Angry Citi investors to unveil new court complaint

NEW YORK - After Citigroup shares tumbled last year on the bank's subprime mortgage woes, angry investors sued for fraud.

Now, stockholders are due to file a new version of their lawsuit as their losses have become much more stark.

A lot has changed for the worse for Citigroup stockholders since the lawsuit about its subprime debt exposure was first brought in November 2007. The bank's shares are trading at around US$6 apiece compared with US$31 a year ago - even after two government bailouts in the last two months.

The US government this week agreed to inject US$20 billion of capital and shoulder nearly US$250 billion in potential losses on about US$306 billion of the bank's risky assets - after injecting US$25 billion of taxpayer money in October.

A consolidated shareholder complaint in the case is scheduled to be filed in US District Court in Manhattan by Monday. An earlier version accused Citigroup and several individuals, including former CEO Charles Prince, of violating securities law by artificially boosting the bank's stock price by concealing its exposure to subprime-linked debt.

Citigroup believes the lawsuit 'is without merit, and will defend against it vigorously,' company spokesman Mike Hanretta said on Tuesday.

The lawsuit, which seeks class-action status on behalf of a large group of stockholders, could be among the biggest subprime-related cases moving through US courts, given Citigroup's huge stock market declines.

The company was once the biggest US financial institution based on stock market value, but shares have plummeted and are down 54 per cent this month alone. Shareholder lawsuits can take years to litigate, and many are ultimately thrown out by courts or settled.

The lead plaintiff is a group of former employees and directors at closely held Automated Trading Desk (ATD) who received Citigroup stock in exchange for selling their electronic trading firm to the bank in a US$680 million deal announced in July 2007.

Through that deal, group members acquired more than 3.9 million Citigroup shares, which were valued at about US$52 a piece at the time the buyout was being negotiated, according to a January court filing from the ATD plaintiffs.

The group said its members had suffered losses of about US$76.8 million as of January, a figure that is much higher now given Citigroup's stock declines this year.

A lawyer for the shareholders, Ira Press of law firm Kirby McInerney LLP in New York, declined to comment about the specifics of the new court complaint, saying it is still being drafted.
'If last week is any indication, the story may still be unfolding,' he said. 'We are obviously continuously monitoring the unfolding events.'

The original lawsuit was filed by an individual investor. Other shareholders have competed to become lead plaintiff, a role that allows investors to help set strategy in litigation and play a role in any possible settlement talks.

US District Judge Sidney Stein, who is overseeing the case, appointed the ATD Group as the lead plaintiff in August.

The End--

Recession’s Grip Forces U.S. to Flood World With More Dollars

news retrieve from Bloomberg (date: 25 Nov. 2008)

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The world needs more dollars. The United States is preparing to provide them.

In an all-out assault on capitalism’s worst crisis since the Great Depression, the U.S. is taking on the role of both lender and borrower of last resort for the global economy.

The Federal Reserve, which has already pumped out hundreds of billions of dollars, might formally adopt a policy of flooding the world financial system with even more money. The Treasury, on course to borrow some $1.5 trillion this fiscal year, may tap global capital markets for even more to finance a fiscal stimulus package of as much as $700 billion and provide additional bailout money for banks.

“You want to do everything you can when you’re facing the threat of a deflationary breakdown of the economy,” says Michael Feroli, a former Fed official who is now an economist at JPMorgan Chase & Co. in New York. He sees the central bank cutting the overnight lending rate to zero in January and holding it there throughout the year.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are being forced to pull out the stops because the extraordinary actions they’ve taken so far have failed to gain much traction. Credit markets are collapsing, stock prices are plunging and the world economy is sinking into a recession.

As the economy deteriorates, deflation -- a sustained decline in wages and prices -- is emerging as a new threat. U.S. government figures last week showed that consumer prices excluding food and fuel costs fell in October for the first time since 1982.

Shell-Shocked

Investors, shell-shocked by the turmoil, are piling into super-safe Treasury securities, even as the U.S. government ships more supply out the door. Three-month bill rates dropped last week to 0.01 percent, the lowest since at least January 1940, and yields on Treasuries maturing in two through 30 years all fell to the least since the government began regular sales of the securities.

And the dollar has risen as loss-ridden banks worldwide husband their resources, even after receiving generous dollops of liquidity from the Fed. The U.S. currency has surged about 17 percent against the euro -- signaling demand for still more dollars -- in the two months since the crisis deepened after the failure of Lehman Brothers Holdings Inc. Meanwhile, gold is down almost 25 percent from its peak in March.

Swap Lines

To help fight the worldwide dollar squeeze, the Fed has set up currency swap lines with more than a dozen other central banks. Some arrangements, including those with Europe, Britain and Japan, are open-ended, allowing the Fed’s counterparts to draw as many dollars as they need. The U.S. has also established individual $30 billion swap lines with Brazil, Mexico, South Korea and Singapore.

In a speech to a banking conference on Nov. 14, Bernanke characterized these efforts as an “internationally coordinated approach” among central banks to fulfill their function as lenders of last resort.

As the Fed has stepped up its efforts to combat the credit crisis, its balance sheet has mushroomed. Assets rose to $2.2 trillion on Nov. 19 from $924 billion on Sept. 10, just before the bankruptcy of Lehman Brothers shook the global financial system.

The central bank’s holdings are likely to increase further. “I would not be surprised to see them aggregate to $3 trillion -- roughly 20 percent of GDP -- by the time we ring in the new year,” Dallas Fed President Richard Fisher told the Texas Cattle Feeders Association on Nov. 4.

Only the Start

That may be only the start if the Fed cuts its benchmark rate, now at 1 percent, to zero and adopts what economists call a policy of “quantitative easing.” Under such a strategy, it would concentrate on expanding the amount of reserves in the banking system because it could no longer reduce the cost of that money.

The Bank of Japan followed this policy in the early part of the decade as it struggled to rescue the world’s second-largest economy from the grip of deflation. Its balance sheet eventually rose to the equivalent of about 30 percent of gross domestic product, says Tom Gallagher, head of policy research for International Strategy and Investment Group in Washington.

“The Fed could blow through the BOJ’s ceiling,” he adds - - ballooning the central bank’s holdings to more than $4 trillion.

The Treasury is also heading into uncharted territory as it taps capital markets for cash to help finance its bailout fund for the banking system and plug holes in the federal budget caused by the weak economy.

Money From Abroad

Much of that money will come from abroad. “Foreigners don’t seem to be interested in any kind of risky U.S. asset,” says Brad Setser, a former Treasury official now at the Council on Foreign Relations in New York. So, “instead, they are buying Treasuries.” That includes China, which recently passed Japan as the biggest holder of Treasuries.

On Nov. 3, the department tripled its estimate of planned debt sales in the final three months of the year to a record $550 billion. Paulson told a conference in Washington Nov. 17 that the U.S. will issue some $1.5 trillion worth of Treasury securities in the fiscal year that began Oct. 1.

