#  >  > Living And Legal Affairs In Thailand >  >  > Thailand and Asia News >  >  > Business, Finance & Economics in Thailand >  >  Is the world heading into recession?

## watterinja

I've been watching the way the US economy is beginning to slide rather rapidly, coupled with various declining currencies - USD, GBP amongst others...

Is the world heading into a period of recession?

What fallout can we expect here in Asia?

Perhaps the USD-EUR, USD-Baht, GBP-Baht & other currency cross rates could be revisited? Where do folks now expect these to head?

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## chitown

I have to disagree with you. Not a recession, but a depression. We are way over due for it. The pendulum is going to swing so far the other way, that the Great Depression will look like a picnic. What goes up, must come down. 

I hate to say it and will really hate to see it.........

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## Zavier38

^ agree, sadly.

My thoughts......
World commodity prices are rising at a crazy rate. 
Productivity is already maxed out in the west. So there's going to be less money in people's pockets. 
Banks in west are practically insolvent, so much of their balance sheets consisting of doubtful debt. 
Assets are increasingly worth their break up value alone. There's not alot of optimism out there.

Liquidity crisis in banks will hit middle classes hardest.
Worldwide inflation and decreasing buying power of western currencies (esp USD) will hit the poorest hardest as food prices and general commidity prices go up. 
- not a good look if it starts to bite in Thailand. Having the over financed Bangkokians getting stressed out at the same time as the peasants on the farms was never a good idea.

Then again, I'm hopefully wrong and we're all gonna buy new yachts next year. :Smile:

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## watterinja

Thanks Chitown & Zavier38.

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## Ban Saray

Said it before, all the idicators point towards a big recession.
US balance of trade, and debt
Price of oil unstable due to Iraq, and other conflicts or government ruses (Venezuala)
International banks propping up debt
Australian banks covering foreign investment by raising local interest rates while petrol hits $1.50
Housing markets world wide not good (glimmer of hope in AUssie), but abovementioned interest rates won't help
Most share prices for commodities overpriced and dependent on export, oil prices will devastate this balance of trade
Food prices already starting to bite in Aussie, Uk, and US
Unemployment in the US rising
All you an do is reduce personal debt and cash up if you can.
But what would Iknow I'm an Engineer, not an economist.

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## watterinja

I often wonder at the effect of all the years of low-cost outsourcing.

In tough times, there is little way to bring your assets home & hold them close until better times emerge. China, India etc may seem inexpensive up front, but it is during tough times that lack of homegrown capacity comes to the fore.

I wonder if the US is kicking itself over this issue?

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## Spin

> Is the world heading into recession?


I think so, the future looks bleak. In the US right now the markets are falling as they price in the chaos that kicks off in a couple of days when Q4 reporting starts. I can see the DOW at 11500 with 2 weeks.

100,000 ARMs resetting every month for the next 3 years, house prices falling like farangs from the 38th floor.

Its a proper mess and its gonna be around for at least 5 years.




> Banks in west are practically insolvent


They certainly are!......
PIMCO Bonds - Investment Outlook- January 2008 "Pyramids Crumbling"

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## Ban Saray

^^Australia is definitely suffering from lack of manufacturing industries, and the knock on is a lack of tradespeople.
Makes the unemployment look good with plenty of vacancies, but the truth is there are no tradespeople to do the jobs.
While the liberals sold our resources they also ran down our capacity to add valur to these natural resources.
They will pay a big price soon enough, just like the US

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## watterinja

> They certainly are!......
> PIMCO Bonds - Investment Outlook- January 2008 "Pyramids Crumbling"


A very enlightening article. Thanks for that.

Pyramid schemes indeed.

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## bkkandrew

Indeed. A massive depression in US, followed closely by UK, albeit cushioned by reduced dependance on hitherto cheap fuel costs.

What does it mean here?

The big one is a rerun of '97 in the financial sector. No-one has thus far investigated the exposure of the CDO crisis on Thai banks and its related issues. One thorny issue that surely exists is over-exposure is debt relating to the overheated (literally in the case of the 52-story tower next to me on Ratchada the day before yeasterday) domestic and commercial property sector. Now, whatever the extent of this, one must consider that the capital base that the main Thai banks started from (pre-June 07) is significantly less than that enjoyed by such paragons of virtue, such as Northern Crock and Cnutrywide Financial.

Once the numbers get crunched on the Thai Financial Sector (a low priority, compared to the trilions being fretted about in US/UK/EU) then there maybe a corresponding correction in the Thai economy/THB etc.

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## Spin

> No-one has thus far investigated the exposure of the CDO crisis on Thai banks


Found a little bit of info:

Thailand: Siam Commercial Bank (SCB) and Kasikornbank (KBank) reported no exposures to CDOs, while Bangkok Bank (BBL), Krung Thai Bank (KTB) and Bank of Ayudhya (BAY) reported some exposure, mostly to higher rated tranches ('A' and above). 

The level of exposure ranges up to 6&#37; of equity so that a loss on the portfolio could impact annual earnings but should not threaten solvency. 

