson's push for the program, now considered by lawmakers, is designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.
The intervention into markets would be the broadest since at least the Great Depression.
While Goldman and Morgan Stanley, both based in New York, were yesterday granted permission to transform themselves into bank holding companies, the companies so far have operated mostly under investment-bank accounting rules, logging almost $21 billion of asset writedowns and credit losses. Paulson is a former chairman and chief executive officer of Goldman.
Companies including American International Group Inc., the insurer that accepted $85 billion in a U.S. takeover, have said the rule by the Financial Accounting Standards Board requires them to record losses they don't expect to incur. The world's largest banks and brokers have reported more than $520 billion in asset writedowns and credit losses since last year.
Jody Shenn
Sep 22, 2008
http://www.bloomberg.com/apps/
news?pid=20601087&sid=aUj_9.k13q7s
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.
Treasury Secretary Henry Paulson's push for the program, now considered by lawmakers, is designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.
The intervention into markets would be the broadest since at least the Great Depression.
While Goldman and Morgan Stanley, both based in New York, were yesterday granted permission to transform themselves into bank holding companies, the companies so far have operated mostly under investment-bank accounting rules, logging almost $21 billion of asset writedowns and credit losses. Paulson is a former chairman and chief executive officer of Goldman.
Companies including American International Group Inc., the insurer that accepted $85 billion in a U.S. takeover, have said the rule by the Financial Accounting Standards Board requires them to record losses they don't expect to incur. The world's largest banks and brokers have reported more than $520 billion in asset writedowns and credit losses since last year.
Thursday, September 18, 2008
North American stocks sink after government bailout of AIG; gold soars
North American stocks sink after government bailout of AIG; gold soars
The Canadian Press
Sep 17, 2008
http://canadianpress.google.com/article/
ALeqM5iqjpYnIbDQLZ3CtmrlqMNNGJZ8dQ
Market observers said investors are frightened by the scope of the financial troubles on Wall Street and are getting out of the market because they fear the worst. Concern is also growing that troubles in the financial sector could worsen problems facing the weak U.S. economy as credit for consumers and businesses dries up.
While investors abandoned stocks Wednesday, they bought gold as a hedge against rising risk. That pushed up the price of the December bullion contract by US$66.70 to $847 on commodities markets.
Investors may be worried about higher inflation resulting from the expensive government aid to the financial sector, which also includes $200 billion to bail out failed mortgage companies Fannie Mae and Freddie Mac.
The Canadian Press
Sep 17, 2008
http://canadianpress.google.com/article/
ALeqM5iqjpYnIbDQLZ3CtmrlqMNNGJZ8dQ
Market observers said investors are frightened by the scope of the financial troubles on Wall Street and are getting out of the market because they fear the worst. Concern is also growing that troubles in the financial sector could worsen problems facing the weak U.S. economy as credit for consumers and businesses dries up.
While investors abandoned stocks Wednesday, they bought gold as a hedge against rising risk. That pushed up the price of the December bullion contract by US$66.70 to $847 on commodities markets.
Investors may be worried about higher inflation resulting from the expensive government aid to the financial sector, which also includes $200 billion to bail out failed mortgage companies Fannie Mae and Freddie Mac.
Tuesday, August 12, 2008
US economy still has impact on Malaysia
US economy still has impact on Malaysia
By Shankaran Nambiar
Monday August 11, 2008
http://biz.thestar.com.my/news/story.asp?file=/2008/8/11/business/22028171&sec=business
The Federal National Mortgage Association (or Fannie Mae) and the Federal Home Loan Mortgage Corp (otherwise known as Fannie Mac), both government-sponsored enterprises, were hit hard by the subprime mortgage crisis in late 2007.
The fallout of that problem has required a housing rescue bill, and a rescue plan that might cost the US government anything from US$25bil to US$100bil, depending on whose estimates you look at.
There are legislators who do not agree with this bailout since it encourages irresponsible borrowing and lax lending procedures. It is hard to be stern with Fannie Mae and Freddie Mac, when between them, they own or guarantee a significant portion of the mortgage market, which has been estimated to be close to US$6 trillion.
Besides, Fannie and Freddie cannot be punished at a time when the housing recession is at its worst since the Great Depression, even at the risk of invoking serious moral hazards.
Some reports claim that more than a million Americans have lost their homes.
The rescue package is necessary to extend a hand to homeowners who need cheaper loans, and to curtail massive mortgage foreclosures.
By Shankaran Nambiar
Monday August 11, 2008
http://biz.thestar.com.my/news/story.asp?file=/2008/8/11/business/22028171&sec=business
The Federal National Mortgage Association (or Fannie Mae) and the Federal Home Loan Mortgage Corp (otherwise known as Fannie Mac), both government-sponsored enterprises, were hit hard by the subprime mortgage crisis in late 2007.
The fallout of that problem has required a housing rescue bill, and a rescue plan that might cost the US government anything from US$25bil to US$100bil, depending on whose estimates you look at.
There are legislators who do not agree with this bailout since it encourages irresponsible borrowing and lax lending procedures. It is hard to be stern with Fannie Mae and Freddie Mac, when between them, they own or guarantee a significant portion of the mortgage market, which has been estimated to be close to US$6 trillion.
Besides, Fannie and Freddie cannot be punished at a time when the housing recession is at its worst since the Great Depression, even at the risk of invoking serious moral hazards.
Some reports claim that more than a million Americans have lost their homes.
The rescue package is necessary to extend a hand to homeowners who need cheaper loans, and to curtail massive mortgage foreclosures.
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