IMF news n matters

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via : http://sg.news.yahoo.com/rtrs/20080819/tbs-usa-banks-crisis-7318940.html
By Jan Dahinten

SINGAPORE, Aug 19 - The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

"The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.

"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.

"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.

"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."

Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N> on Monday after a newspaper report said government officials may have no choice but to effectively nationalise the U.S. housing finance titans.

A government move to recapitalise the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses. [ID:nN18494933]

Rogoff said multi-billion dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.

"There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them.

"That view neglects the point that the financial system has become very bloated in size and needed to shrink," Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek [TEM.UL] have invested billions in Merrill Lynch <MER.N> and Citigroup <C.N>.

In response to the sharp U.S. housing retrenchment and turmoil in credit markets, the U.S. Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to 2 percent since mid-September.

Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as "dramatically" as it did.

"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."

============

interesting. 

[Vorsprung durch Technik]

save now, then enter big big.

[Spyder]

Enter big big into wat?

[Vorsprung durch Technik]

banks

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"yet to come"

"is it coming yet?"

or "are we there yet?"

[Cobra]

buy the stocks of those failing financial institutions when they are now dropping like flies, when the big brother come along to acquire it or comsolidate it, the share price will go up (how much ?) or exchange for shares of the higher value acquirer.

i think briefly thats what PC is trying to tell us ?

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something from RichDad.

http://www.richdad.com/resource/emails/080910_community/080910_video_landing.html

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10 reasons for the turmoil





1 IT BEGAN WITH EASY CREDIT AND A HOUSING BUBBLE

From the mid-1990s onwards in the United States, it was ridiculously easy to get a home loan. Home prices soared about 85 per cent from 1996 through 2006 because of easy credit, fuelled by low interest rates. Buyers were seduced by cheap 'teaser' loans with low interest rates that were later 'adjusted' much higher. A bubble was created.
2 THEN INVESTMENTS GOT TIED TO MORTGAGES

The bubble in housing spread to banks though mortgage-linked investments.
During the boom, trillions of dollars worth of mortgages were packaged together into investment products that promised to pay investors with the proceeds of those loan payments. These products were created by banks and bought and sold to each other. They paid better rates than other types of assets during the boom years, so other banks from around the globe poured as much money as they could into those investments.
3 MORTGAGES WENT SUB-PRIME

Faced with this demand, banks starting making 'sub-prime' loans to riskier borrowers, many with no proof of income. When prices of homes were rising, this was not a problem. The risk of loan foreclosure or default was low because home owners were able to sell their houses for a profit.
Then the bubble burst.
4 HOUSING BUST LED TO BANK WRITE-DOWNS AND LOSSES

Once prices began falling, mortgage defaults and foreclosures shot higher. The value of investments tied to mortgages started to fall.
Banks were forced to repeatedly write down the value of their mortgage-linked investments, causing huge losses. With no end in sight to the housing bust, it became impossible to value those assets as the market for them disappeared.

5 AND TURNED INTO A CREDIT CRISIS
 
Banks became desperate to raise fresh capital but it got harder to attract new investments.
At the same time, banks tightened on credit as they grew scared of lending to each other for fear they wouldn't be repaid. Other cheap loans - to businesses and individuals - began to disappear.
6 LACK OF GOVERNMENT OVERSIGHT
 
After banks and brokerages were deregulated in the US in the late 1990s, it was legal for them to keep many loss-making investments 'off balance sheet', keeping investors in the dark. Regulators needed to make new rules but did not.
7 POOR RISK MANAGEMENT
 
The Nick Leesons and Jerome Kerviels were just the tip of an iceberg that became visible above water. In many banks, few understood, let alone could police, the increasingly complex investment products they were buying and selling.
8 FAILURE OF RATING AGENCIES
 
They were criticised for moving too slowly in cutting the ratings of banks which were also their customers. But the pendulum has swung, and now some critics accuse them of moving too quickly to downgrade, fuelling panic.
9 UNCONTROLLED SHORT-SELLING
 
Short-sellers were able to drive down the share prices of already weakened banks faster and harder than they would otherwise have fallen, blocking off one means of survival - selling shares to raise capital.
10 GREED
 
