Thread: A note of caution for those with deposits in US Banks

Perhaps this is time again for a reminder of facts verses Butterflyworld...

The facts:

Originally Posted by bkkandrew

"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.

While in your world you thought this:

Originally Posted by Butterfly

not, they are not. Only a UK branch got fucked, that's hardly EVERY bank in Iceland !!! again making up claims. Another of your extrapolation.

https://teakdoor.com/us-domestic-issu...tml#post794335

Originally Posted by Butterfly

well, he has some good points, but even if his sentiment was shared with the audience, they still had no solution. It's the same story, they see it coming, but they can't pre-empt the solution until it happens, the problem is too big to be pre-empted, it has to happen before meaningful actions can be taken.

Does this mean you are finally coming round to my opinion that complete worldwide financial collapse is now inevitable?

^ there is a big difference between inevitable and possible, I think you are confusing those 2 terms

^Nope, at the start of this thread I stated possible, now (and since July) I believe inevitable. The difference is 6-months. 6-months that saw no averting action.

Off out for the day, so you can ramble on on your own on the thread for a bit.

Initial Summary of the day (another one tomorrow morning after I have had time to think):

Stock markets worldwide down between 5-10%, inc. FTSE down 9%. LIBOR still rising despite bailouts. Day of reckoning for Lehman CDO Insurers. G7 meeting. Iceland saying they are not bankrupt when clearly they are.

And then the wild DOW ride:



I have never seen a chart like this for one day's trading....

I stated on William's 'Black Friday' thread that there are two possibilities to this madness:

1) Complete NWO-style 1-currency, 1-World bank 'solution'.

2) Complete financial collapse.

Either way, it is a moot point whether the markets will open Monday, or indeed for some while...

The question is why? Not why on the above, but why we have reached this point? The name that keeps cropping up is Robert Peston. Today he has inferred option (1) in his blog (no link, just fucking look for it). Yet he is the 'father' of the credit crunch when he broke the story of BNP Paribas being unable to value its US mortgage-backed assets last year. There is a fine line between being 'ahead of the game' and being a mouthpeice for those that aim to change paradigms.

Anyway (disclaimer), too much wine on board, so proper analysis in the morning, assuming the hangover is cured.

Back to Cars:


GM and Chrysler 'in merger talks'


Chrysler is the No3 maker in the United States, and GM the No1


US car giants General Motors and Chrysler are in talks about a possible merger, US media say.

Reports say the talks have been going on for a month but details of the deal vary from a merger to an acquisition by GM of Chrysler.
GM is the leading manufacturer and Chrysler third after Ford. All have been suffering with a plunge in US sales to 15-year lows.
Neither of the parties have made any direct official comment.

Ford move

Sources told the Wall Street Journal that Cerberus Capital Management, which owns 80.1% of Chrysler had proposed trading its automotive operations to GM in return for GM's stake in the auto lender GMAC Financial Services.

The New York Times's sources spoke of a merger that was a "50-50" possibility, although it could take weeks to finalise and had been stalled by the turmoil in the financial markets.

GM spokesman Tony Cervone said: "Without referencing this specific rumour, as we've often said, GM officials routinely discuss issues of mutual interest with other automakers."

Analysts have questioned Chrysler's position, given its reliance on North America for 90% of its revenue.

Both companies have been hard hit by falling truck and SUV sales and are struggling to push through job cuts against union opposition.

GM shares hit a 60-year low this week. It posted a second-quarter net loss of $15.5bn. Separately, Reuters reports that Ford is planning to sell most of its 33.4% holding in Japan's Mazda.


BBC NEWS | Business | GM and Chrysler 'in merger talks'

What do you get when marrying two bankrupt companies merge?
a) A big bankrupt company.
b) Economies of scale for the insolvency practitioner.

Now having read the G7 5-point plan in full, I can exclusively reveal the contents:

1. We
2. Don't
3. Have
4. A
5. Plan

Tom Bawden in New York and Suzy Jagger in Washington

Lehman Brothers, the bust investment bank, triggered one of the biggest corporate debt defaults in history yesterday as it emerged that the US Federal Reserve is harbouring grave concerns about whether Washington’s $700 billion (£413 billion) bailout fund will avert a financial meltdown.

