Spain puzzles with E30bn fund 8 Oct 2008 Madrid wants to provide liquidity to help banks lend more. But its new fund, like the US Tarp, won t obviously do the trick. Nor is it clear that Spanish banks need this sort of aid right now. The government may be preparing for worse financial times, which could well be coming.
Personal view: Interest rates 7 Oct 2008 A decade of cheap money has brought an imbalance between supply and demand for funds. Banks are deleveraging hard, and so are loath to lend. Higher interest rates could attract capital from outside the banking system and reduce demand for debt, reducing the current imbalance.
US $700bn bailout needs to be re-aimed 7 Oct 2008 It s not too late to take the cash and use it to recapitalise weak banks directly rather than buying dodgy assets. This would be a more effective way of restoring confidence and protecting taxpayers. What s more, it wouldn t even require new legislation.
Central banks hurl the kitchen sink 7 Oct 2008 Australia s 100 basis point cut is likely to be the first of many, but lower rates won t unfreeze money markets. The vital next step is unsecured central bank lending. Principles are being abandoned, but what matters in a deleveraging spiral is avoiding massive debt deflation.
Iceland banks’ saga is far from over 6 Oct 2008 The tiny country s banks are struggling to retain confidence. Liquidity support would help. But its currency is under attack and many of the banks' loans are in euros. As credit quality falls, Iceland's central bank will need more foreign currency. That could be hard to find.
UK economic war cabinet deserves qualified thumbs-up 3 Oct 2008 Gordon Brown hasn t just brought back Peter Mandelson, his old nemesis; he has also tapped the expertise of Paul Myners, the City grandee. Provided these big egos can work together, they should be able to take faster and more effective decisions to tackle the economic crisis.
Hank Paulson gets his $700bn bailout bill 3 Oct 2008 The US House approved the Tarp after getting extra goodies and a painful lesson in market behaviour. As Wells Fargo s Wachovia bid shows, existing government initiatives are enough for some. But the Tarp may be the confidence boost the private sector needs to do its handiwork.
Dutch carve-up of Fortis leaves Belgium hanging 3 Oct 2008 The Netherlands has abandoned a tripartite rescue of the Benelux group after continued funding issues and is, instead, nationalising its Dutch units for E16.8bn. The price seemingly values the ABN arm at a low E5bn, potentially leaving the Belgian rump with a capital problem.
UK makes full deposit guarantee all but explicit 3 Oct 2008 The FSA has pushed the explicit limit up from £35K to £50K £100k for joint accounts. But the more meaningful promise comes from the Chancellor to do whatever is necessary to protect depositors. That should help defuse one crisis. Alas, it s not the biggest one.
US economic graph tilts sharply downwards 3 Oct 2008 US employment fell 159,000 in September, more than expected. Factory orders, car sales and the ISM index have all turned weaker. The US economic graph has tilted sharply downwards, looks to be heading for a recession. That will turbocharge calls for more stimulus spending.
Bailout plan risks prolonging recession 2 Oct 2008 The US plan to rescue ailing banks will invest up to $700bn in distressed mortgagerelated securities and other loans. In a credit crunch, that will crowd out others more deserving of funding. That could deepen the economic slowdown, and is certainly likely to extend it.
US Senate passes Tarp with side of sausage 2 Oct 2008 After the shock rejection of Paulson s $700bn bailout, the wide Senate majority offers some succour to investors craving action. But the House could still say no again. The bill is weighed down with a barrel of pork and last week s rescues show other solutions are possible.
How can Gordon Brown save HBOS deal? 1 Oct 2008 The UK PM is desperate for Lloyds purchase of the wobbly lender to go ahead. But he s only planning to raise deposit guarantees to £50,000. That could be too little too late. Temporarily scrapping the cap would be a better solution, not just for HBOS but for the whole industry.
Europe doesn’t need a common bank bail-out fund 1 Oct 2008 French president Nicolas Sarkozy is trying to rally his EU colleagues around a unified response to the financial crisis. The approach is welcome, but some of his ideas aren t practical and others outright dangerous.
Crisis calls for deposit guarantees 1 Oct 2008 Right now, even the whiff of a suggestion that deposits aren t rock solid can lead to a run on a bank. US and British authorities need to stop dithering and follow the Irish and French by guaranteeing virtually all deposits, argue Hugo Dixon and Rob Cox.
US could buy banks’ preferred stock 30 Sep 2008 The Tarp plan did not help banks directly, raised asset valuation problems and was very costly. A fund investing in the preferred stock of operationally solid banks could supply capital directly, and would probably be cheaper, economically sounder and less risky for taxpayers.
Fearful markets face more rough days 30 Sep 2008 After Monday s plunge in the stock markets and the total collapse of interbank confidence, the Western financial system looks fragile. Panic threatens to turn a necessary deleveraging into a disaster. Strong action is needed, but the authorities are mostly still playing catchup.
Tarp’s 110 pages leave many questions unanswered 29 Sep 2008 The biggest is whether it will work. But with Hank Paulson s $700bn bailout now in a form Congress may reluctantly approve, it s time for the US Treasury to hammer out crucial details like the price at which the government will buy troubled assets. And that s just the start.
Rate cuts are likely, but take time to help 29 Sep 2008 Markets are expecting synchronised reductions in overnight rates. They ll probably get what they want, as central banks try everything on the menu of confidencebuilders. But the US experience shows even big rate cuts can t do much to alleviate a postbubble financial implosion.
How the US government handles bank failure 26 Sep 2008 Washington Mutual is the largest US bank failure in history nearly eight times as large as any other. More seem inevitable. Breakingviews.com has compiled a primer on the FDIC, the government agency in charge of managing bank receivership and protecting depositors' cash.