The World is on the Eve of the Next Financial Crisis
U.S. stocks have slumped dramatically, the Dow Jones Industrial Average has suffered its biggest two day decline since November 2008 to finish the trading day 3.51% down. The investors’ concerns, that policy makers are running out of tools to avoid another global economic recession, will not disappear.
All ten industries represented in the Standard & Poor’s 500 Index retreated at least 2.2 percent. The S&P 500 closed down 3.19% dropping circa 7.5 percent in four days. The MSCI All-Country World Index slid 4.9%, extending a drop from its May 2nd high in excess of twenty percent. The S&P 500 has fallen 18 percent from the three-year high reached on April 29.
The world is on the eve of the next financial crisis, with sovereign debt its epicentre according to Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., which runs the globe’s biggest bond fund. The European Central Bank failed to put in place a “circuit breaker” in order to contain the region’s debt crisis, El-Erian said at an event in Washington today.
At the same event world leaders and major finance chiefs demanded that Europe acts decisively to arrest its debt crisis, whilst emerging economies said they’d consider providing more backing to help prevent the chaos from spreading. As finance ministers and central bankers gathered for talks in Washington (against the backdrop of plunging stock markets) the leaders of; Australia, Canada, Indonesia, Britain, Mexico, South Africa and South Korea stressed the risk of the Eurozone debt crisis becoming contagious. Officials from the BRICS countries, including China, Brazil and India announced they’d consider giving more funds to the International Monetary Fund in order to boost global stability and liquidity.
The leaders wrote an open letter to France who are currently chair of the Group of 20 leading economies;
Euro zone governments and institutions must act swiftly to resolve the euro crisis and all European economies must confront the debt overhang to prevent contagion to the wider global economy.
Emerging-market stocks also tumbled, sending the benchmark index to the biggest drop in three years. Commodity producers led the retreat. The MSCI Emerging Markets Index fell up to 6.2 percent at one point in the session to 881.52 at 11:52 a.m. in New York, the steepest decline since November 2008. Indonesia’s Jakarta Composite Index slumped 8.9 percent, the most among world bourses and its largest slide since October 2008. Russia’s Micex index sank 7.8 percent, benchmark indexes fell more than 4 percent in India, Hungary and Poland. The Shanghai Composite Index and Brazil’s Bovespa lost more than 2.7 percent.
Americans filed fewer new claims for jobless benefits last week, however, the decline was too small to dispel the macro worries that the economy is dangerously close to falling into a new recession. Applications for unemployment benefits dropped 9,000 to 423,000 in the week ended September17, the Labor Department said on Thursday. This was roughly in line with the expectations gathered by Bloomberg.
Moody’s Investors Service lowered debt ratings for Bank of America Corp, Citigroup Inc and Wells Fargo & Co on Wednesday, saying the U.S. government is getting less comfortable with bailing out large troubled lenders. The government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled,” said the rating agency, a unit of Moody’s Corp.
Moody’s decision hit Bank of America’s value hard, it downgraded both the long and short-term debt of the holding company and long-term deposits at its main banking unit. The ratings agency downgraded short-term debt at Citigroup and limited the Wells’ cut to its senior debt and to deposits at its lead bank. Bank of America is still struggling with billions of dollars of mortgage losses, litigation and stresses from the need to raise capital to meet new regulatory obligations. Bank of America Corp. is among a group of lenders that could face a wave of fresh lawsuits claiming the system they’ve used for more than a decade to register mortgages cheated cash-strapped counties out of millions of dollars. After Moody’s downgrade, the cost to insure $10 million of Bank of America’s debt for 5 years in the credit default swap market rose 48 basis points to $378,000 per year.
The Euro has lost ground versus the dollar and yen, but gained versus sterling. Sterling has continued it’s recent mini collapse versus the dollar, the Swissy and yen. The Aussie dollar has fallen versus the USA dollar, the dollar has faded versus yen and remained quite flat versus the Swissy. The equity index futures for the ftse and the USA are marginally positive.
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/september-22-pm/
The Recent History of Epic Bank Failure has been Forgotten
During the 2008-2009 banking crisis the FDIC website experienced a surge in traffic. Plenty of observers have kept a ‘weather eye’ on the site since. It listed and continues to list failed banks and financial institutions in the USA whose depositors and investors required assistance from the Federal Deposit Insurance Corporation.
The late 2000s financial crisis led to the failure of a number of banks in the United States. Twenty-five banks failed and were taken over by the Federal Deposit Insurance Corporation (FDIC) in 2008, while 140 failed in 2009. In contrast, in the five years prior to 2008, only 11 banks had failed.
The receivership of Washington Mutual Bank by federal regulators on September 26, 2008, was the largest bank failure in U.S. history. Regulators simultaneously brokered the sale of most of WaMu’s assets to JPMorgan Chase, which planned to write down the value of Washington Mutual’s loans at least $31 billion.
2011 has seen a slight resurgence of failures when the authorities had hoped that the banking system had been, to all intents, cleansed. To date in 2011 71 USA banks have failed, whilst none have failed at the level of WaMu the fact remains that the systemic failure of the USA banking system is still apparent. Despite the bailouts, both secretive and publicised, and the regular programmes of quantitative easing and asset purchase, the symptoms are constantly treated but the disease appears to be incurable, at least by using the methods which to date have failed. In 2010 157 banks failed and there were some considerable failures that, had they failed in for example a smaller European country such as the United Kingdom, would have caused quite a stir;
Horizon Bank 1,300
Charter Bank 1,200
Columbia 1,100
Community Bank and Trust 1,210
First Regional Bank Los Angeles California 2,180
La Jolla Bank 3,600
Advent Bank Corp 1,600
Appalachian Community Bank 1,010
Riverside National Bank of Florida 3,420
Amcore Bank 3,400
Broadway Bank 1,200
Bancorp 1750
Eurobank 2,560
Frontier Bank 3,500
R-G Premier Bank of Puerto Rico 5,920
Western bank Puerto Rico 11,940
Midwest Bank and Trust Company 3,170
Tier one bank 2,800
Crescent Bank and Trust Co 1,000
ShoreBank 2,160
Premier Bank 1,200
Hillcrest Bank 1,600
Out of the 157 failed banks in 2010 twenty two banks went under citing liability figures of over $1 billion. The total asset failure from bank failures in 2010 was $95,975 billion.
2011 has seen less than half the failures of 2010..so far. However, not only do we still have four months left in year the worrying fact is that failure is still deeply embedded in the banking system. It would appear that no amount of assistance can permanently fix the issue. There are several niche sites that list potential USA bank failures, alarmingly some are unerringly accurate.
The bank blog has a top forty watch list, out of the forty it had on respirator, nineteen have subsequently failed. Fortunately the biggest banks are not on the watch list..for now. Prior to the Fed’s two day meeting the belief was still prevalent that a too big to fail attitude remained within the USA authorities.
Given Ben Bernanke’s abject refusal to announce a new round of QE that view may have to be amended. An epic failure, similar to that witnessed in 2008 to Lehman cannot be ruled out. If we experience such a collapse then we’ll know we’re well and truly back in 2008 territory, what solution, temporary or otherwise, can be created is a mystery..
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/the-recent-history-of-epic-bank-failure-has-been-forgotten/
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