BankThai has more substantial CDO investments including 1.7billion baht of US subprime-related (21% of equity) against which it has already taken a 0.3 billion baht writedown.  

from here Fitch Ratings: Subprime exposure low among AP banks

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## Rattanaburi

Things still don't look too good in the markets. Gold is flying high. I wonder when people will start getting worried and sell their gold?

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## Bluecat

You mean when people will start selling their shares and buying gold?

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## Butterfly

Stagflation is more likely,

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## Bluecat

Inflation is around the corner if not here yet.
What kept prices under control is the cheap manufacturing in China.
And more goods coming from China.
But the Chinese unlimited pool of workers is not that unlimited after all.
Not with a one child policy and everybody wanting the one child to be educated, whatever the cost.
So no more workers at cheap price.
And well, inflation coming your way...

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## Rattanaburi

Well, I did hear gold at 1,200 somewhere! 

How low can things go? A lot of the old timers who have their money in stocks might be panicky thinking that they had better go to cash in case things get bad. If they do get bad and people lose their retirement to the markets, a lot of people will be working until death.


One day things go up and the next there's more bad news. But George Bush will get his comfy retirement money of a few hundred thousand a year. And he wanted everyone to put their retirement money in the markets!

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## Mid

more bad news ........

Wholesale prices rose by 6.3 percent in 2007
_Year-over-year gain was largest in 26 years_

best take in another notch in the belt . :Sad:

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## Butterfly

Every 25 years, there is an inflation reset cycle, and I think we are starting one, everyone is increasing their prices, inflation becomes real, no longer hidden or "virtual" by some tricky statistics from official organizations,

it's even worse in Europe, and they have the strong Euro that will slow them down,

Once again, stagflation has been triggered by an energy crisis, once it starts, it can be very costly to stop, everyone wants to be compensated.

This is starting to sound more like the 70s again, once again with Oil making the first move,

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## Butterfly

market is getting beat up badly, inflation (PPI up 6&#37 :Wink:  and a recession in the making (housing slump and poor sales)

In the meantime, Citigroup is reporting massive losses, another 17 Billions, they can't stop the bleeding, selling out to anyone with cash,


 Citigroup, Merrill Line Up New Capital Amid Turmoil

Citigroup announced plans to sell another $14.5 billion in preferred stock, as it posted a huge net loss, hit by $17.4 billion in subprime-related write-downs. The bank slashed its dividend by 41%. Merrill Lynch received a $6.6 billion infusion from Korean and Kuwaiti sovereign-wealth funds and Japanese bank Mizuho.  10:44 a.m.

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## Blake7

^ even the the once mighty butterfly is reduced to selling his wife's LV bags...

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## ray23

I don't believe this an if any longer now it' when. With the interest rates indicated in this article, I doubt the Thai' will be able to hold the naht anywhere near where it is today. Baht at 25 America not by buying where are the sales goign to come from. China, I dont think so they can produce the articles themselves for less.

The end result an overdue adjustment that is going to a bitter pill to swallow. Watch carefully China will slowly buy America. I already see deals being cut with American bank stock. Hey the  Japanese had thier day time for China to get a piece of the action.

What I worry about as a dollar earner (retirement) is what is gong to be the effect in Thailand and it's really not looking good for us. Nor does it  look real rosy for the Brits at the moment.

My approach is going to be very conservative with money.

The other side of the coin is it won't last forever, There will actually be huge fortunes made over the next few years. Thing are going to get inexpensive again such as housing, at least in the states.

So I would say to all if you don't really need it wait. I was lucky enough to get sit up five years ago. So can survive at 25, I would hate to be trying to do it that now. It certainly would take a lot more money today then what Ihad to start with. For me Thailand is a good place to ride this out. Although I will bitching and kicking all the way.

" U.S. Recession a Bigger Risk Than China, Malkiel Says (Update1) 

By Allen Wan

 

