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How to meet the dangers facing world market economy (English Only- Anglisht vetem)
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Thu Sep 18 2008, 10:42am
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Modern history’s greatest regulatory failure
By Roger Altman

Published: September 17 2008 18:52 | Last updated: September 17 2008 18:52

Financial market conditions have now descended to the lowest point since the banking shutdown of 1932. In one 96-hour period, we saw three nearly unimaginable events. Lehman Brothers, America’s fourth-largest securities firm, filed for bankruptcy. Merrill Lynch, the best-known firm, was forced overnight to sell itself to Bank of America. And market pressures forced the Federal Reserve into a huge $85bn takeover of AIG, our largest insurer, to avert its bankruptcy.

All of this occurred only two weeks after the massive federal rescue of Fannie Mae and Freddie Mac and three months after the collapse of Bear Stearns. Market participants around the world have been shocked senseless by these serial failures. Their confidence has evaporated, replaced by an unprecedented level of fear. That is why lending is frozen and worldwide markets are plunging.

Now, everyone has the same question: how much worse can this get? This lack of confidence is self-fulfilling and endangers other financial institutions. These are companies that refinance themselves in the capital markets every day. They depend on the confidence of lenders. But, if that disappears, their solvency is threatened. This is where we are now.

This has put the Fed and the US Treasury into a nearly impossible position. At one level, the Fed’s core mission is to protect the stability of our financial system. It engineered the rescue of Bear Stearns and extended emergency credit to Fannie Mae and Freddie Mac because it judged that the systems might not withstand their collapse. It has legal authority to provide unlimited assistance to others.

But there is a practical limit to further bail-outs; a line beyond which an inflation, currency and confidence backlash could result. This is why, this past weekend, the Fed refused a direct rescue of either Lehman Brothers or Merrill Lynch. It judged that the system could survive a Lehman bankruptcy and that it had to enforce a limit on the size of its assistance. Clearly, it did not want to rescue AIG.

Yet it is extremely difficult for the authorities to judge which blows the system can endure and which might trigger a meltdown. There were no precedents for judging whether the biggest insurance company could be allowed to fail or whether a domino effect would follow. Ultimately, the Fed saw too much systemic risk, reversed course and intervened in AIG.

Whether the Fed and Treasury can continue to make these excruciating case-by-case judgments is unknowable. If forced to choose between staying within prudent limits on its assistance, or saving the financial system, it must choose the latter. As Paul Volcker, former Fed chairman, has suggested, an enormous Resolution Trust Corporation-style approach for the banking and securities system may be required.

This might involve legislation to cleanse these institutions by acquiring their distressed mortgages and other assets in exchange, perhaps, for US Treasury bonds. The institutions would then be stabilised, although the cost to taxpayers, even after gradual recoveries on federal sale of those assets, would be huge. But, if necessary, this price would have to be paid.

This will come to be seen as the greatest regulatory failure in modern history. The degree of leverage that these institutions took on is indefensible. The average large securities firm was leveraged 27 to one in mid-2007. They were not regulated by any prudential supervisor. In effect, they regulated themselves. The lack of transparency was stunning. Many big lenders did not disclose off-balance-sheet risks. In some cases, they did not understand these risks themselves. More fundamentally, we allowed a second, huge financial system to develop outside the normal banking network. It consisted of investment banks, mortgage finance companies and the like. It was unregulated, not transparent and way too leveraged. But with nine separate and mostly ineffective financial regulators, these risks were ignored. That is, until this second system crashed.

We will be climbing out of this financial hole for a long time. Three or four years may pass before normal lending functions are resumed. In the interim, our economy will not have access to all of the credit it needs and may underperform, at great cost to our society. All of this could have been prevented.

The writer is chairman and chief executive of Evercore Partners and was deputy US Treasury secretary under President Bill Clinton. He was a co-head of investment banking and a board member at Lehman Brothers in the 1980s

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[ Edited Thu May 14 2009, 11:57am ]

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Sep 18 2008, 10:43am
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America will need a $1,000bn bail-out
ByKenneth Rogoff

Published: September 17 2008 19:06 | Last updated: September 17 2008 19:06

One of the most extraordinary features of the past month is the extent to which the dollar has remained immune to a once-in-a-lifetime financial crisis. If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring. Instead, the dollar has actually strengthened modestly, while interest rates on three- month US Treasury Bills have now reached 54-year lows. It is almost as if the more the US messes up, the more the world loves it.

But can this extraordinary vote of confidence in the dollar last? Perhaps, but as investors step back and look at the deep wounds of America’s flagship financial sector, the public and private sector’s massive borrowing needs, and the looming uncertainty of the November presidential elections, it is hard to believe that the dollar will continue to stand its ground as the crisis continues to deepen and unfold.

It is true that the US government has very deep pockets. Privately held US government debt was under $4,400bn at the end of 2007, representing less than 32 per cent of gross domestic product. This is roughly half the debt burden carried by most European countries, and an even smaller fraction of Japan’s debt levels. It is also true that despite the increasingly tough stance of US regulators, the financial crisis has probably already added at most $200bn-$300bn to net debt, taking into account the likely losses on nationalising the mortgage giants Freddie Mac and Fannie Mae, the costs of the $29bn March bail-out of investment bank Bear Stearns, the potential fallout from the various junk collateral the Federal Reserve has taken on to its balance sheet in the last few months, and finally, Wednesday’s $85bn bail-out of the insurance giant AIG.

Were the financial crisis to end today, the costs would be painful but manageable, roughly equivalent to the cost of another year in Iraq. Unfortunately, however, the financial crisis is far from over, and it is hard to imagine how the US government is going to succeed in creating a firewall against further contagion without spending five to 10 times more than it has already, that is, an amount closer to $1,000bn to $2,000bn.

True, the US Treasury and the Federal Reserve have done an admirable job over the past week in forcing the private sector to bear a share of the burden. By forcing the fourth largest investment bank, Lehman Brothers, into bankruptcy and Merrill Lynch into a distressed sale to Bank of America, they helped to facilitate a badly needed consolidation in the financial services sector. However, at this juncture, there is every possibility that the credit crisis will radiate out into corporate, consumer and municipal debt. Regardless of the Fed and Treasury’s most determined efforts, the political pressures for a much larger bail-out, and pressures from the continued volatility in financial markets, are going to be irresistible.

It is hard to predict exactly how and when the mega-bail-out will evolve. At some point, we are likely to see a broadening and deepening of deposit insurance, much as the UK did in the case of Northern Rock. Probably, at some point, the government will aim to have a better established algorithm for making bridge loans and for triggering the effective liquidation of troubled firms and assets, although the task is far more difficult than was the case in the 1980s, when the Resolution Trust Corporation was formed to help clean up the saving and loan mess.

Of course, there also needs to be better regulation. It is incredible that the transparency-challenged credit default swap market was allowed to swell to a notional value of $6,200bn during 2008 even as it became obvious that any collapse of this market could lead to an even bigger mess than the fallout from subprime mortgage debt.

It may prove to be possible to fix the system for far less than $1,000bn- $2,000bn. The tough stance taken by regulators this past weekend with the investment banks Lehman and Merrill Lynch certainly helps.

Yet I fear that the American political system will ultimately drive the cost of saving the financial system well up into that higher territory.

A large expansion in debt will impose enormous fiscal costs on the US, ultimately hitting growth through a combination of higher taxes and lower spending. It will certainly make it harder for the US to maintain its military dominance, which has been one of the linchpins of the dollar.

The shrinking financial system will also undermine another central foundation of the strength of the US economy. And it is hard to see how the central bank will be able to resist a period of allowing elevated levels of inflation, as this offers a convenient way for the US to deflate the mounting cost of its private and public debts.

It is a very good thing that the rest of the world retains such confidence in America’s ability to manage its problems, otherwise the financial crisis would be far worse.

Let us hope the US political and regulatory response continues to inspire this optimism. Otherwise, sharply rising interest rates and a rapidly declining dollar could put the US in a bind that many emerging markets are all too familiar with.

The writer is professor of economics at Harvard University and former chief economist of the International Monetary Fund

Copyright The Financial Times Limited 2008

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Sep 18 2008, 10:44am
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Taxpayers will fund another run on the casino
By John Kay

Published: September 16 2008 19:48 | Last updated: September 16 2008 19:48

Fannie Mae and Freddie Mac were probably the world’s most heavily supervised financial institutions, subject to a specialist agency, the Office of Federal Housing Enterprise Oversight. The office employed 236 people at the time of its last annual report. OFHEO did not fail because it was understaffed or not well informed about Fannie Mae’s activities, but because it lacked authority. The entire staff earned less in aggregate than Franklin Raines, the aggressive chief executive who masterminded Fannie’s expansion.

