Internet Anthropologist Think Tank: World economic crash

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    Thursday, September 18, 2008

    World economic crash

    Link: Global Guerrillas: FINANCIAL MELTDOWN.


    "As anticipated, the global financial system is now in free-fall. The bankruptcy of Lehman, the government take-over of Fannie/Freddie (essentially, a gov't takeover of the entire US mortgage market), the fire sale of Merrill Lynch (moments before it too went into free-fall), the expansion of Federal Reserve emergency lending into securities (which codifies its position as the only source of capital for big financial firms), the looming failure of AIG (the world's biggest insurance company), the impending failure of Washington Mutual (which will deplete the entire FDIC fund in one whack) all point to tougher times ahead.

    The easily foreseen failure in the US/UK mortgage markets due to rampant corruption has now developed into a financial black swan that due to entanglements (connectivity), opacity, size, speed, and complexity is beyond the capacity of the US (and its allies) to control. It will get worse as the run on the massive (30 times larger than the US economy) shadow banking system begins in earnest.

    To many, this developing situation will be uncharted territory. However, for those of us that have already embraced the trend lines, the roadmap for the next decade is increasingly clear.... (((And, no, you don't even wanna look. But you kinda have to.)))



    (Editor's note: Since this interview was conducted and posted, trading was suspended on Moscow's stock exchange amid sharp declines and furious efforts to boost Russia's banking sector.), Sept 18,08

    RFE/RL: Writing in "The Moscow Times," you said on August 8 that Russian Prime Minister Vladimir Putin "made his greatest strategic blunder" and single-handedly "wiped out a half a trillion dollars of stock market value, stalled all domestic reforms, and isolated Russia from the outside world." Explain that stock-market loss part.

    Anders Aslund: Well, what happens when you start an aggressive foreign policy is that you also start an aggressive foreign trade policy. And you block domestic economic reforms. And you sharply increase the political risk in your country. And UBS [United Bank of Switzerland] has assessed that this increase in the political risk means that stock prices should be 20 percent lower -- that's $300 billion right off there, off the stock market. The bond yields that are demanded now for loans to Russia are 2-3 percent higher than a month ago.

    RFE/RL: You also write that, despite what happened in Georgia, the Russian economy has been headed for a slowdown for some time. Why?

    Aslund: Well, it's at the end of a business cycle, the oil price has fallen by one-third, and the Russia economy suffers from massive overheating. So that's the time when you really need reform, and then Putin is turning his back on it.

    RFE/RL: Russia has made it an official goal to reach half the U.S. per capita GDP by 2020. You don't think this is going to happen. Why not?

    Aslund: I would say that I think that the most important [factor] is the combination of massive corruption and [the] inability to build infrastructure when the need is at its greatest. Russia today can't build motorways; they can't build pipelines. And they need some of them very badly. The traffic chaos in Moscow is just characteristic of the main problem in Russia today...



    A wave of bittersweet melancholy has descended on the thousands of phishers, hackers and credit card swindlers inhabiting the computer crime supersite On Tuesday the site's operator, known as Master Splyntr, announced that he was shuttering the forum, which has hummed along for nearly three years as a premier vehicle of criminal commerce.

    "[R]ecent events have proven that even in our best efforts to expel and deactivate the accounts of suspected LE [law enforcement], reporters, and security agents, it is obvious that we haven't been entirely successful," Splyntr wrote in a message on the site.

    Chief among those recent events is last week's arrest of Cha0, a Turkish hacker -- and alleged kidnapper -- who served as one of DarkMarket's administrators. Cha0 was known for selling high-quality ATM-skimming hardware that crooks could affix to cash machines to grab debit card swipes and PINs. Turkish police arrested Cha0 on Friday, identifying him as one Cagatay Evyapan.



    Iran 25% inflation rate Iran inflation crushing, new ...



    Sept. 19 (Bloomberg) -- China's benchmark stock index rallied the most since the gauge was created in April 2005 after the government said will buy shares in three of the largest state-owned banks and scrapped the tax on equity purchases to halt a slide that erased $2.64 trillion of market value.