That number, too, could grow. Lawrence Summers, Treasury secretary under President Bill Clinton and an adviser to President-elect Barack Obama, told the same conference that the U.S. needs a “speedy, substantial and sustained” stimulus package to aid the economy.

More Government Spending

“Government may have to spend $600 billion to $700 billion next year to reverse the downward cycle,” Robert Reich, another Obama adviser and a professor at the University of California at Berkeley, wrote in his personal blog Nov. 9.

Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, and former chief economist at the International Monetary Fund, says the new administration will also have to ask Congress for more money to repair the financial system, over and above the $700 billion already authorized for Paulson’s Troubled Asset Relief Program.

“By the time all this ends, the TARP is going to be closer to $2 trillion than $1 trillion,” ISI’s Gallagher says.

Paulson has already committed $290 billion from the program to buy preferred shares in banks and troubled insurer American International Group Inc.

There’s always a danger the Fed and Treasury may go too far, setting the stage for a big rise in inflation or another asset bubble down the road as the economy revs up and investors get back their nerve. That’s what happened in the early part of the decade as ultra-easy Fed policy and Treasury tax cuts helped fuel a credit boom since gone bust.

Bernanke and Paulson might welcome a bit of that exuberance right now -- even at the risk of higher inflation later -- as they try to prevent the biggest credit catastrophe in decades from sending the economy into a deflationary nosedive.

“It’s true that, over the long run, too much money creates inflation,” says Lyle Gramley, a former Fed governor now at the Stanford Group Co. in Washington. “But they’re trying to keep the economy from going over the precipice and into the abyss.” 

Geithner Struggled to Get Movement on Swap Dangers

news retrieve from Bloomberg (Date: 25 Nov. 2008)

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Timothy Geithner was among the first policy makers to shine a light on the unregulated $47 trillion credit-default swap market back in 2005. The New York Federal Reserve president has struggled since then to get dealers to carry out reforms.

The industry has yet to launch a structure to safeguard against market-wide losses in case a dealer fails, though its leaders expect to get one off the ground by the end of the year. Geithner, selected yesterday by President-elect Barack Obama to be his Treasury secretary, has made clear that such a step is crucial to help contain the mushrooming credit crisis.

“In classic Tim and New York Fed style, the work has been done behind the scenes, among technocrats, largely by consensus,” said Adam Posen, a former Fed official who is now at the Peterson Institute for International Economics in Washington. “The downside is that it takes awhile to get consensus.”

Geithner may not have the luxury of time in his new job as he faces a credit crisis that has morphed into a global recession. As Obama’s chief economic spokesman, it will be up to Geithner to take the lead in quelling the turmoil in financial markets and turning the economy around.

A protégé of former Treasury Secretary and Citigroup Inc. director Robert E. Rubin, Geithner worked on the Asian financial crisis of 1997-1998 and helped stave off a Mexican default earlier that decade.

Bank Capital

In the current crisis, Geithner, 47, was the Fed’s point man in the rescues of Bear Stearns Cos. and American International Group Inc., and tried to stem market turmoil after the decision to allow Lehman Brothers Holdings Inc. to fail. In August, he put his staff to work figuring out how much capital major banks would need if the economy worsened, foreshadowing the steps Treasury Secretary Henry Paulson later took to invest some $125 billion in the country’s largest banks.

Geithner’s skills and limitations as a consensus-builder perhaps show up most clearly, though, in his handling of credit- default swaps, where he played a leading role in trying to make the market safer and more stable.

Trading in credit-default swaps, which were conceived to protect bondholders against default, exploded 100-fold the past decade as investors increasingly used them to speculate on creditworthiness. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrowers fail to adhere to their debt agreements.

Unregulated Market

The big problem Geithner faced in trying to get a handle on the market: It was unregulated, so he lacked authority to make changes on his own and had to depend on his powers of persuasion.

The New York Fed chief began pressing banks in September 2005 to reduce trading backlogs that could prove dangerous should a crisis hit. An average 17 days’ worth of unsigned trades had piled up on dealers’ books, threatening to undermine the market if a wave of defaults hit. A lax system for unwinding and reassigning trades left dealers at times unsure of who was on the other side of their trade.

It took dealers a while to respond. A year later, they had cut the backlog of unsigned trades by 70 percent and doubled the number of deals that were electronically processed.

“It was like herding cats,” said Brad Bailey, director of business development at Jersey City, New Jersey-based brokerage Knight Capital Group and a former derivatives trader, who praised Geithner for making the effort and getting results.

Absorb Losses

The New York Fed chief has run into similar problems in trying to get the industry to set up a central counterparty that would absorb losses on trades in the event a dealer went bust.

After the collapse of Lehman Brothers in September sent market participants scrambling to cover an estimated $2 trillion of trades, the New York Fed chief stepped up pressure on the dealers to act.

On Oct. 7, he summoned the dealers and fellow regulators to the New York Fed. This time, he included futures exchanges at the meeting -- Chicago-based CME Group Inc., Intercontinental Exchange Inc., NYSE Euronext and Frankfurt-based futures exchange Eurex -- in a bid to put competitive pressure on the dealers to come up with a satisfactory plan.

The strategy worked. After three meetings in two weeks, the dealer-owned Clearing Corp. agreed to be acquired by Intercontinental Exchange, one of the exchanges vying for a piece of the market. That paved the way for the launch of at least one clearinghouse by the end of the year.

‘Ahead of Game’

“The Fed can only be commended for being ahead of the game among regulators globally,” said Mark Yallop, chief operating officer of London-based ICAP Plc, the world’s biggest broker of trades between banks and a minority owner in Clearing Corp.

Not everyone agrees. Julian Mann, a mortgage- and asset- backed bond manager at First Pacific Advisors LLC in Los Angeles, criticized Geithner for not doing enough.

“He oversaw the massive expansion in the credit-default swaps market, which arguably is what is behind much of the crisis today,” said Mann, whose firm manages about $9 billion.

Vincent Reinhart, a former senior Fed official now at the American Enterprise Institute in Washington, said that Geithner was quick to recognize some of the problems with the swaps market, though it was tough for him to persuade the industry to carry out reforms while business was booming.

“It shows the limits of what he could do,” Reinhart said, referring to the fact that the market is unregulated. “He had to try to induce good behavior rather than command it.” 

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit.

news retrieved from Bloomberg (Date: 24 Nov. 2008)

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The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”

Too Big to Fail

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.

The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said.

‘Credit Risk’

The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer.

Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.

“No question there is some credit risk there,” Poole said.

Congressman Darrell Issa, a California Republican on the Oversight and Government Reform Committee, said risk is lurking in the programs that Poole thinks are safe.

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms.

Markets Down

The Dow Jones Industrial Average through Friday is down 38 percent since the beginning of the year and 43 percent from its peak on Oct. 9, 2007. The S&P 500 fell 45 percent from the beginning of the year through Friday and 49 percent from its peak on Oct. 9, 2007. The Nikkei 225 Index has fallen 46 percent from the beginning of the year through Friday and 57 percent from its most recent peak of 18,261.98 on July 9, 2007. Goldman Sachs Group Inc. is down 78 percent, to $53.31, on Friday from its peak of $247.92 on Oct. 31, 2007, and 75 percent this year.

Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy.

Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

‘They Got Snookered’

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.”

President Franklin D. Roosevelt’s New Deal of the 1930s, when almost 10,000 banks failed and there was no mechanism to bolster them with cash, is the only rival to the government’s current response. The savings and loan bailout of the 1990s cost $209.5 billion in inflation-adjusted numbers, of which $173 billion came from taxpayers, according to a July 1996 report by the U.S. General Accounting Office, now called the Government Accountability Office.

‘Worst Crisis’

The 1979 U.S. government bailout of Chrysler consisted of bond guarantees, adjusted for inflation, of $4.2 billion, according to a Heritage Foundation report.

The commitment of public money is appropriate to the peril, said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. and a former economist at the New York Fed. U.S. financial firms have taken writedowns and losses of $666.1 billion since the beginning of 2007, according to Bloomberg data.

“This is the worst capital markets crisis in modern history,” Harris said. “So you have the biggest intervention in modern history.”

Bloomberg has requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral.

Collateral is an asset pledged to a lender in the event a loan payment isn’t made.

‘That’s Counterproductive’

“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”

The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Corp. and a former research economist at the Federal Reserve Bank of Chicago.

“There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said.

Bernanke’s Fed is responsible for $4.74 trillion of pledges, or 61 percent of the total commitment of $7.76 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington. “The other areas are quite a bit larger.”

Fed Rescue Efforts

The Fed’s rescue attempts began last December with the creation of the Term Auction Facility to allow lending to dealers for collateral. After Bear Stearns’s collapse in March, the central bank started making direct loans to securities firms at the same discount rate it charges commercial banks, which take customer deposits.

In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion.

The failure of a second securities firm, Lehman Brothers Holdings Inc., in September, led to the creation of the Commercial Paper Funding Facility and the Money Market Investor Funding Facility, or MMIFF. The two programs, which have pledged $2.3 trillion, are designed to restore calm in the money markets, which deal in certificates of deposit, commercial paper and Treasury bills.

Lehman Failure

“Money markets seized up after Lehman failed,” said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker. “Lehman failing made a lot of subsequent actions necessary.”

The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.

Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 11.5 percent.

The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.

Federal Guarantees

Most of the federal guarantees reduce interest rates on loans to banks and securities firms, which would create a subsidy of at least $6.6 billion annually for the financial industry, according to data compiled by Bloomberg comparing rates charged by the Fed against market interest currently paid by banks.

Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.

Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac, a pledge that hasn’t been allocated to any agency. The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit.

Automakers Struggle

The tally doesn’t include money to General Motors Corp., Ford Motor Co. and Chrysler LLC. Obama has said he favors financial assistance to keep them from collapse.

Paulson told the House Financial Services Committee Nov. 18 that the $250 billion already allocated to banks through the TARP is an investment, not an expenditure.

“I think it would be extraordinarily unusual if the government did not get that money back and more,” Paulson said.

In his Nov. 18 testimony, Bernanke told the House Financial Services Committee that the central bank wouldn’t lose money.

“We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,” he said.

A haircut refers to the practice of lending less money than the collateral’s current market value.

Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.

‘Mark to Market’

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

Some of the bailout assistance could come from tax breaks in the future. The Treasury Department changed the tax code on Sept. 30 to allow banks to expand the deductions on the losses banks they were buying, according to Robert Willens, a former Lehman Brothers tax and accounting analyst who teaches at Columbia University Business School in New York.

Wells Fargo & Co., which is buying Charlotte, North Carolina-based Wachovia Corp., will be able to deduct $22 billion, Willens said. Adding in other banks, the code change will cost $29 billion, he said.

“The rule is now popularly known among tax lawyers as the ‘Wells Fargo Notice,’” Willens said.

The regulation was changed to make it easier for healthy banks to buy troubled ones, said Treasury Department spokesman Andrew DeSouza.

House Financial Services Committee Chairman Barney Frank said he was angry that banks used the money for acquisitions.

“The only purpose for this money is to lend,” said Frank, a Massachusetts Democrat. “It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions” or Congress may not approve the second half of the TARP money. 

George Soros and other hegde fund billionaires finally forced to answer some questions.

Geroge Soros the money behind the purchase of California law, such as Prop 215, the medical marijuana scam, and 36, the get out of jail free card, was forced to testify before the house oversight committee. Soros lost his most recent bid to legalize drugs in California, as Prop 5 went down in flames!

George Soros, Jim Simons, John Paulson, Philip Falcone, and Kenneth Griffin are sworn in. Photograph: Tim Sloane/AFP/Getty

America's top hedge fund managers staunchly defended the conduct of their secretive, high-risk industry yesterday and warned Congress that knee-jerk regulation could push financial jobs across the Atlantic to London.

In a rare day of public scrutiny, the billionaire bosses of five leading hedge funds appeared before the house oversight committee to answer charges that their unregulated bets on financial markets have destabilised the global economy.

George Soros, Kenneth Griffin, Philip Falcone, Jim Simons and John Paulson - who have an estimated combined wealth of $29bn (£20bn) - faced grilling over their low rate of tax and their funds' minimal level of transparency.

They expressed a willingness to disclose more information about their investments to the securities and exchange commission but insisted that any such data must remain shielded from the public gaze.

Griffin, whose Chicago-based Citadel Group manages more than $20bn, told lawmakers that public transparency would be "parallel to asking Coca-Cola to disclose their secret formula to the world".

The 40-year-old added that periods of regulatory uncertainty had undermined the US's competitiveness with Britain: "It breaks my heart when I go to Canary Wharf and I look at thousands and thousands of jobs in London in the derivatives market which belong in America."

The hearing, part of an investigation into oversight of hedge funds, became tense at times when the billionaires were quizzed about their personal wealth. Elijah Cummings, a Democratic congressman, said a neighbour had accosted him to ask: "How does it feel to go before five folks who've got more money than God?"

Cummings called on the witnesses to explain why their income is often taxed as capital gains at 15% - below the rate paid by a "schoolteacher or a plumber".

More here:

http://www.guardian.co.uk/business/2008/nov/14/useconomy-investmentfunds

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America's top hedge fund managers staunchly defended the conduct of their secretive, high-risk industry yesterday and warned Congress that knee-jerk regulation could push financial jobs across the Atlantic to London.

In a rare day of public scrutiny, the billionaire bosses of five leading hedge funds appeared before the house oversight committee to answer charges that their unregulated bets on financial markets have destabilised the global economy.

George Soros, Kenneth Griffin, Philip Falcone, Jim Simons and John Paulson - who have an estimated combined wealth of $29bn (£20bn) - faced grilling over their low rate of tax and their funds' minimal level of transparency.