An auction of Lehman’s bonds yesterday determined that the bank’s borrowings were worth only 8.625 cents on the dollar. The valuation leaves the insurers of the debt a bill of about $365 billion. It is not clear whether the insurers, which are required to settle the bill in the next two weeks, will be able to pay – a development that could further undermine increasingly stressed capital markets.

The $365 billion default came as stock markets around the world suffered one of their worst days since the crash of 11 years ago. Panicking about the prospect of global recession, the FTSE 100 index of leading shares in London crashed within seconds of opening, losing 8.9 per cent of its value, its worse fall since October 1987.

The index recovered to close down 225 points, marking a 5 per cent decline, but more than a fifth was wiped off London shares this week alone. Issues in New York fluctuated wildly as the Dow Jones industrial average slumped by 312.14 points at lunchtime before closing at 8,451.19, down 128.00. Both markets had been scared by losses in Tokyo, where the Nikkei lost 10 per cent of its value.

Amid the mayhem across the world’s stock markets, senior Fed officials now doubt whether Washington’s bailout fund will work unless it is launched in some form in the next two weeks.

The Times has learnt that central bankers in America are anxious that if the Treasury is not able to accelerate the speed at which it launches its rescue scheme, it will have no effect. At the moment, the Treasury, which controls the fund, is working to a five-week schedule to get the rescue package up and running. Under present plans, the bailout fund is not expected to buy its first distressed mortgage-backed bonds until after the US elections on November 4.

It is understood that the Fed believes that this will be too late to help the banks that are suffocating under market conditions. Credit markets have frozen up and many banks have been cut off from being able to borrow from one another.

Mr Paulson’s bailout fund is designed to buy up distressed bonds held by troubled banks. This week the former chairman of Goldman Sachs appointed Neel Kashkari, one of his protégés at the Wall Street bank, to run the fund. Mr Kashkari had already been working closely with Mr Paulson during the negotiations over the passage of the “troubled asset relief programme” on Capitol Hill.

Mr Paulson is also considering a range of other forms of financial assistance, which include the Treasury using taxpayer funds to buy stakes in Wall Street banks. Under such a plan, the cash received in return for the shareholding would provide much-needed capital for the banks.

Lehman’s corporate debt default promises to increase the stress across global credit markets. Sean Egan, of the Egan-Jones ratings agency, said: “This is a killer. Lehman said a month ago that it was in terrific shape and now you can’t even get ten cents on the dollar for its debt.

“It underscores the deep structural flaws in our financial system, knocks confidence in the financial markets and raises the cost of capital. It also demonstrates that we are experiencing not only a crisis of confidence, but a crisis.”

About 350 banks and investors are thought to have insured an estimated $400 billion of Lehman’s debt through complex derivatives, known as credit default swaps. These include Pacific Investment Management, the manager of the world’s largest bond fund, Citadel, the US hedge fund, and American International Group, the insurer that the US Government recently bailed out with two loans totalling about $123 billion.

The Times has learnt that the US Treasury has been overwhelmed with requests from executives of other beleaguered sectors who are seeking a similar bailout scheme for themselves. It is thought that representatives from the US car and airline industries have approached the Government for assistance. It is understood that Mr Paulson does not believe that it is his job to help them. Rather, he is intent on addressing the root problems of the financial crisis.

From:

Lehman Brothers demise triggers huge default - Times Online

My bold/highlighting.

This underscores the point. $365BN to be found when the Paulson plan only allows $250BN now, $100BN on request, with $350BN only available after further approval from Congress (currently involved in an election)....

The numbers are completely at odds with each other. The latest nonsense from the G7 is posturing and meaningless. It will be seen as such. The queue for bailouts now is a long line indeed.

It is clear that, after my flight to Bangkok on Monday, I will devote substatially more time to the 'US Martial Law' thread...

Nobody has mentioned anything about Canada, or the RBC

surely they are badly affected too?

...And another 20% off stock markets this week.

IMF warns of meltdown
Reuters
By Lesley Wroughton and James Mackenzie Reuters - Sunday, October 12 04:34 am

WASHINGTON (Reuters) - The IMF warned the world's financial system was near meltdown and France promised that a meeting of European leaders in Paris will detail measures to keep a market panic from triggering the most severe global downturn in decades.

