USA: WORST FINANCIAL CRISIS, NROUBINI, RGE MONITOR

RGE Monitor MEDIA ALERT: Nouriel Roubini predicts the worst financial crisis since the Great Depression and the worst U.S. Recession in the last few decades.

New York, July 15, 2008- In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business - has argued that the U.S. is experiencing its worst financial crisis since the Great Depression and will undergo its worst recession in the last few decades. His analysis leads to the following conclusions:

• This is by far the worst financial crisis since the Great Depression
• Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust
• Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust
• Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.
• In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.
• The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression
• Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.
• This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.
• This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.
• This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.
• Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.
• The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.
• The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
• But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.
• The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.
• Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.

MUSICA CLASICA

Homenaje a C. Garrido..

BCRP: NOTA SEMANAL 28

*Nota Semanal: Resumen Informativo N° 28

<http://www.bcrp.gob.pe/bcr/dmdocuments/informes/resinf/2008/ri_282008.pdf>*

Tasa de interés interbancaria al 9 de julio: 5,79 por ciento
Tasa de interés corporativa en nuevos soles aumentó a 6,48 por ciento
Reservas internacionales en US$ 35 543 millones al 8 de julio
Tipo de cambio en S/. 2,816 por dólar
Liquidez y crédito al Sector Privado al 15 de junio
Encuesta de expectativas macroeconómicas: julio 2008
Superávit comercial de US$ 436 millones en mayo
Riesgo país se ubica en 207 puntos básicos
Bolsa de Valores de Lima disminuye 10,8 por ciento al 9 de julio de
2008

USA, FANNY MAE..., LA HORA DE LA VERDAD (1),NYT

By STEPHEN LABATON

Published: July 12, 2008

WASHINGTON — A day that began with a stomach-churning drop in stock prices for the two largest mortgage finance companies ended with a measure of relief, after government officials and lawmakers managed to calm investors worried about the health of the two companies.

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Making Sense of Problems at Fannie and Freddie

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The Reach of the Loan Agencies

Related

By Large Margin, Senate Votes to Help Homeowners and Overhaul Loan Agencies (July 12, 2008)

Putting Their Houses in Order (July 12, 2008)

Your Money: How Fallout Could Affect Main Street (July 12, 2008)

Times Topics: Freddie Mac

Times Topics: Federal National Mortgage Association (Fannie Mae)

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Bush administration officials had worked into the early morning hours on Friday drawing up contingency plans to rescue the companies, Fannie Mae and Freddie Mac, should their financial plight worsen. And when both companies’ stocks fell 50 percent initially, some investors feared the worst.

But by the end of the day, the shares rebounded after both were able to easily continue the regular borrowing of money they need to finance their day-to-day operations and keep the nation’s mortgage machinery humming.

If Fannie and Freddie had been cut off from borrowing by other financial institutions, the government might have been forced to step in and support them.

Still, the modest relief on Friday was tempered by concerns over what might unfold in coming weeks, should the housing market’s woes continue and further weaken the finances of Fannie and Freddie.

Uncertainty about the financial stability of the companies, which lie at the heart of the nation’s housing market, underscored their size and complexity.

Both companies, which already have suffered $11 billion in losses in the last nine months, could report new quarterly losses in August if foreclosures continue.

The financial markets continue to show signs of stress, underscored by the decline in the Dow Jones industrial average, which fell below 11,000 on Friday for the first time in two years before closing at 11,100.54, down 1.1 percent.

Shares of Freddie Mac closed at $7.75, down more than 45 percent for the week. Fannie Mae settled at $10.25, a 30 percent slide for the week. And a fresh sign of industry problems emerged on Friday when the Federal Deposit Insurance Corporation seized IndyMac Bank, making it the largest bank to fail since the 1990s.

The company, an offshoot of Countrywide Financial and once one of the nation’s largest independent mortgage lenders, was a major issuer of subprime loans.

After meeting with his economic policy team on Friday morning, President Bush said that he had been briefed about the problems confronting Fannie and Freddie by the Treasury secretary, Henry M. Paulson Jr.

