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Bailout Bill Will Help Chinese Banks, Foreign Banks

October 5, 2008, 2:44 pm
Filed under: 2-party system, 2008 Election, bailout, Barack Obama, bernanke, Big Banks, brad sherman, Britain, C-Span, California, Chicago, China, chris dodd, citigroup, CNBC, Congress, Credit Crisis, DEBT, Dictatorship, Dollar, Dow, Economic Collapse, economic depression, Economy, Empire, Europe, european union, Fascism, FDIC, Federal Reserve, food crisis, food market, food prices, food shortage, foreclosure, foreign banks, foreign investors, France, general motors, George Bush, Germany, global economy, Globalism, GM, Goldman Sachs, google, Great Depression, Greenback, Harry Reid, henry paulson, House, housing market, hyperinflation, Inflation, interest rate cuts, Japan, jim rogers, joe biden, John McCain, Larry Kudlow, left right paradigm, liquidation, london, marc faber, middle class, mortgage, national socialism, nationalization, neocons, Neolibs, obama, Paulson, Propaganda, Psyops, putin, rate cut, real estate, Russia, Senate, socialism, Stock Market, subprime, subprime lending, Taxpayers, US Economy, US Treasury, Wachovia, Wall Street, wells fargo | Tags: earmarks, financial markets bill, financial terrorism, great britain, hr 3997, mental health bill, pork, pork barrel, pork barrel earmarks, Pork Barrel Spending, shanghai

Bailout Bill Will Help Chinese Banks, Foreign Banks

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Congress Approves Bailout Bill

AP
October 3, 2008

With the economy on the brink and elections looming, Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday and sent it to President Bush for his certain signature.

The final vote, 263-171 in the House, a comfortable margin that was 58 more votes than it garnered on Monday. The vote capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the Great Depression if lawmakers failed to act.

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Dow plummets when bailout passes

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Bailout: Not $700 Billion, More Like $5 Trillion

September 26, 2008, 1:30 pm
Filed under: 2-party system, 2008 Election, Ahmadinejad, AIG, Alan Greenspan, bailout, Bank of America, Barack Obama, bernanke, Big Banks, Bill Clinton, China, citibank, Condoleezza Rice, Congress, Credit Crisis, David Rockefeller, DEBT, Dictatorship, Dollar, Economic Collapse, economic depression, Economy, Empire, fannie mae, Fascism, FBI, FDIC, Federal Reserve, foreclosure, freddie mac, George Bush, george soros, global economy, global elite, Globalism, gold, Goldman Sachs, Great Depression, Greenback, Harry Reid, henry paulson, housing market, hyperinflation, Inflation, internationalist, internationalists, Iran, John McCain, JP Morgan, left right paradigm, Lehman Brothers, liquidation, michael mullen, middle class, morgan stanley, mortgage, mortgage companies, mortgage lenders, Nancy Pelosi, nationalization, Nazi, neocons, Neolibs, New World Order, obama, Patriot Act, Paulson, real estate, Robert Gates, rockefeller, Sarkozy, socialism, Stock Market, subprime, subprime lending, Taxpayers, US Economy, US Treasury, Wachovia, Wall Street, wells fargo, White House | Tags: Commodities Futures Trading Commission, J.P. Morgan Chase, Marcy Kaptur, Peter Defazio, Robert Rubin, run on banks

Bailout: Not $700 Billion, More Like $5 Trillion

Bei Hu
Bloomberg
September 24, 2008

Treasury Secretary Henry Paulson’s $700 billion plan to buy devalued assets from financial companies is “a joke” because it doesn’t go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.

Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.

“This is a liquidity crisis,” Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. “The liquidity has to be so big that people won’t get panicky.”

Paulson’s proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. Asian stocks fell today, following U.S. shares lower as investors questioned whether the effort is enough to prevent a recession.

The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer American International Group Inc. caused financial markets to seize up last week. The calamity was the culmination of a year during which the U.S. housing market slump left banks and securities firms with more than $520 billion of asset writedowns and credit losses.