They expressed a willingness to disclose more information about their investments to the securities and exchange commission but insisted that any such data must remain shielded from the public gaze.

Griffin, whose Chicago-based Citadel Group manages more than $20bn, told lawmakers that public transparency would be "parallel to asking Coca-Cola to disclose their secret formula to the world".

The 40-year-old added that periods of regulatory uncertainty had undermined the US's competitiveness with Britain: "It breaks my heart when I go to Canary Wharf and I look at thousands and thousands of jobs in London in the derivatives market which belong in America."

The hearing, part of an investigation into oversight of hedge funds, became tense at times when the billionaires were quizzed about their personal wealth. Elijah Cummings, a Democratic congressman, said a neighbour had accosted him to ask: "How does it feel to go before five folks who've got more money than God?"

Cummings called on the witnesses to explain why their income is often taxed as capital gains at 15% - below the rate paid by a "schoolteacher or a plumber".

Paulson, who personally scooped more than $3bn last year when his fund bet against sub-prime mortgages, said the comparison was unfair. "If one of your constituents, whether they're a plumber or a teacher, bought a stock and held that stock for more than a year, they would pay a long-term rate of capital gains tax."

Several times Soros broke ranks with his colleagues to adopt a more accommodating line. The Hungarian-born financier, who proposed the establishment of a not-for-profit credit-rating agency to scrutinise derivatives, said he would have no objection to paying a standard rate of tax on all his income: "I agree to it. I've no problem with it."

The 78-year-old, who is famed for betting against sterling on Black Wednesday in 1992, said he was open to greater oversight to ensure that banks and hedge funds do not use excessive leverage by borrowing too heavily on their assets.

Soros said the financial crisis had exposed flaws in the present regulatory approach: "The fact that Lehman Brothers was allowed to declare bankruptcy in a disorderly way really caused a genuine meltdown in the financial system - a cardiac arrest."

The hedge fund managers told Congress that they owed their profits during a downturn to hard work and detailed research that turned up evidence that US mortgages were overvalued. Simons said credit-rating agencies were the most culpable financial players in failing adequately to scrutinise mortgage-backed securities: "They allowed sows' ears to be sold as silk purses."

The witnesses remained unapologetic about the scale of their personal earnings, insisting that the hedge fund industry provides liquidity and "outside-the-box thinking" to the financial markets.

Falcone, who made millions by taking short positions in banks, said he was the youngest of nine children in a working-class Minnesota town, with a father who never earned more than $14,000 a year.

"I take great pride in my upbringing," said Falcone. "Not everyone who runs a hedge fund was born on Fifth Avenue - that is the beauty of America."

The men with "more money than God"

THEY are the five best paid hedge fund managers in the world. Between them, they earned US$12.6 billion ($19.10b) last year. This, at a time when the financial world was beginning to melt down.

r George Soros, Mr Kenneth Griffin, Mr Philip Falcone, Mr Jim Simons and Mr John Paulson were hauled before the US Congress yesterday and assailed over their huge salaries, their tax perks and their contribution to the credit crisis that has engulfed the globe.

The men, however, declared themselves innocent of causing the market meltdown, The Independent reported.

One Congressman, Democrat Elijah Cummings disagreed. He said: 'These five citizens have more money than God.'

Here are their stories...


George Soros, 78
Soros Fund Management
Paid last year: US$2.9 billion

Famed as 'the man who broke the Bank of England', after netting more than US$1 billion by betting the pound would fall out of the Exchange Rate Mechanism in 1992, Mr Soros has attacked unfettered free market capitalism as being at the root of today's crisis.

With an estimated current net worth of around US$9 billion, he isranked by Forbes as the 99th-richest person in the world.

In 1997, during the Asian financial crisis, then-Malaysian Prime Minister Mahathir Mohamad blamed Mr Soros for undermining South East Asian economies by destabilising their currencies, and famously called him a 'moron'.

But in 2006, Mr Mahathir Mohamad met Mr Soros and said he accepted the latter was not responsible for the 1997-98 Asian financial crisis.


Jim Simons, 70
Renaissance Technologies
Paid last year: US$2.9 billion

The world's most expensive hedge fund manager, he is considered a mathematical genius. He charges clients 5 per cent a year, plus a whopping 44 per cent of returns beyond a certain level. His fund runs 'black box' programmes that harvest tiny profits from millions of automated trades.

Renaissance's Medallion Fund - which uses computers and trading algorithms to invest in world markets - returned more than 50per cent in the first three quarters of last year.

For all of his achievement and material success, Mr Simons' life has been beset by the kind of tragedy that few parents can fathom - the death of not one but two of his five children in separate accidents.

In 1996, his son Paul, 34, was struck by a car and killed while riding a bicycle near Mr Simons' home in Long Island, New York.

In 2003, 24-year-old son Nick drowned while on a trip to Bali.


John Paulson, 52
Paulson & Company
Paid last year: US$3.7 billion

Having run an obscure fund for 14years, he last year made what rivals called 'the greatest hedge fund trade of all time'.

As a result, Mr Paulson traded up in the Hamptons, the upstate playground for New Yorkers, and bought a lakeside compound for US$41million.

The Financial Times says he is the one figure who correctly identified the growing bubble in the US housing market.

His best-performing credit fund was up almost 600 per cent last year. That, in turn, made him the highest-earning hedge fund manager, with pay of US$3.7 billion, according to Alpha magazine.

A sharp-suited New Yorker with a taste for luxurious homes and a penchant for quoting Winston Churchill, he lives in a 2,600 sq m five-storey townhouse on New York's Upper East Side built in 1916.


Philip Falcone, 47
Harbinger Capital Partners
Paid last year: US$1.7 billion

Born in Minnesota, he was the youngest of nine kids who grew up in a three-bedroom home in a working-class neighbourhood.

His father is a utility superintendent who never made more that US$14,000 a year, while his mother worked in the local shirt factory.

Mr Falcone went to Harvard where he received an AB in Economics in 1984. After college, he went on to pursue his first love, hockey, although an injury cut short a professional hockey career abroad.

He made his fortune trading junk bonds in the '80s. His firm was founded in 2001 and made another fortune last year betting against sub-prime mortgages. His two funds boasted 114 and 176 per cent returns in 2007.

Dubbed the Midas of Misery by BusinessWeek, he made tens of millions of dollars on an earlier wager that Bear Stearns and other financial stocks would collapse.



Ken Griffin, 40
Citadel Investment Group
Paid last year: US$1.5 billion

Last year, it looked as if he would become one of the world's biggest financial players after buying up many distressed funds, banks and brokers. Now he is fighting to save his fund after losing 35 per cent of it this year.

Mr Griffin began in 1987 by trading convertible bonds as a sophomore from his Cabot House dorm room at Harvard University with US$265,000 from his mother, grandmother and two other investors.

He lives in a penthouse in Chicago that he bought for US$6.9million in 2000.

In 1999, he bought Paul Cezanne's 'Curtain, Jug and Fruit Bowl' for US$60.5 million, the most ever paid for one of the French Impressionist artist's paintings.

