Topic: The Financial crisis

[Jahn]

Three of our largest banks, among them Swedbank, presented their quarterly figures today. I found out that Swedbank still do a profit on the Baltic market but they will tighten their staff in accordance to less business and rationalize the organisation over seas. Half of the loss these last months came from the the business in The Baltic states which equal 40 mill. Euro of a total around 80. One cloud for Swedbank is an unsure claim on Lehmans in the size of 17 mill. Euro.

However, all three banks stand strong in their finances and losses are small regarding to net benefits about 1/10.


Today the Riksbank announced a half percent cut on their repo rate, that is the second time within two weeks and is considered as an aggressive move to get down the interest rates of the banks. Very suitable for me that have to renew a 2 year contract with low rate, almost 2 percent below the rate of yesterday.

The forecast of the economy was as expected both uncertain and restrained, it is clear that we have difficult times ahead and much depends on how the International market developes. Our export industry though have a good situation since the USD has become 15 percent more expensive the last two weeks and 30 percent more expensive since early summer. The Euro is up about 10 % within the last weeks.
 E. g. a contract of 10 million dollar from June is suddenly worth 3 million dollars more when converted to SEK.

[Jahn]

Wikipeda Theories about financial crisis

World systems theory
Recurrent major depressions in the world economy at the pace of 20 and 50 years have been the subject of empirical and econometric research especially in the world systems theory and in the debate about Nikolai Kondratiev and the so-called 50-years Kondratiev waves. Major figures of world systems theory, like Andre Gunder Frank and Immanuel Wallerstein, consistently warned about the crash that the world economy is now facing. World systems scholars and Kondratiev cycle researchers always implied that Washington Consensus oriented economists never understood the dangers and perils, which leading industrial nations will be facing and are now facing at the end of the long economic cycle which began after the oil crisis of 1973.

 Minsky's theory
Hyman Minsky has proposed a simplified explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis, Minsky defines three types of financing firms choose according to their tolerance of risk. They are hedge finance, speculative finance, and Ponzi finance. Ponzi finance leads to the most fragility.

Financial fragility levels move together with the business cycle. After a recession, firms have lost much financing and choose only hedge, the safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore, they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed.

[Jahn]

Marc Faber said on 2008.10.13 that US longterm Treasury bonds should have “junk” ratings and US government will go bankrupt, it’s only a question of time, sooner or later.

the whole interview with economist Marc Faber, this time from Singapore, one of the countries in the Tiger Economy.

Master Marc Faber on the US, Japan and Tiger economy

[Jahn]

Three of our largest banks, among them Swedbank, presented their quarterly figures today. I found out that Swedbank still do a profit on the Baltic market but they will tighten their staff in accordance to less business and rationalize the organisation over seas. Half of the loss these last months came from the the business in The Baltic states which equal 40 mill. Euro of a total around 80. One cloud for Swedbank is an unsure claim on Lehmans in the size of 17 mill. Euro.

Now Swedbank announce a new issue of shares to bring in cash. It will be in the amount of 1200 millions Euro (1,2 bn Euro) which must be considered as a great issue. A bit strange since they had, after the circumstances, a good third quarterly report. Now they want that the owners push in more liquidity in the bank, and if that is not enough they have the money from the Riksbank. But they try to avoid the money from the Riksbank because such money contracts is under stipulation and interest from the State. So they try to increase liquidity on their own first with 12 000 millions SEK (i e 12 billions SEK).

One simple explanation to this maneuver is that Swedbank have had difficultises to get credits, so they want to pump up their muscles on their own.

[Jahn]

Sweden takes the lead in the rescue of Island finances

(My translation from TT, The Swedish Central News Agency)

Sweden will lead the Scandinavian work to help Island out of the financial crisis. That is the content of the Nordic minister meeting this Tuesday. The ministers created a project group that together with IMF shall take a closer look on the situation in Island.

“It will be a lot of coordinating work where Sweden takes its responsibility as a leader, said Minister of Finance in Sweden, Anders Borg, after the meeting in Helisinki (Finland).

