You are here: HomeWallSayIt Loud2008 03 17ITHE AMERICAN BANIKING CRISIS (YILO)

Say It Loud


2008-03-17 10:49:45

Banking crisis

Do you remember when our President was calling on the international community to intergrate us into the internationsl system? HE did not think about such problems. He even wanted Ghana to become an international Financial Centre.. It is just as well we are too small a fry.

Banking is about things we produce and sell . Where these basic fundamental rules are broken to the extent that we stray unto trying to create wealth out of shuffling paper ,all it needs is one false step and the whole system comes crashing down .

It is hoped the Arab and Asian Sovereign funds will not rush to throw good money after bad. There are many countries which are crying for investment funds and the Managers of these sovereign funds should look to them The whole of Central Asia is open for investment if they are not keen on Africa.



Extracts from

Bearly Alive: Investment Giant Rushed To I.C.U.

By Mike Whitney

16/03/08 "ICH" -- - On Friday, Bear Stearns blew up. It was the worst possible news at the worst possible time. A day earlier, the politically-connected Carlyle Capital hedge fund defaulted on $16.6 billion of its debt. Carlyle boasted a $21.7 billion portfolio of AAA-rated residential mortgage-backed securities, but was unable to make a margin call of just $400 million. (Where did the $21.7 billion go?)

The news on Bear was the last straw. The stock market started reeling immediately; shedding 300 points in less than an hour. Then, miraculously, the tide shifted and the market began to rebound. If there was ever a time for Paulson's Plunge Protection Team to come to the rescue; this was it. For weeks, the markets have been battered with bad news. Retail sales are down, unemployment is up, consumer confidence is in the tank, inflation is rising, the dollar is on the ropes, and the credit crunch has spread to even the safest corners of the market. Facing fierce headwinds, Washington mandarins and financial heavyweights had to decide whether to sit back and let one small investment bank take down the whole equities market in an afternoon or stealthily buy a few futures and live to fight another day? Tough choice, eh?...........

........So, what makes Bear so special?

How is it that one of the smallest investment banks can pose such a threat to the whole system?

That's the question that will be addressed in the next couple weeks and people are not going to like the answer. For the last decade or so the markets have been reconfigured according to a new ?structured finance? model which has transformed the interactions between institutions and investors. The focus has been on maximizing profit by creating a vast galaxy of exotic debt-instruments which increase overall risk and volatility in slumping market conditions. Derivatives trading which, according to the Bank of International Settlements, now exceeds $500 trillion, has sewn together the various lending and investment institutions in a way that one failure can set the derivatives dominoes in motion and bring down the entire financial scaffolding in a heap. That's why the Fed got involved and (I believe) approached Congress in a closed-door session (which was supposed to be about FISA legislation) to inform lawmakers about the growing possibly of a major economic meltdown if conditions in the credit markets were not stabilized quickly.

The troubles at Bear and the danger they pose to the overall system were articulated in an article by Counterpunch editor, Alexander Cockburn in a November, 2006 article ?Lame Duck: The Downside of Capitalism?:

?In a briefing paper under the chaste title, 'Private Equity: A discussion of Risk and Regulatory Engagement', the FSA raises the alarm.

"Excessive leverage: The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent. Given current leverage levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable. This has negative implications for lenders, purchasers of the debt, orderly markets and conceivably, in extreme circumstances, financial stability and elements of the UK economy.".....
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Kwaku Romeo
03-17 10:51
Kwaku Romeo
03-17 11:22
Mr. Mister
03-17 12:48