Category: Financial Crisis

Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms

Washington post | Thursday, December 2, 2010 | 12:15 AM

The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.

The Fed’s efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household name companies such as Verizon, Harley-Davidson and Toyota. The central bank’s aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.

The biggest users of the Fed lending programs were some of the world’s largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain’s Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation. The data reveal banks turning to the Fed for help almost daily in the fall of 2008 as the central bank lowered lending standards and extended relief to all kinds of institutions it had never assisted before.

Fed officials emphasize that their actions were meant to stabilize a financial system that was on the verge of collapse in late 2008. They note that the actions worked to prevent a complete financial meltdown and that none of the special lending programs has lost money. (Some have recorded healthy profits for taxpayers.) But the extent of the lending to major banks – and the generous terms of some of those deals – heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion in U.S. bonds.

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The Fall and Rise of Major Economies’ Interest Rates

Article first published as The Fall and Rise of Major Economies’ Interest Rates on Blogcritics.

macro-economics The world financial crisis, the worst since the great depression of 1930s, forced major economies of the world reduce their central banks’ interest rates to their least level possible. This was done to overcome “the credit crunch” that erupted as a byproduct of the financial crisis. Credit crunch was also a result of the bankers ceasing their lending to one another, due to mistrust developed out of lack of transparency over the exposure of each bank to the toxic sub-prime mortgage loans.

As the banks, investment as well as commercial, stopped releasing their funds for lending, the central banks stepped in to see that the required funds are available to market. This prompts people believing that the banks are in dearth of funds, which is not true. If market players stall their activities, the theories of free market economy would become useless. Ironically the people (or consumers in market language), on whose purchasing capacity and spending activity the markets depend upon, had no role in this entire fiasco except paying taxes and losing jobs.

Interest Rates

The central banks exercise their control mainly on four rates. They are Bank Rate (or discount rate), repo rate (repurchasing rate), reverse repo rate and CRR (cash reserve ratio). A bank rate is the interest rate that is charged by a country’s central bank (federal bank in some countries) on loans and advances

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Big Firm Bonuses Back to pre-Crisis Level

Article first published as Big Firm Bonuses Back to pre-Crisis Level on Technorati.

Violent Greek protests Bonuses to executive directors are back to pre-crisis level in the U.K. Though pace of increases is slowed, the levels of payment have reached almost pre-crisis level. A business advisory firm Deloitte conducted a survey to find the developments occurred in pays and bonuses after the crisis. The survey revealed that pay increases for the executives might be history for now. The BBC News quoted Stephen Cahill of Deloitte as saying, “Last year we saw a very large number of companies freezing executive salaries, but at the time it was difficult to predict whether this was a one-off. Now it appears that the years of executive salaries increasing at rates far in excess of inflation and the increase in average earnings are, at least for the moment, well and truly over.”

Toppers at Top

The survey found that the average bonuses for executive directors of FTSE 100 companies were equal to 100% of their basic salary for the year. It said the top 30 companies increased the bonuses to their executives by 140%. Coming to mid-sized FTSE 250 companies, one in Seven paid no bonus to their bosses. For the present year also the difference between the trends of bonuses in FTSE 100 and FTSE 250 companies are expected to continue. While for the bosses of FTSE 100 companies, the bonuses are expected to be greater than the last year in the present year; they would be lower for FTSE 250 companies.

Bonus vs. Austerity

While European Countries are burdened with high levels of debts and deficits and their governments are already on the path of aggressive austerity measures and spending cuts, trade unions or giving warning signals that the workers’ pay

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Goldman Faces ‘Near Record’ U.K. Fine

Market Watch | 08/09/2010 | 04:50 PM ED

Goldman-Sachs Goldman Sachs faces a large fine from the U.K.’s financial regulator related to its business practices in London, according to a Financial Times report published late Wednesday. Citing unidentified sources, the report says the fine from the Financial Services Authority (FSA) will be "near-record." The FSA’s largest-ever fine came three months ago, when JPMorgan Chase paid £33.3 for failing to hold its clients’ money in separate accounts.