Blame it too on a culture that gave outsized rewards for success and risk-taking but did not penalise failure. US taxpayers will have to fork out hundreds of billions of dollars but Lehman Brothers' boss Richard Fuld gets to keep the US$490 million (S$700 million) he earned.
Ann Williams

10 things you should know

Couldn't keep up with the twists and turns that took place in the financial world last week? Here's a primer
By Ann Williams

 
 1 THE FALL OF LEHMAN BROTHERS
 
The week that broke Wall Street began with Lehman Brothers. On Sept12, news broke that the fourth- largest investment bank in the United States was on the brink of collapsing due to bad mortgage assets. Lehman was scrambling for a buyer as customers and trading partners fled.
No deal, however, was reached during that desperate weekend. Lehman's chief executive had waited too long to sell the firm, and everyone was now afraid to buy.
The US government, its last hope, kept to its word and refused to bail Lehman out.
Just after midnight last Sunday in New York, Lehman announced it would file for bankruptcy, the biggest in history.
It was around midday last Monday in Asia, and immediately the carnage on stock markets began as investors dumped bank shares.
Lehman's fall showed that the US government would not automatically prevent big banks from failing. It also showed how much worse the financial crisis had become even after the government had rescued mortgage finance giants Fannie Mae and Freddie Mac earlier this month and investment bank Bear Stearns six months ago.
2 SAVE AIG, SAVE THE WORLD... NOT
 
Two days after allowing Lehman to fail came bigger news that the US government would bail out American International Group (AIG), one of the world's biggest insurers. It would give the company an US$85 billion (S$122 billion) loan for an 80 per cent stake.
AIG was hit by a big shortage of cash triggered by US$18 billion of losses over three quarters, a sinking stock price and cuts in its credit ratings.
The insurer, with US$1.1 trillion of assets, however, was deemed too big to fail. The US government said unlike with Lehman, it had to rescue AIG because of the insurer's extensive ties to businesses and ordinary people throughout the world through a host of insurance products.
The bailout, though, failed to calm the markets. Instead, it led investors to wonder what other companies might suddenly plunge towards insolvency.
3 CRISIS HITS HOME
 
For ordinary people around the world, the credit crisis, which has been playing out for the last 15 months, may have really hit home only with the fall of AIG.
Newspapers in Singapore, Hong Kong and Taiwan splashed pictures and carried stories of hundreds of worried people queuing up to cash out on their insurance policies held with AIA, a unit of AIG.
For many ordinary investors in Asia, it was the first time their faith in American assets and the financial system was well and truly shaken.
Even after the US government stepped in to take over AIG and AIA put advertisements assuring policyholders that it could meet all claims, the queues continued.
4 THE BANK SALE WORTH WAITING FOR
 
Banks, meanwhile, were spooked by what was happening to Lehman. Merrill Lynch, the biggest brokerage in the US, wasted no time in finding a buyer.
It announced last Monday in New York that Bank of America would take it over for US$50 billion in a deal stitched together in just 48 hours.
And by last Wednesday, Britain's Barclays Bank, which had walked away earlier from buying up Lehman for the price its chief executive wanted, ended up with Lehman's core investment banking operations for just US$250 million.
With their shares plunging by the minute, other banks hung out 'For Sale' signs.
Lloyds of Britain rescued the country's biggest mortgage lender, HBOS, last Thursday in a US$22 billion takeover. At least five companies, including HSBC and Citigroup, were said to be looking at buying Washington Mutual.
Morgan Stanley bought time by exploring a possible merger with a smaller American bank, Wachovia, and more investment from a Chinese state-owned investment group.
With share prices bouncing back last Friday, banks like Morgan Stanley may no longer need a buyout or merger, so the Great Bank Sale may be over - for now.
5 CREDIT SQUEEZE TURNS INTO FREEZE
 
