The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.

Source/Full Story: Bloomberg.com

Europe’s unemployment rate unexpectedly increased to the highest in more than 11 years in November as companies cut costs in the wake of the worst recession in more than six decades.

Unemployment in the euro area rose to 10 percent from a revised 9.9 percent in October, the European Union statistics office in Luxembourg said today. That’s the highest since August 1998. Economists forecast a November rate of 9.9 percent after the 9.8 percent initially reported for October, a Bloomberg survey showed. The euro-area economy expanded 0.4 percent in the third quarter from the previous three months, according to a separate report.

European companies are cutting jobs and paring wages to shore up earnings battered by the global slump. While economic confidence has risen to a level last seen before the 2008 demise of Lehman Brothers Holdings Inc., a surge in energy costs and a stronger euro threaten to damp the recovery.

“We’ll probably see further gains in unemployment over the coming months, with the jobless rate peaking at 10.7 percent in the second half,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “That’s obviously bad news to consumers, which will be hurt by job cuts, lower wage growth and rising energy costs.”

The euro pared its gains against the dollar after the data and traded at $1.4317 at 10:31 a.m. in London, up less than 0.1 percent on the day. The yield on the German 10-year benchmark bond rose 0.2 basis point to 3.38 percent.

Source/Full Story: BusinessWeek

During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.
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Felix Salmon has the appropriate reaction:

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along.

Source/Full Story: businessinsider.com
Technorati Tags: Hank Paulson, Goldman Sachs

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

Source/Full Story @: Bloomberg.com
Technorati Tags: Joseph Stiglitz

Executives at Goldman Sachs sold almost $700m worth of stock following the collapse of Lehman Brothers last September, according to filings with the Securities and Exchange Commission.

Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief programme.

The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill. Having survived the crisis, the bank is expected to report strong second-quarter earnings on Tuesday on rebounding trading profits.

For the eight-month period for which figures are available, Goldman partners sold more than $691m in company stock, even as the firm expanded its public float from 395m to 503m shares in several capital raises.

For the comparable period between September 2007 and April 2008, when the average share price was substantially higher, Goldman partners sold about $438m in stock.

Source/Full Story: FT.com

The head of the IMF questioned on Monday any debate about when to roll back stimulus spending, saying the world economy had yet to weather the worst of a recession that claimed a record number of European jobs.

The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995.

Even if some form of economic recovery is not far off, analysts say unemployment will climb for many months to come.

Underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea’s finance minister said its economy was still sliding, although the pace had slowed.

But in southern Italy, Group of Eight finance ministers meeting at the weekend described their economies in the most positive terms since the collapse of U.S. bank Lehman Brothers nine months ago heightened the world’s worst financial crisis since the Great Depression of the 1930s.

“Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious,” International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan. “The large part of the worst is not yet behind us.”

Source/Full Story: Reuters

American International Group Inc had warned of turmoil around the globe if the government allowed the insurer to fail when it appealed to U.S. regulators for its latest rescue, Bloomberg said citing an AIG presentation dated February 26.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise of Lehman Brothers Holdings Inc, according to the 21-page draft AIG presentation circulated among federal and state regulators, the agency reported.

Source: Reuters

Source: Reuters

The U.S. government threw a new $30 billion lifeline to American International Group Inc on Sunday as the embattled insurer prepared to report the biggest quarterly loss in corporate history.

AIG’s board approved a new rescue package that also includes more lenient terms on a government investment in its preferred shares and a lower interest rate on a government credit line, two sources familiar with the matter said.

Details will be announced on Monday when AIG is expected to report a fourth-quarter loss of about $60 billion — roughly $460,000 per minute.

This would be the third time the government has had to step in to save AIG, once the biggest insurer by market value whose global reach may have made it too big to fail.

A source familiar with the matter said on Sunday night that U.S. authorities felt it was cheaper to put more taxpayer money into AIG than to take the risk of letting it fail.

Allowing the collapse of AIG, which has struggled to sell assets, would have far-reaching consequences for the global financial system as the company guarantees about $300 billion of asset-backed securities and other debt, analysts have said.

The source told Reuters that a failure of AIG would be both a systemic risk for the U.S. economy and would send shockwaves through the retail insurance industry, adding that as long as it remains a systemic risk, more government help may be needed.

The government has been blamed by many for exacerbating the financial crisis by allowing Lehman Brothers to fail.

“The government really does not have the option of letting AIG totally blow up,” said Robert Haines, senior insurance analyst at CreditSights. “The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away. Hopefully, the third bailout will be the charm.”

The rejigged bailout, which changes the terms of an earlier $150 billion rescue, is the latest example of how federal authorities are having to revamp aid for top financial institutions as the global financial crisis deepens.

Last week, the government agreed to boost its equity stake in Citigroup Inc to as much as 36 percent in a bid to bolster the bank, already the recipient of billions of dollars in taxpayer funds.

The dollar rose against most other currencies in Asia as news of the deal emerged.

Full Story

Source: Bloomberg.com

Drivers rattled by the worst U.S. labor market since World War II are hanging on to old autos longer instead of buying new models, threatening to crimp sales again in 2009 after demand plummeted to a 16-year low.

Used vehicles being traded in at dealerships averaged 6.3 years of age after the Wall Street meltdown in late 2008, about 6 months older than before the crisis, according to forecaster J.D. Power & Associates in Troy, Michigan.

“The bankruptcy of Lehman Brothers in September and other financial catastrophes have completely broken consumer confidence,” said Chief Executive Officer Mike Jackson of AutoNation Inc., the biggest U.S. new-car retailer. “People are losing money in ways never thought possible. They’re shook up.”