Like Martin Wolf, I yearn for a world in which regulators would moderate the inherent instability of the financial system. But my yearning is tempered by modest expectations of what regulation can achieve. Martin’s realism, which I share, acknowledges that public expectations are much higher and politicians will claim to respond to these expectations. But the politicians will fail. The next financial crisis will be different in origin and the rules that will be introduced to close the doors of today’s empty stables will prove irrelevant.

It is easy to assert that the solution to any market failure is better regulation. If regulators were all-knowing and all-powerful; if they were wiser than the chief executives but willing to do the job for a fraction of the remuneration awarded to such executives; if they understood what was happening in the dealing rooms of Citigroup, Merrill or Lehman better than Chuck Prince, Stan O’Neal, or Dick Fuld; then banking regulation could protect us against financial instability. But such a world does not exist. Market economies outperform planned economies not because business people are smarter than civil servants – sometimes they are, sometimes not. But no one has enough information or foresight to understand the changing environment, so the market’s messy processes of experiment and correction yield better results than a regulator’s analysis.

In an imperfect world, the simple rules that Martin seeks have unanticipated and counterproductive consequences, as with the reserve requirements imposed under the Basel agreements. Reserve ratios were transformed from an internal discipline of prudent management to an external burden to be evaded when possible. Because these rules distinguished different asset categories, they opened the doors to regulatory arbitrage, fuelling the explosion of securitisation, which is at the root of current problems. Capital requirements proved ineffective in preventing banking failures and as soon as crisis struck, they proved counterproductive, forcing banks to constrain good lending to meet regulatory obligations. The proposed solution – of course – is further refinement of the regulations – to legislate against structured investment vehicles, to supervise the categorisation imposed by rating agencies and to introduce counter-cyclical reserve requirements.

In our debate in London last week, Martin used a forceful metaphor to describe the impact of the development of financial conglomerates – a utility is attached to a casino. The utility is the payments system that enables individuals and non-financial companies to go about their everyday business confident that they can make and receive payments, and lend and borrow to finance normal transactions. That activity needs to be protected from the consequences of the booms and busts that are an inevitable concomitant of securities trading in volatile markets.

There are two routes to this result. One is to separate the utility from the casino. Narrow banking prevents conglomerate institutions from relying on the assets of their unsophisticated customers as collateral for their highly sophisticated trading. Another approach regulates the casino sufficiently to ensure that failure there cannot jeopardise the utility. This latter outcome is not feasible and to come close to achieving it would end financial innovation.

The industry will successfully resist both the ring-fencing of everyday banking and the meaningful regulation of trading operations. Martin and I both recognise that in the next crisis, as in this, the taxpayer will step in to fund the casino in order to protect the utility.


More columns at trokit ketu

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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Sep 18 2008, 10:45am
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Changing the rules of the game
Published: September 17 2008 22:40 | Last updated: September 17 2008 22:40

Just two days after allowing a large investment bank to fail as a stern statement of free market discipline, Ben Bernanke, chairman of the Federal Reserve Board, and Hank Paulson, Treasury secretary, in effect nationalised American International Group, the insurance giant. There was no alternative, but these dramatic steps show how finance will never be the same again.

By allowing Lehman Brothers to fall, the authorities demonstrated their reluctance to save financial institutions with public money. Banks – even big, famous ones – would be allowed to fail if it were felt the system could handle it.

But AIG was too important to go under. Default on its $441bn exposure to credit default swaps and other derivatives would have been a global financial catastrophe. Cancelling the insurance it underwrote would cause another wave of writedowns, further reduce lending and spread the crisis deeper and further.

As with Freddie Mac and Fannie Mae, the nationalisation of AIG has caused problems for future policymakers, but future systemic moral hazard is of secondary importance when the system itself is at risk.

The AIG rescue package was well-designed. The Fed gave the insurer an $85bn loan, charged at punitive rates and secured against AIG’s best assets, while replacing the management and taking a warrant for almost four-fifths of AIG’s equity. This should allow the insurer to meet its obligations until it is able to sell off some of the assets on its $1,000bn balance sheet.

The Fed’s other actions yesterday were also well-judged. It was right to hold its fire by keeping interest rates at 2 per cent. With credit markets jammed up, an interest rate cut would, for the most part, only have delivered a psychological boost. Injecting liquidity, on the other hand, brought relief as banks scrambled for short-term funding, and should be continued.

After a year of what felt, at times, like a phoney war, the past two weeks have seen unimaginable changes in the world financial system. The collapse of Lehman, the buy-up of Merrill Lynch and the nationalisations of Fannie, Freddie and AIG were obvious landmarks. Of potentially greater importance, however, the reach and power of the state has been greatly extended. The Bear Stearns bail-out involved the Fed moving to cover investment banks. With the AIG takeover, it has moved into insurance.

In the long run, policymakers must turn their minds to how systemically important institutions should be governed without creating over-powerful regulators, and whether any parts of the financial system might best be kept in the public sector. They also need an exit strategy for those areas in which it has no long-term role.

In the short term, however, the government must make sure it has the ability to wind down, in an orderly fashion, the wide range of institutions that it is now worried about. The Resolution Trust Corporation was created to do this during the savings and loan crisis.

This is not the end of the current turmoil. Concerns are now being raised about money market funds. Designed as ultra-safe, low-return vehicles, they invest in top-rate short-term corporate bonds. Having written off $785m of once highly rated Lehman debt, Reserve Primary Fund this week “broke the buck” – its net asset value per share fell below its target of $1.

Further losses will occur only if other big companies fail. But consumers may retreat from the funds. With dwindling assets, funds would buy fewer short-term bonds, further adding to the difficulty of obtaining short-term credit.

The rules of the game have been rewritten dramatically over this past fortnight but the game, at least, is still being played in some form. That is a victory of sorts. Governments are currently rightly preoccupied with crisis management. The next challenge will be to work out how far the state should stay as more than just an umpire.

Copyright The Financial Times Limited 2008

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© Copyright The Financial Times Ltd 2008.

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Sep 18 2008, 10:46am
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Where has the trust gone?
Published: September 17 2008 20:41 | Last updated: September 17 2008 20:41

Panic grips the market. The yield on three-month Treasury bills hits lows not seen since 1941. Interbank funding has gummed up. Call the Feds! But the US government is already deeply involved in the financial crisis. That involvement is only going to get deeper.

First, there is AIG’s bail-out. This is being met by a $85bn loan from the Federal Reserve – an unprecedented move. To meet that loan, and its other commitments, the Fed expanded its balance sheet on Wednesday to the tune of $40bn. The Fed can then do what it wishes with this money: swap it for securities loaned by banks that need to raise cash, whopping bail-outs, the whole shebang.

But that is the problem. So far, the government’s response to the crisis has been on an ad-hoc basis, with each case – Bear Stearns, Lehmans, AIG – judged on its own merits. At the same time, it risks corrupting the Fed’s balance sheet. That is why cries are going up for a more systematic approach, some even calling for the state to resurrect a form of the Resolution Trust Corporation, which handled the aftermath of the Savings & Loans crisis.

How might it work? Taking over failed thrifts whose deposits were federally insured is a walk in the park compared with designing a government-funded structure to wind down financial institutions stuffed with reconstituted loans and derivatives obligations.

One possibility is that a new RTC could take over teetering banks or insurers, place them in “conservatorship”, wipe out the equity and perhaps impose a haircut on its debts before guaranteeing them. Then it would sell the assets.

Whatever the extra complications that the current crisis brings, people are calling for greater state involvement. Furthermore, the US has the fiscal space to provide it.

Government debt to GDP is now about 48 per cent. Even including debt from the government-sponsored enterprises, that ratio would rise to “only” 70 per cent – less than Japan, Italy, Greece and Belgium. Greater socialisation of the US financial system is coming.

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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Sep 18 2008, 04:18pm
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Fed moves to boost liquidity
The Federal Reserve teams up with the Bank of Japan, the Bank of England and others to add cash to the financial system. Morgan Stanley and Washington Mutual are reportedly looking for buyers. Gold soars again.

In a move to help fight the liquidity crisis that has been plaguing the global markets, key central banks around the world are pouring dollars into the financial system.