“Freddie Mac and Fannie Mae are very important institutions,” the president said. “He assured me that he and Ben Bernanke will be working this issue very hard,” referring the chairman of the Federal Reserve.

Earlier in the day, Mr. Paulson sought to calm investors concerned that the stock of Fannie and Freddie could be wiped out if the government took over one or both of the companies and placed them under the control of a conservator, as the law permits. The administration has prepared such a plan if the companies continue to decline, people briefed on the plan have said.

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” Mr. Paulson said. Officials said Mr. Paulson wanted to convey the message that even under a conservatorship, the companies would not be nationalized. Instead, a conservator would have to prepare a plan to restore the company to financial health, much like a company in Chapter 11 bankruptcy proceedings.

Federal Reserve officials took pains to dismiss rumors swirling through the markets and in Washington that the central bank was considering a new program to lend money directly to the companies through its so-called discount window. The Fed began two such programs to lend money to the nation’s largest investment banks last March.

“Fed officials are following the situation closely,” said Michelle A. Smith, the Fed’s chief spokeswoman. “We’ve had no discussions with the companies about the discount window. We don’t discuss the range of options we are considering.”

After a flurry of phone calls with administration and Fed officials, senior Democrats in Congress also said they were persuaded that the steep declines in the stock of the two companies did not reflect new underlying financial problems, and that the companies had the financial wherewithal to get through the turmoil. Their comments went far beyond the cautiously worded assurances by senior officials earlier in the week that had done little to calm the markets.

“There is a sort of a panic going on and that’s not what ought to be,” said Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate banking committee. “The facts don’t warrant that reaction, in my view.”

Mr. Dodd said that he was persuaded by conversations with Mr. Paulson and Mr. Bernanke that the two companies “are fundamentally sound and strong.”

He said that housing legislation the Senate approved on Friday evening, part of which would overhaul the regulation of Fannie and Freddie, could be completed by Congress and signed into law by President Bush by next week. The measure, sponsored by Mr. Dodd, must go back to the House to be reconciled with its version adopted in May.

Investors, left dizzy by the rapid-fire turns in Freddie and Fannie’s shares, suffered through one of the most volatile days in the market since the Bear Stearns debacle in March.

The day began darkly with investors confronting figures that once seemed unthinkable: Freddie Mac’s stock was down a whopping 50 percent, with Fannie Mae not far behind. As rumors of a government bailout made their way across trading desks, Mr. Paulson’s statement — suggesting that no government takeover of Fannie and Freddie was imminent — seemed to only increase the uncertainty.

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Making Sense of Problems at Fannie and Freddie

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“Paulson jumped in earlier today and tried to be reassuring, but in many ways it backfired,” Edward Yardeni, an investment strategist, said. “He really didn’t say anything that he hadn’t before.”

But some investors saw the depressed shares as a buying opportunity. At the close, Freddie finished down just 3 percent, a relief to investors who had feared the worst. Fannie, however, sold off 22 percent of its value.

As they watched the markets, senior officials at the Treasury and the Federal Reserve were described on Friday as being less fixated on the stock prices of Fannie and Freddie and more interested in the companies’ ability to raise money to continue to fund their daily operations and buy new mortgages from banks and other lenders.

The two companies already own or guarantee more than $5 trillion in mortgages. They need to borrow money constantly so they can buy mortgages from lenders, repackage them as securities and sell them to investors.

Fannie and Freddie hold some of the mortgages they buy in their own investment portfolios; the rest are sold to pension funds, mutual funds and other investors, with Fannie and Freddie guaranteeing each mortgage against default by the homeowner. Officials noted that the companies’ ability to raise money had improved in recent months, including on Friday, allowing the companies to borrow at rates close to those of the United States Treasury.

One interpretation of this is that the debt markets believe that the federal government will take steps to bail out the companies should they become insolvent. Moreover, the insurance premiums that are paid by the buyers of the debt securities issued by the companies declined significantly on Friday, a sign that the markets do not believe the companies are on the brink of failure.

