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 credit crunch. Show all posts
Showing posts with label credit crunch. 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.
Monday, September 29, 2008
Ireland officially in recession
Ireland officially in recession
Press Association
Sep 25, 2008
http://www.independent.co.uk/news/world/europe/
ireland-officially-in-.htmlssion-942071.html
Ireland has officially fallen into recession, new figures revealed today.
According to the Central Statistics Office, the country's once-aggressive economy contracted by 1 per cent in the first six months of the year.
Dubbed the Celtic Tiger during massive growth in the late 1990s, the Irish business sector is now facing its most difficult period since high unemployment and emigration hit the 1980s.
The Department of Finance pointed to the crumbling property market and the international credit crunch for the alarming figures.
The figures support predictions from some of the country's leading financial experts, including those at the state's influential think-tank the Economic and Social Research Institute (ESRI).
It warned earlier this year that Ireland was facing its first recession since 1983, unemployment would rise and 20,000 people would emigrate.
The Budget, traditionally held in December, was moved forward six weeks by Taoiseach Brian Cowen in an attempt to reduce the knock-on effects of the now shrinking economy.
Press Association
Sep 25, 2008
http://www.independent.co.uk/news/world/europe/
ireland-officially-in-.htmlssion-942071.html
Ireland has officially fallen into recession, new figures revealed today.
According to the Central Statistics Office, the country's once-aggressive economy contracted by 1 per cent in the first six months of the year.
Dubbed the Celtic Tiger during massive growth in the late 1990s, the Irish business sector is now facing its most difficult period since high unemployment and emigration hit the 1980s.
The Department of Finance pointed to the crumbling property market and the international credit crunch for the alarming figures.
The figures support predictions from some of the country's leading financial experts, including those at the state's influential think-tank the Economic and Social Research Institute (ESRI).
It warned earlier this year that Ireland was facing its first recession since 1983, unemployment would rise and 20,000 people would emigrate.
The Budget, traditionally held in December, was moved forward six weeks by Taoiseach Brian Cowen in an attempt to reduce the knock-on effects of the now shrinking economy.
Monday, September 15, 2008
Greenspan: Tough decisions await in Lehman case
Greenspan: Tough decisions await in Lehman case
Associated Press
Sep 14, 2008
http://news.yahoo.com/s/ap/20080914/ap_on_bi_ge/greenspan
WASHINGTON - Without offering a recommendation, former Federal Reserve Chairman Alan Greenspan said Sunday the government faces tough choices as it tries to help arrange a rescue of Lehman Brothers without using public money.
He cautioned that more major U.S. financial institutions may fail in the future, but the government should not protect them all.
The weight of the housing and credit crises, he added, "is in the process of outstripping anything I've seen" and has yet to run its course. "It will continue to be a corrosive force until the price of homes in the United States stabilizes," perhaps next year, he said.
Associated Press
Sep 14, 2008
http://news.yahoo.com/s/ap/20080914/ap_on_bi_ge/greenspan
WASHINGTON - Without offering a recommendation, former Federal Reserve Chairman Alan Greenspan said Sunday the government faces tough choices as it tries to help arrange a rescue of Lehman Brothers without using public money.
He cautioned that more major U.S. financial institutions may fail in the future, but the government should not protect them all.
The weight of the housing and credit crises, he added, "is in the process of outstripping anything I've seen" and has yet to run its course. "It will continue to be a corrosive force until the price of homes in the United States stabilizes," perhaps next year, he said.
Monday, August 11, 2008
8 who saw the crisis coming... and 8 who didn't
8 who saw the crisis coming... and 8 who didn't
By Katie Benner and Christopher Tkaczyk
Fortune
Last updated August 06 2008: 6:26 PM ET
http://money.cnn.com/galleries/2008/fortune/0808/gallery.whosawitcoming.fortune/index.html
One year after the credit crunch began, Fortune looks back at who saw trouble ahead, and who just ended up in trouble.
8 who saw the crisis coming...
1. The Ratings Gadfly: Sean Egan (Egan-Jones Ratings)
2. The Economist: Nouriel Roubini (NYU Stern School of Business)
3. The Analyst: Michael Mayo (Deutsche Bank)
4. The Investor: Robert Rodriguez (First Pacific Advisors)
5. The Regulator: William Poole (Former president, St. Louis Federal Reserve)
6. The Politician: Richard Baker (Managed Funds Association)
7. The Short-Seller (part I): David Einhorn (Greenlight Capital)
8. The Short-Seller (part II): Bill Ackman (Pershing Square)
...and 8 who didn't
9. The Mortgage Czar: Angelo Mozilo (Countrywide Financial)
10. The Hedgie: Jeff Larson (Sowood Capital Management)
11. The Enablers: Moody's, Fitch, Standard & Poor's
12. The Watchdogs: Alan Greenspan (former Federal Reserve Chairman), Ben Bernanke (current Federal Reserve Chairman), Hank Paulson (Treasury Secretary)
13. The Bridge Player: James Cayne (Former CEO, Bear Stearns)
14. The Dancer: Chuck Prince (Former CEO, Citigroup)
15. The Golfer: Stan O'Neal (Former CEO, Merrill Lynch)
16. The Cruz Missile: Zoe Cruz (Former co-president, Morgan Stanley)
By Katie Benner and Christopher Tkaczyk
Fortune
Last updated August 06 2008: 6:26 PM ET
http://money.cnn.com/galleries/2008/fortune/0808/gallery.whosawitcoming.fortune/index.html
One year after the credit crunch began, Fortune looks back at who saw trouble ahead, and who just ended up in trouble.