For 15 months, banks and other companies have suffered from a credit crunch as lending slowed. In the last week, however, as Lehman, then AIG and then Merrill went down, investors lost all confidence in the financial system.
The result was that all sorts of lending or credit froze, as the costs of short-term borrowing soared by as much as 30 per cent, hurting banks and other companies.
No corporate bonds were sold in the US in the last week - the first time that has happened since at least 1999 - while sales in Europe dropped 98 per cent.
Things reached crisis proportions when banks and investment firms simply stopped making loans to each other, as they hoarded cash to protect against any sudden need for it themselves.
6 CENTRAL BANKS RACE TO CALM THE STORM
 
With a global crisis on their hands, the top central banks from the US, Europe, Japan, Britain and Canada moved together last Thursday to pump an extra US$180 billion into money markets to keep credit flowing and interest rates down.
Many more billions were spent individually during the week.
The US Treasury also used US$50 billion to support money-market mutual funds and even lent more money directly to banks and other financial institutions, so they could buy certain assets from money-market funds.
With US$3.3 trillion in assets, money- market funds in the US are key in providing loans to companies so they can buy supplies and pay their employees.
With fund managers rushing to the safety of US Treasury bonds, corporations could not find buyers for their short-term loans. Making things worse, ordinary people who invest in these funds started pulling money out after one fund turned out to be not as super-safe as thought.
7 STOP THE LOOTING
 
They have been compared to looters after a hurricane, who are out to plunder. Short-sellers borrow stock to sell, then buy it back when the price drops, making a gain on the price difference.
Short-sellers, many of them huge hedge funds, have sought to profit from the financial crisis by betting against bank shares. In normal times, short-sellers add volume to share trading and help stocks find their true worth. When there is a crisis, on the other hand, unrestrained short-selling can make shares plunge even faster.
In response, the US and Britain slapped a temporary ban on the short-selling of financial stocks last Friday. Russia, whose stock markets plunged by more than 20 per cent last week, banned the shorting of all shares.
The ban on short-selling caused bank shares around the world, which had suffered big falls earlier in the week, to jump as much as 40 per cent last Friday.
8 THE MOTHER OF ALL BAILOUTS
 
After months of fighting each new emergency as it flared up, the US government announced last Friday a plan to once and for all deal with the bad mortgages and mortgage-linked assets at the root of the credit crisis by buying them all up from US banks.
The hope is that by helping banks get rid of bad mortgage debt, the government can avert a total meltdown of stock and credit markets around the world and free banks to make new loans to keep US businesses running and workers employed.
By taking on the actual mortgages and changing their terms, the government can also make it easier for home owners to pay back their home loans, thus helping the housing market to recover.
The cost: No official word has been given but estimates put it at US$500 billion to US$1 trillion.
There are no details yet on how the plan will work but the US government will likely buy the assets at a big discount and hold on to them until the US housing market recovers. Ideally, these loans could then be sold at a profit so US taxpayers, who are ultimately paying for the bailout, will get some money back.
The US Congress, which has to pass laws for the plan to be implemented, is looking at it now and will hold hearings this week. A deal must be hammered by the end of this week, when Congress adjourns because of the US presidential elections.
9 FLIGHT TO SAFETY AND BACK
 
Until last Thursday, panicked investors rushed to dump any asset seen as risky, especially stocks, as they piled into gold or US government bonds, seen as safe bets. Some just wanted plain cash.
But then the flight to safety reversed itself last Friday with news of the US government's sweeping plan to stem the crisis.
As investors poured their money back into stocks and investment funds, the price of gold fell by US$32 last Friday after soaring by US$116 in the previous two days.
The price of US Treasury bonds also tumbled. As a measure of how bad the fear was earlier in the week, investors piled into these bonds even though they were offering practically nothing in interest income.
Oil prices shot up by more than US$6 to over US$106 a barrel last Friday on hopes that the plan to resolve the bank crisis will spur economic growth, which is good for oil demand.

