Topic: WE'RE STUFFED!!!

[Jahn]

Economy is sucha weird thing, I don't understand much about it. It all seems so artificial. According to my understanding life could be very simple... 

Household economy, one has better to learn early.
National economy, business economy, bank economy, health economy or world economy, that is very much academic stuff.

[Jahn]

That is a bit of optimistic assessment. Life in academe in Estonia differs considerably from that of our Nordic neighbours. It tends to be pretty hard and cut-throat here. One has to run faster and faster to stay at one place.

I see.
 Well I belong to a unit that has no faculty allowance at all so we have had our ups and downs. As now the health sector increase it demands for assessments and expert participation it is easier to get funding on short and middle term basis. But I must say it can worry me a bit when changing clients.

[erik]

Frederick the Great cursed his fleeing troops at the battle of Kolin:

Rascals, Do You want to live forever?!

Encouraging, isn't it?

Or this one from  Sergeant Major Daniel Joseph "Dan" Daly (US Marines) from the Battle of Belleau Wood, when, besieged, outnumbered, outgunned, and pinned down, he led his men in attack, shouting:

Come on, you sons of bitches, do you want to live forever?

 

[Michael]

I am as mystified as others about this global financial crisis. It is all happening deep in the financial sector, and it is very serious, but it hasn't really broken through into most people's lives yet. It is like hearing on the radio of a tsunami coming - everything still looks quite pleasant around, but you just know you have to get to high ground as fast as possible.

I don't understand how Iceland can be affected by selling a home to someone in the USA who has no ability to repay the loan. I would like to hear more from those who do understand, but I am getting the feeling that no one does know - it's all speculation.

I can see that fear has now taken hold in the credit channels, and fear is what brings depressions. Fear is obvious on the currency markets. First the USD has been falling since 2002, and the AUD was riding high. Now the AUD has dropped like a rock, and the USD is rising. People with billions are running scared, hither and thither. The US economy was looking dodgy for many years. So what happens - it finally gets much much worse, and what do people do? They pull their money back to USD - they buy into the very economy that is in the worst situation. It doesn't make sense, except when seen from a fear-emotion perspective.

I find myself sitting back and watching this with bewilderment.

[tangerine dream]

Over here in Canada, we usually get pretty excited when the American dollar falls.  Because that means that we can go shopping across the line and get real cool clothes for next to nothing.  And booze and gasoline for cheap as well.
 

Edit:
(I should add here,  I'm just playing around, I know this is very serious to some people. )

[daphne]

My simple understanding is that it is like credit cards; having lots of credit cards and using one to pay off the next, until the whole pack of cards (so to speak) falls. If an individual were to do that, they would be considered 'irresponsible'. When banks and companies do that, its called 'investments'. Basically.. its gambling.

[erik]

I am as mystified as others about this global financial crisis. It is all happening deep in the financial sector, and it is very serious, but it hasn't really broken through into most people's lives yet. It is like hearing on the radio of a tsunami coming - everything still looks quite pleasant around, but you just know you have to get to high ground as fast as possible.

I don't understand how Iceland can be affected by selling a home to someone in the USA who has no ability to repay the loan. I would like to hear more from those who do understand, but I am getting the feeling that no one does know - it's all speculation.

I can see that fear has now taken hold in the credit channels, and fear is what brings depressions. Fear is obvious on the currency markets. First the USD has been falling since 2002, and the AUD was riding high. Now the AUD has dropped like a rock, and the USD is rising. People with billions are running scared, hither and thither. The US economy was looking dodgy for many years. So what happens - it finally gets much much worse, and what do people do? They pull their money back to USD - they buy into the very economy that is in the worst situation. It doesn't make sense, except when seen from a fear-emotion perspective.

I find myself sitting back and watching this with bewilderment.

Iceland: overextending. For number of years researchers have been wondering about that state. In terms of population, it is not even small, it is a microstate. Yet, in terms of economy, it is a fishery superstate, and it has grown into a serious banking state.

But what supports that banking? What is the weight of domestic economy behind it? GDP of 20 billion USD? It is the size of Estonian economy!

It is still small, it is microscopic for such an ambition, and therefore Iceland's banking reminds me of a stock bubble we had here a few years ago. Then people bet on rising stock and bought it using loan money (and used the very stock they bought as a guarantee).

Similarly, Icelanders gambled on the growth of foreign economies, and when it stopped, their whole country ran into trouble.