“In these volatile markets, share price is not the most reliable measure for judging Fannie and Freddie and will not dictate the responses by the regulators,” said Senator Charles E. Schumer, Democrat of New York, who has held discussions all week with senior administration officials. “Rather, the regulators are closely watching the performance of the companies’ bonds, and how their yields compare to U.S. Treasuries. Right now, Freddie and Fannie bonds are trading closer to Treasuries than they were in March after the Bear Stearns collapse, a reassuring signal.”

It was a crushing liquidity problem — as lenders called in existing loans and refused to lend any more — that ultimately prompted the government to rescue Bear Stearns last March from possible bankruptcy.

Normally, when a company’s stock price plunges to dangerously low levels, the company also has significant problems raising money in the debt markets because borrowers fear that they may not be repaid. But in a perverse cycle, the news this week that the government was considering putting them into a conservatorship has had the effect of making the debt of those companies more attractive.

Fannie Mae, founded in 1938, was originally called the Federal National Mortgage Association, but adopted its nickname as a formal title in the 1990s. Its younger and smaller sibling, Freddie Mac, was begun in 1970.

Michael M. Grynbaum contributed reporting from New York.

TRANSAMERICAINES

Regards sur l´Amerique Latine et du Nord par l´academie..

WALL STREET CAE EL LUNES 14

Nueva York. (EFE).- La Bolsa de Nueva York cerró hoy con una bajada del 0,41 por ciento en el Dow Jones de Industriales, tras el retroceso de las acciones de los bancos y de los títulos de los gigantes hipotecarios Freddie Mac y Fannie Mae.

Seguir leyendo noticia

Según los datos disponibles al cierre, el Dow Jones de Industriales, el índice más importante de la Bolsa de Nueva York, bajó 45,35 puntos (0,41 por ciento), para situarse en 11.055,19 unidades.

Los títulos de los gigantes hipotecarios Freddie Mac y Fannie Mae, que comenzaron la sesión con fuertes alzas, finalmente bajaron un 8,26 por ciento, hasta los 7,11 dólares, y un 5,07 por ciento, hasta los 9,73 dólares, respectivamente.

El anuncio del Departamento del Tesoro de EE.UU. y la Reserva Federal de que aportarían a esas dos hipotecarias fondos y créditos, si fuera necesario, para que no caigan en la insolvencia no sirvió para tranquilizar a los inversores.

Por otro lado, la entidad reguladora de la Bolsa de Nueva York suspendió hoy la negociación de los títulos del banco IndyMac, recién intervenido por el Gobierno de Estados Unidos, después de que sus acciones llegaran a caer durante la sesión más del 57 por ciento.

Esa suspensión de la cotización en bolsa tuvo lugar el mismo día en el que cientos de sus clientes hicieron cola ante la sede de IndyMac en Pasadena (California) para retirar su dinero, después de que el Gobierno interviniera la entidad el pasado viernes.

Las acciones de Bank of America, que forma parte del Dow Jones, cedieron un 7,01 por ciento, las de Citigroup un 5,99 por ciento y las de JP Morgan & Chase un 4,43 por ciento. Fuera del Dow Jones, bajaron hoy espectacularmente las acciones de Lehman Brothers (14,07 por ciento) y las de Washington Mutual (34,75 por ciento).

El mercado Nasdaq, donde cotiza gran parte de las empresas de tecnología e internet, perdió 26,21 puntos (1,17 por ciento) para situarse en 2.212,87 unidades, tras el descenso de las acciones de Yahoo (4,24 por ciento) y Microsoft (0,4 por ciento), entre otros valores.

Yahoo rechazó este fin de semana una propuesta conjunta de Microsoft y del inversor multimillonario Carl Icahn (accionista del primero), que hubiera implicado una compleja reestructuración y la venta de su negocio de búsqueda por internet.

Los títulos de Apple subieron un 0,75 por ciento, hasta los 173,88 dólares, tras anunciar que ha vendido un millón de unidades del iPhone 3G en los tres primeros días tras el lanzamiento de este teléfono móvil.

El selectivo S&P 500, que mide el rendimiento de las 500 principales empresas que cotizan en la Bolsa de Nueva York, cedió 11,19 puntos (0,9 por ciento), hasta 1.228,3 unidades. Mientras, el índice NYSE, que incluye a todos los valores que cotizan en Nueva York, bajó 59,48 puntos (0,71 por ciento), hasta 8.287,76 unidades.