Continued at:

IMF warns of meltdown - Yahoo! News UK

^Canada has actually got one of the stronger banking sectors, which is why it has been off the radar. The Royal Bank of Canada is not a bank I have seen any adverse reports of, but then again, I haven't been looking.

It will, however, be crippled once the complete collapse happens as all its counterparties will collapse and default.

Bloombergs Dow chart for friday intraday is shite not sure why is doesnt show what actaully happened at the open.



They seem to have 200 points "missing" from the plunge that occurred at the open.

A better representation of what actually happened is here, clearly the selling reversed at 7900 and not 8100.



Perhaps Bloomberg are trying to smooth over whats actually going on out there?

(please ignore the +481 number in blue, that figure represents the futures for monday13 ths opening)

Emmanuel Roman, of GLG Partners, said 25pc-30pc of the world's 8,000 hedge funds would disappear "in a Darwinian process", either going bust or deciding meagre profits are not worth their efforts.

"This will go down in the history books as one of the greatest fiascos of banking in 100 years," said Mr Roman, who co-runs London and New York-based GLG, a former division of Lehman Brothers Holdings with assets of $24bn (£14.8bn). "There need to be some scapegoats, and the regulators are going to go hunt people. That will be good in the long run."


More at:

Thousands of hedge funds to close, says GLG chief Emmanuel Roman - Telegraph

And to think the biggest crisis of the last 10-years before the credit crunch was one Hedge Fund (LTCM) going belly-up. Now we face 2400 of them meeting this fate!

You won't like Peston's latest article if you hold (or earn) Sterling or Won.......

Now there are runs on countries
Robert Peston 23 Oct 08, 10:11 AM The sickness afflicting the global financial economy has entered a new and worrying phase.

It started last summer with the closing down of big chunks of the wholesale money and securities markets.

Then we saw a succession of crises at individual banks, as institutional providers of funds withdrew their cash from banks they perceived as weak (culminating here in the nationalisations of Northern Rock and Bradford & Bingley, and the rescue takeover of HBOS).

In September the entire banking system was on the brink of total meltdown, because of semi-rational fears that almost no bank was safe from collapse.

And now we're seeing a massive flight of capital out of economies perceived to have been living beyond their means - either because they have a substantial reliance on foreign borrowings, or because they are net importers of good and services, or both.

Commercial lenders to these economies - banks, hedge funds, mutual funds and so on - want their money back now. That's driving down their currencies, pushing up the cost of borrowing for their respective governments and undermining the strength of their respective banking systems.

So they need financial help to tide them over - and with the global economy slowing down, those economies perceived as lacking the resources to cope on their own may need support for months and years.

Queuing up for the intensive care ward are Iceland, Hungary, Pakistan, Ukraine and Belarus, all of which are in discussions about accessing special loans from the International Monetary Fund, the emergency medical service for the global economy.

But there has also been a substantial withdrawal of capital from South Africa, Argentina and - most worrying of all - South Korea.

Let's put this into some kind of context.

The annual economic output of Pakistan, Hungary and Ukraine is something over $100bn each - which is not trivial but does not put them near the top of the rankings in terms of the size of their GDP.

However, the output of Argentina is well over $200bn and that of South Korea is around $900bn. In fact, South Korea is the 13th biggest economy in the world.

If you add together the GDPs of all the economies currently diagnosed with toxic BO by international investors you arrive at a sum that's not far off the economic output of the UK.

And the sums of debt involved are also fairly substantial. Hungary has external debt of more than $100bn, Ukraine has foreign borrowings of $50bn, while Pakistan's dependence on overseas funding is nudging $40bn.

As for South Korea, which hasn't requested formal help from the IMF, its foreign debt is nearer $200bn.

Now you may think this is all about remote countries, with no relevance to you. Well, that would be wrong. We're all connected.

It's been very fashionable for pension funds to invest in developing economies in recent years. If you're saving for a pension, you may own a chunk of South Korea or Argentina.

If you're very unlucky, your pension fund may have belatedly put some of your cash into one of the many hedge funds being royally mullered by the way they borrowed vast sums to invest in some of these emerging economies.

And of course the woes of these economies reduce their ability to purchase from abroad, which acts as a further serious drag on global economic growth.

Also the UK is being buffeted directly by international investors' re-awakened distaste for economies perceived to be too dependent on foreign capital or credit from institutions and companies.