Jan. 15 (Bloomberg) -- A U.S. recession poses a bigger threat to the global economy than a slowdown in China, according to Burton Malkiel, the Princeton University economics professor who wrote ``A Random Walk Down Wall Street.'' 
``The U.S. is more important to the world,'' Malkiel, 75, said during an interview. ``The U.S. is slowing down dramatically and we're going to see little or no growth in the first half of 2008. I'm not worried about a slowdown in China because growth there will still be larger than anywhere else in the world.'' 
Stocks in the U.S. have fallen three straight weeks and posted their worst start to a year since 1991, amid concern the economy will contract. Goldman Sachs Group Inc. joined Morgan Stanley and Merrill Lynch & Co. last week in estimating that the nation may already be in a recession. 
Malkiel predicted the Federal Reserve will reduce interest rates to as low as 3 percent this year, from 4.25 percent now. ``I anticipate lots of lowering in the first half,'' he said. Malkiel was a member of President Gerald R. Ford's Council of Economic Advisors when former Fed Chairman Alan Greenspan led the group. 
Trading in futures contracts gives 100 percent odds that policy makers will shift the target rate for overnight loans between banks to either 3.75 percent or 3.50 percent this month. 
11.5&#37; Growth 
China expanded at an 11.5 percent rate during the third quarter, the fastest among the world's 10 largest economies. The nation will expand 10 percent this year, Goldman predicted last week. Last year, China contributed 17 percent to global growth, the same as the U.S. 
Malkiel said he is confident China will be able to slow growth to a ``sustainable pace'' of 7 percent to 8 percent. 
He recommends that investors buy stocks of U.S. companies that have business ties to China. Malkiel also favors the SPDR S&P China ETF and iShares FTSX/Xinhua China 25 Index Fund. 
``A Random Walk Down Wall Street,'' first published in 1973 and now in its ninth edition, argued that asset prices fluctuate randomly and investors can't consistently beat the market. 
Stocks in China are in a ``bubble'' and will tumble once the government allows funds to flow more freely, Malkiel said. 
China Life Insurance Co. illustrates the point, he added. The nation's largest life insurer trades for 46.6 times estimated earnings in Shanghai, 25.9 times in Hong Kong and 30 in New York, according to Bloomberg data. 
`Restricting Arbitrage' 
``It's just nuts,'' he said. ``China has been artificially restricting arbitrage.'' Malkiel expects ``these valuation discrepancies to disappear eventually as China liberalizes its currency. When that will occur, I don't know.'' 
The CSI 300 Index, which tracks A shares listed on China's two exchanges, has gained 6.7 percent this year after jumping 162 percent in 2007 and 121 percent in 2006. The shares are trading at ``bubble valuations,'' Malkiel said, referring to the yuan- denominated equities restricted mostly to local investors. 
Malkiel declined to predict when the Chinese stock market ``bubble'' might burst, repeating his argument that it's impossible to predict future share prices. 
``Over time, China will allow its citizens to invest in Hong Kong and overseas,'' said Malkiel, whose newest book, ``From Wall Street to the Great Wall,'' was published last month. ``Valuations of these Chinese stocks will then have to normalize.'' 
In October, China's securities regulator said it was studying a plan to allow arbitrage in shares of companies traded on domestic and Hong Kong exchanges. The regulator is seeking to end price discrepancies. 
Last month, Hong Kong submitted a proposal to the Chinese cabinet for mainland individuals to buy shares directly on the city's stock market, paving the way for a pilot program that has been plagued by repeated delays. 
To contact the reporter on this story: Allen Wan in New York at awan3@bloomberg.net 
_Last Updated: January 15, 2008 10:07 EST_ "

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## Butterfly

well the market was brutal yesterday, down almost 300 points

THB to USD is 33 now,

everyone is waiting for the next bad news or someone to blink and draw the guns,

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## Whiteshiva

Define "resession". :Wink:

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## Spin

> everyone is waiting for the next bad news


Not much of a wait, Coutrywide Financial (one of the biggest offenders in the sub-crime fiasco) and Jp Morgan will report Q4 later today. Expect another 200 shaved off the Dow.

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## keda

In my next life I'd like to be a financial institution, to either make good decisions and generate lots of loverly profit to keep my stakeholders happy, or make the wrong decisions and get bailed out with public money.

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## watterinja

I'm beginning to see the whole Stock-Market fiasco as one big Casino, fueled by dishonest snake-oil-salesmen, thieves & charlatans.

That is NOT wealth creation...

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## Rural Surin

> Mr. Bloomberg said we are so nuff said! 
> 
> Fcuk I should of brought gold!


Can't eat gold LT.

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## Rural Surin

> I'm beginning to see the whole Stock-Market fiasco as one big Casino, fueled by dishonest snake-oil-salesmen, thieves & charlatans.
> 
> That is NOT wealth creation...


....wealth created by imagery. Hocus Pocus, nothing up my sleeve.

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## Butterfly

> I'm beginning to see the whole Stock-Market fiasco as one big Casino, fueled by dishonest snake-oil-salesmen, thieves & charlatans.


it's a poker game where the table is a mix of professional players, petty criminals, and amateurs.

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## Rural Surin

> Originally Posted by watterinja
> 
> I'm beginning to see the whole Stock-Market fiasco as one big Casino, fueled by dishonest snake-oil-salesmen, thieves & charlatans.
> 
> 
> it's a poker game where the table is a mix of professional players, petty criminals, and amateurs.


And they're all bluffing with 'poker faces' in hand. :Roll Eyes (Sarcastic):

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## watterinja

^ Agreed. It is not a safe place to invest savings - only one's play money.

I have always said this.

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## baldrick

was that report of forged stock certs just the tip of the iceberg ?

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## Spin

This is agood for a laugh, mind you it is on the arse-wipe website CNBC



*Half of Bankers Would Quit UK If Bonuses Capped* 

Half of British bankers would consider leaving the country if a cap were put on their cash bonuses, a survey showed on Friday.