Question [is] – Will there be a separate loan package from the Nordic countries?
-“There will be several things, first we shall help Island to get stability in the finances and it also deals with the following up of the IMF-contract [another 2 billion dollar loan, my remark] and thereafter see what the Nordic countries can contribute with.”

[Jahn]

Obama: $300 billion in tax cuts

President-elect begins push on Hill for rescue proposal.
On tap: Breaks for workers and businesses, energy and road and school construction

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: January 5, 2009: 6:29 PM ET

NEW YORK (CNNMoney.com) -- President-elect Barack Obama launched his campaign Monday for a massive package of tax cuts and spending proposals aimed at reviving an economy mired in recession.

Obama met with congressional leaders from both parties. He is also planning to deliver a major speech on the economy on Thursday, a senior Democratic official told CNN.


Middle-class tax cut: Obama would offer a tax cut equal to $500 a year for individuals and $1,000 for couples. The credit would work essentially as a payroll tax credit, meaning the money could be delivered fairly quickly. Companies could simply reduce the tax they withhold from employees' paychecks.

The tax credit is likely to be offered only to those below a certain income level, but the Obama team hasn't specified where the cut-off point would be. The credit also would be refundable, meaning that even tax filers without any tax liability -- typically very low-income workers -- would receive one.

The credit is similar to one Obama proposed during the campaign.

"What's required for the economy right now [is] to put more money into the pockets of ordinary Americans who are more insecure about their jobs, who are continuing to see rising costs in an area like health care, who are struggling to make ends meet," he said Monday.

[Jahn]

Toyota extends plant shutdown

TOKYO, Japan Jan 6 2009 (CNN) -- Toyota announced Tuesday it will idle all 12 of its wholly owned factories in Japan for an extra 11 days in response to the slumping auto market.

 The company already had announced a three-day shutdown, which was set to begin in January. Company spokesman Paul Nolasco said the longer stretch, scheduled for February and March, will help the company get through the downturn without cutting jobs.

"In good times and bad, we try to keep output in line with demand, keeping production in line with demand," Nolasco said. "This will help even out production flow."

/.../

The announcement followed dismal numbers posted Monday by the Big Three U.S. manufacturers. Chrysler saw December sales decline 53 percent from last year, while General Motors saw its receipts drop 31 percent and Ford dropped 32 percent.

In December, Toyota warned that that it would report its first loss as a public company. Toyota, Honda and Nissan all reported an annual drop in U.S. sales, the first time there's been such a broad-based decline for those powerful Asian brands.

[erik]

There were news that General Motors and Chrysler were on the verge of bankruptcy. Russia has lost close to 30% of its national income. My friend said that in some regions of Russia it is getting very serious already.

[Jahn]

01/05/2009
 FIGHTING THE GLOBAL DOWNTURN

German Parties Discuss 50 Billion Euro Stimulus Program
Germany's ruling political parties have begun talks on a second economic stimulus package that could total up to €50 billion. But the negotiations may prove difficult because the Social Democrats oppose conservative plans for the program to include tax cuts.
/.../
The talks started early Monday afternoon and another meeting has been set for January 12 to iron out details. The figure of up to €50 billion envisaged by the conservatives would apply to 2009 and 2010.

/.../

Meanwhile the president of one of Germany's leading economic research institutes, Hans-Werner Sinn, said Germany was on the brink of its worst economic downturn since 1945.

"The German economy is facing the worst recession in its post-war history," Sinn, president of the Ifo institute, told Bild newspaper on Monday. "We don't see a recovery for 2010 either," he said.

German unemployment, currently at just below 3 million, would rise by half a million by December 2009 and could reach 4 million in 2010, Sinn added.

Source: Der Spiegel International

[Jahn]

There were news that General Motors and Chrysler were on the verge of bankruptcy. Russia has lost close to 30% of its national income. My friend said that in some regions of Russia it is getting very serious already.

As for Chrysler and GM it would probably been better to fund money to a sincere liquidation rather than try to let them continue. That was a proposal that was mentioned but it was rejected.