What's happening to South Korea - where its currency, the won, has fallen 29% in the past three months, and shares have fallen well over 20% in a week - is particularly worrying for us.

South Korea is a great manufacturing and exporting nation. Its balance of trade is vastly healthier than the UK's.

But like the UK, South Korea's banks are dependent on wholesale funds that are being withdrawn because of fears that those banks face losses on imprudent deals (not lending to homeowners, as is the case in the UK, but currency hedges with local companies - see my note "Crisis is business as normal").

Of course, our banks - and South Korea's - are being shored up by massive financial support from taxpayers.

But if investors no longer think the UK's banks are at risk of collapse, they then look at our other vulnerabilities - such as public sector borrowing which is rising very sharply because of the costs of the bank rescues, dwindling tax revenues and the need to spend our way through the economic downturn.

They also look at our structural trade deficit and our huge reliance on financial flows generated by a City of London and a financial services industry that's shrinking fast.

As I've pointed out in a tediously repetitive way, the sum of all we've borrowed - the aggregate of corporate, personal and public sector debt - is equivalent to three times our annual economic output.

That's a vast amount of debt to repay - and it's all the harder to do so at a time when our most successful industry, financial services, is in some difficulty and the global economy is slowing down.

If international investors fear our credit isn't what it was and are selling pounds, we should hardly be surprised.

Source:

BBC NEWS | The Reporters | Robert Peston

The American sub-prime mortgage market plunged deeper into crisis during the third quarter as US foreclosure filings rocketed by 71 per cent to hit their highest number on record.

Figures released by RealtyTrac, the California-based data service, today showed 765,558 US properties received a default notice, warning their owners of a pending auction of their home or foreclosure in the three months to September.

As the number of people losing their homes rose, it emerged that the US Government is considering putting together a $40 billion (£24.7 billion) proposal to help prevent foreclosures.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), has suggested that the Government turns mortgages in danger of defaulting into affordable loans to help struggling homeowners.

She told Congress today: "Loan guarantees could be used as an incentive for servicers to modify loans. By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”

Ms Bair added that the FDIC is working “closely and creatively; with the Treasury Department on such a plan."

The proposal for a new fiscal scheme helped push Wall Street shares higher, with the Dow Jones industrial average up 183.83 points by midday in New York after a fall of 5.6 per cent yesterday as companies released a series of disappointing results.

Data on foreclosures during the third quarter revealed a 71 per cent rise on the same three months of last year but just a 3 per cent increase on the previous quarter as laws introduced by states to slow repossessions began to take effect.

The new law also helped reduce foreclosures from August to September, which fell by 265,968 over the past month. In California, rules requiring lenders to make contact with borrowers at least 30 days before filing a Notice of Default (NOD), meant that foreclosures fell by more than half, or 51 per cent, in the region.

US mulls new bailout amid rising mortgage defaults - Times Online

Its reaching an unstoppable demise. Where is your cash?

.

So much for that story. A few days ago, when Hank Paulson called the heads of the nine families to Washington and shoved cash down their throats, he announced that the banks would use this new taxpayer cash to lend. They won't, of course. They'll hoard it like a starving family who has just been given a grocery cart full of food. And after a few days of silence, even the banks are finally admitting that. So it's back to the drawing board for Paulson & Co.

Next steps? Find a way to force the banks to write their assets down to nuclear winter levels, so 1) private investors don't have to worry about getting sandbagged and therefore invest more in the banks, and 2) the banks know they won't be forced to take more multi-billion dollar losses. Only then will the banks begin to lend again. And at that point, the only challenge will be finding people and companies to lend to, in an economy headed straight into the tank.)

NYT: , John Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.

“We will have the opportunity to redeploy that,” Mr. Thain said of the new capital on a telephone call with analysts. “But at least for the next quarter, it’s just going to be a cushion."...

“I don’t think that the market wants to see that capital being put to work to leverage the business up again,” said Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month. “My expectation is it’s quarters off, not months off, before you see that capital being put to work.”...

Jamie Dimon, the chairman and chief executive of JPMorgan, said his bank was in a stronger position to use the money than some of its competitors.

“It’s clear that the government would like us to use the capital,” Mr. Dimon said on a conference call with analysts on Wednesday. “If you are a bank that is filling a hole, you obviously can’t do that.”