Yesterday’s unemployment report deepened the industry gloom before next week’s Detroit auto show, with 2008 U.S. job losses marking the biggest annual drop in payrolls in 63 years. General Motors Corp. and Chrysler LLC, which just won $13.4 billion in U.S. loans, are at risk of collapse should sales fall further.

“The key statistic affecting car sales now is job loss,” said Ken Goldstein, an economist for the Conference Board. The New York-based research group’s index of consumer confidence fell to the lowest in 40 years of record keeping in December.

U.S. industrywide sales plunged 18 percent last year to 13.2 million, heralding a possible 2009 slide for automakers including GM, Chrysler and Ford Motor Co. GM reiterated Jan. 5 it expects a U.S. market of 10.5 million to 12 million units.

Full Story

Technorati Tags: labor market, auto sales

Source: breitbart.com

The governor of the Bank of Spain on Sunday issued a bleak assessment of the economic crisis, warning that the world faced a “total” financial meltdown unseen since the Great Depression.

“The lack of confidence is total,” Miguel Angel Fernandez Ordonez said in an interview with Spain’s El Pais daily.

“The inter-bank (lending) market is not functioning and this is generating vicious cycles: consumers are not consuming, businessmen are not taking on workers, investors are not investing and the banks are not lending.

“There is an almost total paralysis from which no-one is escaping,” he said, adding that any recovery — pencilled in by optimists for the end of 2009 and the start of 2010 — could be delayed if confidence is not restored.

Ordonez recognised that falling oil prices and lower taxes could kick-start a faster-than-anticipated recovery, but warned that a deepening cycle of falling consumer demand, rising unemployment and an ongoing lending squeeze could not be ruled out.

“This is the worst financial crisis since the Great Depression” of 1929, he added.

Ordonez said the European Central Bank, of which he is a governing council member, would cut interest rates in January if inflation expectations went much below two percent.

“If, among other variables, we observe that inflation expectations go much below two percent, it’s logical that we will lower rates.”

Regarding the dire situation in the United States, Ordonez said he backed the decision by the US Federal Reserve to cut interest rates almost to zero in the face of profound deflation fears.

Central banks are seeking to jumpstart movements on crucial interbank money markets that froze after the US market for high-risk, or subprime mortgages collapsed in mid 2007, and locked tighter after the US investment bank Lehman Brothers declared bankruptcy in mid September.

Interbank markets are a key link in the chain which provides credit to businesses and households.

Technorati Tags: Bank of Spain

Source: globalresearch.ca

It pains me deeply to announce that, despite the massive government rescue, yesterday’s collapse of Citigroup could ultimately lead to a shutdown of the global banking system.

For many years, I hoped this would never happen, and I thought we might be able to avoid it.

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More recently, in the wake of the biggest financial failures in history — Bear Stearns, Lehman Brothers, Washington Mutual, Wachovia and others — rather than liquidate the failed firms’ bad assets, the authorities have been engineering shotgun mergers. The end result is that they have been sweeping most of the bad assets under the carpet of larger banks like Bank of America, Citigroup, and JPMorgan Chase, each of which already had abundant bad assets of its own. Adding insult to injury, Treasury Secretary Paulson’s decision this month — not to buy up the bad assets from many of these banks — has only heightened this concern. Rather than dispose of the toxic waste, the regulators have been rolling up the garbage to the larger banks.

And now, here we are, nearing the end of the road with the largest banks of all endangered and with no larger bank that can swallow them up. It’s a day of reckoning that leaves me no choice but to issue this three-part warning:

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Despite the U.S. government’s massive Citigroup bailout, it is going to be difficult for the global banking system to survive the shock to confidence for very long.

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Even if insured depositors do not pull out their funds, uninsured institutional investors are likely to run with their money, threatening to bring the system down.

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And alas, even if you have your money in a safe bank with full FDIC coverage, you could be adversely impacted.

Full Story

Technorati Tags: Citigroup

Source: Wikileaks

• lehman-summer-internship.pdf (click to view full file)
• lehman-summer-internship.pdf (alternative address)

“Come out of her my people…”

Source: CNN.com

The venerable Lehman Brothers, investment bank said early Monday that it will file for bankruptcy, while Bank of America unveiled plans to buy Merrill Lynch — two pieces of news that profoundly alter the American financial landscape.

The fast-paced changes capped a roller-coaster Wall Street weekend and threatened to stir up U.S. financial markets already reeling from woes at other major financial firms and mortgage financing titans Fannie Mae and Freddie Mac.

“This crisis is clearly deeper than anybody had imagined only a short time ago,” Peter Stein, an associate editor at The Wall Street Journal in Asia, told CNN.

Lehman Brothers said in a statement early Monday that it plans to file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. The 158-year-old investment bank had been undermined by bad bets on real estate — the value of its shares declined 94 percent this year.

The fall of Lehman followed a wild, three-day scramble by top Wall Street executives and federal regulators, who worked around the clock to come up with a solution to a still-unfolding financial crisis.

Full Story…

Source Reuters

Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth $50 billion, snagging the world’s largest retail brokerage after one of the worst-ever weekends on Wall Street.

The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc, which triggered concern that market participants would lose faith in other investment banks. Lehman said early on Monday that it would file for Chapter 11 bankruptcy protection.

“It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, portfolio manager at hedge fund Seacliff Capital.

“Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world,” Ellman said.

Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.

The bank is buying about $44 billion of Merrill’s common shares, as well as $6 billion of options, convertibles, and restricted stock units.

Bank of America said it expects to achieve $7 billion in pretax expense savings, fully realized by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.

The price, which comes to about $29 per share, represents a 70 percent premium to Merrill’s share price on Friday, although Merrill’s shares were trading at $50 in May and over $90 at the beginning of January 2007.

Full Story…