The Federal Reserve is adding $180 billion to the pool of dollars available to foreign central banks; they, in turn, are adding to the pools available to member banks in need of dollars. The infusion of cash is designed to help meet loan and collateral demands associated with the mortgage crisis in the U.S. and stem losses in the stock markets.

The new steps set the stage for another volatile day in what has been a wild week. Stocks jumped earlier this morning but turned flat by midday. At 12 p.m. ET, the Dow Jones Industrial Average was down 11 points to 10,599 after tanking 449 points, or 4.1%, Wednesday. That was the lowest close since Nov. 9, 2005. The Dow had lost 812 points in the first three days of the week.

By midday, the Nasdaq Composite Index had lost 11 points to 2,087, and the Standard & Poor's 500 Index was down 4 points to 1,153.

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Mon Sep 29 2008, 08:32pm
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a day to remember

Dow Jones
10,365.45 -777.68 -6.98%

Previous Close 11,143.13
Open 11,139.62
Day's High 11,139.94
Day's Low 10,365.45

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Thu Oct 02 2008, 08:04am
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Europe split on bank rescue fund

By Tony Barber and Nikki Tait in Brussels, Ben Hall in, Paris and Krishna Guha in Washington

Published: October 2 2008 03:00 | Last updated: October 2 2008 03:00

European policymakers on Wednesday clashed over how to protect the EU's financial system from the global credit crisis as France floated the idea of a single rescue fund to deal with bank failures.

Christine Lagarde, France's finance minister, raised the possibility of a European fund "to support the financial sector".

Britain is also sceptical about the idea of a pan-European fund, preferring to tackle crises on an ad hoc basis, although officials in both the Bank of England and the Treasury are working on a range of plans in case a more co-ordinated approach arises.

These include extended liquidity operations, government guarantees for mortgages, emergency guarantees of all bank funding, the creation of a "bad" bank for troubled assets of failed banks, a UK version of the US $700bn (£395bn) bail-out plan and capital injections into banks

As the reaction over the EU-wide plan grew, French officials said they were not promoting a specific plan, but the idea of a common pool would be discussed among other ideas at a meeting of EU leaders on Saturday.

The idea is to help bail out banks, not mop up toxic assets, as in the $700bn US Paulson plan. It comes as governments on both sides of the Atlantic scramble to find ways to contain unprecedented global financial system stress.

Reluctant Democrats and Republicans in the US House of Representatives, who threw out the Paulson plan on Monday, came under intense pressure from their leaderships yesterday to switch their votes.

The Senate took the lead in presenting revised laws, which it looked likely to pass last night in order to put pressure on the lower house. Leaders from both parties expressed hope that additions to the bill - including a large rise in the deposit guarantee ceiling - would sway dissidents.

Robert Zoellick, president of the World Bank and a prominent Republican, told the Financial Times it was essential that Congress passed the legislation. "The implications are important not only for the US but for the global financial system including the developing world."

Stocks, meanwhile, fell as a key US manufacturing survey hit "recession" territory. By the close in New York, the S&P 500 was down 0.45 per cent. The passing of the end of the quarter brought an expected big drop in overnight lending rates. But longer-dated lending continued to rise, led by dollar Libor, indicating no thaw in the money markets.

In Europe, José Manuel Barroso, European Commission president, said the crisis made it imperative to strengthen banking supervision and develop "a truly European response".

A separate dispute flared up over the Irish government's surprise decision on Tuesday to guarantee the debts and deposits of Ireland's six largest lenders - a step that instantly attracted funds from the UK, where bank customers suspected guarantees would be less comprehensive.

On Wednesday, Brian Lenihan, Ireland's finance minister, said he was "sympathetic" to Royal Bank of Scotland's application to have its Irish subsidiary included in the guarantee system.

Last night Dublin said it would consider applications to join the scheme from foreign banks with a significant retail presence in Ireland. Nellie Kroes, EU competition commissioner, pleaded with governments "not to act unilaterally".

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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Oct 02 2008, 08:06am
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SEC extends its ban on short selling

By Joanna Chung in New York

Published: October 2 2008 03:00 | Last updated: October 2 2008 05:59

US regulators on Wednesday night said they would extend a temporary ban on short selling of financial stocks as well as other emergency measures aimed at curbing potential market abuse.

The US Securities and Exchange Commission issued emergency orders two weeks ago as part of a broader government strategy to shore up confidence in the markets.

The SEC said the measures – due to expire on Thursday night – would now last until the third business day afer the $700bn plan to rescue the financial system is enacted into law, but in any case, no later than October 17.

Significantly, the SEC adjusted one of the measures, saying that institutional money managers who are required to report new short sales, would now only make the disclosure to the SEC and not to the public. However, the disclosure requirement would continue ”beyond [the expiration] date without interruption.”

The SEC announcement as the US Senate approved by a large margin the Bush administration’s financial rescue plan, putting further pressure on the US House of Representatives who threw out the bail out plan on Monday.

The SEC’s emergency measures have been controversial and some market participants have been urging the SEC not to extend the orders.

The Managed Funds Association, who represents the interests of hedge funds, said in a letter to the SEC on Tuesday that it was opposed to an extension.

The orders have in fact ”impaired the fair and orderly function of the equity, options and convertible debt markets, increased volatility and decreased liquidity in our capital markets,” wrote Richard Baker, president and chief executive of the MFA.

However, he said, if the regulator must extend them, it should include an exemption for hedging transactions – including those that involve convertible bonds and convertible preferred securities. Other foreign regulators have provided such an exemptions from their short selling bans.

“Most investors in [convertibles] seek to hedge their market risk by shorting stock.... These strategies enable companies to raise capital less expensively than they would in traditional debt markets, and serve as a stabilizing force in the market,” said Mr Baker.

But the ban has “effectively frozen this source of capital for financial companies, because investors refuse to purchase convertibles and provide financing to these companies without the ability to hedge these investments.”

The SEC did not exempt convertibles as it extended the ban on Wednesday night.

There has also been controversy over the growing list of banned stocks, which has expanded from an initial list of 799 companies to about 980, including many companies not widely considered financial firms – an issue the regulator did not address.

The SEC staff said it would “continue to monitor the impact of the rules regarding short selling.”

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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Oct 02 2008, 08:21am
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Europe ‘facing tougher time than US’
By Richard Milne in Paris

Published: October 1 2008 19:26 | Last updated: October 1 2008 19:26

Continental Europe is heading for a deeper recession than the US as it lacks the necessary flexibility to react to the worsening economic situation, according to leading executives and policymakers.

European business people are worried that, despite the financial crisis originating in the US, Europe will suffer more from it. Many are joining investors in urging the European Central Bank to abandon its focus on inflation and concentrate on trying to stave off a prolonged recession.

Carmen Riu, the co-chief executive and co-owner of Riu Hotels & Resorts, one of Spain’s leading tourism groups, said: “The end of the crisis will be easier in the US than in Europe. They are more agile in the US whereas Europe is infinitely more rigid.”

Executives and policymakers are worried that Europe did not use the good times of the past few years to push through much-needed reform in areas such as labour flexibility. Companies across Europe from Daimler and Siemens to KPMG and Unicredit are bracing themselves for the slowdown by cutting jobs, production and recruitment. This comes as growth in Europe has plummeted after a strong first quarter to lead many analysts to think several continental economies are already close to recession.

Policymakers have been comforted by the recent rescues of Fortis and Dexia, two large banks in the Benelux region, and how it demonstrates that quick action is possible in Europe despite a highly fragmented regulatory system.

But one senior policymaker admits that the ECB’s designated focus on inflation makes the prospects for growth in the continent bleak. “The ECB has to focus on inflation for a whole host of political and historical reasons. But it does mean – irony of ironies – that the US economy is likely to come out of this quicker than we are. And their all-round flexibility compared with Europe makes that all the more likely too,” he said.

Further evidence of the swing in mood among European companies in recent months can be seen in German engineering orders. The VDMA, the German engineering association, which as recently as April was one of the most bullish parts of European business, said that orders in September had collapsed with overseas orders tumbling by 19 per cent.