Who is "a bank that is filling a hole"? Seven of the nine that just got taxpayer money.

See Also:
Sorry, Hank, Bailout Isn't Working

This is from:

Banks Admit Bailout Won't Work

And you still think your 'money' is safe?

American International Group (AIG), the struggling insurer, has already used up three quarters of a $123 billion (£78 billion) rescue loan from the US Government and has given warning that the bailout may not be enough to save it.

The Government swooped in to rescue AIG from meltdown last month by extending to it an $85 billion loan, in exchange for a 79.9 per cent stake in the group. On October 8, the Government authorised a second cash infusion, this time of $37.8 billion, as it emerged that AIG had spent most of the first loan.

AIG had borrowed $90.3 billion from the Fed's credit line as of Thursday night, with much of it being used to honour payouts on insurance contracts relating to defaulted debts.

Edward Liddy, AIG's chief executive, said that whether the government bailout succeeded in its aim was “very much a function of two things: one, our ability to stop the bleeding that we have in the financial products areas ... [and] what happens to the capital markets”.

However, Mr Liddy added that, on balance, he was optimistic about AIG's prospects: “Some of the moves that the Federal Reserve has put in place over the last couple of weeks since our rescue ... seem to be working, they seem to be lubricating the markets, and I think we should be OK.”

Details of how much of its loans AIG has spent emerged two days after it agreed to freeze any compensation payments that had been due to Martin Sullivan, its British-born former chief executive, whose contract calls for $19million plus other benefits.

AIG has also agreed with Andrew Cuomo, the New York attorney-general, to freeze the $600 million deferred payment and bonus pot of its financial products unit. Mr Cuomo said this week: “The American taxpayer is now supporting AIG, making the preservation of these taxpayer funds a vital obligation.” The financial products unit was “largely responsible for AIG's collapse”, he said.

From:

US taxpayers may have to dig deeper for AIG - Times Online

Its one big black hole.

The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.

By Ambrose Evans-Pritchard
Last Updated: 9:17PM BST 25 Oct 2008

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.

Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world.

Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire.

Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon.

Romania raised its overnight lending to 900pc to stem capital flight, recalling the near-crazed gestures by Scandinavia’s central banks in the final days of the 1992 ERM crisis – political moves that turned the Nordic banking crisis into a disaster.

Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.

The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

Traders are paying close attention as contagion moves from the periphery of the eurozone into the core. They are tracking the yield spreads between Italian and German 10-year bonds, the stress barometer of monetary union.

The spreads reached a post-EMU high of 93 last week. Nobody knows where the snapping point is, but anything above 100 would be viewed as a red alarm. The market took careful note on Friday that Portugal’s biggest banks, Millenium, BPI, and Banco Espirito Santo are preparing to take up the state’s emergency credit guarantees.

Hans Redeker, currency chief at BNP Paribas, says there is an imminent danger that East Europe’s currency pegs will be smashed unless the EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.

“The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states.

The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined. Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates. Didn’t they tell you?

From:

Europe on the brink of currency crisis meltdown - Telegraph

The next stage of the collapse - looks like the European banking collapse could follow the US....

German politicians were fast to blame "Anglo-Saxon" excesses for the financial crisis but the country's own banks, particularly state-owned lenders, have been anything but risk-averse.

Figures this week from the Bank of International Settlements showed that German banks were by far the most enthusiastic when it came to lending money to Iceland, the Nordic island state teetering on the brink of financial collapse.

Iceland owed banks in Europe's biggest economy over $21 billion (€16.5 billion), almost a third of the island's total liabilities and far more than any other country, data from the central banking body showed.

"This was a very surprisingly high number ... Iceland only has around 300,000 inhabitants, the same as a town like Wuppertal," said Konrad Becker, banking analyst at the private Merck Finck bank. "And no one is going to lend Wuppertal $21 billion.

"German banks, even state-owned ones, were not examples of a prudent, conservative way of banking," Becker told AFP.

The North Atlantic island has been hit hard by the financial crisis, with its government forced to nationalise its three largest banks and seek emergency bailouts from other countries and from the International Monetary Fund.

Germany's loans to Iceland were five times higher than those of banks in Britain, with regional German bank BayernLB's liabilities alone exceeding those of all Italy's main banks combined, according to the Handelsblatt daily.