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NO To The Paulson-Bernanke Derivatives Scam Bailout

Webster G. Tarpley
September 24, 2008

WASHINGTON DC – The grand theft bailout now being rammed through Congress by Treasury Secretary Paulson, Federal Reserve Chairman Bernanke, and other officials of the Bush regime with the help of accomplices Pelosi, Majority Leader Harry Reid, and other parliamentarians is a monstrosity for the ages, combining every hideous feature of monetarism, elitism, oligarchism, and sheer feckless incompetence. It is to all intents and purposes a national suicide note of the United States of America, a contract with the devil that absolutely guarantees irrevocable national decline. For any person of goodwill there can be only one impulse at the present moment, and that is to stop this bailout — to block it, to sabotage it, to bottle it up, to load it with killer amendments, and to do everything legally possible to stop this insane design from going through.

IF MCCAIN VOTES AGAINST THE BAILOUT, HE WILL WIN THE PRESIDENCY

In political terms, McCain is now running well to the left of Obama on this issue, with a much stronger populist profile. McCain has attacked the outrageous greed and corruption of Wall Street. Obama does not dare attack Wall Street, since these are his masters. Obama, sounding like Milton Friedman, only attacks Washington. Obama has said that he will support whatever Paulson demands. That is not a surprise, since Paulson represents Goldman Sachs, and Obama is a wholly owned property of Goldman Sachs, which is his single biggest source of campaign contributions. Obama is a creature of Brzezinski, Soros, and Rockefeller, and without them he has no existence; Obama is an abject Wall Street puppet, an agent of finance capital. This week, both senators will have to decide how they vote on the odious derivatives bailout. Obama will surely vote in favor of it, since this is what Wall Street demands. If McCain votes against it, he will most probably propel himself into the White House on the model of Give ‘Em Hell Harry in 1948. Filthy corrupt Democrats like Schumer are already attacking McCain as the new Huey Long. Huey Long, the Louisiana populist of the 1930s, had many positive features, and we could certainly use a good dose of Huey Long in this country to counteract the elitism, oligarchism, condescension, and arrogant snobbery of foundation operatives like Obama. The bailout is already very unpopular 72% of all voters are opposed to it and it will become more and more hated when it becomes clear that it is also a failure. McCain’s course is clear. Will he have the brains and guts to cross Obama’s T on this vital issue?

PAULSON OF GOLDMAN SACHS, WOULD-BE FINANCE DICTATOR

Paulson is a ruthless and brutal eco-freak usurer who learned his trade at the Goldman Sachs stock-jobbing operation. He is now the leading member of the committee of public safety which rules in Washington, and which includes Gates, Rice, and Mullen. He now demands the astronomical sum of 700 billion dollars for the bailout of mortgage-backed derivatives, collateralized debt obligations, credit default swaps, and other poisonous derivatives. Make no mistake — this is not a bailout of homeowners who are threatened with foreclosure; it is a bailout of the lunatic house of cards which desperate bankers have built on these mortgages using derivatives. The entire crisis is not a crisis of subprime mortgages, it is a crisis of the derivatives bubble which was launched by Wendy Gramm of the Commodities Futures Trading Commission and Greenspan of the Fed with the connivance of Robert Rubin of Goldman Sachs and Citibank, and others in the Clinton administration, some 15 years ago.

These derivatives now amount to a total worldwide notional value that can be estimated between 1 quadrillion and two quadrillion US dollars. This sum is so large that it dwarfs the total value of the entire planet earth and all those who live here. Compared to the cancerous, bloated, and fictitious mass of derivatives which is at the root of this crisis, the $700 billion demanded by politicians, large as this may seem, is nothing but a drop in the bucket. And a drop in the bailout bucket is what it will be. The mass of world derivatives between $1 and $2 quadrillion represents an insatiable black hole which is capable of putting an end, not just to civilization, but the human life itself. The moral choice could not be clearer: humanity will either destroy the derivatives bubble in our time, or the derivatives bubble will surely destroy humanity. Those are the stakes in the current exercise.

Paulson and Bernanke, both lawyers for the Wall Street jackals, lampreys, vultures and hyenas, argue that the public interest demands a bailout of their cronies at Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, Citibank, Bank of America, Wachovia, and the other large money center institutions. Before the American public antes up $700 billion just for openers in the game of genocidal poker which run by the infernal croupiers Paulson and Bernanke, we would be very well advised to examine the veracity of this premise.

