When the economic history of the credit crisis is written, September and October 2008 will be seen as the months that pushed the banking and financial systems of the industrial world to the brink of collapse.
While the crisis has been running for more than a year, it has reached a new and more virulent phase, with the past two weeks a view-changing shock for policy makers everywhere.
Inevitably, the US, Britain and Europe are going to end up with nationalised banking systems in one form or another, and with governments guaranteeing not only their deposits but probably all their liabilities. The nationalisation will be a temporary emergency measure. But for some time at least the systemically important banks effectively are going to be public utilities and must be regulated accordingly.
This taxpayer rescue of banking systems opens up a new and potentially very important avenue for unfreezing bank lending and restoring the flow of credit. If governments effectively control the banks, what is to stop them from demanding that they start lending again? ...
However, the deeper and more prolonged downturn in the Group of Seven economies now in prospect means it will take a miracle for Australia to avoid a recession. As in other high-income economies, just how nasty it gets will depend a great deal on how households respond, particularly as unemployment rises.
Alan Wood.
http://www.theaustralian.news.com.au/story/0,,24472447-24631,00.html
NEW YORK, Oct 10 (Reuters) - U.S. stocks tumbled in a turbulent session on Friday, as panicked investors dumped stocks in a global sell-off on mounting fears that frozen credit markets would push the world into recession.
Uncertainty about what steps the finance chiefs of the world's major economies will take over the weekend to confront the financial crisis further fueled the market's anxiety. Stocks added to losses after a G7 official said the Group of Seven major nations is unlikely to adopt Britain's proposal to guarantee lending between banks when it meets on Friday.
Shares of Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) tumbled after credit ratings service Moody's said it might cut their ratings, reviving concerns about the viability of their banking models. [ID:nHKG162100]
Energy companies dragged on the broader market as oil prices fell 10 percent to a 13-month low below $78 a barrel on fear a faltering global economy will curb demand for crude.
Volume was heavy across the board and trading was extremely volatile. Shortly after the open, the Dow Jones industrial average slid about 8 percent to break below 8,000 for the first time since April 1, 2003, and then briefly turned positive, before turning sharply lower again.
With less than an hour and a half left in the trading session, the benchmark S&P 500 index was on track for its worst week on record.
"It's a disaster. It's far worse than people thought it was going to be," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York.
http://www.reuters.com/article/marketsNews/idUSN1039473420081010
Everywhere there is fear of another Great Depression. The pundits and the politicians attempt to reassure a troubled population that the Australian banking system is strong, that it couldn't happen here. No one believes them any more. My parents grew up in the Great Depression and everywhere in our lives were signs of their upbringing. My father would get angry if we used too much soap in the shower. Even though he had a well paying job, he never spent any money, at least not on us. Barely a cent. Once, once, during my entire childhood, we went out to dinner, to the Chinese restaurant in the neighbouring suburb. It seemed like a wonderful adventure.
There was none of the casual sophistication of my children, who pester me to go get croissants at the local Vietnamese hot bread shop, or Sammy who pesters constantly to go and get chocolate gelato from Bar Italia in Leichhardt, which the kids maintain is the best gelato in Sydney. They ought to know, having dedicated a childhood to the quest. Or Henrietta moans, not Thai takeaway again. What we would have given for Thai takeaway when we were kids, well we wouldn't have even known what Thai takeaway was; as we lined up yet again for a chop with one piece of potato, one piece of pumpkin, beans, always the same, as my parents sat glowering and the trees continued their manic rustling all around.
Both my grandmothers brought up six kids each during the Depression. It seemed a common number, back then. These women never expected anything, certainly not the casual luxuries of today; certainly not the glamorous lifestyles portrayed on television, here in the Oprah age when vast wealth is admired and peered at every day, envious windows, shadows of ferment, torment, as we long to be taken out of our own lives and granted custody of our own futures, as we measure success in terms of physical acquisitions, as the Audis queue at the lights, gleaming black and silver, and the idea that their grandparents might not have worn shoes to school seems to them a fantasy.