En contraste con la caída de la bolsa, las acciones de la cervecera estadounidense Anheuser-Busch subieron un 0,56 por ciento hasta los 66,87 dólares, tras aceptar ser adquirida por 52.000 millones de dólares por su rival belgo-brasileña InBev para crear una compañía que sea líder mundial del sector.

En el mercado secundario de la deuda, las obligaciones a diez años subieron y ofrecían una rentabilidad, que varía en sentido contrario, del 3,85 por ciento, frente al 3,95 por ciento del cierre del viernes.

SPAIN: IMPAGOS INMOBILIARIOS, CRISIS

Los impagos de préstamos hipotecarios se disparan en 2008 y crecen más de un 84 por ciento

Suben también los impagos en operaciones realizadas con tarjetas de crédito y en la financiación de automóviles

14/07/2008 | Actualizada a las 21:14h

Madrid. (EFE).- Cerca de 2,5 millones de personas residentes en España tenían en junio deudas impagadas con bancos, grandes compañías o financieras por valor de 15.374 millones de euros, mientras que los impagos de préstamos hipotecarios se han disparado en 2008 y han crecido más de un 84 por ciento.

El importe de los efectos de comercio impagados aumentó el 85,01% en mayo

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Según datos de la Asociación Nacional de Establecimientos Financieros de Crédito (Asnef-Equifax), la morosidad en el pago de préstamos hipotecarios han aumentado un 84,2 por ciento entre el pasado diciembre y abril.

Fuentes de este registro explicaron a Efe que este incremento del número de morosos relacionados con hipotecas ha ido incrementándose "mes a mes" durante el comienzo de 2008 y si en enero y febrero subían, con respecto a diciembre, un 17,5 y un 36,6%, respectivamente, en marzo y abril han mostrado una aceleración más pronunciada.

Esta asociación cree que los problemas por impagos hipotecarios seguirá al alza, en tanto que los impagos en la financiación de automóviles han aumentado en los cuatro primeros meses del año un 37,2 por ciento, los relacionados con compras en artículos de telecomunicaciones, un 39,8%, y la morosidad de los Préstamos Personales, un 33,6%.

Por su parte, los impagos en operaciones realizadas con tarjetas de crédito aumentaron un 31,3 por ciento, hasta abril, mientras que los de 'Financiación al Consumo' crecieron un 31,7 por ciento y los descubiertos en cuentas corrientes un 26,4 por ciento.

Los consumidores residentes en España siguen la tendencia de aumento en la morosidad registrada en los últimos meses, acrecentada con la crisis de crédito y liquidez originada por las hipotecas 'subprime' en Estados Unidos y con la tendencia alcista del Euríbor.

En los seis primeros meses del año, el número de operaciones morosas declaradas aumentó el 20,34 por ciento respecto al cierre de 2007, mientras que la subida fue del 26,13 por ciento en relación al mes de junio de 2007.

Según los datos de Equifax, el número de operaciones morosas en junio llegó a los 4,247 millones, el saldo medio por deudor ha aumentado a 3.620 euros y las deudas impagadas tienen un valor de 15.374 millones, lo que supone un incremento del 44,24 por ciento en lo que va de 2008 y de un 66,15 por ciento en doce meses.

BRASIL: VIDEO ECONOMIA, BBC

BBC sobre Brasil..

USA, FANNY MAE..., TOO BIG TO FAIL

El Estado comprara acciones, facilitaria liquidez, salvacion de banca hipotecaria y quiebra de las dos principales instituciones especializadas, ahogadas por la crisis subprime...

RECESION MUNDIAL: BBC

Dossier sobre el desarrollo de la crisis financiera internacional..

PERU;ENCUESTA SOBRE PARO NACIONAL, PUCP

La mitad de la poblacion justifica el paro, el jefe de la oposicion es la inflacion, la caida de los salarios, el desempleo y los problemas regionales, tuvo gran impacto fuera de Lima pero creen que no afectara el futuro...