Many European companies had banked on growth from emerging markets such as Russia and China to compensate for weakness in Europe. “I think times are tough no matter how international you are,” said the chief executive of a leading German company. “Nobody really knows what will happen. But if you were a betting man I don’t think you would go for Europe over the US.”
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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu Oct 02 2008, 08:31am
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Are European banks too big to fail?
By Cynthia O’Murchu and Emma Saunders

Published: September 30 2008 18:46 | Last updated: September 30 2008 18:46

Some banks are bigger than governments: their assets are greater than their home countries’ economies. The chart below shows the size of major European banks as a proportion - or multiple - of their home countries’ GDP. This measure illustrates the comparative sizes of business and governments. (Please note the graphic gives only a basic comparison: the asset values refer to the whole bank, and should not be viewed as contributing toward any particular economy.)

trokit ketu

Copyright The Financial Times Limited 2008


Whatever it took
By Alan Beattie in Washington, Gillian Tett and Chris Giles in London, Bertrand Benoit in Berlin, Ben Hall in Paris, Tony Barber in Brussels, Lionel Barber in New York and Ralph Atkins in Frankfurt

Published: October 14 2008 20:21 | Last updated: October 14 2008 20:21

Disaster aversion: from left to right Jean-Claude Trichet, Nicolas Sarkozy, Gordon Brown and José Manuel Barroso at the Elysée Palace on Sunday, where leaders met to discuss their response to the financial crisis

It was becoming the worst financial crisis since the Great Depression and the industrial world’s political leaders were in cacophonous discord, singing from a variety of different hymn sheets while stock markets crashed loudly around them.

Brussels looks like a bystander amid turmoil - Oct-15In depth: Global financial crisis - Oct-13European rescue raises debt fear - Oct-14Brussels acts on deposit guarantees - Oct-14Threat to Dutch savers in Icesave - Oct-15Gideon Rachman: The crisis is redefining our leaders - Oct-13But over a week in which markets slid further each day and many began to fear the destruction of the global financial system, the politicians began to belt out something close to the same tune: massive intervention to inject public money into banks, pushing more cash into the money markets and guaranteeing that banks could lend safely to each other.

Leaders ended last week promising to do whatever it took to haul global finance from deep inside a raging inferno. What is more, they convinced investors they could. How did they pull it off? To be sure, the start was far from promising. Having squashed a French plan to create a cross-border European rescue fund to bail out banks, Angela Merkel, the German chancellor, went it alone. Just hours after an emergency European summit had called for greater co-ordination among the continent’s big economies, Berlin issued a unilateral guarantee covering German savings accounts. Paris and London were furious.

Across the Atlantic, the main focus of the $700bn (£399bn, €513bn) US rescue plan that had been driven through a reluctant Congress was still to buy up troubled mortgage-based assets and derivatives, not inject public money to recapitalise banks. But the intellectual bankruptcy of the gradualist, case-by-case approach became clear as the week went on. Amid waves of selling on global equity markets, the resistance of both bankers and politicians to radical intervention rapidly melted.

On Wednesday the UK, already struggling with British savers’ money either trapped in failed Icelandic institutions or fleeing to an Irish deposit guarantee that had preceded Ms Merkel’s, announced an injection of public capital into UK banks. In the eyes of the populace, a government that had spent a decade suffused with the rhetoric of financial orthodoxy was carrying out a wholesale nationalisation. “Banks to fall under state control” screamed the Daily Mail in outlining what the mass-selling paper called the “biggest nationalisation of modern times”.

The British bail-out: fractious route to a global blueprint

Initially it might have looked like panicked overreaction. So used were European countries to being lectured by – and to ignoring – Gordon Brown that when the UK invited others to follow, European finance ministers were initially reluctant. But the British prime minister telephoned Nicolas Sarkozy, the French president, to explain why if the UK had not acted, British banks faced the real risk of collapse within hours. It was the first of several conversations that helped to shape a European rescue initiative on a largely UK model.

Germany took longer to be won over. But opinions continued to shift after a co-ordinated half-point interest rate cut by the world’s leading central banks on Wednesday morning failed to restore confidence in the markets. By mid-week, German savings banks were reporting large cash inflows from customers who were shutting accounts at commercial banks. Even Germany’s mighty industrialists were beginning to complain about liquidity problems.

So by Thursday, when eyes were shifting to the gathering of the Group of Seven rich countries in Washington the following day and the World Bank and International Monetary Fund meetings over the weekend, previously discarded policy instruments were suddenly back in the toolkit.

British officials noted with relief that, although interbank markets remained frozen and share prices continued to fall after their plan was announced, the price of credit default swaps on UK banks – insurance against them going bankrupt – had dropped. When the UK officials flew to Washington, they had some tangible evidence to wave at their counterparts to suggest that radical intervention could work – or at least, work better than anything else proposed so far.

As G7 ministers were preparing to meet, Peer Steinbrück, the German finance minister, was speaking openly of a state bail-out closely modelled on the UK initiative. Mr Sarkozy, who afterwards said he had been given only a few days to get to grips with the technicalities of the financial crisis, was persuaded Mr Brown’s approach was right for Europe and that the plunging markets demanded a systematic, continent-wide bank bail-out.

Despite the fiasco of the previous European economic summit, Mr Sarkozy started planning a second one for Sunday in Paris, this time of the 15 members of the eurozone together with the UK. François Pérol, his chief economic adviser, began drawing up a “common doctrine” for EU governments to follow, based on a blueprint provided by Jon Cunliffe, Mr Brown’s foreign policy adviser and a former UK Treasury official.

G7 meetings generally host little more than the final stages of a protracted technocratic negotiation over the precise verbal formulation of a carefully coded communiqué. This one was different. It had become geopolitical theatre. The political risk-reward calculation was shifting by the hour: the danger of being seen to use public money to bail out profligate bankers was rapidly being overtaken by the peril in standing aside while the global financial system melted down.

Ministers and central bank governors were aware that they had to do something to reassure bankers, investors and the public. Not only were interbank lending rates spiralling, they were becoming something of a fiction. Large banks were so scared of lending to each other that they were not even conducting overnight deals. “There was a very strong feeling that if we did not act then we could go over the abyss,” one official present says.

The atmosphere, however, was businesslike. “We knew we had the weekend to put it together,” says another participant. Still, the sense of crisis prompted the ministers to rip up the prepared G7 communiqué for the first time in recent memory. Shoichi Nakagawa, Japan’s finance minister, broke with his country’s usual reticence at G7 meetings, telling reporters in public and stressing passionately in private that Japan escaped its banking crisis only with public injections of capital. “What Japan can do at the G7 is share its experience of going through a tough time in the 1990s,” he said.

Hank Paulson, the US Treasury secretary, opened the discussion on Friday in a deliberately humble style, telling people to air their problems. This was partly, attendees say, to avoid the suggestion of heavy-handed leadership from Washington, but also because the US Treasury was determined to iron out differences and secure international co-ordination. The world’s leading economies, meeting in a grouping many outsiders had derided as being outdated and redundant, began to coalesce around a set of principles.

Jean-Claude Trichet, European Central Bank president, produced charts demonstrating how, in his view, the collapse of Lehman Brothers in mid-September had sent the crisis out of control. Mervyn King, the Bank of England governor, was eloquent in a call for action. The only sour note came with the intervention of Germany’s Mr Steinbrück who delivered his US and UK counterparts an I-told-you-so.

What came out of the G7 meeting – and was broadly repeated by the IMF’s ministerial steering committee the next day – was dramatic if broad-brush. There would be no more Lehman-type collapses – no more banks allowed to go down that might threaten the financial system. There could instead be bank recapitalisations and deposit guarantees. It would all be done “in a proper way that will be effective”, Mr Paulson declared. “Trust me, we’re not wasting time, we’re working around the clock.”

But the principles needed to be translated into national action plans if they were to reassure the markets. Different countries had problems in varying degrees, hindering the application of a policy cookie cutter. Some needed more bank capitalisation than others, while a UK-style rescue of a few leading banks would have to be modified for an economy such as the US, which has hundreds of savings institutions, many outside the formal banking sector.

Without specifics, the markets might conclude that not enough had been done. Those fears were on naked display amid the newly restored splendour of Washington’s Smithsonian national portrait gallery on Saturday night. At the annual dinner organised by the Institute of International Finance, close to 1,000 of the world’s top financial operators gathered in a cavernous atrium. The athletic gyrations of the evening’s entertainers – performers from the Philadelphia Dance Company clad in multi-coloured silk – did little to lift the anxious mood.