8 who saw the crisis coming...
1. The Ratings Gadfly: Sean Egan (Egan-Jones Ratings)
2. The Economist: Nouriel Roubini (NYU Stern School of Business)
3. The Analyst: Michael Mayo (Deutsche Bank)
4. The Investor: Robert Rodriguez (First Pacific Advisors)
5. The Regulator: William Poole (Former president, St. Louis Federal Reserve)
6. The Politician: Richard Baker (Managed Funds Association)
7. The Short-Seller (part I): David Einhorn (Greenlight Capital)
8. The Short-Seller (part II): Bill Ackman (Pershing Square)
...and 8 who didn't
9. The Mortgage Czar: Angelo Mozilo (Countrywide Financial)
10. The Hedgie: Jeff Larson (Sowood Capital Management)
11. The Enablers: Moody's, Fitch, Standard & Poor's
12. The Watchdogs: Alan Greenspan (former Federal Reserve Chairman), Ben Bernanke (current Federal Reserve Chairman), Hank Paulson (Treasury Secretary)
13. The Bridge Player: James Cayne (Former CEO, Bear Stearns)
14. The Dancer: Chuck Prince (Former CEO, Citigroup)
15. The Golfer: Stan O'Neal (Former CEO, Merrill Lynch)
16. The Cruz Missile: Zoe Cruz (Former co-president, Morgan Stanley)
Yes, That's $2 Trillion of Debt-Related Losses
Yes, That's $2 Trillion of Debt-Related Losses
Nouriel Roubini, Economist and Professor, New York University
By ROBIN GOLDWYN BLUMENTHAL
http://online.barrons.com/article/SB121763156934206007.html?mod=yahoobarrons&ru=yahoo
AN INTERVIEW WITH NOURIEL ROUBINI: Maybe now somebody will listen. (Video)
LIKE THE EXHORTATIONS OF JEREMIAH TO THE NATION OF Israel before the first temple's destruction, the warnings of economist Nouriel Roubini fell on deaf ears. For the past two years Roubini, a professor at New York University, has cautioned about a huge housing bubble whose bursting would lead to a 20% drop in home prices; a collapse in subprime mortgages; a severe banking crisis and credit crunch; the near-failure of Fannie Mae and Freddie Mac , and a U.S. recession of a magnitude not seen since the Great Depression. So far, this latter-day prophet of doom has been on the mark, though time will tell about the recession part.
A Turkish native who grew up in Italy, Roubini trained at Harvard and later advised the Clinton White House, after his blog on the Asian financial crisis attracted the attention of Washington's economic and political elite. Roubini still publishes the blog -- the RGE Monitor -- and teaches economics at NYU's Stern School of Business. We caught up with him recently at his offices in lower Manhattan, and continued the conversation at Barron's. For his latest predictions, please read on.
Nouriel Roubini, Economist and Professor, New York University
By ROBIN GOLDWYN BLUMENTHAL
http://online.barrons.com/article/SB121763156934206007.html?mod=yahoobarrons&ru=yahoo
AN INTERVIEW WITH NOURIEL ROUBINI: Maybe now somebody will listen. (Video)
LIKE THE EXHORTATIONS OF JEREMIAH TO THE NATION OF Israel before the first temple's destruction, the warnings of economist Nouriel Roubini fell on deaf ears. For the past two years Roubini, a professor at New York University, has cautioned about a huge housing bubble whose bursting would lead to a 20% drop in home prices; a collapse in subprime mortgages; a severe banking crisis and credit crunch; the near-failure of Fannie Mae and Freddie Mac , and a U.S. recession of a magnitude not seen since the Great Depression. So far, this latter-day prophet of doom has been on the mark, though time will tell about the recession part.
A Turkish native who grew up in Italy, Roubini trained at Harvard and later advised the Clinton White House, after his blog on the Asian financial crisis attracted the attention of Washington's economic and political elite. Roubini still publishes the blog -- the RGE Monitor -- and teaches economics at NYU's Stern School of Business. We caught up with him recently at his offices in lower Manhattan, and continued the conversation at Barron's. For his latest predictions, please read on.
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