Greed and lack of critical view of self. Trying to punch above one's weight.
Signs have been there for some time to see.

A chill wind blows through Iceland bank's success story
Nick Mathiason on problems at Kaupthing, lender to London's property boom
Sunday 04 May 2008

It is the bank that likes to say yes to some of the UK's most adventurous entrepreneurs. From Iceland but now embedded in London's West End, Kaupthing has in the past eight years been among the most aggressive lenders to property moguls and maverick business personalities.

But as the commercial property market heads closer to the abyss, many are questioning whether Kaupthing has bitten off more than it can chew. Its extensive client list includes TV chef Gordon Ramsay, who borrows money to expand his restaurant empire. Fashion retailer Karen Millen, Scottish billionaire Sir Tom Hunter and exotic real estate tycoon Robert Tchenguiz are all long-standing customers.

'The entrepreneurial spirit serves as a mainstay in our business,' says its London chief executive, Armann Thorvaldsson. 'The possibilities are limitless.'

Indeed, the list of Kaupthing deals is impressive. It backed a Tchenguiz-led acquisition of Somerfield in 2005 for £1.5bn, a business that now is on the market. It also advised Mike Ashley on his £134m acquisition of Newcastle United 12 months ago which, according to reports, is also available. Among its most valued borrowers are the Candy brothers, developers of thousands of luxury flats in some of London's most desirable locations. Kaupthing is also supplying the funding for what will be Europe's tallest building, the Shard of Glass, next to London Bridge.

In short, it has played a significant role in the spectacular growth of property in London since 1997, propelled by a boom that turned Iceland into one of Europe's fastest-growing economies, and the sixth-richest per capita in the world.

But London property insiders say Kaupthing has significantly eased back on lending, amid concerns that real estate, which last year saw values fall by 20 per cent, could plunge even further. These fears were confirmed last week when the Bank of England warned that the UK's big banks stand to lose as much as a fifth of their profits as the commercial property market implodes.

The Bank sounded the alarm on a £5bn-plus wave of defaults that could engulf the financial sector. If this happens many believe Kaupthing is among the most exposed, as it takes equity positions in some of the businesses it lends to.

Kaupthing, though, points out that compared to other banks it is a relatively small property lender. It is understood that its loan book stands at over £500m. It also says that any issues that Tchenguiz faces will not affect it because Tchenguiz did his biggest deals with other institutions.

Yet last week's first-quarter results did not make comfortable reading. The group as a whole turned a profit in its capital markets division of £91.3m into a loss of £30m, although profits in its treasury operation more than trebled.

Earlier this year Kaupthing was pressured by Icelandic authorities to drop a £2.34bn takeover of Dutch financial group NIBC amid concerns that the bank has become too stretched.

Alexandre Birry, director of financial institutions at ratings agency Fitch, said: 'Kaupthing has been subjected to negative market sentiment but, unlike US banks, it's not been triggered by sub-prime or structured products. It does have some exposure to structured products, but it's manageable. Our focus is on long-term trends. They have been growing in capital markets and investment banking. Obviously the outlook here is weaker.'

Analysts are impressed by how the bank meets its targets on reducing costs. It has now cut its asset finance business and commodity trade finance unit and by getting out of these businesses will free up liquidity in excess of £1bn. The capital will be reinvested to further grow the core UK business.

The bank will now focus on providing financial services to small and medium-sized businesses and to high net worth individuals. It has also transferred its property and corporate banking operations in Leeds and Manchester to London and Birmingham.

Recently, the credit market has priced in a high risk for Icelandic banks, sending their funding costs to record levels. Kaupthing has been among the hardest hit. Its five-year credit-default swap spreads, which measure the cost of insuring against default on its debt, are high compared with rivals , though they have fallen recently.

It is a long way from its purchase of investment manager Singer & Friedlander for £547m in 2005, when Kaupthing announced plans to double its London staff to 900. Now thoughts of expansion are furthest from its mind.
guardian.co.uk © Guardian Newspapers Limited 2008

I like the thing about the USD. It reminds me of people with 5-minute memory being locked into a ward of mental hospital.

USD is doing miserably - sell it!
Buy Euro, buy whatever!
Crisis breaks out!
What do we do?
We need safe currency!
What is safe?
Safe is what we don't have!
Safe is USD!
Buy USD!
Nothing else is available anyway!

[erik]

Shitstorm cotinues: Tokyo down 11%, Dow 6.5%

[erik]

Over here in Canada, we usually get pretty excited when the American dollar falls.  Because that means that we can go shopping across the line and get real cool clothes for next to nothing.  And booze and gasoline for cheap as well.
 