He keeps a row of management- theory books on a credenza behind his desk, and he says he tries to emulate one of America's most celebrated business leaders, former General Electric Co. CEO Jack Welch.

http://newpaper.asia1.com.sg/news/story/0,4136,183692,00.html

经济迅速下滑或引发第二波金融海啸

11月15日《财经点对点》

曾瀞漪：欢迎收看《财经点对点》，我是曾瀞漪。

G20峰会怎化解全球经济危机？

曾瀞漪：金融海啸余波荡漾，共乘一条船的其中主要20个国家，这两天正在华盛顿召开国际金融峰会。G20国家现在要解决世界上很多的经济问题，但怎么样才能够尽快解决？还有现在又出现了哪些问题呢？我们今天请到的是经济学家谢国忠来帮我们做最新的分析，Andy，你好。

谢国忠：瀞漪，你好。

G20峰会正举行焦点众多 何者最迫切待解？

曾瀞漪：距离9月15号雷曼兄弟倒闭到现在整整两个月的时间，这些国家领袖们好不容易坐下来一块儿来商讨世界经济问题，但各个的问题或解决方法都是不一样的，从你的观点觉得怎么样才是最应该解决的，哪些问题是最应该的解决呢？

两个月前：政府出钱稳定银行现已基本达到

谢国忠：像两个月前的话，就是最重要的挑战是稳定银行，因为大家对银行失去信心，认为银行也可能会破产，所以引起了混乱，现在主要的国家出了很多钱，2万多亿美金来稳定银行体系，现在这个目的基本是达到了。

当前：经济迅速下滑或引发第二波金融海啸

谢国忠：现在主要的挑战是经济的快速下滑，就是世界经济出现了史无前例的萎缩，如果这个萎缩这样继续下去的话，出现第二次金融风暴的可能性都有。

应对经济下滑需靠财政刺激稳定经济

谢国忠：所以我觉得需要通过财政刺激，赶快把经济稳住。

“国际金融新秩序”务虚维稳经济为要务

谢国忠：现在有很多人认为就是开这个会的目的，就是要提新的世界金融秩序等等，这些都是一个比较虚的东西，因为这么大的一个金融危机出现以后，下一个危机是十几年以后的事，所以改革是有足够的时间。现在主要的任务应该是稳定经济，所以看看是不是他们能够达到共识。

困难：欧不愿刺激基础美面临政府轮替

谢国忠：现在有很多困难，一个是欧洲政府不愿意刺激经济，第二个是美国政府在换届。

G20金融峰会要取得成效难度大

谢国忠：在欧洲跟美国有这么大的困难的情况下，我觉得这个会议要达到真正、有效的一个成果的话，还是不容易的。

各国纷纷刺激经济但股市为何持续下跌？

曾瀞漪：虽然说欧美各有不同的政治或经济现况，但是我们看到这一段时间以来，各个国家有很多的刺激市场的方法，譬如说减息快要零利率了，然后比如说用外汇储备入市救市等等，那么为什么现在全球的股市还是不断的下跌呢？

世界经济迅速萎缩股市现恐慌

谢国忠：是，股市的下跌是因为股市看到了经济在萎缩，美国经济第三季度是0.3%，按每年0.3%的速度在萎缩，其实我觉得这个修正以后的话，可能萎缩的速度会更快，以4个百分点的速度在萎缩，也可能更高都有可能。

公司盈利下跌大股市失去支撑

谢国忠：英国、澳洲都会有这样幅度的下降，这是历史上从来没有过的，所以股市是非常恐惧的，股市看到盈利的下降，是一眨眼公司盈利都没了。10月份美国的很多零售商、百货店都预警说是销售下降10个百分点，这个是一般的正常的情况下，看到的一个变化的10 倍，所以因为有这样的一个不确定因素，所以股市觉得就是这个盈利的变化还有下降是没底的，所以为什么股市就没有支撑了。

信心确实与担忧经济前景影响股市

曾瀞漪：是，有些国家进行减息了，或者是有财政措施出来，今天股市上涨，结果第二天股市就下跌。

谢国忠：对。

曾瀞漪：所以终究还是个信心，经济前景的大的问题。

资产缩水银行不愿借贷减息无短期效应

谢国忠：对，既然减息没有短期的效应，其原因是减息的话，是鼓励大家去借钱，银行贷款贷出去，然后就是家庭跟公司愿意借钱，但这个现在都不存在，其主要原因是因为就是资产缩水，全世界资产缩水50万亿美金，在这样的情况下，让大家都去借钱，这个不太现实。现在银行也不愿意贷，因为现在公司的盈利不好，家庭的资产缩水，所以贷出去也不安全。

唯一方法：政府借钱推行财政刺激

谢国忠：所以银行都想贷更政府，现在其实只有一条路，就是政府借钱做财政刺激，这样的钱才能够转到经济体里面，让经济能稳住，我觉得需要除了财政刺激的话，可能没有第二条路可以走了。

美国救市如何动用财政刺激？

曾瀞漪：财政刺激我们现在看到，美国在救市的过程当中，好像还没有大力去用这个部分，我们看到最重要的这个礼拜三，美国财长保尔森改变了他们7000亿元的救市计划，把这个主要是放在消费、金融这几个部分，可能比较受到更多挑战的部分，那么这个代表什么样的意义呢？美国的财政刺激的方式？

美今年初一千六百亿财政刺激现计划动用三千亿

谢国忠：美国的财政刺激未来，上一次财政刺激是就是年初的时候，做的是1600亿，现在在谈的是3000亿，有可能分两次做。

美政府有意财政刺激但有时间的不确定因素

谢国忠：但是不是布什愿意支持这样一个方案，还是如果他支持的话，就是民主党是愿意通过这样的法案的；如果他不支持的话，就要等到新的总统上任，那是再要等两个月了。所以这个是美国有意要做的，但是时间上是现在有不确定的因素。

原七千亿用于稳定金融特体系非刺激经济

谢国忠：至于说它7000亿原来拯救的方案，主要是为了稳定金融体系，并没有谈到刺激经济，但现在议会是要求他用这个钱去救汽车行业，因为汽车行业可能熬不过年底了。

美议会施压财长动用七千亿部分救汽车业

谢国忠：它那个现金流，它现金流出非常多，可能到年底资金链就要断了，就破产了，所以现在议会对财长有压力，让他们这个钱去救汽车这个行业。

美汽车业若出问题对亚洲经济影响？

曾瀞漪：保尔森他们有明言说，这个转换的计划是不是要救汽车业，但是跟信贷也都是有关系的，对汽车业也会有些帮助的。美国的汽车业现在看起来政府即便支持的话，可能力度不像汽车业所支持那么的多，美国汽车业如果真的出问题，对亚洲国家来说，会有些影响吗？