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They Want Mama To Make it All Better! – Congresswoman Marcy Kaptur

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Rep Defazio On The Bailout Package

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Stressed banks borrow record amount from Fed

August 3, 2008, 1:15 pm
Filed under: Amero, Australia, bailout, Bank of America, Big Banks, BIS, Britain, Canada, China, Congress, corporations, corporatism, Costa Rica, David Rockefeller, Ecuador, energy, Eugenics, Euro, Europe, european union, exxon mobil, fannie mae, FDIC, Federal Reserve, food market, food prices, food shortage, freddie mac, gas prices, general motors, George Bush, Germany, global economy, global elite, global government, Globalism, gold, housing market, hyperinflation, India, indymac, International Bankers, internationalist, Iran, Japan, job market, liquidation, malthusian catastrophe, Martial Law, Mexico, middle class, mortgage companies, mortgage lenders, mugabe, nationalization, neocons, New World Order, North American Union, Oil, Patriot Act, Petrol, Police State, Population Control, Posse Comitatus, private banks, real estate, rockefeller, rothschild, shell, silver, South America, spain, Stephen Harper, subprime, subprime lending, Taxpayers, United Kingdom, Venezuela, wells fargo, Zimbabwe | Tags: Deutsche Bank, george green, k-mart, run on banks, sears, silver shortage, spanish bank, wells fargo

Stressed banks borrow record amount from Fed

Reuters
July 31, 2008

Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers.

Banks’ primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday.

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Zimbabwe Devalues Currency

AP
July 30, 2008

Zimbabwe will drop 10 zeros from its hyper-inflated currency — turning 10 billion dollars into one — the country’s reserve bank said Wednesday. President Robert Mugabe threatened a state of emergency if businesses profiteer from the country’s economic and political unraveling.

Shop shelves are empty and there are chronic shortages of everything including medication, food, fuel, power and water. Eighty percent of the work force is unemployed and many who do have jobs don’t earn enough to pay for bus fare.

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Inverview with George Green – (7/16/2008)

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Wall Street Tumbles After Rate Cut

December 12, 2007, 10:38 am
Filed under: Bank of America, bernanke, central bank, credit card, Credit Crisis, DEBT, Dow, Economic Collapse, economic depression, Economy, Europe, Federal Reserve, food prices, foreclosure, gold, Great Depression, Greenback, housing market, Inflation, interest rate cuts, london, petroeuro, rate cut, rate freeze, Stock Market, subprime, subprime lending, UBS, United Kingdom, US Economy, Wall Street, washington mutual, wells fargo

Wall Street Tumbles After Rate Cut

AP
December 11, 2007

WASHINGTON (AP) – The Federal Reserve dropped its most important interest rate to a nearly two-year low on Tuesday and left the door open to additional cuts to prevent a housing and credit meltdown from pushing the economy into a recession.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to trim the federal funds rate by one-quarter percentage point to 4.25 percent.

The rate reduction, the third this year, was needed to energize national economic growth, Fed officials said. The deepening housing slump is affecting the behavior of consumers and businesses alike, the Fed said.

“Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks,” the Fed said in a statement explaining its decision to cut rates again. The three rate cuts ordered thus far “should help promote moderate growth over time,” the Fed added.

On Wall Street, stocks tumbled, reflecting disappointment among some investors who were hoping for a larger rate cut. The Dow Jones industrial plunged more than 200 points.

The funds rate affects many other interest rates charged to individuals and businesses and is the Fed’s most potent tool for influencing economic activity.

In response, commercial banks, including Wachovia and Wells Fargo, lowered their prime lending rate by a corresponding amount, to 7.25 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

The fact that the Fed’s key rate was lowered again marked an about- face for the central bank. At its previous meeting in October, Fed officials hinted that their two rate cuts probably would be sufficient to help the economy survive the housing and credit stresses. Since then, however, financial conditions have deteriorated, prompting Bernanke to signal before Tuesday’s meeting that another rate cut may be needed after all as an insurance policy against undue economic weakness.

As another bolstering move, the Fed on Tuesday also lowered its lending rates to banks by one-quarter percentage point. That was the fourth cut to the discount rate since mid-August.

“Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,” the Fed said in its statement.

Banks, financial companies and other investors who made loans to people with spotty credit or put money into securities backed by those subprime mortgages have lost billions of dollars. Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.

Harder-to-get credit has thwarted would-be home buyers, intensifying the housing collapse. Foreclosures have soared to record highs. The number of unsold homes have piled up. Problems are expected to persist well into next year.