10 WHAT A RIDE
 
And so, investors all over the world went on the wildest ride of their lives last week.
To illustrate how volatile global markets had been, Russia suspended all stock market trading when shares plunged by 20 per cent to 25 per cent last Wednesday - and did so again when they rocketed up by 30 per cent last Friday.
The Irish stock exchange, with its biggest burst in history, jumped more than 25 per cent in the first hour of trading last Friday on news of the giant bailout.
Likewise in Asia and Europe, stock markets swung wildly up last Friday after plunging to dramatic lows earlier in the week.
In the US, the heart of the crisis, big plans to purge banks of bad assets and curb short-selling sent the Dow Jones Industrial Average, a key market index, soaring by 780 points in two days.
Because the Dow had plunged by about the same amount earlier in the week, however, the index actually ended the week where it started - pretty much like a real roller coaster. ann@sph.com.sg

via : http://www.singsupplies.com/showthread.php?t=4722

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1. WSJ says 65% of subprimes were foisted onto to those with better credit, who qualified for better mortgages.


2. Warnings to Bush admin about this began in, get this, 2001.

3. This next pc is scary: NYT -

The Crisis Last Time

By RON SUSKIND
Published: September 24, 2008
Washington


THE Federal Reserve chairman and senior economic officials of the Bush administration solemnly filed into the large conference room of the Treasury Department. There was a sense of urgency, an understanding that drastic action — restructuring the financial landscape of corporate America — was desperately needed.

Last week? Last night, as the president and his advisers prepared for his address to the nation? Hardly. It was Feb. 22, 2002. The officials were President Bush’s original economic team, including the Securities and Exchange Commission’s chairman, Harvey Pitt; Glenn Hubbard, the chairman of the Council of Economic Advisers; and the senior White House economic adviser, Lawrence Lindsey. The Federal Reserve chairman, of course, was Alan Greenspan.

The crisis of that moment was the implosion of Enron, Global Crossing and other companies. Along with conflicts of interest and criminally creative bookkeeping, the culprit was often a combination of financial complexity and insanely expensive compensation packages.

Enron is long gone, but this episode — as much a warning for our financial security as the 1993 World Trade Center bombing was to the threat of wider terrorism — carries some telling lessons as our best minds struggle now to save the economy.

The meeting, recounted to me by Paul O’Neill, Mr. Bush’s first Treasury secretary, and several other participants, was something of a showdown. Everyone came armed for battle, none more than Mr. Greenspan and Mr. O’Neill, who railed that day like a pair of blue-suited Jeremiahs. Their colloquy on economic policy and corporate practice, which began when they were senior officials in the Ford administration, had evolved over three decades.

To the surprise of many younger men in the room, the duo opened by reminiscing about a bygone era when the value of a company’s stock was assessed by how strong a dividend was paid. It was a standard that demanded tough, tangible choices. Everything, of course, came out of the same pot of cash, from executive compensation and capital improvements to the dividend — which could be spent by a shareholder or reinvested in more company stock as a show of support.

In contrast to dividends, Mr. Greenspan intoned, “Earnings are a very dubious measure” of corporate health. “Asset values are, after all, just based on a forecast,” he said, and a chief executive can “craft” an earnings statement in misleading ways.

Speaking with a hard-edged frankness rarely heard in public — and seeing that those assembled were not sharing his outrage — Mr. Greenspan slapped the table. “There’s been too much gaming of the system,” he thundered. “Capitalism is not working! There’s been a corrupting of the system of capitalism.”

Mr. O’Neill, for his part, pushed to alter the threshold for action against chief executives from “recklessness” — where a difficult finding of willful malfeasance would be necessary for action against a corporate chief — to negligence. That is, if a company went south, the boss could face a hard-eyed appraisal from government auditors and be subject to heavy fines and other penalties. By matching upside rewards with downside consequences — a bracing idea for the corner office — Messrs. O’Neill and Greenspan hoped fear would compel the titans of business to enforce financial discipline, full public disclosure and probity down the corporate ranks.

But they were in the minority. Mr. Pitt, the S.E.C. chairman, voiced concern that creation of a new entity to assess negligence by corporate honchos might draw power away from his agency. Lawrence Lindsey said, “There’s always the option of doing nothing,” that the markets are “already discounting the stocks in companies that show accounting irregularities.”

An article about the meeting appeared a few days later in The Wall Street Journal. The next day, Mr. O’Neill was in Florida addressing chief executives of America’s top 20 financial services companies. They piled on. One told the Treasury secretary that he’d “rather resign” than be held accountable for “what’s going on in my company.” A phalanx of outraged financial industry chiefs, many of them large Republican contributors, called the White House. Real reform was a political dead letter.