The poll by jobs website eFinancialCareers.com found that 49 percent of British-based bankers would consider voting with their feet such a limit to their income were introduced. That figure rose to 71 percent among financiers with six to ten years experience.

"Were bonuses to be capped unilaterally in the UK, the country would run the risk of an exodus of top financial talent," said John Benson, chief executive of eFinancialCareers.

However, the number of alternative locations in which to work has shrunk dramatically as the credit crisis has hit hiring and pay around the world.

"(That) 71 percent (of people with six to 10 years experience) would move abroad I don't doubt, given the opportunity. That last word is the operative word," said Shaun Springer, who heads recruitment firm Napier Scott.

"If you could tell me of the areas that could harbour those skill sets (of bankers), please let me know -- I'll be flying out there."




U.S. President Barack Obama this month set a $500,000 cap on executive pay at state-backed banks -- pocket money on Wall Street before the crisis.

European banks are also under pressure to curb bonuses, especially those that have taken government help, and many have cut them.

Thirty-three percent of bankers polled said they believed caps on cash bonuses are the most likely change to be implemented over the next year and 39 percent support such caps.

The poll was conducted between Feb. 16 and Feb. 20, with 888 financial professionals responding.

source


This is my favourite bit...

"Were bonuses to be capped unilaterally in the UK, the country would run the risk of an exodus of top financial talent,"

 :rofl:  Is that a promise or a threat, hopefully a promise.
Two small problems:
1. If they were talented the world would not be in serious trouble right now
2. If they leave England, where the fuck are they gonna go and lead their reckless coke-snorting banking lives? Iceland? Estonia? New York?  :rofl: 
Give me a foking break, these fuckers should shut up and just be happy that there isnt anybody with the balls big enough to start throwing them in jail.

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## Spin

Sweden in recession 

*Swedish Economy Shrank 4.9% in Fourth Quarter From Year Earlier*

Feb. 27 (Bloomberg) -- Sweden’s economy contracted for a second consecutive quarter in the three months ended December as demand for its exports slumped because of the global economic slowdown. 

Gross domestic product contracted an annual 4.9 percent, adjusted for the number of working days, following a revised 0.1 contraction in the previous quarter, Statistics Sweden said today. The median forecast of 14 economists surveyed by Bloomberg was for a 2.1 percent contraction. GDP shrank a seasonally adjusted 2.4 percent from the previous quarter, marking the third consecutive three-month period of falling production.
story

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## Butterfly

> Half of Bankers Would Quit UK If Bonuses Capped


I guess that wouldn't be a bad thing after all,

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## Spin

Anybody want any Citi shares? Going cheap! 1.19$ same price as they were about 25 years ago :Sad: 

Bailed out and the street aint liking it one bit....

*Citigroup Gets Third Bailout as Government Plans to Raise Stake*

government will raise its stake in Citigroup Inc. in the third attempt to bail out what was once the world’s biggest financial institution. 

The plan will involve the Treasury Department converting as much as $25 billion of preferred shares into common stock, the Treasury Department said in a statement today. The government said it will make the swaps only if private holders agree to the same terms. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York- based company last year. 

“This gradual step-by-step process doesn’t work, or has not worked so far,” said Marino Valensise, chief investment officer of London-based Baring Asset Management Ltd., who helps oversee about $30 billion for clients. 

Citigroup Chief Executive Officer Vikram Pandit is trying to bolster confidence after his bank’s stock price sank to $1.95 last week -- the lowest price in 18 years. The government is supporting the company, which had 200 million customer accounts in more than 100 countries at the end of last year, because of concern its failure might roil already weak global markets. 

Federal Reserve Chairman Ben S. Bernanke said Feb. 25 he wants to avoid nationalizing Citigroup and other large banks in a way that would wipe out shareholders and leave the U.S. in full control. Bernanke said the government might end up owning a “substantial minority” of the bank.

more here

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## Dan

> This is my favourite bit...
> 
> "Were bonuses to be capped unilaterally in the UK, the country would run the risk of an exodus of top financial talent,"
> 
>  Is that a promise or a threat, hopefully a promise.
> Two small problems:
> 1. If they were talented the world would not be in serious trouble right now
> 2. If they leave England, where the fuck are they gonna go and lead their reckless coke-snorting banking lives? Iceland? Estonia? New York? 
> Give me a foking break, these fuckers should shut up and just be happy that there isnt anybody with the balls big enough to start throwing them in jail.


I agree. It's like listening to those cunts at the CBI. Whenever anyone suggested that companies making squillions of pounds a year should offer to the Exchequer something more than their fingernail scrapings, they also squeal about how uncompetitive the business environment is and how all the companies will instantly decamp to Southern Namibia or Waziristan of some such place. Fucking pricks. I was, however, cheered to see that the British police are predicting a summer of violent demonstrations so we can always hope (forlornly) that these fuckers will be hanging from the lampposts some time soon.

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## Butterfly

> Anybody want any Citi shares? Going cheap! 1.19$ same price as they were about 25 years ago


they should nationalize the fucking bank with no compensation for investors, I think that would send a nice message to investors and the board,

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## Spin

*The Worst Bailout Decision Yet* more AIG nonsence.