The 9-1 decision for a quarter-point reduction to the funds rate was opposed by Eric Rosengren, president of the Federal Reserve Bank of Boston. He preferred a bolder, half-percentage point cut.

“Fed’s language clearly reflects a heightened degree of concern about the economic outlook,” said Carl Tannenbaum, chief economist at LaSalle Bank. “They left open the possibility of additional rate reductions,” he added. If the economy were to take a turn for the worse, another rate cut could come before the Fed’s next scheduled meeting on Jan. 29-30, Tannbenbaum said.

The situation poses the biggest challenge yet to Bernanke, who took over the Fed in February 2006. Some analysts have questioned whether he waited too long to cut the Fed’s key rate and whether he has acted aggressively enough to the nation’s economic woes.

In September, the central bank dropped the funds rate for the first time in four years. Then it was a half-point drop; on Oct. 31 came a quarter-point cut.

The rationale behind the lower rates is that they will induce consumers and businesses to boost spending, invigorating economic activity. With Tuesday’s reductions, both the funds rate and the prime rate are now at their lowest levels in nearly two years.

From July through September, the economy logged its best growth in four years. But it is expected to slow to a pace of just 1.5 percent or less over the final three months of the year as the housing collapse and credit crunch chill consumers, sapping overall economic growth. The odds of a recession have grown.

With growth cooling, the unemployment rate, now at a relatively low 4.7 percent, is expected to rise. Analysts expect the jobless rate to climb to 5 percent by early next year.

High oil prices could complicate the Fed’s job of trying to keep the economy expanding and inflation low.

Oil prices, which had neared $100 a barrel, have moderated. But they are still high. High energy prices are a double-edged sword. They can slow economic activity and spread inflation if they cause the prices of lots of other goods and services to rise.

“Elevated energy and commodity prices, among other factors, may put upward pressure on inflation,” the Fed said. “Inflation risks remain,” the Fed said, adding that it “will continue to monitor inflation developments carefully.” Some economists believed the Fed’s decision to go with a moderate quarter-point cut was a nod to those inflation concerns.

Dropping dollar cramps the style of Americans abroad

LA Times
December 9, 2007

LONDON – Karla Keating and her husband had retirement on their minds in May when they got what they considered an offer too good to refuse: a three-year stint in London.

Coming from North Carolina, they knew it was going to be a bit of a financial leap. But the major US bank where her husband is an executive lured him with a 33 percent increase in pay. Within weeks, they had crossed the ocean and found a nice flat near Marylebone for 1,820 pounds – about $3,750.

“The estate agent told me the price, and I said OK, I guess that’s kind of comparable to prices around Europe. And he said, ‘That’s the price per week,’ ” Keating recalls. Since then, it’s been all downhill.

The iPod Nanos for the children cost 99 pounds apiece (about $204), compared with $149 in the United States. Keating’s six-Diet Coke-a-day habit got shaved quickly to one, at $2 a can. They sit at the end of the day on their small balcony overlooking Great Portland Street, and her husband smiles (sort of) and says, “Here’s your $12 glass of wine.”

“When I got here I was like a deer in headlights. I was just, ‘Oh my God’ about everything,” Keating said. “We figured out that with the increasingly weakening dollar, in reality he is making less than he was making 20 years ago.”

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Market bears’ gloomy growl being echoed by big players

December 2, 2007, 2:58 pm
Filed under: bernanke, central bank, Credit Crisis, DEBT, Economic Collapse, economic depression, Economy, fannie mae, Federal Reserve, Goldman Sachs, Great Depression, Greenback, henry paulson, Henry Van der Eb, Inflation, interest rate cut, JPMorgan, Merrill Lynch, morgan stanley, Paulson, rate cut, Stock Market, US Economy, US Treasury, Wall Street, wells fargo

Market bears’ gloomy growl being echoed by big players

Chicago Tribune
December 2, 2007

Henry Van der Eb has run a mutual fund designed to weather financial disaster since the 1970s, continually preparing for the worst even as stock prices mostly soared.

Now he senses the times turning in his favor, and while he isn’t wishing hardship on anybody, some of Wall Street’s biggest and most respected players are echoing his gloomy cry.

Merrill Lynch last week issued a series of research reports warning of “pre-recession” conditions, even as stock prices first plunged, then soared. Goldman Sachs predicted housing woes would be “considerably worse than we originally anticipated.” And giant European bank Societe Generale warned risks are “growing rather than receding.”