美汽车业大量债务及衍生产品遍布世界

谢国忠：它主要是债的规模很大，债的后面有很多衍生产品，我们现在看到就是说一个公司或者一个银行倒了之后，后果很难想象，因为它有很多衍生产品，但那个债通过所谓的信贷破产，就是什么对冲、CDS这个市场的话，那很多可能都卖到全世界了。

美汽车行业若倒闭必强烈冲击全球金融

谢国忠：所以现在如果是美国的汽车行业倒的话，对金融的冲击是会非常大的。

美政府不可避免要救债主且要解决失业问题

谢国忠：所以我觉得美国政府最终是没办法的，救的话主要是救那个它的债主，就是当然了，这么多工人如果失去就业的话，对那个新的政府肯定也会有比较大的打击，因为它是民主党的政府，它这个是受工会支持的，所以它的政策应该是偏向劳工的。

曾瀞漪：所以这方面可能，如果没处理好的话，对全球来说可能会有再一步的大的危机出现了？

美汽车业若破产六十万亿CDS市场将大混乱

谢国忠：如果真的是让它破产的话，那个对银行的冲击是非常大的，现在那个CDS市场现在60万亿不到一点，它已经缩小了一部分。但60万亿还是巨大的数字，里面有多少炸弹大家都不知道，是吧？如果是汽车行业破产的话，那个60万亿CDS市场一定会出现很大的混乱的。我们现在看到的很多大的银行，大家都觉得安全的银行，可能都会出大事。

曾瀞漪：谢谢Andy这方面的提醒是非常重要的，在广告之后我们继续回来请Andy来谈谈就是，中国方面推出的刺激方案有些什么样的看法和分析，还有其他的发展中国家，他们目前的应对方式如何？

谢国忠搜狐博客　http://xieguozhong.blog.sohu.com/

US crude sinks below $60 a barrel

By Esther Bintliff and Chris Flood

Published: November 7 2008 11:16 | Last updated: November 7 2008 22:33

Commodity markets remained under pressure this week amid ongoing concerns about the threat of a global economic recession and the weakening demand outlook for oil and metals.

US crude oil prices dipped below $60 a barrel on Friday for the first time since March 2007 but recovered after disappointing US employment data led to pressure on the dollar.

Nymex November West Texas Intermediate fell to a 20-month low of $59.97 a barrel but later recovered to close 27 cents higher at $61.04 a barrel, down 10 per cent this week.

ICE November Brent fell 8 cents to close at $57.35 a barrel on Friday, down 12.2 per cent this week.

Oil prices continued to fall even as the International Energy Agency warned that current global trends in energy supply and consumption were “patently unsustainable”. The energy watchdog said oil prices would rebound to more than $100 a barrel as soon as the global economy recovered.

Paul Horsnell, of Barclays Capital, said the oil market was in a state of “significant disequilibrium” and that there was no clear consensus on what price level would bring long-run demand and capacity into a sustainable balance.

Gold was fractionally weaker at $735 a troy ounce on Friday, up 1.6 per cent this week. Gold held above $700 throughout the week, taking its lead from movements in the dollar and equity markets.

Platinum rose 1.7 per cent to $837 a troy ounce, up 3 per cent on the week helped by renewed supply concerns after Anglo Platinum, the world’s largest producer, shut its Polokwane smelter after an accident. Initial reports suggested that about 200,000 ounces of platinum production, equivalent to 3 per cent of global supply, could be lost.

Amanda Lee, analyst at Deutsche Bank, said platinum prices were “oversold” and this latest accident illustrated the market’s fragile supply fundamentals.

Aluminium fell 3.4 per cent to $1,970 a tonne, under pressure from rising stock levels which, globally, have reached the highest level for 14 years at 3.7m tonnes, enough for almost five weeks of demand.

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is the worst stock market melt over? is stock market hit bottom?

Banks Face 50% Drop In Hedge Fund Fees.

This news is retrieve from Dow Jones & Company, Date: 10/11/2008

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A piece of advice don't Hold any Bank shares! Sell it!
This recession is cause by Banking sector, They loss huge money.
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The decline in the hedge fund industry will wipe out tens of billions of dollars in fees they pay to investment banks next year, forcing banks to make further staff cuts and shift their focus to less lucrative customers.

The closure of hedge funds, withdrawals by investors and deleveraging in the hedge fund industry, which has gathered pace over the past six weeks, has started to have an impact on sales and trading and prime brokerage revenues, the two major areas where hedge funds pay fees and commissions to banks. Huw van Steenis, head of banks and financials research in Europe at Morgan Stanley, forecasts a 45% to 55% drop in investment banking revenues from hedge fund business in 2009 - significantly worse than the widely forecast figure of 30% of hedge funds closing. "This would be such a sharp fall that it would call for a major right sizing of the business," he said. Hedge funds were among the most important customers of investment banks, paying an estimated $61 billion in fees to banks, or 21% of total revenues at the peak, according to estimates from Credit Suisse published last year.

In the boom years, when hedge funds grew their assets to almost $2 trillion, banks weak in prime brokerage, the business of financing hedge fund trades and custody of their assets, added to their divisions with several transactions in the sector. BNP Paribas bought Bank of America''s prime brokerage business, JP Morgan inherited Bear Stearns'' and Barclays Capital took over Lehman Brothers''. But forecasts of future revenues from hedge funds is expected to reverse into a rapid decline, across both prime brokerage and sales and trading.

Morgan Stanley estimates suggest hedge fund assets will shrink from $1.9 trillion in June to $1.3 trillion to $1.4 trillion in December and could fall as low as $1 trillion in 2009. Robert Sloan, managing partner of financing specialist S3 Partners in New York said: "Contract values, interest rates and the value of assets are down, the number of funds has fallen and liquidity is less; when you''re running a prime brokerage business that''s bad for making money." He added that prime brokers would have to be doing a lot more volume or widening spreads just to stand still. As a result, analysts are forecasting further staff cuts. Van Steenis said: "While UBS, we estimate, will start 2009 with staff only 4% above 2003, most other banks remain far heavier. We think 2009 could be another very painful year of adjustment, like 2002 was."

The deleveraging process has already started to dent some prime brokerage businesses. UBS, which grew its prime brokerage business aggressively over the past five years, said last week that revenues slowed in thethird quarter, partly as a result of lower client balances. Furthermore, analysts said even those universal banks that added large numbers of prime brokerage accounts in September following the collapse of Lehman Brothers are now unlikely to enjoy the full benefits from the business as gains are offset by lower leverage levels. Richard Webley, a director in the capital markets practice of business and technology consultants Detica in New York said: "The recent years of sustained growth and expansion in prime brokerage will see a fundamental shift in 2009."

A chief executive of a London-based hedge fund said: "With the lower amounts of leverage being employed by hedge funds, it''s not hard to see prime broker revenue next year will be half of what it may have been at its peak at the end of last year. The outlook for 2009 is pretty bleak." Roy Martins, head of international prime services at Credit Suisse, which took in Sfr117 billion inclient assets in the third quarter, said: "The concern is that the markets have fallen so much and spreads are based on notional values.