-The latest rescue of AIG may include a bailout for the credit bears
-If so, this would give them additional fuel for attacking the financial system
We read about a bailout decision yesterday that we view as the worst decision the government has made in this crisis. We became so sick to our stomach that we had to go for a walk after we read it.
That’s saying a lot. We’ve detailed how the Fed has had 3 FOMC meetings where they’ve had to reverse course within just a few days. We’ve written how the government stopped Bear from defaulting, yet let Lehman go, causing a 21st century-style run on the bank. We illustrated how the FDIC abruptly stopped making bondholders whole, causing yet another downward spiral. Yet, yesterday’s news story was far worse than that.
And we’re not even talking about the 3rd rescue of Citi, which was formally announced this morning. This puts it ahead of the 2 rescues of Fannie and Freddie, though it lags the champion of serial rescues (RBS). This week, the Fed Chairman calmed the equity market by saying the government does not intend to nationalize banks now, but those same words caused the bond market to freak out because they mean the government will continue to be reactive, and not proactive; acting only after the credit bears have made money. Yet, yesterday’s news story was also far worse than that.
We Are Going To Bail Out the Credit Bears!!!!!!!!
The story that got us so flustered, so disgusted, so angry was the one with the Bloomberg headline *“AIG Rescue May Include Credit Default Swap Backstop.”*
It turns out that AIG is such a basket case that they may be going back to the Feds for help for a 3rd time. But *if this story is correct, our government will explicitly backstop the CDS’s that AIG wrote.*
This would be an enormous guarantee. That’s bad enough. But *it effectively means that we will be mortgaging our children’s future to bail out the very people who’ve bet against this country!!!*
Now there’s nothing wrong with shorting, and CDS’s are not the cause of the problem. The problem is that this country took on too much debt. But CDS’s, which have effectively allowed for the leveraged naked shorting of credit, have vastly intensified the problem.

While there is nothing wrong with shorting, every investor who bet against this country via CDS’s knew they were taking on counterparty risk; only large, sophisticated investors were allowed to play in this market. *If this backstop goes through, we will be using government money to make sure that these bears get massive payoffs. Why?*
Now the rationale for rescuing AIG (and any of these firms) is that things would be worse, and we risk financial collapse, if they failed. That is a legitimate argument.
But from a practical standpoint, the S&P lost more than 25% of its value in the 11 months before AIG was rescued. It is down more than 35% in the 6 months since AIG was rescued, and the corporate bond market was hit so badly that it is pricing in 600 on the S&P.
We fail to see how things could get much worse, especially since stocks are likely to eventually get to 600 anyway, which is an argument for just letting AIG go.
A more important argument for letting AIG fail is that the people who’ve bet against our country would be crushed. While letting AIG fail would likely cause more panicky selling in the stock market, this would be nothing we haven’t seen before. Only the bear community would be significantly damaged in the process this time and that might thus create THE bottom.
A few weeks ago, we heard that a TV commentator went ballistic over the fact that some homeowners might get a bailout, and this received a lot of attention in the media. That is nothing compared to this proposed bailout of the very people who’ve bet against the U.S.

We rarely express our personal views on public policy as we’ve just done, but there are a couple of reasons we’ve done this.
First, our hope is that someone, somewhere, reads this and stops this proposal in its tracks. It’s one thing to bet against the U.S.; it’s another to expect future generations to bail out and pay off on that bet.
Second is to express the investment meaning of this. If this CDS bailout happens, it will provide the credit bears with fresh capital to stage bear raid after bear raid, just as they’ve continually forced governments to incrementally nationalize RBS and Citi.

The Fed Chairman unwittingly gave the credit bears the OK this week to stage round after round of credit attacks, implying that the government would only act after the bears had made money.

source

The implications of the government agreeing to backstop the credit default swap are scary from the viewpoint of once you start, where do you stop.

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## robuzo

Michael Lewis Interview | Steve Eisman
Steve Eisman would pay *Goldman Sachs*   (NYSE: GS) and *Deutsche Bank*   (NYSE: cPanel®) X% of the principle amount a year, say 10% or 8%. In exchange, if the subprime mortgage pool goes bad, Deutsche Bank or Goldman Sachs has to pay Steve Eisman the whole principle. So, if he is betting on, as he did, say $500 million of subprime mortgages, and he wants to short them, he pays $5 million a year to do that, but if all of a sudden they go bad, they have to pay him $500 million. I don't know; those numbers aren't exactly right, but in any case, that is the idea.
  So, he shorted the subprime mortgage market by picking the best things to short. And what is amazing is that these firms created this casino in these bets, and that casino is _bigger_ than the original market. So when you look at what is going on now and you are mystified why the Treasury and the Fed and whoever else is throwing money at them, is throwing $150 billion at *AIG*   (NYSE: AIG) to prevent it from going down and you ask why is an insurance company getting $150 billion in this crisis? What is that about? Well, what that's about is that Goldman Sachs, having taken Steve Eisman's side bet, turned around and laid it off on AIG. And AIG foolishly, essentially, ensured the subprime mortgage market. So, what the Treasury is doing is paying off AIG's bad debts to Goldman Sachs, so the money goes to AIG just so it can go to Goldman Sachs, so it can go to Steve Eisman.

