This diary is a follow up (as the title suggests). At the end of August, I 'heard' that something dramatic would be happening in the economy at the first of September. Turns out they were right. So I decided to take notes. In the earlier diary (and this one), if you look to the comments, you will see a list of what economist Biriyni called - "too much news":
"Everyone's waiting for the other shoe to drop. It's like we've got a centipede with a hundred shoes."
It seems like eons ago, and yet by avoiding all the earlier signs in the financial system, everything was forced to happen more quickly than it would have needed to be, hence a crisis. Compression of time. Anyway, what follows is macro-econ updates 2.0.
European Leaders Pledge Support for Banks Facing Crisis
Here's my best to transcribe the EU leadership's crisis response. French President Sarkozy is currently president of the European Union.
Sarkozy: Ladies and Gents, What we have decided to do...
These are the decisions we were led to make:
Firstly, We have decided to sign on to a formal commitment of the heads of states and government to support the banking and financial system given this crisis. Each of the governments will act with its own methods and means, but in a coordinated fashion with other European states. We've laid out a kind of 'doctrine', as it were.
Secondly, in case of public support of a troubled bank, each member state present at his meeting will ensure that the executives that failed will be punished, and appropriate measures will be taken to support the troubled bank.
Thirdly, given the exceptional, unusual economic and financial circumstances, the commission must be flexible in applying corporate aid [with regard to] the stated regimes and the principles of the single markets. It must take decisions as quickly as possible given the state of emergency we are facing.
Fourthly, In the same way, the stability and growth pact must reflect the exceptional circumstances we are facing. And this is contained within the stability and growth pact itself.
Fifthly, to ensure that European banks are on equal footing with foreign competitors, the heads of state and government request that accounting rules and the classification of assets on bank balance sheets be changed in order to take into consideration the length that these [toxic] assets are held on the balance sheets. Accounting standards organizations and financial regulators must work together to ensure that this issue is resolved by the end of the month.
We also took a medium-term view, calling for an international financial summit to be held as quickly as possible, to be held with those states who are most effected by the 'refoundation' of the international financial system. This 'refounding' of the financial system will be based on the following principles:
- All players in the international financial markets must be regulated and supervised, not just commercial banks. In practice that means credit rating agencies, investment banks and hedge funds
- Prudential rules must be revised in order to prevent speculative bubbles when things are going well and liquidity crises, as we are experiencing, when things are going worse.
- Executive compensation must be reworked to ensure that compensation doesn't lead to undue risk and a purely short-term outlook.
- Strengthening of supervision and regulation must include establishing of accounting and prudential rules that are coordinated as a whole. In addition, in times a crisis a task force that can be created between supervisers, central banks, and finance ministers.
We applaud the decisions taken in the United States with the congressional approval of the financial plan which contibutes to stability and confidence.
Ladies and gentlemen we understand the seriousness of the tasks we must shoulder. We feel this meeting was necessary and productive. I now yield the floor to German chancellor Angela Merkel...
I wan to briefly comment on his point number five (fifthly). This is essentially referring to the 'mark-to-market' concept. 'Marked-to market' sounds like it would give a sense of clarity to the system - but I believe it is a machiavelian title. What it does is create a false market - kind of the opposite of a bubble : lead ballon - that is led by what the hedgers say, since they are the only market for the toxics. Hedgers are not buying the toxic paper, they are pricing it.
If we know we won't be selling the toxic paper for a year or more, what good does it do anybody to keep having to slash their balance sheets to mark to a daily market that does not exist. If we know there is no market, isn't it prudent to allow those willing to hang onto the toxics until we are on the other side of this crisis, to simply hold them till we are out of the woods. Remember, these institutions also hold people's pensions and life savings. If they have to slash down to a non-existent market, the pensions and savings will also be effected.
Additionally, I want to call attention to Sarkozy's double mention of the 'refounding' of the financial system aka - the new system.
If you can, watch the video for more of the meeting. Here is Rawstory's reporting on the meeting.
German Chancellor Angela Merkel spelled out that European states must "take their responsibilities at a national level" for the banking crisis, while being careful not to harm other European states.
Jean-Claude Juncker, Luxembourg premier and eurozone group head, said Saturday after a mini-summit of European economic powers that the stability pact laying down regulations for economies which use the euro must be "respected" despite the international financial crisis.
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German Government to Fully Guarantee Private Accounts
Oct. 5 (Bloomberg) -- The German government offered to fully guarantee personal savings accounts in a bid to ease concerns about the stability of the nation's banking system amid the global credit crunch.
``Finance Minister Peer Steinbrueck said today that people in Germany will not lose a single euro of their savings because of this crisis, and that statement applies as of today,'' said his chief spokesman, Torsten Albig, in a telephone interview from Berlin.
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U.K. Chancellor Doesn't Rule Out Further Help for Failing Banks
Oct. 5 (Bloomberg) -- The U.K. is ready to offer further support to banks that may get into financial difficulty, and does not rule out a further injection of capital for failing institutions, Chancellor of the Exchequer Alistair Darling said.
``We are ready to do whatever it takes, and that is we've put money in to help banks generally,'' Darling told the British Broadcasting Corp.'s Sunday AM program today. ``There are other measures we will be taking too, and I will announce them when we are ready to do that.'' He rejected a call to write to the Bank of England to suggest a change to the 5 percent interest rate.
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Iceland in Talks, Won't Comment on Reported $14 Billion Bailout
Oct. 5 (Bloomberg) -- Iceland's central bank said it's in international talks to stem the financial crisis that forced the bailout of Glitnir Bank hf and a run on the currency.
``There is ongoing dialogue, as there has been for several months, with our colleagues abroad,'' Tryggvi Palsson, director of financial stability at the central bank in Reykjavik, said in a telephone interview today.
Britain's Sunday Telegraph reported today that Icelandic authorities may be about to announce a 10 billion-euro ($14 billion) package of liquidity lifelines from Nordic central banks and repatriated assets from local pension funds. Palsson declined to comment on the report.
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EU Leaders Vow to Boost Confidence
At an emergency meeting in Paris on Saturday, the leaders of France, Germany, U.K. and Italy said that, unlike in the U.S. where Lehman Brothers was allowed to file for bankruptcy, European governments would stand in to prevent any bank from failing.
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Europeans scramble to save failing banks
STOCKHOLM, Sweden (AP) - Governments across Europe scrambled to save failing banks on Sunday, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and coordinated response to the global meltdown
British treasury chief Alistair Darling said that he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country in weather the credit crunch.
Darling told the BBC that the government, which has provided billions of pounds (dollars) in support to the banking sector, that it was "important to take generalized action as well as being ready to take particular action if you get a particular problem with an individual bank."
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A Look At Wall Street's Shadow Market
"You can't model human behavior with math."
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Interestingly, John Mccain's candidacy has been charted to reflect the news and events of the financial crisis. It's what you might call a wide, upsidedown 'V' aka - nosedive.
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The cover of the Economist sums it up in two words.
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For some added fun, here are some comic visuals of the state we find ourselves in. In case laughing makes it less painful.
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Hattip to BlueBeaumontBoyz for their extensive list of failed American banks.
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UPDATE: OMG! I can't believe I am only finding this site now: Bloomberg US TV Clips Man, has that been there all along?! Go check it out - They've got everyone on.