Edit:
(I should add here,  I'm just playing around, I know this is very serious to some people. )

On Canada:

Canada's housing bubble could soon burst: Merrill Lynch

http://www.canada.com/topics/news/story.html?id=04fe6225-ae78-4e70-84e0-6d340844ab01

Eric Beauchesne ,  Canwest News Service
Published: Wednesday, September 24, 2008

OTTAWA - Canadian households are nearing the financial tipping point that Americans reached two years ago, which plunged their housing market into the deepest recession since the Great Depression, a senior Bay Street economist warned Wednesday.

It may just be a matter of time before the Canadian housing market tanks like the U.S. market did, Merrill Lynch Canada economist David Wolf said, warning that Canadian households are now nearly as overextended as households in the U.S., and even more so than those in Britain, prior to the bursting of the housing market bubbles in those countries.

"What worries us is that Canadian households have been running a larger financial deficit than households in either the U.S. or the U.K.," Wolf said in a commentary, noting that in 2007 Canadian household net borrowing amounted to 6.3 per cent of disposable income, which was higher than in Britain and not far off the seven per cent peak in the U.S. in 2005, prior to the bursting of that country's housing bubble.

The concern of a deep housing market meltdown in Canada was dismissed as unwarranted by Prime Minister Stephen Harper and as overly pessimistic by another Bay Street analyst and a senior real-estate industry economist.

"We will not see such a situation here as we see in the U.S.," Harper said, stressing that both the housing and consumer markets and financial institutions in Canada are "much stronger" than in the U.S.

Wolf conceded that the fear of a U.S.-style housing meltdown here, challenges the view that Canadian borrowers and lenders have been more conservative than those in the U.S. and that their debt load is somehow more sustainable.

"We fear, however, that it may simply be a matter of time," he said, suggesting that the recent fall in Canadian home prices and the increase in unsold homes on the market are warning signs that are being overlooked because of continued mortgage lending here.

The underlying cause of the U.S. housing market collapse and in turn that country's financial crisis was that U.S. banks lent people too much money, Wolf said.

"It's horribly clear in retrospect how excessive the lending in the U.S. was," he said.

"But it couldn't have been clear while it was happening, because the banks kept doing it, and the market kept accommodating it," he added, suggesting that may explain the continued strong growth in mortgage lending here.

But as is the case here now, there were danger signals there, including the growing household financial deficit, he said.

"From this perspective, the absence of a Canadian credit crunch to date may be cause for concern, not comfort," Wolf said, questioning how can it be a good thing that mortgage debt continues to grow at a double-digit pace as housing prices decline. "We believe that markets remain overly sanguine with respect to the prospects for the Canadian housing market, the financial sector and the overall economy."

The report is not the first to warn that Canada's housing market is not immune to a sharp downturn, but it is one of the most pessimistic to date.

BMO Capital Markets recently warned that housing prices here need to fall nearly 10 per cent more than they already have to bring them back into line with household incomes, while a study by the University of British Columbia said that in some major cities prices would have to plunge 25 per cent.

In August, sales of existing homes in Canada were down nearly 20 per cent from a year earlier and prices on average were down 5.1 per cent.

However, BMO economist Douglas Porter said Wednesday a deep and broad-based Canadian housing market meltdown, as happened in the U.S., is unlikely.

"I'm somewhere between the meltdown camp and everything's hunky-dory," Porter said.

The Canadian housing boom was supported more by economic strength coming from the commodity boom than by the loose lending practices that fuelled the U.S. market, Porter said. And mortgage lending practices here were more conservative than in the U.S., with only a few lenders "dipping their toes" into subprime market.

While some further decline in Canadian housing prices is to be expected, a greater threat to the housing market here than over-extended household finances would be a serious recession in the overall U.S. economy, Canada's main export market, Porter said.

"There is a risk that the U.S. economy is going to go through a deeper downturn," he added.

Finance Minister Jim Flaherty suggested that could happen if U.S. legislators fail approve the government's proposed $700-billion bailout package for financial institutions hit by the fallout from the collapse of that country's housing market.

"There would be a major global financial market issue," Flaherty told an editorial board meeting with the National Post.

Canadian Real Estate Association chief economist Gregory Klump also said that "Canadian real estate is not near a similar tipping point and market collapse."