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## robuzo

Excellent article on AIG here:
The Beautiful Machine
*The Beautiful Machine*
Greed on Wall Street and blindness in Washington certainly helped cause the financial system's crash. But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: Risk.

----
Basically, the clever bastards outsmarted themselves.

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## Dan

Picked this one up from the peakoil forum:

Feb. 27 (Bloomberg) -- When Berlin resident Simone Klostermann returned from vacation and couldnt find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched. 

Theyd squirted something flammable into the cars engine block in the gap between the windshield and the hood, said Klostermann. The engine was completely destroyed. 

The 34-year-olds experience isnt unique in the German capital. At least 29 vehicles were destroyed in arson attacks this year, most of them luxury cars, according to police. The number is already about 30 percent of the total for 2008. The latest to go up in flames was a Porsche, on Feb. 14, two days after a Mercedes was set alight in a public car park.

Bloomberg.com: Exclusive

Not quite the People's Court but from little acorns...

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## Butterfly

> The Beautiful Machine


^^ yes, nice read, I quite like the history of such deals

it has always been about risk and risk management, without them there wouldn't be any need for derivatives, and some non-derivatives financial products would simply disappear because no way to cover certain risk

Risk management has contributed greatly to sustainable growth of companies, if it goes away, sustainable growth will no longer be achievable for those companies, and they will be exposed to more chaos than they already have.

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## watterinja

Time to convert to a single world currency & single financial oversight. Stiff jail-time to the rogues & lifetime ban from further financial dealings.

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## lom

> it has always been about risk and risk management, without them there wouldn't be any need for derivatives, and some non-derivatives financial products would simply disappear because no way to cover certain risk


I would consider it to be a good thing if derivatives disappears completely.




> Risk management has contributed greatly to sustainable growth of companies, if it goes away, sustainable growth will no longer be achievable for those companies, and they will be exposed to more chaos than they already have.


Companies should only grow in their natural pace by reinvesting their profits.
Little money to reinvest = small growth.
Injecting external money (loans for instance) into a company will only cause a cancer growth.
It is equal to injecting steroids into a 5 year old in order to make him a teenager within a few month.
The chaos we have now in the economical markets is because companies are on steroids.

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## Norton

> Companies should only grow in their natural pace by reinvesting their profits.


As with all things, the most elegant and effective solutions lie in simplicity.  

Individuals need to adhere to the same "rule".

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## watterinja

> Companies should only grow in their natural pace by reinvesting their profits.
> Little money to reinvest = small growth.
> Injecting external money (loans for instance) into a company will only cause a cancer growth.
> It is equal to injecting steroids into a 5 year old in order to make him a teenager within a few month.
> *The chaos we have now in the economical markets is because companies are on steroids.*


Very good analogy. Excellent.

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## Panda

You got to remember that a lot of the money lent to companies to advance their business didn't really exist in the first place. It only existed on paper and in the hope that the companies DID produce real products of some worth to justify the creation of the paper money. Certainly a case of putting the cart before the horse, but works quite well as long as the sales/productivity keeps expanding in line with the money supply. The solution when the system hits a glitch as it has now is to print more money and devalue its worth against real goods and services (which is in fact the only true measure of wealth in the real world).

The whole world has come to a point now where the value of its paper money has got to undergo an adjustment to put it back in line with things of real value. 
Unfortunately, inflation and the subsequent reduction in our purchasing power for labour is the price we all have to pay for things to get back into balance.
And printing more paper money and borrowing more to devalue its worth against real goods and services is the best way to do that. Its an adjustment we had to have and its going to happen no matter what governments do to keep the bubble alive. Bottom line is that we are all going to work a bit harder for less in the future to pay for the excesses of the past. There will be winners and losers in the readjustment. For the most part, the working class majority will be the losers. Which can be a bit of a problem for governments who rely on votes in a democracy. So basically, the politicians lie to us while getting on with business.

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## Whiteshiva

> Companies should only grow in their natural pace by reinvesting their profits.


And how would you then go about starting up a company?




> Injecting external money (loans for instance) into a company will only cause a cancer growth.


Most companies manage their debts without problems, and so do most people.  Giving and receiving credit is what makes the system work - remember most companies fail because of liquidity problems, not because they are unprofitable.  Remove the access to liquidity, and more healthy firms will fail.

Eliminating loans will simply not work, think about it - you would not even be able to get money from an ATM, because once you do so, the bank that holds your funds is now indebted to the bank issuing the cash.  In fact, even the use of paper money is a loan - it is only a guarantee that the state will honour the value of the bank notes.