Dreamed up, escape hatches everywhere, movies to lift into wonder or divert our tales of humble action, try hard, work hard, cut your garment according to your cloth. No saying could be less appropriate, as the gleaming four wheel drives line up to escape the supermarket, their boots packed with the shopping as the children watch DVDs or play electronic games in the back seat. It's a different era. Mary Anne would make us kids eat pumpkin with the skin on it, and we weren't allowed to leave the table until we did. The chooks scrabbled in the back yard. Nothing was wasted. No money was spent. Through the depression, they contributed pennies to insurance schemes which when they were finally realised decades later were only worth a few hundred bucks.
As for Sarah Audrey, the maternal grandmother, in the family tree there were two characteristics listed, piercing blue eyes, and the ability to make "something out of nothing" when it came to feeding the tribe. And it was true. She could always rustle up something to eat, even if it was simple. That generation never spent anything they didn't have to, counted every penny, saw no pleasure and no point in useless frivolities, couldn't imagine the groaning malls of the modern era. My mother always told of the heartbreak her father caused, when he dank the household money and would come slurring home to a reproachful house.
Or of the days, those terrible days it sounded, when she was sent down to fetch him, to say, mum says, dinner's on the table, never knowing the reaction, as she poked her little face through the fearsome front door of the bar, daring to embarrass him. And running and running, so he wouldn't hit her. And the shame of it all, when there was no money for anything and they kept the pumpkins growing, because they would certainly need it. All was right, all was clear, there far away; there was no money. There weren't any matches bought casually at the shop. There weren't any needles, to sow up second hand clothes. There just wasn't, really, any money at all; no casual consumer goods, no casual gluttony, no flash cars and credit cards and lost houses; for all had already been lost, and the scrabble to survive, to feed the kids, to get through the day, to put the dinner on the table in the evening, that was all that occupied them.
THE BIGGER STORY:
http://news.xinhuanet.com/english/2008-10/10/content_10174940.htm
BRUSSELS, Oct. 9 (Xinhua) -- The eurozone economy is now on the brink of recession as the financial crisis is devastating the 15-nation bloc sharing the euro currency.
For the first time, economic growth in the eurozone recorded a quarterly decrease in the three months from April to June this year, figures from the European Union (EU)'s statistics bureau Eurostat showed Wednesday.
But things have been getting worse after the negative growth in the second quarter, mainly due to the escalating financial crisis, which suggests that there is little chance of the eurozone economy rebounding in the following months.
In technical terms, recession means negative growth in two consecutive quarters.
As EU Economic and Monetary Affairs Commissioner Joaquin Almunia said Thursday, forecasts of a recession in Europe and the United States could become the "central scenario."
Forecasts for recessions on both sides of the Atlantic "run the risk of becoming the central scenario in the coming months," Almunia told a conference in Madrid, Spain.
The financial crisis, which originated in the United States, has deepened in Europe in recent weeks, with several European banks falling prey to the global credit crunch, prompting EU governments to save their banks by injecting large amounts of money or even nationalizing them.
Without any knowledge of which one would be the next victim, financial institutions in the eurozone have become extremely reluctant to lend to each other, resulting in a more serious credit crunch.
Despite furious efforts by the European Central Bank (ECB) to inject liquidity into the financial markets, no big turn was observed.
http://www.thestatesman.net/page.news.php?clid=12&theme=&usrsess=1&id=226221
It's bad and may get worse, but it's no depression
By Hamish McRae
The world's monetary authorities are at last really trying to reassert their power over the financial markets. They have not yet succeeded and they will have to do more, may be much more, but eventually they will win. Or at least they always have in the past 75 years. You have to think that the world is facing something akin to the Great Depression of the 1930s to believe that they will fail.
To begin with, the fire-power of the world's central banks, particularly when acting together, is huge. They can flood the world with unlimited money, hence reinforcing the changes in interest rates such as they agreed on yesterday. Central banks don't act in concert very often. The last time I recall was a pact in 1985 to support the dollar. This time there will have to be more interest rate cuts around the world, but one of the messages yesterday was that there will be. This is the beginning of global interest rate disarmament. It was also great in show-biz terms to get the Chinese on board, since the Chinese economy has become the principal source of growth in the world.