"The Canadian housing market remains a very different animal than the U.S. housing market," Klump said.

"Recent year-over-year declines in . . . price reflects lower activity in some of Canada's priciest housing markets in Western Canada," he said. "Home prices are still rising in the overwhelming majority of Canada's major markets."

He also noted that unlike in the U.S., where hundreds of thousands of jobs have disappeared, Canada's job market is stable, while interest rates are also expected to remain stable and may even ease.

"Both of these do not suggest an imminent flood of distress sales due to household financial stress," Klump said.

The news out of the U.S. Wednesday suggested that the housing market there is still searching for a bottom, with sales of existing homes falling 2.2 per cent in August, wiping out much of the 3.5 per cent gain the month before, and with prices falling to 9.5 per cent below their year earlier levels.

While the inventory of unsold homes on the market declined for the second straight month, TD Bank economist Ian Pollick noted that it is still "double the historical average and further articulates that more correction is necessary in the housing market, before conditions truly improve."

[erik]

Pak's in money trouble as well

Pakistan seeks US funding to avoid bankruptcy

Pakistan has dispatched its top finance officials on a mission to raise billions of dollars from its closest allies in a last ditch bid to stave off bankruptcy.
 
http://www.telegraph.co.uk/news/worldnews/asia/pakistan/3166421/Pakistan-seeks-US-funding-to-avoid-bankruptcy.html

By Isambard Wilkinson in Karachi and Damien McElroy in Dubai
Last Updated: 7:08PM BST 09 Oct 2008

Shaukat Tareen, the prime minister's finance adviser, and Shamshad Akhtar, the governor of the central bank, have travelled to Washington to secure a £6 billion American and British-backed lifeline.

Oil-rich Gulf states have been lined up to match Western funds with extra billions to ensure that the country, which until recently touted itself as the next Asian Tiger, avoids a balance of payments crisis.

Mr Tareen, a suave former banker, was appointed this week to spearhead the last ditch bid to after it was revealed that state reserves had halved since democratic elections earlier this year. He has given himself four weeks to salvage the economy. High oil prices have combined with endemic corruption and mismanagement to push Pakistan to the brink of bankruptcy.

The country's middle class shifted massive amounts of capital overseas as a crisis of confidence in Pakistan's long term future took hold following the assassination of former Prime Minister Benazir Bhutto last December.

A leading Pakistani private banker in Dubai, who has acted as handmaiden to the exodus, said the collapse and replacement of former President Pervez Musharraf's regime had amounted to a devastating double blow. "Capital flight has got be stopped if the country is to be turned around," he said. "But people take their cues from the leaders. The looters are back in charge and if they won't repatriate their money from Swiss bank accounts why should we keep our money in Pakistan?"

While Pakistan's economy has repeatedly been on the brink since independence in 1947. the stakes have never been higher. The nuclear armed state has failed to contain an Islamic insurgency despite mobilising its army.

The new President Asif Ali Zardari, Miss Bhutto's widower, had hoped to raise a cash infusion at a 'friendly states' summit in the United Arab Emirates next month. But the economy has unravelled too quickly to wait.

"We have been here in the past but now Pakistan urgently needs balance of payments support," said the treasurer of a leading international bank in Karachi. "We need some action this month."

Saudi Arabia and the conservative Arab monarchs have signalled their willingness to divert part of their sovereign wealth funds to shore up Pakistan. Gulf support will come at a price with the Emirates determined ensure its own food security by buying up huge tracts of Sindh and Punjab provinces.

Islamabad will be expected to grant blanket exemptions on exports from its farms to the Gulf in return – an unpopular move when 25 per cent inflation has forced the poor to assemble in huge crowds for government subsidised wheat.

Pakistan has fallen a long way from the golden years of the Musharraf government, which appeared to have found a formula for success. His regime provided six years of currency stability as the economy grew six per cent a year, doubling the gross domestic product.

Wholesale bank privatisation boosted the spending power of the middle class but the money poured into a property and stock market boom that has now evaporated.

Karachi, the country's economic capital, has borne the brunt of the collapse. From its highs last year when it attracted almost $1 billion of foreign investment, the stock market has been practically shuttered.

Its youthful mayor, Mustafa Kamal has had to scrap grand plans for large scale projects that would improve the infrastructure for its 18 million people. "First it was inflation, then Musharraf's political problems, then Zardari's election and now security," he said. "People are looking for things to settle down."