    All the various programs are designed to manage the liquidity in financial markets; that is, the amount of cash or near-cash equivalents that can be used for transactions, reserves or for lending. By increasing liquidity, the Fed and the central banks hope to prevent the seizing up of daily market operations because banks and other financial institutions are hoarding liquid assets.
    In most cases, the Fed provides a liquid asset, such as cash or U.S. Treasurys, in exchange for less-liquid assets, such as agency bonds or mortgage-backed securities. Almost all the transactions are considered loans, with the Fed earning a profit on the transaction.
    For a summary of the Fed's various programs, their terms and conditions, go to the New York Fed's site at Read more.
    Here's a scorecard of what the Fed has done:
    Federal funds rate: The Fed has lowered its target rate by 325 basis points from 5.25% to 2%. The fed funds rate is the rate banks charge each other for overnight loans to meet reserve requirements. The Fed can influence the rate by injecting or withdrawing money from the system via sales or purchases of Treasurys.
    Repurchase agreements: The Fed flooded the financial system with $105 billion in cash on Thursday. The repurchase agreements allow primary dealers to sell Treasury bills, notes and bonds to the Fed on a temporary basis, and then repurchase them at the maturity of the agreement, either the next day or up to several weeks later. Reverse repos work just the opposite, with the Fed draining money from the system by temporarily buying Treasurys. By managing the daily money supply through repurchase agreements and reverse repos, the Fed's Open Market Desk can keep the federal funds rate near its target
    Discount rate: Lowered by 400 basis points from 6.25% to 2.25% and extended the term from overnight to 90 days. As of Wednesday, banks had $33.4 billion in outstanding loans through the discount window. The discount rate is the rate the Fed charges banks for overnight loans from the Fed's discount window to meet reserve requirements. The Fed has tried to remove any stigma attached to borrowing from the discount window.
    Primary Credit Dealer Facility: The Fed has opened up the discount window to primary dealers (including broker-dealers and investment banks) at similar terms and rates. As of Wednesday, the investment banks and dealers had $59.8 billion in outstanding loans, compared with none the week before. The loans are likely to help Lehman Bros. liquidate its assets, analysts said.
    Term Auction Facility: The Fed has auctioned $150 billion in 28-day or 84-day loans of cash to commercial (depository) banks" in generally sound financial condition." The loans are fully collateralized by bonds, equities, asset-backed securities or commercial paper.
    Term Securities Lending Facility: The Fed has auctioned $117.2 billion as of Wednesday in 28-day loans of government securities to primary dealers (including broker-dealers and investment banks), including $50 billion in options. The loans are fully collateralized by bonds, equities, asset-backed securities or commercial paper.
    Security Lending: On Thursday, the Fed auctioned $17.4 billion of government securities on an overnight basis to primary dealers, fully backed by collateral. The auctions take place daily. On Monday, $28.5 billion was auctioned. For the week, the securities loans averaged $8.4 billion per day.
    Foreign currency swaps: The Fed has offered to swap up to $247 billion in dollars against other currencies from other central banks that can then be auctioned into the markets, typically on an overnight or two-week maturity. As of Thursday, $88 billion in loans were outstanding at the central banks.
    Bear Stearns: The Fed has taken on about $30 billion of Bear Stearns' assets as part of the fire-sale to JP Morgan. As of Sept. 17, the Fed's portfolio of former Bear Stearns assets was worth $29.4 billion.
    American International Group: The Fed has offered to lend AIG up to $85 billion in exchange for a majority stake in the company. As of Wednesday, AIG had borrowed $28 billion.
    Supplementary Financing Program: To boost the Fed's balance sheet, the Treasury announced it would hold special auctions of Treasury bills for the Fed's account. On Wednesday and Thursday, the Treasury auctioned $100 billion of short-term bills.
    Fannie Mae and Freddie Mac: The Treasury has seized control of Fannie Mae and Freddie Mac and has taken an equity stake in the companies. The impact of the seizure on the government's books has not been quantified


    US$180 billion pumped into money markets
    New Zealand Herald, New Zealand - 12 hours ago
    The Federal Reserve, and central banks in Europe, Canada and Asia, pumped as much as US$180 billion into money markets on Thursday to combat shock waves ...


    Money markets have always been considered as a liquid asset. Freezing or closing them
    is very serious. Money markets are marked to the market and have always been $1 a share.
    Some funds marking them to the market are coming up short of the Dollar.

    Cash may be king. This is going to get VERY very UGLY.


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