The bankers dined on rare beef but remained hungry for detail on the red meat of the rescue. Several executives said investors would need more substantial fare than the bland reassurances the G7 had cooked up the previous night. Jacob Frenkel, vice-chairman of AIG, the troubled US insurer, and former head of the Israeli central bank, was worried. “The markets are interpreting the lack of specificity as a manifestation of the lack of agreement,” he told the Financial Times on the way into the dinner. “Messages need to be extremely detailed, clear and specific. When it comes to mechanisms, they should indicate what mechanisms. When it comes to quantities, they should indicate the size. When it comes to timing, they should indicate the dates.”

Daniel Bouton, chairman of Société Générale, made an unusual public plea when introducing the evening’s speaker: Christine Lagarde, the French finance minister. “All of us are desperately waiting for details,” he said.

Speaking on an elevated stage, lit by spotlights and flanked by huge screens, Ms Lagarde had something of the air of a rock star or a presidential candidate rather than a former corporate lawyer – even one who, as she reminded the audience, used to be in the French synchronised swimming team and thus had useful experience in both co-ordination and holding her breath.

She acknowledged the bare-bones nature of the G7 statement – “some of us wish it had more teeth and more muscles to it” – but said she was heading back to Paris to put some flesh on the skeleton. “I can assure you: you will not be disappointed,” she added. It was a bold promise to make to a roomful of worried financiers less than 24 hours before Asian markets reopened on Monday morning. The bankers streamed into the night a little more reassured, if not exactly confident.

Just a few blocks away, US officials were working over the weekend to produce their bank recapitalisation plan. It represented a marked shift of emphasis from the original asset purchase programme. Some Republican congressmen, voting against the first iteration of that plan, had called it “financial socialism”. But that was several long weeks ago and, with day after day of panic in the world’s financial system, ideological niceties had largely been cast aside.

The US Treasury also dropped its opposition to government guarantees for new debt issued by banks, realising that such guarantees were becoming the norm across Europe and that failing to follow suit would put their own banks at a competitive disadvantage.

Meanwhile Mr Sarkozy had been working on Ms Merkel. On Saturday the two made a joint visit to Colombey-les-Deux-Eglises, in eastern France, 50 years after their predecessors Charles de Gaulle and Konrad Adenauer met in the French general’s home town to proclaim a Franco-German partnership at the heart of Europe. Despite the symbolism of reconciliation, Ms Merkel still sought reassurance. The EU rescue plan would from now on be described as a toolbox rather than a doctrine.

It was at the meetings of European officials at the Elysée Palace in Paris on Sunday where the country-by-country specifics were hammered out. At 8.30pm Mr Sarkozy took to the podium in the Elysée’s Salle des Fêtes. Flanked among others by Mr Trichet and José Manuel Barroso, president of the European Commission, Mr Sarkozy set out a eurozone-wide rescue plan. As he left the stage, his closest advisers cheered “bravo”, the relief written across their faces.

The €1,873bn ($2,556bn, £1,464bn) in eurozone support that emerged by Monday had the markets roaring their approval. Meanwhile, intensive planning by the US Treasury – with officials drafted in from the IMF and elsewhere – resulted in this week’s guarantees for new bank debt and the provision of $250bn to buy equity in banks.

Only a week ago, such wholesale government intervention would have been a massively outside bet. But a week is proving to be an extraordinarily long time when the global financial system is threatened with meltdown.


“Leading the way.” For those who follow Gordon Brown, the UK prime minister’s oft-repeated claim to be setting an example to the rest of the world – whether on debt relief or the financing of international institutions – has a very familiar ring.

Now, however, the claim rings truer after a breathtakingly bold move by the London government to halt the financial crisis provided an inspiration, if not a model, for governments across Europe and the world. The international reputation of UK policymaking has appreciated hugely.

But the plan to inject public money into banks and guarantee their lending emerged not from calm technocratic deliberation but weeks of frenzied and fractious ping-pong between the Bank of England, the UK Treasury and the banks.

Throughout September and early October, relations between the finance ministry and central bank were souring. Mervyn King, Bank governor (left), was using all his powers of persuasion both publicly and privately to destroy the Treasury’s favoured plan to guarantee new mortgage-backed securities in order to kick-start lending to households.

Mr King wanted banks to raise additional capital privately. Government guarantees would allow banks to delay sorting out their own problems, he argued. The Bank was also furious that its private talks with the Treasury always seemed to leak to the BBC.

But when money markets dried up after the bankruptcy of Lehman Brothers in mid-September, there was an opportunity for a meeting of minds. Mr King’s intellectual journey – from vehemently opposing intervention and guarantees to promoting them – was justifiable in his eyes given the severity of the crisis. Meanwhile the Treasury had slowly come to accept that injecting capital into banks had to be part of the solution – but that they needed help with funding as well as solvency.

It was the extraordinary crisis of the past two weeks that forced the Treasury to act. With equity markets close to freefall, interbank lending seizing up and the entire banking system at risk, years of financial orthodoxy were jettisoned within days. The most decisive ideological act of Mr Brown’s Labour party in recent decades was to ditch the commitment to wholesale nationalisation that had been hardwired into the party’s constitution for three quarters of a century. His most dramatic act as prime minister has been to hurtle in the opposite direction.
Copyright The Financial Times Limited 2008

[ Edited Thu Oct 16 2008, 07:17am ]

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Al Bundy
Fri Oct 10 2008, 07:51pm
Al Bundy

Registered Member #1833
Joined: Tue Apr 22 2008, 10:08pm

Posts: 25133
Nji editorial shume interesant mbi krizen ekonomike aktuale.


There's a global economic crisis going on, and some would attribute it to a hidden elite bent on taking over the world.

In reality, the elite don't need to take such action, the current ruling class have held power over us for over 250 years, since the beginning of the globalisation process and the birth of Capitalism. Marxism 101.

The fact is, we have helped shaped the current crisis, it has been fueled by our greed and we are complicit in the corrupt practices which have kept market capitalism alive for the past 30 years.

Stop blaming shadowy elites and start taking responsibility for your actions.

I'm not into the conspiracy side of things (at least not to the degree that there are secret societies in charge of every major event, as seems to be the general hypothesis). Having seen some of these politicians and international financiers in action, its hard to believe that any of them have the foresight and planning ability to pull a rabbit out of a hat, nevermind pull off something of this scale. They're greedy and their situational awareness is short-term, that's what's got us here. The crime is that we keep letting them get away with it because their business model seemed to suit Western lifestlyes and market capitalist ideology. And, yes, there are 'shrewd' businessmen who will make a killing off of this, as there always are, and the public gets screwed. Welcome to the world as Marx decried it over 150 years ago.

We are a generation of whiners who absolve ourselves of any personal accountability for our involvement in the current crisis by blaming a hidden elite. We don't look at our role in the sub-prime mortgage collapse. We don't ask ourselves if we can reasonably afford to take on debt at more than 4, 5, 6, 10 times our annual income. We just see that nice big house and sign on the dotted line, we see that shiny new car and get a bigger loan, we want a new TV so we pay for it with our credit cards, all the time piling up the debt and ignoring the truth of the economy; it is cyclical, it will hit a downturn, interest rates will go up, inflation will rise.

Yes, the banks have made it easier to buy a house at these rates, but that doesn't mean we HAVE to buy a house which stretches our finances to breaking point. The bankers were wicked, reckless and greedy for profit, and we were complicit. And then there are those of us who are shareholders who have enjoyed the fruits of the market, never asking if the business model is fair, above board, or stable. Short term greed has led us all down this path.

The real 'conspiracy' involves the general public's tacit agreement that these cunts are the best we can do, and that no matter how badly our politicians and business leaders screw up, we keep letting them [shhttt] us over... worse, we pay them for the pleasure and ask for more. There was a time when people would protest and rise up against tyrannies and injustices.

The West has become fat and complacent, softened by 30 years of market capitalism and its seemingly endless ability to generate wealth and provide colourful alluring distractions. The modern opiate of the masses is consumerism, the shopping mall serving as cathedrals to mammon. Well, guess what, kiddies, the American Dream is an illusion. Trickle down does not work. Horatio Alger lied. It's time to take action.

P.S:Ma poshte perkthimi shkurt per ata qe s'dine anglisht.