A presidential speech that followed was toothless, mostly recommending that chief executives personally certify their companies’ financial statements. Earnings per share remained the gold standard. The Sarbanes-Oxley bill, signed into law a few months later, largely focused on the auditors, and actually increased the complexity of reporting practices. As for lawsuits? Not to worry. No significant rise.

At issue, of course, were those twins, transparency and accountability. The years since have shown that the first one is meaningless without the second. With a world financial crisis upon us, the president and his economic team are forced again to talk about accountability. Let’s hope this time they mean it.

Ron Suskind is the author of “The Price of Loyalty: George W. Bush, the White House and the Education of Paul O’Neill” and “The Way of the World: A Story of Truth and Hope in an Age of Extremism.”

4. Yes, this would've been relatively simple to fix back then, as APK & I discuss in McCain vs Obama thread.

via : http://www.lotustalk.com/forums/f68/secrets-housing-crisis-54523/index4.html

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Sep 30, 2008
[SIZE="5"]2.30AM LATEST
Bailout plan rejected
US lawmakers reject US$700 billion bailout plan[/SIZE]

Stocks plunge, investors rush to gold and govt bonds

Citigroup to acquire Wachovia operations

Fortis, Britain's Bradford & Bingley partly nationalised
 
WASHINGTON - US LAWMAKERS rejected a US$700 billion (S$1 trillion) bailout plan for the financial industry in a shock vote that sent global markets sliding as European authorities scrambled to prop up a slew of banks.
The Dow Jones industrial average posted its largest point decline ever while the benchmark S&P 500 had its worst day since the 1987 crisis with an 8.8 per cent drop. Latin American stocks tumbled 13 percent, their biggest decline in more than a decade.

Even before the vote, Asian and European markets had plummeted on fears the crisis was spreading, while US regional lender Wachovia became the latest big bank to succumb to the crisis.

And global money markets were frozen even as central banks poured hundreds of billions of dollars into the financial system to persuade financial firms to stop hoarding cash.

'There's a monster amount of fear out there. This is global contagion. It's no longer just the United States,' said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The House of Representatives voted 228-to-205 against a compromise bailout plan that would have allowed the Treasury Department to buy up toxic assets from struggling banks.

House Republicans, in particular, balked at spending so much taxpayer money just before the Nov 4 US elections.

'I can't believe they weren't able to come together and come up with a solution. Complete disaster was predicted if it didn't pass,' said Stephen Berte, senior equity trader at Standard Life in Boston.

'I can't see what the upside is right now.'

US President George W. Bush huddled with economic advisers, including Federal Reserve Chairman Ben Bernanke, to consider the administration's next move.

'We need a plan that works,' said US Treasury Secretary Henry Paulson, the Bush administration's point man on the bailout since the first plan was announced over a week ago.

'We need it as soon as possible, and we're just committed to working with congressional leaders to get it done.'

Investors rushed to assets considered a safe haven.

Government bond prices and gold jumped, and oil fell below US$99 per barrel on the view that world demand will contract as the financial crisis puts the brakes on economic activity.

'What should have been a day of hope turned into a day of desperation,' said Marco Annunziato, chief economist for UniCredit in London.

'We are facing a systemic crisis of confidence in the global financial system that is pushing us increasingly close to a complete meltdown.'

World stocks, as measured by the MSCI's world index, lost about US$1.7 trillion for the day.

Bailout prospects uncertain
In Washington, the failure of the bailout bill - after more than a week of intensive closed-door negotiation intended to hammer out a compromise plan - brought new uncertainty about the response of the US government to the worst financial crisis since the Great Depression.

Republican House members voted against the rescue package by a more than 2-to-1 margin. A majority of Democrats voted in favor.

Both parties blamed each other for the failure of the closely watched bill after hours of closed-door negotiations intended to add provisions to protect taxpayers and head off criticism that Washington was riding to the rescue of bankers many Americans blame for triggering the housing crisis.