That''s a bigger concern than deleveraging, which has only effected certain funds." But a more damaging, although less visible, impact on investment banking revenues is expected to come through reduced sales and trading commissions from hedge funds as their assets shrink and they turn over their portfolios less. To compensate for the decline in revenues from hedge funds, investment banks are steering their sales forces towards long-only fund managers which, before the rise of hedge funds this decade, were their bread and butter. But they trade less and in lower margin, more vanilla products. David Martins Da Silva, head of hedge fund sales for rates at BNP Paribas said: "It is very easy for people to write off hedge funds, but the reality is that although they have gone from being easily the most heraldedaccounts, they remain an important sophisticated investor type with a unique mandate."

China's Xie Runs Home to Fix Economy

As Dani Rodrik, who saw this item first, said, "Why do I think this is really bad news?" Remarkably, the article suggests that XIe might not attend the November 15 summit in Washington to discuss the future of the world financial order. This would be particularly noteworthy given China's strong desire to push for a change in the currency regime.

From Bloomberg:

China's Finance Minister Xie Xuren was called back from an international economic conference in Peru before the meeting began, following orders from Beijing to help resolve problems at home...

``They told him he has to resolve an economic problem and that he's the only one who could do so,'' de Swinnen said. ``He was complaining because he had to fly 32 hours to get here and then he had to fly another 32 hours to get back.''

China's largest banks, with 4 trillion yuan ($586 billion) of cash, are resisting government efforts to boost lending to 42 million small and medium-size companies that drove the economic boom of the past decade. On Nov. 2, the central bank scrapped curbs on loans after three interest rate cuts in seven weeks failed to revive economic growth that has sagged to its slowest in five years.

Half the nation's toy exporters have closed this year, and 67,000 smaller enterprises filed for bankruptcy in the first half, according to government statistics. Companies with assets of less than 40 million yuan provide three-quarters of urban jobs and 60 percent of China's gross domestic product...

Xie arrived in Beijing to take care of some ``urgent business,'' two finance ministry officials, who declined to be named, said today. They didn't elaborate....

Xie will not attend the Group of Twenty meetings in Sao Paulo, Brazil, this weekend, one finance ministry official said. Xie's attendance for next week's Washington summit on financial crisis is yet to be confirmed, the official added.

Credit Crunch May Produce Another Food Crisis in 2009

Restricted credit and access to foreign exchange may lead farmers to cut production, worsening agricultural price pressures. From the Financial Times:

The world might face a repeat of this year’s food crisis as the credit crunch encroaches on the agricultural market, leading farmers to cut their planting because of falling prices and lack of finance to buy fertilisers, the United Nations warned on Thursday.

“Riots and instability could again capture the headlines,” the Food and Agriculture Organisation said.

The warning was made despite a fall in the price of most agricultural commodities as farmers harvest bumper crops...

“Under the current gloomy prospects for agricultural prices, high input costs and more difficult access to credit, farmers may cut their plantings, which might again result in a tightening of world food supplies,” the FAO said in the report....

Concepción Calpe, a senior economist at the FAO in Rome, said a price surge might take place in the 2009-10 harvesting season, “unleashing even more severe food crises than those experienced recently”.

Lower production and higher prices next year could add to developing countries’ problems in obtaining sufficient credit and foreign exchange to buy agricultural commodities. “Export finance is becoming more difficult to obtain, with banks tightening up the conditions for issuance of letters of credit,” the FAO said.

Thailand and Iran agreed last month to barter rice for oil, the clearest example yet of how the financial crisis, high fuel price and scarcity of food are reshaping global trade.

In spite of the continuing fall in food prices, the world’s food imports’ bill is set to surge above $1,000bn (€785bn, £633bn) for the first time ever, up 23 per cent from last year and 64 per cent higher than in 2006, the FAO said.

Developing countries will spend $343bn this year on food imports, up a record 35 per cent from last year’s $254bn. Some poor countries, the organisation said, were curtailing food imports in an effort to lower their bills.

The best recipe for avoiding a global recession.

retrieve from FT.com By Jeffrey Sachs
Published: October 27 2008 19:52 | Last updated: October 27 2008 19:52

Before our political leaders get too fancy remaking capitalism next month at the Bretton Woods II summit in Washington, they should attend to urgent business. Since the closure of Lehman Brothers triggered a global banking panic, political leaders in the US and Europe have successfully thrown a cordon round their banks to prevent financial meltdown. What they have not done yet is to co-ordinate macroeconomic policies to stop a steep global downturn. This is the urgent agenda.

A US downturn will not be avoided. US households cannot continue to spend more than their income as they have in recent years, even if the credit crunch eases. Household consumption is bound to fall steeply. The writedowns in US household wealth from the reversals in housing and equities will probably reach $15,000bn (€12,000bn, £9,700bn) and the resulting steep decline in private consumption and investment could reach about one-tenth of that amount.

Some other economies will also suffer home-grown recessions because they too allowed a housing bubble to develop, which has now burst. This appears to be the case in Australia, the UK, Ireland and perhaps Spain. This drop in spending outside the US because of capital losses and reversals in housing may add another $300bn-$500bn to first-round decline in global demand.

Yet even a steep recession in the US and in a few other countries need not throw the world into recession. The world economy is about $60,000bn, so a first-round demand decline of as much as $1,800bn would be about 3 per cent of world output. If there were no offsetting macroeconomic policy changes, the demand decline could be multiplied further to as much as 6 per cent, relative to 4 per cent trend growth, meaning a global decline of about 2 per cent.

On the other hand, even a 3 per cent global demand decline can be substantially offset by expansionary policies, undertaken by the surplus economies of Asia and the Middle East. Ironically, until recently China had been pursuing monetary and fiscal tightening to fight inflation. Now China must make a policy U-turn, to boost its internal demand and support a co-ordinated expansion throughout east Asia.

Any co-ordinated expansion should include the following actions. First, the US Federal Reserve, the European Central Bank and the Bank of Japan should extend swap lines to all main emerging markets, including Brazil, Hungary, Poland and Turkey, to prevent a drain of reserves. Second, the International Monetary Fund should extend low-conditionality loans to all countries that request it, starting with Pakistan. Third, the US and European central banks and bank regulators should work with their big banks to discourage them from abruptly withdrawing credit lines from overseas operations. Spain has a role to play with its banks in Latin America.

Fourth, China, Japan and South Korea should undertake a co-ordinated macroeconomic expansion. In China, this would mean raising spending on public housing and infrastructure. In Japan, this would mean a boost in infrastructure but also in loans to developing nations in Asia and Africa to finance projects built by Japanese and local companies. Development financing can be a powerful macroeonomic stabiliser. China, Japan and South Korea should work with other regional central banks to bolster expansionary policies backed by government-to-government loans.

Fifth, the Middle East, flush with cash, should fund investment projects in emerging markets and low-income countries. Moreover, it should keep up domestic spending despite a fall in oil prices. Indeed, the faster a global macroeconomic expansion is in place the sooner oil prices will recover.