"Shtriji kembet sa ke jorganin.Ai televizori me ekran LCD qe ke ble vjet punon shume mire edhe sivjet.Nuk ke nevoje me ble tjeter.Mos e fut vedin ne borxh tu marr kredi e tu na humb paret edhe ne te tjereve neper banka:D

[ Edited Fri Oct 10 2008, 08:02pm ]

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L - N
Thu Oct 16 2008, 07:05am
Registered Member #1228
Joined: Wed Sep 12 2007, 10:00am

Posts: 10623
Europe backs move for global reforms

By George Parker and Tony Barber in Brussels and Daniel Dombey in Washington

Published: October 15 2008 20:07 | Last updated: October 15 2008 21:54
European leaders on Wednesday united behind calls for a “Bretton Woods II” summit to redesign the world’s financial architecture. Britain argued that the meeting could also be used to seal a long sought global trade deal.

Gordon Brown, Britain’s prime minister, said the world should turn the financial crisis into an opportunity and reform global institutions, such as the International Monetary Fund, conceived in 1944 when western leaders met in Bretton Woods, New Hampshire, and mapped out a postwar financial order.

Non-euro states rally behind bail-out - Oct-15ECB paves way to ‘reboot plumbing’ - Oct-15Full coverage: Global financial crisis - Oct-01Senate backs rescue plan by wide margin - Oct-02David Pilling: US must kick Asian addiction - Oct-01Comment: Republicans cannot spend their way out of crisis - Oct-01The idea on Wednesday gathered support at a European Union summit in Brussels. Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, have already signalled their support for reforms to the international financial system.

Officials in Brussels had indicated on Wednesday night that the meeting could take place in New York as early as next month. According to a draft summit statement, EU leaders will echo Mr Brown’s appeal by calling for “a genuine and complete reform” of the world’s financial architecture.

The move came as the European Central Bank announced a bolder than expected package to boost funding for commercial banks.

This will see the ECB allowing those borrowing from it to put up a broader range of collateral, including assets with a lower credit rating and denominated in currencies other than the euro.

Mr Brown, whose leadership during the financial crisis has been widely acknowledged in European capitals, said world leaders should settle the stalled Doha round of global trade talks launched in Qatar’s capital in 2001. “We’ve seen international action to pump trillions of dollars into the global banking system in the last few days,” said one British official. “Getting a world trade deal shouldn’t be beyond us.”

France is one of a number of countries anxious about the effects of a deal on its economy, but Mr Brown said protectionism was the wrong approach in the crisis.
Copyright The Financial Times Limited 2008

Back in business

By Clive Crook

Published: October 15 2008 19:23 | Last updated: October 15 2008 19:23

Soaring ambition: one of two statues by Oskar Hansen on the Nevada side of the Hoover Dam, a vast hydroelectric project completed in 1935 under the New Deal

Even before the worst financial crisis since the 1930s bore down on the US this summer, the country seemed poised for an ideological shift. The administration of President George W. Bush was immensely unpopular. Anti-trade and anti-business sentiment was on the rise and both main political parties, in different ways, were responding.

The technocratic market-friendly liberalism espoused by Bill Clinton and the New Democrats was already much less prominent in Barack Obama’s presidential campaign. As the country’s economic difficulties have worsened, the pro-market theme has not so much subsided as disappeared. Mr Obama now is far more likely to talk about the bankruptcy of “trickle-down economics” than the need for competition and incentives.

John McCain, the Republican candidate, has yielded nothing to his opponent in the stridency of his recent denunciations of “Wall Street greed”. The administration, meanwhile, has been forced to swallow what remained of its rhetorical commitment to market forces and deregulation with a $250bn (€184bn, £143bn) bank recapitalisation – a plan that Hank Paulson, Treasury secretary, described as “objectionable” but necessary.

Where might this lead? Does the present upheaval, as some have speculated, point to the end of a distinctively American capitalism? On the whole, this seems unlikely – though the pressures on “American exceptionalism” have rarely looked so strong.

Keynes rises above dissent - Oct-14Necessity pushes out principles - Oct-14Bush tries to restore citizens’ confidence - Oct-10Analysis: How bail-outs poison a free market recipe for the world - Sep-28Humiliation for Bush as power wanes - Sep-29Chrystia Freeland: Crisis puts whole of the west at risk - Sep-28US finance, it seems safe to predict, will change profoundly as this crisis works itself out, regardless of whom the country chooses as its next president. Weak and failing institutions will be absorbed by the less weak, in a far more tightly regulated system. The structure of oversight will be simpler and more comprehensive – with fewer regulators and clearer mandates.
How much more onerous the rules themselves will be is harder to say. Much as “deregulation” is blamed for the financial breakdown, simply restoring the stringency of some earlier regime is not an option. Nobody appears to be advocating a new regulation Q (which once capped deposit interest rates) or son of Glass-Steagall (which would have stopped Bank of America and JPMorgan Chase acquiring Merrill Lynch and Bear Stearns respectively). Self-evidently, better regulation is needed, but history shows that designing it will be difficult – and not just a matter of saying “the market gets it wrong”, true as that may be.

In any case, finance is special: by itself, a new approach to financial regulation would hardly signify the end of American capitalism. For the crisis to lead there, bigger things would have to change: the role of government in the economy at large; levels of public spending and taxation; the commitment to provide a social safety net and to redistribute – in short, a new social contract. Is this even conceivable?

Certainly. A new social contract – the New Deal – was the outcome of the Great Depression and it would be foolish to rule out another such convulsion. The present crisis is adding to demands for new government intervention. Many economists are advocating spending on infrastructure, both for counter-cyclical purposes and to spur longer-term growth. Rising unemployment and falling incomes will highlight gaps in the country’s social insurance and will sharpen complaints about social injustice. More than in the past, the nation’s mood is likely to favour universal healthcare, for example, and higher taxes on the rich.

Below: Boondoggles held in reserve as leaders plan roads to recovery

These are the sentiments that might transform American capitalism – or even end it as a distinct species. They are also the very sentiments that will most likely put Mr Obama into the White House and strengthen Democratic control of Congress. The tide is running so strongly in that direction that pollsters are talking of a possible landslide; they have begun to contemplate the possibility of a veto-proof Democratic majority in the Senate.

Moreover, the present crisis may be working with the grain of a longer-term shift in US attitudes. According to the Pew Research Centre, a growing proportion of Americans has come to the view that the country is divided into haves and have-nots. In 1988, roughly a quarter said the US was split in that way. In 2007 it was nearly half. No less striking, in 1988 nearly 60 per cent regarded themselves as haves; in 2007, before the crisis began, the figure had fallen to 45 per cent.

The growing perception that US society is divided, and the growing numbers who see themselves as falling on the wrong side of the line, are evident among both Republican and Democratic voters, those with a college education and those without, all age groups, men and women – almost regardless of how you slice the data. Inflation-adjusted incomes have grown comparatively slowly over much of the period for all but the very rich. The soaring costs of healthcare and college education, outlays that loom large for many middle-class families, have added to many Americans’ sense that they are failing to get ahead.

Meanwhile, astounding increases in the incomes of prominent financiers – private equity partners, hedge fund managers, chief executives of failing banks and so on – are widely reported and arouse incredulous rage. Furious popular resistance to the Treasury’s initial financial rescue plan, widely perceived as providing a parachute for Wall Street fat cats, was a striking illustration of the strength of feeling. It seems that many Americans today would willingly vote to suffer a little if they could be sure of seeing the titans of finance suffer a lot – an attitude more readily associated with the old Soviet Union than the US.
One of the reasons that the New Deal turned out not to have laid the foundations for European-style socialism in the US, scholars have argued, is that the postwar economy provided remarkable upward mobility for so many Americans. Surging productivity, with the benefits widely shared, and the rapid expansion of higher education and the skilled workforce that goes with it combined to sustain the American dream: in a word, opportunity. Most people saw their living standards on the rise and were confident, with reason, that their children would do far better than they had.

Those days are over. Living standards are stagnating. Over the next decade, more people with graduate degrees will exit the workforce than join it. American economic mobility is now lower than in many European countries.

All this was true even before the housing slump and the subsequent financial crisis jeopardised the savings (in many cases, largely in the form of home equity) of most middle-class Americans – and before the call went out for a $700bn lifeline to be cast to the “greed is good” merchants of Wall Street. Is a new social contract conceivable? You bet.

Nonetheless, powerful forces are pushing the other way. Over the years surveys have consistently found, as the Pew opinion researchers put it, “that Americans are far more likely than Europeans to believe that individuals, not society, are responsible for their own failures, economic and otherwise”. This still seems to be true. Even as the American dream of economic opportunity has faded, the insistence on individual responsibility remains strong. In fact, this further helps to explain the feelings aroused by the bail-out plan. Many Americans direct their anger not just at the undeserving of Wall Street, but at the undeserving of Main Street as well (“I took out a mortgage I could afford; why should I help people who borrowed too much?”).