The second way in which the authorities are taking charge is by supporting the banks. The response has had to come from governments and it has been pretty mixed. You would expect that. Governments had to make it up as they went along.
Not all have succeeded. The wooden spoon clearly goes to Iceland but the USA has done none-too-well either. Continental European governments have done rather better with their bank rescues and this latest British plan makes a great deal of sense because it goes to the heart of the problem. It will give the banks access to whatever capital they need to keep functioning. You cannot do this well for that is not in the nature of the beast, but the British authorities are doing it better than most.
Getting the world's banking system moving again is a necessary precondition to averting a serious economic slump. There was always going to be some sort of global slowdown but the loss of confidence in the financial markets has made matters worse, potentially much worse. Markets reflect what they think will happen to the economy, but also help shape it. The markets are now in blue funk mode, signalling they believe that the forthcoming downturn will be serious indeed. They are not in the utter despair of the mid-1970s, the feeling that governments have lost control over monetary policy, their budgets, everything.
But the negative response to the British bank rescue plan and to the global interest rate cuts is undoubtedly troubling. You could say that what they are suggesting is that this downturn will be similar to that of the 1990s, a nasty but "conventional" post-war recession. That may happen, though my own view is that the UK may pull through in somewhat better shape than it did then. But could it be worse still ~ something more akin to the 1930s Depression?
http://www.theaustralian.news.com.au/story/0,25197,24478527-5013871,00.html
Christian Kerr | October 11, 2008
THE Prime Minister has lost his chief of staff as the waves from the global financial crisis wash across Australia, with David Epstein tendering his resignation yesterday.
The long-time Labor loyalist will be replaced by his 29-year-old deputy, Alister Jordan.
Mr Epstein will formally leave the Prime Minister's Office on November 14 and plans to take up a new role outside government in the new year.
His departure comes just 10 days after Labor national secretary Tim Gartrell announced he was leaving his position after taking federal Labor to their first election win in 14 years.
A senior member of Mr Rudd's media team, George Wright, left the office in August and another senior member of the Prime Minister's staff is also expected to leave soon.
The Prime Minister has paid tribute to Mr Epstein, saying his leadership "played a pivotal role in federal Labor's election victory".
"David's professionalism and experience were vital ingredients in establishing a new Australian Government," Mr Rudd said.
Mr Epstein is a well-regarded political veteran, the director of the feared ANiMaLS attack unit during the Hawke and Keating years, a communications director at Labor's national secretariat and chief of staff to opposition leader Kim Beazley. He also worked for an industry peak body in telecommunications and for lobbyists Government Relations Australia.
Mr Jordan is another matter. He will be the youngest person at the heart of power since the 22-year-old Ainsley Gotto was appointed principal private secretary to John Gorton in 1968.
In June, an investigation by The Weekend Australian of the first six months of the Rudd Government described Mr Jordan as "at any given time the person likeliest to be in his office".
It found he was "by far Rudd's closest confidant: the first associate the PM speaks to most mornings and usually the last he speaks to at night".
Christine Jackman, a senior writer with this newspaper, revealed in her book Inside Kevin07: "Rudd and Jordan shared strikingly similar personal stories."
There are fears that the two are too close. The Rudd-Jordan relationship has been described as having a certain father-son quality.
There are worries Mr Jordan, who joined Mr Rudd's staff in 2002 straight from university, will not be able to stand up to his boss or undertake other tasks that fall to the Prime Minister's chief of staff, such as disciplining wayward caucus members and even ministers. The appointment has raised the issue yet again of the Prime Minister's micromanagement. Not that Mr Epstein did not cause controversy. He has been pursued by the Opposition over possible conflicts of interest given his former job with GRA. His wife, Sandra Eccles, now runs the firm's Canberra office.
Australian Prime Minister Kevin Rudd on the Rove Live Show, image using mobile phone.
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