Sixth, the US and Europe should expand export credits for low and middle-income developing countries, not only to meet their unfulfilled aid promises but also as a counter-cyclical stimulus. It would be a tragedy for big infrastructure companies to suffer when the developing world is crying out for infrastructure investment.

Finally, there is scope for expansionary fiscal policy in the US and Europe, despite large budget deficits. The US expansion should focus on infrastructure and transfers to cash-strapped state governments, not tax cuts. This package will not stop a recession in the US and parts of Europe, but could stop a recession in Asia and the developing countries. At the least it would put a floor on the global contraction that is rapidly gaining strength.

The writer is director of the Earth Institute at Columbia University and special adviser to Ban Ki-Moon, UN secretary-general.

Markets demand US action.

news retrieve from Emerging Markets - Dated 13th October 2008

The US must match the sweeping financial system rescue measures announced yesterday by European leaders and by other countries, and move immediately to unfreeze global credit markets by guaranteeing interbank lending, financial industry leaders said yesterday.

Leaders of the 15 eurozone countries, at their emergency gathering in Paris, agreed on a package of measures to prevent systemically important banks from failing and to unfreeze credit markets in a bid to halt panic.

The moves, which will be detailed today by European authorities, were matched by similar initiatives yesterday in Norway, Portugal, Australia and New Zealand as well as by Gulf states.

In Washington, financiers gathered at the IMF/World Bank meetings greeted the measures, and said the US must follow suit.

Billionaire investor George Soros told Emerging Markets the European plan is “real”, and expressed confidence that the US would follow suit. “It will work”, he told a press briefing at the IMF in Washington. “We will have similar measures in the US. Libor should return close to the Fed fund rates. That will be a significant improvement.”

Richard Fisher, president and CEO of Reserve Bank of Dallas, pledged that members of the US Federal Reserve system would “do whatever we have to do to provide a credible backstop for the credit system. Wecan and will restore order to the credit markets, but we can not undo in short order the damage to confidence.”

Markets welcomed the plan. As Emerging Markets went to press, Sydney’s and Seoul’s indexes leapt 4.5% and 2.7% respectively in early trading.

At the same time, the UK finalized its plans for injecting new capital into banks, announced earlier. Prime minister Gordon Brown said: “We will see over the coming few days worldwide action that will make people see that confidence in the banking system can be restored.”

The Paris meeting was called by French president Nicolas Sarkozy following last Friday’s G7 finance ministers’ meeting in Washington, that has been criticised for failing to offer concrete and collective solutions to the financial crisis.

Sarkozy said after the Paris meeting that a series of coordinated announcements of financial details could be expected today from leading European capitals.

According to a eurozone joint statement, leaders pledged to help or subscribe to debt-raising by banks for periods of up to five years. This should take the pressure off the blocked interbank market and also off bank balance sheets.

Germany alone is expected to unveil a rescue package for its banks worth around 400 billion euros, an official in Chancellor Angela Merkel’s conservative party said yesterday.

Financial industry leaders gathered in Washington had throughout the day been repeatedly calling for leading nations of the world to show “leadership”.

Citigroup senior vice chairman Bill Rhodes told a meeting of the Institute of International Finance, of which he is first vice chairman: “Policy makers need to get out in front. Resolving the crisis will require strong leadership and making difficult decisions.”

Deutsche Bank chief executive Josef Ackermann said: “The market is stalled now and so public policy actions to restore the market are essential,” he said, adding that “a systemic crisis needs systemic responses.”

AIG vice-chairman Jacob Frenkel told Emerging Markets that markets had interpreted the lack of concreteness in the G7 finance ministers’ statement “as a signs of lack of agreement” which served only to further undermine confidence. “What the markets are now looking for is something that is more concrete than the general statements of intent,” he said.

“We must see further initiatives within the next 24 hours and they must be coherent and concrete,” he said. “Markets are the gauge” and they are providing “a daily referendum” on policy-makers actions, Frenkel added.

Sovereign crisis fears surface.

news retrieve from Emerging Markets - Dated 13th October 2008

Senior bankers and economists warned yesterday that the risk of sovereign default among G7 members cannot be ruled out, as the financial crisis places unparalleled strain on rich country balance sheets.

Analysts added that the effective blanket guarantees of the financial system, and plans for massive government spending, had raised the spectre of sovereign ratings downgrades.

Philip Suttle, chief economist at Institute of International Finance, warned that the US government could “lose it its Triple A credit rating” as a result of having to finance bail-outs. He told Emerging Markets yesterday he did not see “how such a downgrade can be avoided.”

A US sovereign rating downgrade could fundamentally reshape the global investment landscape since global asset prices are benchmarked against US Treasuries.

Suttle’s comments came as the US National Debt Clock in New York this weekend ran out of digits, when the counter registered $10 trillion. Gross US debt this year reached about $9.6 trillion, or about 68% of GDP. The rescue legislation increased the government’s debt limit to more than $11.3 trillion from $10.6 trillion.

The additional borrowing faced by Treasury Secretary Henry Paulson could push the national debt well past 70% of GDP, the highest since the immediate aftermath of World War II, when the US was still paying off war debt.

John Chambers, chairman of the sovereign ratings committee at Standard & Poor’s, said: “When the dust settles, public finances would have changed markedly for the industrialized nations and that will have an impact on ratings in terms of rank ordering. It may also have an impact on absolute levels.”

Nouriel Roubini, the New York economics professor who forecast the current financial crisis two years ago, told Emerging Markets: “The largest sovereigns are not at risk yet, although several trillion of budget deficit in the US over the next few years might lead people to question whether the US is triple-A rated. But that is down the line.”

If the US has to issue $1 trillion of public debt next year, and the same the year after, on top of $500 billion that will need rolling over on maturity – i.e. a total of $3 billion – then “the question is whether the rest of the world is going to finance the US.

“I fear that the Chinese were willing to finance us when we were buying their goods, but now with exports to the US falling, they will do it rather to support our financial system. There is a fiscal time bomb in all [G7] economies.”

But bankers said the risk of inaction outweighed future fiscal consequences. Citigroup senior vice chairman Bill Rhodes argued that authorities should aim to “overshoot” rather than undershoot in organizing a financial bailout of their financial systems and institutions – and worry about “mopping up” later.

The policy response “has to overshoot,” agreed Bank of Mexico governor Guillermo Ortiz, speaking at an IIF seminar.

Goldman Sachs International managing director Robert Hormats told Emerging Markets he “did not believe” the US sovereign debt rating should or would be downgraded. The government should be prepared to go deeper into debt during emergencies such as the current one, Hormats added.

He said US government debt would in any case remain attractive to domestic and international investors, because of the enormous breadth and depth of the Treasury markets, a view that was echoed to Emerging Markets by former US Treasury undersecretary for international affairs Tim Adams.

Suttle said he accepted such arguments but that this did not weaken the case for objective ratings of US government debt.