The flaws in substituting a consumer-led boom for broad-based growth are summed up in the lamentable state of Karachi's electricity network. It was privatised in 2005 in a widely-criticised auction that failed to secure pledges of extra investment.

Despite needs of 3,000 megawatts a day, Karachi receives 2,200. The sweltering port city endures daily blackouts that last between four and six hours, leading to grim comparisons with post-war Baghdad.

Meanwhile, two separate bombings targeting police killed 10 people in Pakistan on Thursday.

[erik]

People don't lose their sense of humour. Somebody already put Iceland on eBay.

LONDON (Reuters) - Great scenery and wildlife but financial situation in need of repair -- collect in person.

http://news.yahoo.com/s/nm/20081010/od_uk_nm/oukoe_uk_financial_iceland_ebay_2

Iceland, which is going cap in hand to Russia for a 4 billion euro (3.2 billion pound) loan to bail out its failed banks, was offered for sale as a wholesale lot on eBay on Friday.

Bidding started at 99 pence but had reached 10 million pounds ($17.28 million) by mid-morning on Friday.

Globally renowned singer Bjork was "not included" in the sale, according to the notice, but there were nonetheless 26 anonymous bidders and 84 bids.

"Located in the mid-Atlantic ridge in the North Atlantic Ocean, Iceland will provide the winning bidder with -- a habitable environment, Icelandic Horses and admittedly a somewhat sketchy financial situation," the notice read.

Bidders' questions included: "Do you offer volcano/earthquake insurance?," "Is it possible that my payment will be frozen?," and "Will you accept C.O.D. as a form of payment?"

[tangerine dream]

On Canada:

About Canda, it really depends where you live,  some places are booming like most of Saskatchewan for eg, and a lot of Alberta.   Ottawa is not Canada.... We're a big country and Ottawa is where the Politicians live so that gives you an idea of how not-canada that is. 

[Jahn]

First the USD has been falling since 2002, and the AUD was riding high. Now the AUD has dropped like a rock, and the USD is rising. People with billions are running scared, hither and thither. The US economy was looking dodgy for many years. So what happens - it finally gets much much worse, and what do people do? They pull their money back to USD - they buy into the very economy that is in the worst situation. It doesn't make sense, except when seen from a fear-emotion perspective.

Not exactly,
USD has risen well over 10 percent within a month "thanks to the crisis" that is mainly because there is a lack of dollars*. Their national debt has risen from 2 percent of GDP in 1998 to 8 percent now. The US Economy will go down harsh and this is not wanted worldwide. As the dollar go up export to US will be more expensive and the recession is tightening. As Mark Faber says, a nation built on consumption, and we (in a sense by our industries as Volvo and SAAB) provide their consumption.

Both Ford (Volvo) and GM (SAAB) fell heavily today. We start to see the end of Swedish car production. A Pity since we are even making Cadillacs here.

*Meaning investors sell stocks and want dollars instead, they simply "buy dollars", or realize their assets in pure money. It is said that stock market in Sweden has lost 40% of it's value since new year but all those that have sold their shares; either buy (transform their assets in) gold, different currencies, other more safe papers as Governement bonds etc. That is one reason why the Swedish Riksbank and other Central banks has increased the auction on Governement bonds with many, many billions.

Conclusion is that the stock market is a big loser but values in terms of money, real estate and "safe paper" (if there is any?) has increased almost equal. Not equal - but at least the real loss isn't reflected by the stock market crash because much values are simply transferred to other areas. Does that analysis sound fairly comfortable 

[erik]

About Canda, it really depends where you live,  some places are booming like most of Saskatchewan for eg, and a lot of Alberta.   Ottawa is not Canada.... We're a big country and Ottawa is where the Politicians live so that gives you an idea of how not-canada that is. 

The argument being...?
Ottawa at the beginning of news means that this is where the news is originating from, but...not really limited to. 

[Michael]

Amid the woes, some good news:

Beneath the financial crisis waits a nastier beast

Writing in The National Review, Michelle Malkin blames the crisis on illegal immigrants and Hispanics who were "greedy" enough to seek subprime loans. Blogging for the same publication, Mark Krikorian wonders if Washington Mutual's demise was caused by its propensity for employing Latinos and gays. On Fox News, Neil Cavuto blames congressmen who were "pushing for more minority lending" without disclosing that "loaning to minorities and risky folks is a disaster".

The audacity is extraordinary. Suddenly, this crisis is something poor blacks and Hispanics have inflicted on rich white people. That is beginning to sound, well, Germanic.