Category: financialization

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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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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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

Fed May `Ease’ Policy at Next Meeting Aug. 10, Primary Dealer Nomura Says

Bloomberg | Jul 31, 2010 | 2:29 AM GMT+0530

Nomura Holdings Inc., one of the 18 primary dealers that trade with the Federal Reserve, said policy makers will “ease” at their Aug. 10 meeting, though what form it takes is debatable. Central bankers may change the language of their policy statement to signal that the Fed’s balance sheet will remain expanded and change policy on the mortgage program to start reinvesting paydowns, the firm said in a note to clients today. There is also a chance of other actions, such as a cut in the rate on excess reserves, Nomura’s global economics team said. Nomura changed its viewpoint because of a softening of the comments from policy makers such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard. The firm also cited the Fed’s downward revision for growth and the slack in the economy that threatens to push inflation to an unacceptably low level for Fed Chairman Ben S. Bernanke.

“Easing is going to be very seriously considered given several months of disappointing data and the very dovish tone of public commentary across the spectrum,” said Zach Pandl, an economist at Nomura Securities International in New York. “If the Fed is averse to buying more assets, then cutting the rates of interest on reserves could be the next option.” Bullard said yesterday that the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.

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Recession in U.S. Was Even Worse Than Estimated, Revisions Show

Bloomberg | Jul 30, 2010 | 10:07 PM GMT+0530

The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to revised figures. The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942. “We do tend to get bigger revisions at turning points in the economy,” Steven Landefeld, director of the Commerce Department’s Bureau of Economic Analysis, said in a press conference this week. On the more positive side, “in the past, we’ve tended to undershoot the recovery” as well, he said.

The data better explain why the jobless rate doubled, reaching a 26-year high of 10.1 percent in October, and has been slow to subside. The government also boosted personal income levels for each of the past three years, propelling the savings rate higher and signaling households are further along the process of repairing finances. The rebound from the recession has been more subdued in the last six months of 2009, as the economy grew at an average 3.3 annual pace from July 2009 through December, instead of the 3.9 percent previously projected. By comparison, growth averaged 7.2 percent in the two quarters following the 1981-82 recession, during which the economy contracted just 2.9 percent.

Lehman Collapse

The worst quarter of the current economic slump is now the final three months of 2008, in the immediate aftermath of the collapse of Lehman Brothers Holdings Inc., rather than the first quarter of 2009. GDP shrank at a 6.8 percent pace from October to December 2008, exceeding the prior estimate of 5.4 percent, making it the deepest quarterly drop since 1980. The new data showed the peak of the last expansion occurred in the fourth quarter of 2007 rather than the second quarter of 2008. The figures are more in sync with the recession chronology prescribed by the National Bureau of Economic Research, the accepted arbiter of U.S. business cycles. The Cambridge, Massachusetts-based private group determined the slump began in December 2007, and has yet to announce when it ended. Consumer purchases, which account for 70 percent of the economy, were cut for each of the past three years, with the biggest reduction taking place last year. Less spending on services than previously estimated, including financial services and auto repair, was responsible for the change.  

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UK interest rates to stay at record low ‘until 2014’

BBC News | 25 July 2010 | 15:47 GMT

Bank of England The Bank of England will have to keep interest rates at their record low of 0.5% until 2014, a leading economic forecaster has said. The Ernst & Young Item Club said rates would need to be kept low to counter-balance the government’s spending cuts. "A base rate of 0.5% will begin to look like the new normal," Professor Peter Spencer from the Item Club said.

The Office for Budget Responsibility (OBR) has said that it expects rates to start to rise next year. Interest rates have stood at 0.5% since March 2009. "The new coalition’s plans to cut the deficit are certainly ambitious," said Prof Spencer. "On the assumption that the government is able to implement the overall reduction of £40bn set out in the Budget, we expect that UK growth will struggle to reach 1% this year but will gradually speed up in the following years to give the UK a high-quality recovery based on trade and investment."  

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