The figures are from June, but it is unlikely that banks would have been able to reduce significantly their exposure before the financial crisis snowballed in mid-September, analysts said.

And it is not just Iceland. The data also showed that German banks have also been at the forefront of investing in other European countries offering high returns - and high risks - most notably in Ireland and Spain.

Ireland last month became the first eurozone member to be in recession after years of breakneck growth, while the collapse of Spain's once-booming property market has left many investors with their fingers badly burnt.

German banks have not yet given much detail but if the regional lender BayernLB is any guide - it has written off as worthless €800 million in loans to Iceland - this is going to add considerably to the pain already being felt in other areas.

BayernLB, one of Germany's Landesbanks, this week became the first lender to seek help from the government's €480-billion financial rescue package. Hamburg-based HSH Nordbank has since followed suit, and West LB is expected to take up the offer next week.

It is these state-owned lenders that are expected to be at the front of the queue for further bailouts, not private banks like Deutsche Bank or Commerzbank.

Meanwhile, the German finance minister turned up the heat on banks unwilling to take up the government offer. Peer Steinbrück criticized as "irresponsible" their reluctance to take the aid and see the banks fail instead.

"I would consider it irresponsible if a bank board were not to accept the protection offer and deliberately put up with a collapse of their institutions instead," he told Bild am Sonntag newspaper.

From:

Iceland creates banking pain in told-you-so Germany - The Local

Butterfly - please ignore this article as you believe that Iceland just had one branch (in the UK) of one its banks go bust, so clearly what you see here is not real.

Russia begins to refuse credit cards in worsening global financial crisis

Russian businesses have begun to refuse credit cards as the global financial crisis worsens.


Several Moscow city centre restaurants are now refusing to accept cards in a move not seen since Russia's last financial crisis almost a decade ago.

Some automated teller machines at Sberbank, the country's biggest state-owned bank, have also stopped accepting cards from other banks.

Several electronics and mobile phone stores said they no longer accepted credit card purchases.

Over the weekend, Aeroflot, the biggest Russian airline, announced it had stopped taking credit cards payments for flights except from a handful of banks

Continued here:

Russia begins to refuse credit cards in worsening global financial crisis - Telegraph

Ho, hum, I'm getting a bit too good at this predicting thingy...

Austria cancels its bond offering

By David Oakley
Published: October 27 2008 19:21 | Last updated: October 27 2008 19:21


Austria, one of Europe’s stronger economies, cancelled a bond auction on Monday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis.

The difficulties of Austria, which has a triple A credit rating, highlights the extent of the deterioration, which saw benchmark indicators of credit risk such as the iTraxx index hit fresh record wides yesterday.



Austria is the third European country to cancel a bond offering in recent weeks amid growing worries over its exposure to beleaguered eastern European economies such as Hungary.

Hungary, which has been forced to turn to the International Monetary Fund to shore up its crisis-hit economy, also scrapped an auction for short-term government bills after only attracting Ft5bn ($22.5m) in a Ft40bn offering.

From:

FT.com / Capital markets - Austria cancels its bond offering

Personally, I think that Austria is more credit worthy that the USA. Oh, hang on a bit...

From:

Bank of England|Publications|News|2008|Rebuilding Confidence in the Financial System, 28 October 2008

GM today announced a third-quarter loss of $4.2 billion (adjusted, $2.5 billion reported) on revenues of $37 billion while spending $6.9 billion of their lifeblood-like cash on hand. Although initially we thought the big news here was a cash spend of $2.3 billion per month, compared to around $1.1 billion a month in the previous quarter, but the real story is that GM basically acknowledged what we said first last month that bankruptcy is imminent (and we might add, were laughed at by some members of the auto intelligentsia for it) — as close as the end of the year if GM doesn't receive help.

Why is the cash burn rate so important? GM isn't exactly cash rich and needs to have at least $10 billion to operate and currently has around $15.8 billion on hand. This means that if the current trend continues the company will be unable to operate in approximately three months, meaning that they'll have to declare bankruptcy as we previously outlined. GM itself basically admits this themselves saying:

"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing."

To summarize: give us some money or we're going to go bankrupt and the economy will have to grapple with the horror of hundreds of thousands of unemployed workers. Announcement from General Motors below.

From:

Gm: GM Declares Bankruptcy Imminent After $4.2 Billion Third Quarter Loss