The other great constraint on any drive towards a social democratic US is fiscal. The legacy of the Bush administration includes a structural budget deficit. The longer-term pressures on fiscal policy – notably, the cost of the Social Security retirement scheme and Medicare – are daunting. In the short term, the recession will shrink the tax base and worsen the excess of spending over revenues. Then comes the cost of the bail-out.

The eventual bill for the current rescue package is likely to be less than $700bn, since some value will be recovered from the assets and equity that the Treasury acquires. But it may still be a big number; the whole outlay has to be financed in the meantime; and the current proposal is only a first instalment. A second fiscal stimulus is likely by early next year and more than is currently envisaged may need to be spent on bank recapitalisation and other crisis control measures.

In addition, an Obama administration would come into office with big plans for additional public spending on a long list of expensive programmes: affordable college; more spending on schools; new infrastructure, including a modernised electricity grid; support for alternative fuels; and near-universal healthcare. In the first presidential debate, Mr Obama was repeatedly asked which of his plans might have to give way in view of the financial crisis. He would not say: he simply reaffirmed his aims. (Joe Biden, his running mate, was subsequently a little more forthright: he said foreign aid might be cut.) Mr Obama still pledges to cut taxes for 95 per cent of working families.

Many economists argue that all of these plans should go ahead, alongside a new short-term stimulus too. The need to boost demand, in their view, makes the case for a new New Deal – with a focus on investment in infrastructure – all the stronger.

Infrastructure projects can take years to plan and execute, so they are rarely advocated as an effective counter-cyclical measure, but this time is different, many say. Good cost-effective projects have been held up because the states are short of money. An injection from the federal government could bring a lot of well-planned investment quickly on stream. Also, if the US faces a prolonged slowdown, projects that disburse their funds, and keep people employed, over one or more years may be quite appropriate.

The new administration, however, will worry that the global capital markets might baulk at financing so large a borrowing requirement. Next year’s budget deficit is likely far to exceed $1,000bn. It would be surprising if the new president were unconcerned about this and made no effort to impress the markets with his commitment to restoring long-term fiscal balance, even if long delayed. He will surely be forced to curb his spending ambitions.

In the end, though, history’s verdict may turn on the fate of just one programme: reform of healthcare. Despite their echoes of the first New Deal and the merits of such investments in their own right, projects such as building a modern electricity grid might signify little for the nature of US capitalism. But suppose Mr Obama is elected and, despite the fiscal pressures and other demands on his attention, he perseveres with his plan for near-universal healthcare. Further suppose that this then evolves, as he intends it should, into a fully universal system.

That would be as momentous a change as the creation of Social Security. It would close much of the gap between US and European social provision – and its long-term cost to the public purse might, in the end, close much of the gap between US and European tax rates.

American capitalism would surely retain its distinctive vitality, which springs from a zeal for competition, innovation and sheer hard work that seems bred in the bone. But if the consequence of the crisis is an emboldened Obama administration, a strongly Democratic Congress and a suspension of the usual political constraints – leading in turn to far-reaching healthcare reform – recent events will indeed have caused a great and lasting change. The US would have devised a new social contract and the country would look a lot less exceptional.


At its peak in 1938, Franklin Roosevelt’s Works Progress Administration employed more than 3m people. The agency built 80,000 bridges and more than half a million miles of roads. You name it, the WPA built it, and in quantity: schools, hospitals, concert halls, stadiums. The agency was a crucial component of the New Deal and left its mark in almost every American town.
It was probably the most ambitious make-work scheme the non-communist world has ever seen. The primary purpose was not to build infrastructure, though a vast amount of that did get built. It was to employ people. Workers received a steady “security wage”, pitched at less than a private employer might pay. The WPA hired workers to provide services as well as swing pickaxes. They cooked school lunches, painted murals, performed concerts and staged plays. Thousands of artists and musicians signed on.

Even at the time, doubts about waste were expressed. In 1935 the New York Times complained about “boondoggles” and the term entered the vernacular. Approval of projects and disbursement of funds was said to be driven more by political than civil engineering. But nobody denies that the scheme lifted millions out of severe distress and made a real contribution to strengthening the country’s economic backbone.

Might a new New Deal require a new WPA? Probably not. A growing number of economists do advocate investment in infrastructure as part of a new stimulus plan, but their concern is not (or not yet) to address mass unemployment directly: their aim is to keep employment and incomes up by supporting aggregate demand. Investing in infrastructure may be better in this regard than economists have traditionally supposed, they argue.

The recession will put state and local budgets under intense strain – and infrastructure projects are usually financed from those sources. Cost-effective projects, planned and ready to go, are already being postponed because of fiscal pressure. Directing federal dollars to those schemes will therefore be fast-acting from a demand-management point of view, advocates say.

Many studies suggest that the US can ill afford to let its essential infrastructure – roads, bridges, airports, air traffic control systems and power lines – decay any further. Aside from mere upkeep, opportunities present themselves for upgrades such as the “smart electricity grid”, much favoured by Barack Obama.

Among other things, this would allow consumers to save money by accommodating their use of energy to overall demands on the system. (Avoiding periodic blackouts would be good, too.) In 2008, there would be no complaints from the New York Times about boondoggles.
Copyright The Financial Times Limited 2008


America was right to look and learn

By John Gapper

Published: October 15 2008 18:59 | Last updated: October 15 2008 18:59
History will record that George W. Bush, the US president, faced two big crises during his term of office: the terrorist attacks of September 11 2001 and the financial meltdown of 2008.

Mr Bush’s response to the first was to tell the rest of the world that “you are either with us or against us” and invade Iraq with the UK in tow. His response to the second was to listen to finance ministers from around the world and fall in line with Europe by buying stakes in banks.

I vote for the second approach.

It is much too early to declare “mission accomplished” on the financial crisis since markets remain extremely nervous and banks are still reluctant to lend to one another. But the latest version of the global bail-out plan at least stands a fair chance of success.

Personally, I have more faith in this plan than I did in the Iraq war, partly because the first draft was discussed with others who wanted to achieve the same end. That helped the US to sharpen up its ideas. Designing things by global committee has flaws but launching a unilateral offensive that lacks credibility is worse.

The new tack clearly tickled Jean-Claude Trichet, president of the European Central Bank, at the Economic Club of New York on Tuesday. Mr Trichet, who gave his speech surrounded by financiers and central bankers, including Tim Geithner of the New York Federal Reserve, looked and sounded as if nothing could be more enjoyable than US-European intercourse.

“I am pleased to have exceptionally intimate relations with the Federal Reserve,” he said, singling out “Ben, Don and Tim” for his warmest regards. It sounded like some kind of racy continental ménage à quatre, but he turned out to be talking about financial policy meetings in Basel with Ben Bernanke, Donald Kohn and Mr Geithner of the Fed.

In fact, Mr Bush and Hank Paulson, the Treasury secretary, had to shift positions, despite their resistance to the idea of nationalising banks. The fact that the UK had taken stakes in banks including Royal Bank of Scotland and HBOS, and would be followed by Germany and France, was force majeure.

It was not so much a victory for multilateralism as a recognition that no nation could afford to go it alone in this global crisis. The forces they were all battling – loss of confidence in banks and other institutions and worries over mortgage-related securities – were too big to be tackled by one country on its own.

Mohamed El-Erian, chief executive of the bond asset management group Pimco and winner of this year’s Financial Times-Goldman Sachs Business Book of the Year award, talks of “correlation rather than co-ordination” among the actions of national governments.

Central banks have, pace Mr Trichet, acted in a co-ordinated fashion – their independence from national electorates gives them the freedom to do so. They have not only cut interest rates together but have set up swap arrangements to allow European banks with a mismatch between assets and liabilities to borrow in dollars.

But governments have mostly made do with correlation, also known as watching what others are doing and copying the things that they like. This has been surprisingly effective for a couple of reasons.

First, since we are in uncharted waters, it has let governments try things out in different countries and see how well they work, or go down with investors. The UK bailed out Northern Rock, the mortgage lender, the US guaranteed money market funds, Germany (sort of) stood behind bank deposits, and so on.

Second, it has provided cover for governments that either did not want to take some steps, or faced resistance among electorates to doing so. The best example is the US, where Mr Paulson initially argued strongly against buying stakes in banks as part of his $700bn bail-out plan.

