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U.S. economy into recession for the next two years
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Arbitrager
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08-Oct-2008 18:47
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Money-Market Rates Rise to Records as Bank Paralysis Worsens By Gavin Finch Oct. 8 (Bloomberg) -- European money-market rates climbed to records as banks balked at lending amid speculation more financial institutions will collapse. The euro interbank offered rate, or Euribor, that banks charge each other for three-month loans in the currency increased 1 basis point to an all-time high of 5.39 percent today, the European Banking Federation said. The two-week rate jumped to a record 5.04 percent. The European Central Bank offered one-day dollar loans at 9.5 percent today, 556 basis points higher than yesterday's overnight rate. ``We're clearly in a situation of excess pessimism and it's very difficult to see what can really jolt these markets out of the current malaise,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. Interbank lending rates have soared as financial institutions store cash to meet anticipated funding needs, defying the efforts of central banks around the world to revive the frozen credit markets. The U.K. said today it plans to invest about 50 billion pounds ($87 billion) in an unprecedented step to stave off a collapse of the country's banking system. The London interbank offered rate, or Libor, for overnight loans in dollars surged 157 basis points yesterday to 3.94 percent, underscoring the difficulty that banks are having in borrowing even for a day. The corresponding rate for euros climbed 22 basis points to 4.49 percent. ECB Auction Libor, set by 16 banks in a daily survey by the British Bankers' Association at about noon in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. Member banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Euribor, set in a survey of more than 30 institutions by the European Banking Federation, is published about 90 minutes earlier. The Frankfurt-based ECB said it loaned banks $70 billion of one-day loans today, up from $50 billion yesterday. Banks bid for $122 billion. The 9.5 percent marginal rate at which 96 percent of the funds were borrowed compares with yesterday's Libor of 3.94 percent and the Federal Reserve's target rate of 2 percent. The deepening credit crisis forced the U.K to join the U.S., Ireland, Iceland, Belgium and Spain in rushing out untested bailout measures to save banks. As part of the plan, Prime Minister Gordon Brown's government will buy preference shares, and the Bank of England will make at least 200 billion pounds available for banks to borrow under a so-called special liquidity plan, the Treasury said in a statement today. Royal Bank of Scotland Group Plc and Barclays Plc said they plan to participate in the government rescue. Libor-OIS Spread The Libor-OIS spread, a gauge of cash scarcity among banks that measures the difference between the three-month dollar rate and the overnight indexed swap rate, increased to 294 basis points today. It was at 167 basis points two weeks ago and 81 basis points a month ago. Federal Reserve Chairman Ben S. Bernanke signaled yesterday policy makers are ready to lower interest rates as the credit freeze poses an escalating danger to the economy. The world financial system is under ``extraordinary stress'' and history shows that severe instability ``can take a heavy toll on the broader economy if left unchecked,'' Bernanke said in a speech in Washington. ``The Fed will need to consider whether the current stance of policy remains appropriate.'' Ted Spread President George W. Bush signed a $700 billion U.S. bailout bill into law last week to help stem the crisis, which has claimed financial companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc. The legislation enables the government to purchase tainted assets from institutions. European leaders meeting in Paris over the weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was at 355 basis points. It reached 393 basis points two days ago, then the most since Bloomberg began compiling the data in 1984. Writedowns and losses worldwide tied to the U.S. mortgage market have reached $592 billion since the start of last year, according to data compiled by Bloomberg. To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net Last Updated: October 8, 2008 06:01 EDT |
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Arbitrager
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08-Oct-2008 17:54
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we can feel this somewhere near us tooo... Japan having such problems too le... i think more to come.. got $$ better put aside for rainy days.. we going into a deep gloomy recession soon... it will be something worse than the 1930s. Japan Bankruptcies Climb at Fastest Pace in 8 Years (Update3) By Toru Fujioka Oct. 8 (Bloomberg) -- Japan's corporate bankruptcies jumped 34 percent last month, the fastest pace in eight years, as exports slumped and credit-market turmoil engulfed the world's second-largest economy. Bankruptcies rose to 1,408 cases in September from the same month a year earlier, Tokyo Shoko Research Ltd. said in a report in Tokyo today. That's the biggest jump since March 2000, when cases rose 38.6 percent, according to Bloomberg data. Japan's Nikkei 225 Stock Average tumbled 9.4 percent, the biggest rout since October 1987, on concern the global credit crisis will prolong the economy's stagnation. Corporate failures are rising at the steepest rate since Japan's banking crisis in 2000 as the credit shortage deprives businesses of cash. ``We're in the middle of a recession,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Real-estate and construction companies have been in a mini- bubble over the last few years because of all that money coming from abroad. Now that's withdrawn.'' The yen surged beyond 100 per dollar for the first time in six months after a plunge in Asian stocks prompted investors to reduce holdings of higher-yielding assets funded in Japan. The currency traded at 100.07 per dollar as of 5:03 p.m. in Tokyo. The Nikkei slumped to 9,203.32, the lowest since June 2003. Human21 Corp. led a 31 percent increase in the number of real estate agents that went bust last month, today's report showed. The four biggest bankruptcies among publicly traded companies this year were all real-estate firms, according to data compiled by Bloomberg News. Construction bankruptcies increased 41 percent in September. Property Slump Banks cut lending as growth in Japan's property market slowed and the collapse of the subprime market in the U.S. kept potential buyers from making acquisitions. Developers are also being squeezed by higher prices for steel and other raw materials used in construction, and by a change in building-approval regulations in June 2007 that slowed applications. The credit crisis is spreading to other industries, with smaller companies saying they are having a harder time securing funds needed to grow at a time when the economy is on the verge of a recession. ``It's definitely going to spread. Logically speaking it has to happen because exports are declining and we'll see a sharper decline in external demand,'' JPMorgan's Adachi said. Failures in manufacturing rose 44 percent, Tokyo Shoko said. Transportation industry bankruptcies surged 133 percent, and in finance and insurance climbed 56 percent. Lending `Severe' ``An increasing number of small firms have reported that their financial positions are weak, and lending attitudes of financial institutions are severe,'' the Bank of Japan said in its monthly economic assessment today. ``Certain industries have faced a worsening in funding conditions, as conditions for their bond issuance have deteriorated and financial institutions have become more cautious in extending credit.'' Companies that went bankrupt last month employed a total of 16,887 workers, the most this year, Tokyo Shoko said. Japan's unemployment rate climbed to 4.2 percent in August, the highest in two years. Total liabilities rose to 5.36 trillion yen last month, the second highest in the postwar period, the report said, after Lehman Brothers Holdings Inc.'s Japan unit filed for bankruptcy in the country's second-biggest corporate collapse. To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net Last Updated: October 8, 2008 04:07 EDT |
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newnew
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08-Oct-2008 15:42
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Savings and loan crisisFrom Wikipedia, the free encyclopedia (Redirected from Savings and Loan crisis)
The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts[1]—which contributed to the large budget deficits of the early 1990s. The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II. [2] http://en.wikipedia.org/wiki/Savings_and_Loan_crisis |
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newnew
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08-Oct-2008 14:31
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I read from an articles:- Do you remember 1989? Over 1,000 banks were in trouble. They had made some very bad loans. George Bush Sr. gave them over $125 billion just to keep them from closing their doors. That's less than HALF what we stand to lose in the next cycle of this bust today. Yet even that $125 billion was enough to swell the U.S. budget deficit, choke off a recovery on Wall Street, and send the entire U.S. economy into recession for the next two years! |
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