So, short of a barter economy loans and credit is here to stay.  One could argue that they should be better regulated, but eliminated - no chance.

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## Butterfly

> I would consider it to be a good thing if derivatives disappears completely.


then you can expect may existing financial products to disappear or perform very badly, mutual funds, ETFs, Money Market etc... maybe not a bad thing at the end.




> Companies should only grow in their natural pace by reinvesting their profits.


Easier said than done. It's a competitive world out there in case you didn't notice, slow growth is a death sentence, banks wouldn't lend you, and competition will eat you slowly if you don't outpace yourself. It's really a Death Race.




> The chaos we have now in the economical markets is because companies are on steroids.


Actually it's not companies, but Demand that is inflated. We expect more, we demand more, and we want more, and all at bargaining prices, and if this wasn't enough we demand constant innovations from those same companies. They are under a lot of pressure.




> remember most companies fail because of liquidity problems, not because they are unprofitable. Remove the access to liquidity, and more healthy firms will fail.


Amen !!!




> Eliminating loans will simply not work, think about it - you would not even be able to get money from an ATM, because once you do so, the bank that holds your funds is now indebted to the bank issuing the cash. In fact, even the use of paper money is a loan - it is only a guarantee that the state will honour the value of the bank notes.


Very good example. concrete and simple. People forget all the innovative products we are using today and takes for granted. Take away the source of such products, and we will have nothing left. Doing a transfer to Thailand to pay for your whores would take months if it wasn't for derivatives (currency swaps) and credit (cash advance).

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## watterinja

How does this western madness compare to the Islamic banking model?

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## Butterfly

^ Islamic banking isn't showing any innovations and would be a pain in the ass to deal with, like dealing with a 18th century style of banking

they also rely on the existing western banking system to service their clients, or else they would have all their clients would have left

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## Dan

In Islam - as used to be the case in Christianity - usury is prohibited so it is not possible for an Islamic bank to lend at interest. As I understand it, banks instead take the role of seller so they if you want to buy a house, the bank will actually buy it and then re-sell it to you at a profit. You then pay them in instalments.

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## watterinja

Thanks Dan - makes sense. Nice way to do it.

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## Butterfly

^ it's the same really  :Roll Eyes (Sarcastic): 

and they probably resell the "loan" of that house on the western market securitization, so at the end they are not really different

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## Dan

Not really. Islamic banks - in tune with the religion - are focused more heavily on the community than modern western banks (perhaps more like old-fashioned building societies used to be?) It's easy enough to make the assumption that everything non-western is a just an imprecise reflection of western practices but I'm not sure that that's really justified. There's a short piece on the BBC today at BBC NEWS | Asia-Pacific | Islamic banks 'better in crisis' which says:

"Islamic financial institutions, he said, had not been hit as hard as their western counterparts because they did not invest in toxic assets. 

Banks run in accordance with Muslims laws on interest payments and the sharing of credit risks are seen by many as fairer than traditional banks, less focused on profit and kinder to the communities they work in.

Demand for Islamic financial products has been growing in the Muslim world for years but Mr Yudhoyono said that many in the West were now ready to learn from them. 

Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling. 


Transactions must be backed by real assets, and because risk is shared between the bank and the depositor, there is added incentive for the institutions to ensure deals are sound."

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## robuzo

I'm sure this doesn't qualify as Islamic banking, but worth a giggle anyway:

*COMPANY NEWS; CITIGROUP'S BIGGEST SHAREHOLDER, A SAUDI, BUYS MORE
*
Published: July 19, 2002
http://query.nytimes.com/gst/fullpage.html?res=9A0DE5D61139F93AA25754C0A9649C8B  63

But now, this:
Saudi Prince Is Humbled by Citigroup - DealBook Blog - NYTimes.com
*Citigroup*, the investment that had transformed Prince Walid from an obscure Arabian royal into the Warren E. Buffett of the Middle East, was spiraling down around him.
 And now, on the line from New York, was Citigroup’s chief executive, calling personally to tell the prince that the United States government would substantially increase its stake in the troubled financial company — a step that would cost the prince dearly, write The New York Times’s Landon Thomas Jr. and Eric Dash.

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## Spin

AIG posts 61.7 Billion Dollar Loss for 4th quarter, and will get another 30 billion in aid.

Its a black hole....AIG have now ha government money to the tune of 180 billion dollars!

*AIG to Get Up to $30 Billion More in New Bailout After Loss*

March 2 (Bloomberg) -- American International Group Inc., the insurer deemed too important to fail, will get as much as $30 billion in new government capital in a revised bailout after posting a record fourth-quarter loss. 

The loss widened to $61.7 billion from $5.29 billion in the year-earlier period, the New York-based insurer said today in a statement. The government will also exchange its $40 billion in preferred stock for new shares that “resemble common equity,” the Treasury and Federal Reserve said. AIG was paying a 10 percent dividend on the preferred stock. 

The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough subsidiaries to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the company a “systemically significant failing institution” that has to be propped up, the Treasury said. 

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.” 