It is difficult to know exactly what he was playing at. Did he initially abhor taking equity in banks as socialist but then change his mind, did he judge that what had been unnecessary had become necessary, or did he always plan to do so?

You can take your pick from his public statements. Last month, he told a Senate committee that “the right way to do this is not going around and injecting capital”. This Tuesday, he reversed himself, with the excuse that his plan was “not what we ever wanted to do” and was “objectionable to most Americans, me included”.

The fact remains that recapitalising banks was the correct course of action all along. The US gets more bang for its buck by doing this, rather than simply trying to entice private capital into banks by supporting the valuations of bad securities.

Mr Paulson, who did after all insert a clause in the bail-out plan allowing himself to switch course, may have been ruled by realpolitik. It was tough enough to get the plan through Capitol Hill without infuriating House Republicans further by raising the spectre of nationalisation.

In a sense, it does not matter what he was up to because he came to the right conclusion with the aid of foreign partners and market forces. Mr Bush and Mr Paulson were forced to accept that they were either with European governments or the markets would be against them.

That goes for European countries too, which could assess Mr Paulson’s initial, flawed version of his $700bn plan before tweaking it. Gordon Brown, the British prime minister, has rightly gained credit for coming up with the best version but he built on what came before.

Call it a victory for common sense, international co-operation, market discipline or what you will. I believe it will achieve more than Mr Bush could have done by himself.


Copyright The Financial Times Limited 2008

[ Edited Thu Oct 16 2008, 07:26am ]

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Mon Mar 09 2009, 12:38pm
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An L of a recession – reform is the way out

By Wolfgang Münchau

Published: March 8 2009 18:15 | Last updated: March 8 2009 18:15

The US is dragging its feet over the financial sector. The European Union is doing the same, as well as failing to adopt policies that could shield it from an increasingly probable speculative attack. And judging by the state of preparations, the forthcoming Group of 20 summit is going to be a disaster.

So it looks like it is going to be an L – not a V or a U. I mean an L-shaped recession, one that starts with a steep decline, followed by very low growth for many years. In a V-type recession, the recovery is instant. In a U-type, it comes eventually. My guess is that we are currently somewhere in the middle of the vertical bit of the L, but it is the horizontal bit that is the scariest. History never repeats itself exactly, but we know from economic history that financial crises are surprisingly similar. This looks like Japan all over. Without financial restructuring, the economy is not going to recover. And Japan was lucky. It was surrounded by a booming global economy.

The best way to fight such a disaster is to restructure the banking system and provide short-term economic stimulus through monetary and fiscal policy. Speaking at a recent Aspen Italia conference in Rome, Martin Feldstein, a former economic adviser to Ronald Reagan and president of the National Bureau of Economic Research, estimated that US consumer spending would fall by $500bn (€395m, £355bn) annually, and construction spending by $250bn. Against this combined annual $750bn shortfall, the current stimulus package is woefully inadequate. In other words: we are looking at an L.

An L-shaped recession will make the adjustment of balance sheets even more painful. Unemployment will continue to rise. House prices will keep on falling. US consumers and banks will spend the next five or more years deleveraging, getting their respective balance sheets back in order. In that period, the US current-account deficit will fall sharply, as will that of the UK, Spain and several central and eastern European countries. This process can take a long time, and in an L-shaped recession it takes longer.

But the effect is also brutal on the rest of the world. The fall in current-account deficits will be partially compensated for by lower surpluses from oil and gas exporters, such as Middle Eastern countries and Russia. But the bulk of the adjustment would be borne by the world’s largest exporters: Germany, China and Japan. Globally, current-account deficits and surpluses add up to zero – minus some statistical reporting errors. You can do the maths. If the US stops buying German cars, Germany will eventually stop making them.

If we had a simple U-shaped recession, we would still have a painful recession in Germany and Japan, for example. But under a U-shaped scenario, both countries would be among the first to benefit from the recovery.

In an L-shaped recession, however, recession gives way to depression, despite the fact that both countries thought they had done their “homework”. If nobody can afford to run a large deficit for a long time – which is what an L recession effectively implies – the economic models of Germany and Japan will no longer work. Germany had a current-account surplus of more than 7 per cent last year. It is the world’s largest exporter. Exports constitute about 41 per cent of national gross domestic product – an extraordinary number, given the size of the country.

So what should these countries do? The right policy response would be to reduce the dependency on exports and undertake structural reforms that facilitate the shift towards non-tradable goods. These are not the same type of structural reforms as those of the past, involving cost-cutting and improving competitiveness. This is about flexibility and mobility.

Unfortunately, the opposite is happening. Germany is clinging to its export model like a drug addict. An example is the debate about the future of Opel, the European car manufacturing subsidiary of General Motors. Opel is unlikely to survive without help from the government. The proponents of a state bail-out of Opel argue that the company is systemically relevant. This argument is obviously wrong. There can be systemically relevant banks, but there can be no systemically relevant carmakers. But the answer is also revealing. What it means is that Opel is systemically relevant for the country’s export-oriented model. The bail-out adherents are clinging to an industrial structure that has no hope of survival in an L-shaped world.

To her credit, Angela Merkel, the German chancellor, seems reluctant to agree to the bail-out, as is her party. But pre-election politics will make a bail-out of some sort likely. It is terrible economics. The problem is not even the waste of taxpayers’ money. Combined with French car subsidies, such a decision will contribute to massive overcapacity in the sector and will slow down the economy’s adjustment to the export shock.

We are nowhere near a solution to the crisis. After committing errors of omission, global leaders are now producing errors of commission. The Americans dream about a return to a world of credit finance consumption while the Germans dream about assembly lines. In an L-shaped world, these are nightmares.

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Copyright The Financial Times Limited 2009

[ Edited Mon Mar 09 2009, 12:40pm ]

Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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Thu May 14 2009, 11:55am
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Posts: 10623
Positive growth forecast for Albania

By Kerin Hope in Athens

Published: May 14 2009 01:52 | Last updated: May 14 2009 01:52

Albania appears an unlikely bright spot on Europe’s gloomy economic map, with international institutions still forecasting positive growth of about 1.2 per cent this year.

While its cash-strapped Balkan neighbours seek emergency finance from the International Monetary Fund, Europe’s second-poorest country, after Moldova, secured a €250m ($340m, £224m) medium-term commercial loan last month, arranged by Deutsche Bank and Alpha Bank of Greece.

European clouds refuse to part - May-14Interactive feature: Europe’s economic weather forecast - May-13Italy and Albania to sign energy deals - Dec-01The funding allows the right-of-centre government of Sali Berisha, prime minister, to complete an upgrade of the main highway to Kosovo – a key infrastructure project.

Ardian Fullani, the central bank governor, told the Financial Times on Wednesday that the international loan had given a boost to Albania’s credibility with investors abroad and helped sustain liquidity in the domestic bond market. “We are weathering the crisis with less pain than others. Demand is still there and the budget [deficit] is under control,” he said.

Credit expansion is set to slow this year from 36 per cent to about 15 per cent, “which is healthy in these times”, Mr Fullani said. Austrian, Italian and Greek bank subsidiaries that control more than 70 per cent of assets “are well-capitalised, profitable and have performed strongly in a series of stress tests that we started last year,” he said.

While Albania may benefit from being overlooked – it lacks a sovereign credit rating – it has not escaped the impact of the downturn.

“It’s faring better than others, but this year’s projection still marks a dramatic decline after years of growth at 6 to 7 per cent,” said Jens Bastian, an economist at Eliamep, an Athens-based think-tank.

Exports of chrome and copper ore are slowing, along with remittances from migrant workers, which were flat last year at about €1bn. Yet investors are still showing interest. Tirana recently signed energy projects worth more than €3bn with Italian, Austrian and Norwegian companies to end a chronic electricity shortage and make Albania a regional exporter.

“We think Albania can become an important regional trade hub,” said Philip George of Zumax, a Swiss-based company bidding for a €400m concession to modernise the port of Vlora.

Mr Fullani said the government that emerged from June’s parliamentary election would seek a new arrangement with the IMF in order to maintain foreign investor confidence – “not funding but technical assistance for more structural reform”.
Copyright The Financial Times Limited 2009

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Ju pershnes tanve. Ju falemnders per shoqnin tuej, e ju prift e mara tanve pa perjashtim. Kam ndryshue shpin, e kam shkue me shpi te
... Me vjen keq po s'kam mundsi me u dukt ma ktej parit. Ju pershnes me mirnjohje e dashamirsi.

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