'What happened today cannot stand. We must move forward,' House Speaker Nancy Pelosi told reporters. 'We are here to protect the taxpayer as we work to stabilise the markets.'

US presidential candidates Barack Obama and John McCain had both offered qualified support for the bailout proposal, which now dominates the election with just over a month before the vote.

Mr Obama, a Democrat, said he believed lawmakers would regroup to pass a financial rescue plan. 'I'm confident we're going to get there,' Mr Obama said as he campaigned in Colorado. 'It's going to be a little rocky.'

Mr McCain, a Republican who suspended his campaign last week in a failed attempt to broker a bailout deal, called on lawmakers to go back to work.

'Now is the time for all members of Congress to go back to the drawing board,' he said.

The Senate returns on Wednesday and the House on Thursday after a break for the Jewish New Year holiday of Rosh Hashanah.

No laws can be passed in their absence but their staffs could work on a revised plan.

The high-stakes political showdown on the bailout proposal came after Wachovia Corp agreed to sell most of its assets to Citigroup in a deal brokered by regulators.

It was one of three US financial deals struck as the crisis deepened.

Global contagion
Investors said there were ample signs that a financial crisis that started with risky lending to the overheated US property market had gone rapidly global.

'The crisis is going to affect everybody. It's a very difficult situation and it's going to affect economies everywhere,' Mexican billionaire Carlos Slim said.

Earlier, the governments of Belgium, the Netherlands and Luxembourg moved to partly nationalise Belgian-Dutch group Fortis NV , and German lender Hypo Real Estate Holding AG secured a credit line from the German government.

British mortgage lender Bradford & Bingley was brought under the government's wing , shares of French bank Dexia tumbled on a report that it might need emergency capital, and bank rescue deals also emerged in Iceland, Russia and Denmark.

Earlier, European shares had dropped to a 3-1/2-year closing low, with bank shares weighing heavily.

The world's central banks, led by the US Federal Reserve, announced a US$330 billion expansion of currency swap arrangements, which allows them to increase the amount of money they can provide in their home markets, effectively throwing more money at the crisis.

The Wachovia deal was the latest in a series of events that has transformed the American financial landscape and wiped out hundreds of billions of US dollars of shareholder wealth.

The changes include the government takeover of mortgage finance companies Fannie Mae and Freddie Mac , the bankruptcy of Lehman Brothers Holdings, the failure of giant savings and loan Washington Mutual, and Bank of America's purchase of Merrill Lynch.

via : http://forums.hardwarezone.com.sg/showthread.php?t=2110225

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[YOUTUBE]-InPBFcVB5U[/YOUTUBE]



US STOCKS-Dow suffers record point drop as House rejects bailout
Mon Sep 29, 2008 4:34pm EDT

* House rejects $700 billion bailout plan

* Dow posts biggest daily point drop in history

* Apple leads tech rout after broker downgrades

* Citibank snaps up Wachovia, European banks nationalized

* Dow off 6.9 pct, S&P down 8.6 pct, Nasdaq off 9.1 pct

(Updates to close)

By Steven C. Johnson

NEW YORK, Sept 29 (Reuters) - The Dow industrials plunged on Monday in the blue-chip average's biggest one-day point drop ever after U.S. lawmakers unexpectedly rejected a $700 billion financial bailout, spooking investors who saw it as essential to halting a global market meltdown.

The Dow lost about 778 points and posted its biggest daily percentage decline since the October 1987 stock market crash, while the benchmark S&P 500 also had its worst day in 21 years after the House sent the bailout plan to defeat by a vote of 228 to 205.

The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed.

The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks, added to serious concerns after the credit crisis claimed new victims, including Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and a bevy of European banks.

Fear was deep and widespread, as investors dumped stocks for the relative safety of U.S. government bonds. The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's main barometer of investor fear, jumped 39 percent to 48.40, a nearly six-year high, and was at 46.72 at the close.

"I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix," said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.

The Dow Jones industrial average .DJI sank 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index .SPX was down 106.59 points, or 8.79 percent, at 1,106.42. The Nasdaq Composite Index .IXIC was down 199.61 points, or 9.14 percent, at 1,983.73.