AIG agreed to turn over two units, American Life Insurance Co. and American International Assurance Co. AIG will pay down the federal loan, valued at about $38.9 billion on Dec. 31, partly by putting the life units in trusts and giving the government rights to the cash flow from tens of thousands of life insurance policies. 

More Capital 

The role of the U.S. has shifted from that of short-term lender -- entitled to interest at the 3-month London Interbank offered rate plus 8.5 percent for a two-year loan under the first bailout -- to a longer-term equity investor. 

“We priced their capital punitively and forced them to sell things fast; that hasn’t worked either so we’re having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably won’t be the last time AIG has to come to the trough.” 

AIG will also separate the unit that provides property and liability coverage for commercial clients and may sell a 19.9 percent stake to the public within 12 months, a person familiar with the matter said. That business, which was previously intended to be the core of AIG after the U.S. rescue, may get a new brand to distance itself from AIG, said the person, who asked not to be identified. 

Aircraft Leasing 

AIG sought a revised bailout after the global decline in financial firms thinned the pool of potential buyers for units, increasing the chance that auctions wouldn’t raise enough money to pay back AIG’s loans. Under the new plan, AIG will be under less pressure to divest assets as it continues to seek buyers for operations including an aircraft-leasing business, an auto insurer, and a retirement-services operation. 

The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG got an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses. 

Downgrades by Moody’s Investors Service and Standard & Poor’s would force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units may also lose access to the U.S. commercial paper program if they are downgraded, the company said. 

Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September when the insurer agreed to turn over an 80 percent stake to the U.S., had struck deals to raise about $2.4 billion through asset sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses. 

Road to Recovery 

Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable. 

AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing. 

Planes, Ships 

AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks. 

The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans. 

The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.
source

This news has sent US market futures lower, with the DOW showing *6882* and S&P500 *716*

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## Rattanaburi

It seems the only way up from here has been down.

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## Butterfly

> Not really. Islamic banks - in tune with the religion - are focused more heavily on the community than modern western banks (perhaps more like old-fashioned building societies used to be?) It's easy enough to make the assumption that everything non-western is a just an imprecise reflection of western practices but I'm not sure that that's really justified.


The financial mechanics are still the same, they were more conservative with their lending, but at the end they use the same techniques as western banking.

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## sarah9

Hello,

The giant of the recession has already taken in to its clutches almost all the world economy, be it European market or Asian market, though Asian markets are better than European market, but negative effect of the recession has shown its effect on Asian countries, almost all the Asian countries are facing lower GDP, and weak stock market and the rising price of commodities says all.

Regards,
sarah_9

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## Spin

Japanese exports down 50% in January

Japan's current account recorded its largest deficit on record in January, reaching 172.8bn yen ($1.8bn; £1.2bn). It was its first deficit in 13 years. 

The current account measures the balance between a country's exports and imports - a deficit means more imports. 

Government figures show that exports nearly halved in January, while imports fell by a third. 

The country is being hit by falling demand for its products abroad, as the global recession takes hold. 

Corporate blow 

Exports in January dropped a record 46.3% from a year earlier to 3.28 trillion yen, the fourth consecutive month of year-on-year declines, with exports to the US hardest hit, registering a 52.9% drop. 

Car exports alone dropped 66.1%, with semiconductor and electronic parts exports down 52.8%.

Tumbling exports have hit companies such as Toyota, which is expected to make its first annual loss in 70 years. 

Meanwhile, Honda has had to cut production, and Sony is set to register its first annual loss in 14 years.

Shares tumbled on the news, with the benchmark Japanese index, the Nikkei, closing down 1.2% at a 26-year low of 7, 086 points. 

Dismal figures 

"We incurred the current account deficit due to a plunge in exports. Our exports to key regions, including the United States, Europe and Asia, were all down sharply due to the deteriorating global economy," Michito Yamagami, a finance ministry official said. 

Hiroshi Watanabe, an economist at Daiwa Institute of Research, said: "The current account deficit and the dismal exports data clearly reflected weakening demand for Japanese goods amid a global recession. 

"Consumers in Asia, Europe, the Middle East and the United States are not buying pricey Japanese goods such as cars and electronic goods. 

"Japan's export-driven economy is really engulfed by waves of the global economic crisis."

source

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## Dan

March 9 (Bloomberg) -- American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the companys collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers stake in the firm.     

        AIG needed immediate help from the Federal Reserve and Treasury to prevent a catastrophic collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as strictly confidential and circulated among federal and state regulators.     

        What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means, said the presentation by New York- based AIG. Insurance is the oxygen of the free enterprise system. Without the promise of protection against lifes adversities, the fundamentals of capitalism are undermined.     

        Regulators revised AIGs bailout last week to ease loan terms and extend $30 billion in fresh capital after the firm posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. Lawmakers are reluctant to give more support beyond the package already in place, worth about $160 billion, because they say regulators havent given enough detail about how the funds are being used or when the bailouts will end.

Bloomberg.com: Worldwide

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