Russia has been in a vulnerable situation for quite some time, and to begin with they thought the crisis wouldn't affect them especially much. But when it does they will have a rather direct fall, the three strong EU states, Germany, France and England has some more buffers and a much better social security system that mitigate the effects of unemployment, for a while ... 

[Jahn]

11/24/2008 :
 SPIEGEL INTERVIEW WITH GEORGE SOROS

'The Economy Fell off the Cliff'

George Soros, 78, has made billions as a hedge-fund manager and investor. SPIEGEL spoke with him about the current financial crisis, how he expects President-elect Barack Obama to respond to the economic disaster and the responsibilities borne by speculators.

SPIEGEL: Mr. Soros, in spite of massive interventions by governments and federal banks the financial crisis is getting worse. The stock markets are in free fall, millions of people could lose their jobs. More and more companies are in trouble, from General Motors in Detroit to BASF in Ludwigshafen. Have you ever seen anything like it?

Soros: Never. I find the present situation dramatic and overwhelming. In my latest book “The New Paradigm for Financial Markets: The Credit Crisis of 2008” I predicted the worst financial crisis since the 1930s. But to tell you the truth: I did not actually anticipate that it would get as bad as it did. It has gone beyond my wildest imagination.

/.../

Soros: I have great hopes for Barack Obama. But at the time of the election the financial community had not yet fully grasped the magnitude of the economic decline. They did not anticipate that the default of Lehman Brothers would cause cardiac arrest in the markets. The economy fell off the cliff, you begin to see mangled bodies lying at the bottom.

SPIEGEL: Was it a policy mistake to let Lehman Brothers go bankrupt?

Soros: It was a fatal mistake. I would have never expected that the authorities let such a big investment bank go.

SPIEGEL: Will there be more victims?

Soros: Possibly. CitiBank, one of the world’s largest banks, is currently at the center of attention (eds. note: The $300 billion US government plan to stabilize CitiBank had not been approved by the time of this interview). There are some other bodies lined up for potential trouble. The situation is very similar to the 1930s -- but it is going to unfold differently. We have learned not to allow the financial market to collapse. We will spend all the money in the world to prevent that from happening.

SPIEGEL: Obama is supposed to save the banks, bail out the auto industry and boost the economy in general. Can a single person ever live up to such high expectations?

Soros: Perhaps not, but the problems can be handled much better than they have been by the current administration.


Source: Der Spiegel International

Full story: http://www.spiegel.de/international/business/0,1518,592268,00.html

http://www.spiegel.de/international/business/0,1518,592268-2,00.html

My comment: I was also quite disturbed how the Yankees treated The Lehman affair. Even if the situation has some basic differences compared with traditional banks, they had almost acted like criminals in their boost, but to let them go bankrupt was nevertheless irresponible, especialy toward the International market, and as Soros says: It was a fatal mistake.

[erik]

The UK lowered their interest rates at the end of 2008 from 5% to 2% triggering the fall of pound. Now they are expected to lower the interest rate to 1.25% and pound is expected to achieve the value equal to or lower than euro. Such a fall of pound has been compared to the crisis of 1930s. Some say it is even worse as it is not yet over.

[Jahn]

The UK lowered their interest rates at the end of 2008 from 5% to 2% triggering the fall of pound. Now they are expected to lower the interest rate to 1.25% and pound is expected to achieve the value equal to or lower than euro. Such a fall of pound has been compared to the crisis of 1930s. Some say it is even worse as it is not yet over.

That is perhaps the best part of it, the riksbank lowering the short term interest rate. At about the same time as UK dropped from 5 to 2% Sweden went from 3.75 to 2 and that was quite short after a decline from 4.75 to 3.75. It took a while before the banks followed but for instance,since Jan 1th  I got a loan with only 3.25 in interest rate to compare with 5.85  that was the figures before October.

For the third year in a row we will also have income tax reductions. Our new government has had that as one policy - to reduce taxes for the broad labour force.

[Jahn]

Update

Marc Faber early, May 2008

[Jahn]

http://www.abc.net.au/lateline/business/items/200908/s2667994.htm