For the first time in years, Van der Eb and his fellow “bears,” as the market’s perpetual doomsayers are known, were enjoying high-powered company.

By the end of the week, however, the bleak forecasts had been offset by the promise of U.S. central bankers riding to the rescue with a series of interest-rate cuts aimed at bringing about a soft landing for the sagging economy. In a speech Thursday evening, Federal Reserve Chairman Ben Bernanke promised to be “exceptionally alert and flexible.” Relieved investors bid the market higher in the expectation of further rate cuts beginning when Fed policymakers meet Dec. 11.

Van der Eb, manager of the Gamco Mathers Fund in north suburban Bannockburn, was unmoved. Fed action is no cure for the “reckless lending” that’s weighing on the markets today, he declared. “At some point, the rhetoric can’t keep overriding the fundamentals. You can’t create perpetual prosperity on debt.”

Waiting for stocks to plunge is a lonely business, and while last week’s volatile ups and downs clearly reflect unsettled times, they also illustrate the near-impossible task of predicting the market’s direction. For every Cassandra convinced the retreat of credit markets will take down the broader economy, an optimist points to the boom in U.S. exports brought about by the falling dollar, or to a Fed chairman eagerly resisting any sudden downturns.

As Morgan Stanley analyst Gerard Minack noted, “Most investors still expect the U.S. to land softly. Notwithstanding the jitters of the past few weeks, equity markets do not appear to me to be pricing in anything worse.”

While many analysts are forecasting just such a soft landing, the typical bear is betting against it, more visibly than at any time in years.

Anyone curious about the worst-case-scenario for the economy can find it at their local bookstore, where sky-is-falling analyses have been writ large in 2007 titles such as “Financial Armageddon” and “Crash Proof.”

Stock-market pessimists such as David Tice, manager of the Prudent Bear mutual fund, have become familiar voices to anyone paying attention to the financial media. “We’re as confident as we’ve ever been that the wheels have come off,” said Tice, expressing a sentiment reflecting his views for some time now. “We’re sad for the country.”

‘Revolution’ on horizon?
Ravi Batra, among the most bearish of bears, expects nothing less than a popular uprising against “moneyed interests preventing reform” and, eventually, “a revolution.”

The polite, soft-spoken economics professor from Southern Methodist University is no stranger to such alarmist ideas, and Batra says he’s “logging a lot of interviews” these days. He also has a new book, “The New Golden Age,” its optimistic title referring to the period that supposedly will follow the bedlam he foresees over the next five years.

Batra achieved fleeting glory when his book, “The Great Depression of 1990,” became a best seller in the aftermath of the 1987 stock market crash. And while the Dow Jones industrial average has gained more than 10,000 points in the years since, Batra has seen calamity lurking around the corner pretty much all along.

The only reason his predictions weren’t spot on, he said, is because he underestimated America’s capacity for debt. But he has no doubt the end is near: “American consumers can’t borrow any more,” he said. “That game is over.”

Perhaps chastened by the economic staying power that has defied their expectations in the past, neither Van der Eb, Tice nor even the far-out Batra predicts an imminent crash. Tice comes closest: “It may rally short-term. But we’ve started the bear market, and it’s going to go a lot lower.”

Predictably, Tice emphasizes the falling housing market and mortgage crisis. He expects Fannie Mae and Freddie Mac, the government-backed mortgage companies, to fall into disarray. And he sees an enormous hangover from the boom in structured finance. “We’re in the first inning of this thing,” he warned.

Van der Eb considers it premature to declare a full-blown bust in the making. “It’s probably too soon to say it’s going to be the big one,” he said. But trouble looms in bad-credit problems that “really dwarf” the dot-com bubble of 2000, he noted. “We’re headed toward the open water here, and we’ll just have to see how bad the waves get.”

Of course, those negative vibes belie the fact stock prices recovered sharply last week. On Monday, all looked bleak as the Dow Jones industrial average fell 237 points, bringing its decline from mid-October past the 10 percent threshold that signifies a correction. Though benchmarks differ, a “bear market” typically becomes official after a 20 percent decline, and the drop can be far sharper: During the dot-com collapse earlier this decade, large-capitalization stocks lost roughly half their value from the peak in 2000 before bouncing back.

If another drubbing is due, it was difficult to tell from the way the market shook off its Monday blues to post its biggest weekly gain in two months.