An index of financial services shares lost 16percent, while Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) fell 17.6 percent to $30.25.

Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) slid 12.5 percent to $120.70.

"This is bad in a lot of different ways," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston. "Short-term, the market is getting crushed, but more importantly, we are telling clients we could be at the beginning of a whole new down phase. There is the potential for the S&P 500 to go all the way down to 1,000."

The bailout's demise comes after U.S. bank Wachovia was forced to sell most of its assets to Citigroup (C.N: Quote, Profile, Research, Stock Buzz) in a deal brokered by the Federal Deposit Insurance Corp.

That followed fast upon fresh signs that financial market turmoil was spreading around the world. European authorities in recent days were forced to step in and rescue a group of banks in Britain, Belgium, Germany and elsewhere.

Global money markets remained paralyzed, even as central banks, including the Federal Reserve, pumped cash into world markets in an attempt to boost liquidity.

Although there were doubts that the government's rescue package would be sufficient to shelter the economy and stem the spread of the turmoil, investors said it was a necessary first step to restoring confidence in financial markets.

"We know that whatever they do won't save all the ills from an economic perspective," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia. "But to sit and maintain this sort of limbo is not good, and financial markets are reflecting that."

Technology shares also took it on the chin with Apple Inc's (AAPL.O: Quote, Profile, Research, Stock Buzz) 18 percent slide to $105.26 leading the way after several brokerages slashed their recommendations on the tech bellwether and maker of the iPod.

Shares of Google (GOOG.O: Quote, Profile, Research, Stock Buzz) fell 11.6 percent to $381, near a two-year low hit earlier in the day.

The bailout plan met heavy resistance from Republicans, who balked at the price tag and voted against the bill by a margin of more than 2 to 1. A majority of Democrats voted in favor.

"The problem is the American public resoundingly said 'no,'" said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "It's such a difficult, complex and unprecedented situation, and maybe the average American either doesn't understand it or accept the ramifications of what might happen if (Congress) doesn't come through."

Volume was heavy on the New York Stock Exchange, where about 2.02 billion shares changed hands, above last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 2.80 billion shares traded, well above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by about 30 to 1. On the Nasdaq, decliners beat advancers by more than 6 to 1.

(Additional reporting by Ellis Mnyandu, Kristina Cooke and Jennifer Ablan) (Reporting by Steven C. Johnson; Editing by Jan Paschal)

http://www.reuters.com/article/usMktRpt/idUSN2929515720080929

via : http://forums.vr-zone.com/showthread.php?t=333419

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Page last updated at 05:11 GMT, Thursday, 9 October 2008 06:11 UK

Mr Paulson warned the ongoing financial crisis had some way to run

The US treasury secretary has warned some banks will still fail despite the $700bn government rescue package to shore up the financial system.

Henry Paulson called for the plan's swift implementation, but said the financial crisis would not end soon.

Seven central banks on Wednesday cut interest rates in an effort to steady the faltering global economy.

Although the moves did not fully quell investor fears, Thursday saw a calmer climate on Asia's main stock indexes.

By 0430 GMT, Japan's benchmark Nikkei index was up by 2% after the Bank of Japan injected two trillion yen ($20.1bn) into the money markets in an effort to calm fears.

Tokyo had suffered its biggest one-day drop in 21 years on Wednesday, with the Nikkei shedding nearly 10% of its value.

In Sydney, Australia's financial market lost 1.2%, but Hong Kong's Hang Seng index rallied 2.8%.

South Korea's stock market also posted 2.5% gains after the central bank announced a 0.25% interest rate cut.

Taiwan's Central Bank cut its 10-day loan rate to 3.25% from 3.5%, and Hong Kong announced a similar move.

Global action

In his bleak assessment, Mr Paulson warned the ongoing financial chaos had "seriously impacted" the economy.

"Even with the new treasury authorities, some financial institutions will fail," he added.

There was an equally stark warning from the International Monetary fund, which said global financial markets were facing their most dangerous shock since the 1930s.