The fine, which the report states could be announced as early as Thursday morning, is the result of a five month investigation announced four days after the Securities and Exchange Commission charged Goldman with civil fraud related to Abacus, a complex debt instrument it sold. Goldman settled that case for $550 million.

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Housing group gives four-year negative equity warning

BBC News | 31 August 2010 | 13:19 GMT

uk_ave_house_price466 Homeowners who bought at the peak of the market face four more years of negative equity, a housing group said. The National Housing Federation (NHF) said the average buyer in England paid £216,800 for a home in 2007. They may now have to wait until 2014 before prices recover enough to make their homes worth more than their loan. Meanwhile, figures from the Bank of England show that the number of mortgages approved for UK home buyers was barely changed in July at 48,722. The figures reinforce data from lenders and surveys which suggest that prices have reached a plateau after the revival that started in the spring of 2009. The Bank’s figures show that in July, the number of mortgage approvals was just 160 higher than in June and only slightly higher than the average recorded in the previous six months. The net mortgage lending rose by only £86m in July, one of the lowest monthly increases on record.

Forecasts

According to the NHF, house prices in England will dip again next year by 3%, before steadily climbing thereafter. The federation expects prices to be 22% higher by 2015 than they were in 2009, bringing the average price of a house to £226,900. The NHF, which represents housing associations in England, said in its report that prices are still too high for many buyers. Unless homeowners wish to sell their property, being in negative equity – when your home has become worth less than the mortgage secured against it – does not necessarily pose a problem. But it is when people are looking to move that they can face a struggle, as lenders are entitled to insist that borrowers redeem their loans. In theory, if the mortgage is worth more than the house and the borrowers cannot find the money elsewhere, they will be prevented from moving.

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Job Crisis: Machines Over Manpower

Bloomberg Businessweek | July 29, 2010 | 5:00PM EST

The recession, economists say, technically ended in mid-2009. A year later the unemployment rate is still stuck above 9 percent, and it may take until 2012 for it to reach 8 percent, according to a survey of economists by Bloomberg News. The general explanation for this stubbornly high rate is that companies face an unprecedented era of uncertainty, with questions on the impact of health-care reform, the strength of the real estate market, and the cost of financial regulations all remaining unanswered. Until companies get clarity, they will be reluctant to hire new full-time employees.The job crisis could be seen another way: as a continuation of a trend that started 20 years ago. Before 1990, recessions in the U.S. followed a similar pattern. The downturn would end, and companies would start adding jobs in a little more than two months, according to the National Bureau of Economic Research. In 1990-91 hiring began outpacing firing three months after the end of the recession. It took seven months after the 2001 recession’s technical end before hiring trends turned positive, and 27 months before companies hired in large enough numbers to cut seriously into unemployment. This time the lag is even longer.

Economist Allen Sinai, who runs the consulting firm Decision Economics, has an explanation for this emerging pattern. He sees the capital-labor ratio—total capital invested as a percentage of hours worked—as the key to the puzzle. Capital spending boosts productivity and, in the short run at least, often eliminates the need for extra workers on the factory floor or in the office. Continue reading

Goldman Sachs Lost Money on 10 Days in Second Quarter

Bloomberg News |

Goldman Sachs Group Inc., the bank that makes the most revenue trading stocks and bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak of loss-free days at the start of the year. Losses on Goldman Sachs’s trading desks exceeded $100 million on three days during the period that ended on June 30, according to a filing today by the New York-based company with the U.S. Securities and Exchange Commission. The firm also disclosed that trading losses surpassed its value-at-risk estimate, a measure of potential losses, on two days.

Trading results across Wall Street firms declined after Goldman Sachs and its biggest rivals posted perfect results, with no losing days, in the first quarter. Goldman Sachs’s $5.61 billion in second-quarter trading revenue exceeded all of its Wall Street competitors. The bank, overseen by Chairman and Chief Executive Officer Lloyd Blankfein, relied on trading for 71 percent of its revenue in the first half of the year, down from 80 percent a year earlier. Today’s filing also shows that the firm’s traders generated more than $100 million on 17 days during the quarter. Of the 65 days in the quarter, Goldman Sachs traders made money on 55 days, or 85 percent of the time.   Continue reading