Not only did Bernanke signal a willingness to cut interest rates, but the Treasury moved closer to a plan to help Americans avert mortgage foreclosures.

JPMorgan Chase & Co. and Wells Fargo & Co. led financial shares to their best weekly gain in four years. Home builders rallied the most in seven years on Treasury Secretary Henry Paulson’s plan to buoy their market. For the week, the Dow rose 3 percent, the Nasdaq 2.5 percent and the Standard & Poor’s 500 2.8 percent.

Even bad news, such as a government report Friday showing that incomes and spending rose less in October than economists had forecast, merely boosted the confidence of investors that Fed policymakers would be cutting rates sharply for months to come.

The long-distance stock-market bear takes such rosy appraisals in stride.

Tice, for one, scoffs at “everybody who says it is time to buy every time the Fed cuts rates.” The bear market won’t unfold by moving straight down, he predicted. “You’ll have one-day rallies that give hope this is the time to buy.”

But don’t fall into the trap, Tice asserted: “People just ought to get out.”

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Dollar Decline “Irreversible”

November 18, 2007, 3:51 pm
Filed under: Alan Greenspan, Bank of England, Big Banks, Britain, China, citigroup, Credit Crisis, Dow, Economic Collapse, economic depression, Economy, Euro, global economy, Goldman Sachs, Great Depression, Greenback, housing market, Inflation, interest rate cuts, Joseph Stiglitz, Merrill Lynch, Northern Rock, Paulson, pound, rate cut, Stock Market, subprime, subprime lending, US Economy, US Treasury, wells fargo, Yen

Dollar Decline “Irreversible”

The Independent
November 17, 2007

The decline of the dollar, symbol of US global hegemony for the best part of a century, may have become so entrenched that some experts now fear it is irreversible.

After months of huge and sustained turmoil on the money markets, lack of confidence in the world’s totemic currency has become so widespread that an increasing number of international traders are transferring their wealth to stronger currencies such as the euro, which recently hit its highest level against the dollar.

“An American businessman over here who is given the choice would take anything but the dollar,” David Buik of Cantor Index said yesterday. “I would want to be paid in yen, and if not yen then the euro or sterling.”

Matthew Osborne, of Armstrong International, added: “The majority would say sterling. There are a few dealers in the City who may take the view that they’ll take dollars now, while they’re cheap, and hold on to them for 12 months.

“But the problem is so serious that there are people who in July or August might have been thinking, ‘I’m paid in dollars, how annoying’ for whom it’s now a question of, ‘Do you have a job; do you have a bonus?’ “

The collapse of the sub-prime mortgage market in the US, which is fuelling the dollar unrest, has already brought down one British bank, Northern Rock, and has forced others to declare vast losses. Yesterday, just as it appeared that the dollar might have finally reached its floor, there was another warning that the sub-prime crisis is going to get worse. The US Treasury Secretary Henry Paulson, warned an international business summit in South Africa: “The sub-prime market, parts of it will get worse before it gets better.” Huge numbers of US homeowners are still cushioned by introductory interest rates set when they took out loans in 2005 or 2006, he said. When these introductory offers run out, their interest payments will increase, setting off another wave of defaulting and repossessions. And the dollar is enduring its rockiest spell in recent memory.

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Goldman Sees Subprime Cutting $2 Trillion in Lending

Bloomberg
November 16, 2007

Nov. 16 (Bloomberg) — The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a “substantial recession” in the U.S., according to Goldman Sachs Group Inc.

Losses related to record home foreclosures using a “back- of-the-envelope” calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief U.S. economist at Goldman in New York wrote in a report dated yesterday. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.

“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession” or “a long period of very sluggish growth,” he wrote.

Goldman’s forecast reduction in lending is equivalent to 7 percent of total U.S. household, corporate and government debt, hurting an economy already beset by the slowing housing market. Wells Fargo & Co. Chief Executive Officer John Stumpf said yesterday that the property market is the worst since the Great Depression.

Citigroup Inc., the biggest U.S. bank, and Merrill Lynch & Co. have led companies writing down more than $50 billion on securities linked to subprime mortgages. The risk of further losses by banks has pushed their borrowing costs above the average for investment-grade companies, according to Merrill Lynch indexes. Citigroup paid bondholders the highest yield relative to benchmark interest rates in its history this week.

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