In an unprecedented co-ordinated move on Wednesday, rates were cut by the Bank of England (to 4.5%), the US Federal Reserve (to 1.5%), and the European Central Bank (ECB) (to 3.75%), with similar cuts from the central banks of Canada, Sweden and Switzerland.

Traders on Wall Street
Wednesday's co-ordinated rate cuts surprised many traders

Although it did not cut its own rate - which is just 0.5% - the Bank of Japan expressed its "strong support" of the policy. In a separate move, China cut its own interest rate by 0.27%.

While European and US markets initially reacted well to the news, they later lost ground as investors were unconvinced the rate cuts were enough to solve the financial crisis.

In New York, the main Dow Jones stock index lost ground for its sixth consecutive session, ending 2% down.

The heads of the IMF and the World Bank are due to discuss the world's ongoing financial turmoil in Washington later, and finance ministers from the G7 group of industrialised nations are meeting later this week.

More work to do

The IMF's chief economist, Oliveri Blanchard, said the orchestrated rate-cuts could not solve the world's financial crisis on their own but "were clearly a step in the right direction".

   

The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become
Julian Jessop
Capital Economics

But he warned "there will be tough economic times ahead".

Chief international economist at Capital Economics, Julian Jessop, said the rate cut would provide a "temporary boost to confidence", but warned there was still a lot more work to do.

"The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become," said Mr Jessop.

On Wednesday, the UK government unveiled a package of measures aimed at rescuing the banking system which could add up to £400bn ($692bn).

Italy also unveiled details of a banking rescue plan that could involve the government taking stakes in failing banks.

The US Federal Reserve, meanwhile, agreed to provide insurance giant American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.

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Published May 8, 2009

IMF says it overstated east Europe financing needs

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(WASHINGTON) The International Monetary Fund (IMF) said on Wednesday it overstated external financing needs of some eastern European countries in a recent report, largely because of double-counting errors, and would publish corrected data soon.

United front: The Polish government has said repeatedly the economy is one of the strongest in the region and not in need of IMF aid like those offered to countries like Hungary or Ukraine
At issue is a table the IMF included in its Global Financial Stability Report, which was released on April 21, showing many eastern European countries had large financing needs.
The IMF highlighted this as a concern because many eastern European countries are highly dependent on western European banks for financing, and the global financial crisis has disrupted the flow of credit.
The deteriorating financial condition of emerging Europe could exacerbate banking troubles in western Europe, the IMF said. It was not immediately clear how large the IMF's revisions might be.
'We are in the process of correcting numbers . . . regarding refinancing needs of countries listed in the table,' IMF spokeswoman Simonetta Nardin said in an e-mail to Reuters in response to a question about the figures. 'We expect to have the corrected numbers published soon.'
The IMF said the corrections mostly involved double-counting errors, although in the case of the Czech Republic the figure initially published was the result of a typographical error.
'We regret these errors, and will review the IMF's internal procedures according to the lessons learned,' Ms Nardin said.
Last month, the IMF slashed its economic growth forecasts for many eastern European countries, citing the credit crisis, slumping demand and falling energy prices.
Yesterday the fund approved a one-year, US$20.6 billion line of credit to Poland.
The Polish government has said repeatedly the economy is one of the strongest in the region and not in need of IMF aid like that awarded to countries like Hungary or Ukraine.
It plans to treat the extension of credit as a 'precautionary' measure, meaning it does not intend to draw on the funds, the IMF said in a statement.
'We are now far safer from the severe turmoil in the global economy,' Polish Finance Minister Jacek Rostowski told reporters in Warsaw on Wednesday. 'It proves that the IMF considers both Poland, and its economic policy, to be strong.'
The European Commission earlier this week said it expects Polish gross domestic product will contract 1.4 per cent this year. Mr Rostowski rejected the forecast, saying he thought the commission hadn't taken into account the 'resilience' of the economy and adding he expected growth slightly above zero in 2009.
Poland will become the second country after Mexico to use the IMF's new flexible credit line as its economy faces the sharpest slowdown in around a decade.
Poland's currency, the zloty, lost almost a third of its value from a record high in July as investors fled emerging-market assets because of the credit crunch. -- Reuters, Bloomberg

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