Tilted Forum Project Discussion Community - View Single Post - Bailout Fails. DOW Plunges 778 points. What do you think?

Cynthetiq · 09-30-2008, 08:43 AM

From what I understand there is nothing like FDIC in Iceland or many other countries. There are a few that do offere something similar insuring the depositors. Other than that, if the Glitnir goes belly up, our money goes poof.

As far as our money being in WaMu, well that's FDIC insured so I'm not too worried about that as a depositor.

As far as a worldwide thing yes, many banks got bailed out and governements injected money into the systems yesterday across Europe in UK, Belgium, Germany, France, Brazil... of course US media isn't reporting this very well.

Quote:

View: European Governments Rescue Another Failing Bank
Source: Washingtonpost
posted with the TFP thread generator

European Governments Rescue Another Failing Bank
European Governments Rescue Another Failing Bank

By Edward Cody and Mary Jordan
Washington Post Foreign Service
Tuesday, September 30, 2008; 11:10 AM

PARIS, Sept. 30 -- The French and Belgian governments stepped in to rescue another failing European bank Tuesday as the turmoil that began on Wall Street continued rippling across the globe.

Dexia, a Franco-Belgian bank that specializes in lending to local governments, got a $9.2 billion injection of capital to stave off imminent collapse after a loss of public confidence led to a 30 percent decline in its stock price Monday, according to announcements from the French and Belgian governments.

It was the fifth time in recent days that European officials have had to respond to a crisis at one of their financial institutions, abruptly ending the confidence European officials displayed as recently as last week that their financial system was not as endangered by the troubled mortgage loans undermining the U.S. system. With the pace and scale of events seeming to quicken, the Irish government guaranteed the debt of six financial companies amid a sell-off of bank stocks, and European officials discussed possible broader action to address problems with the global financial system.

In the case of Dexia, "the decision was taken to guarantee the continuity of financing for French local communities, as well as to contribute to the security and stability of the French and European financial systems, according to the commitment of the president of the republic," said an announcement from President Nicolas Sarkozy's office in Paris.

The Belgian prime minister, Yves Leterme, told reporters in Brussels that the early morning decision was designed to help the bank "cope with what is going on in the financial markets."

Underscoring the sense of urgency that has emerged in Europe over the financial crisis, Sarkozy's office said he approved the deal during a 5 a.m. meeting at the Elysee Palace along with Prime Minister Francois Fillon, Finance Minister Christine Lagarde and Christian Noyer, governor of the Bank of France. The early hour indicated a desire to release news of the rescue before Tuesday morning's opening of European stock markets, which were expected to react negatively to the failure on Monday of the Bush administration's $700 billion financial rescue package.

However after the first hours of the trading day, the reaction on European exchanges was muted, with none of the major indexes moving more than 1 percent up or down. In Asia, such major markets as the Nikkei were down as much as 4 percent, though Hong Kong's Hang Seng added nearly 1 percent.

The $9.2 billion Dexia bailout will be financed by the French government, the Belgian government and institutional shareholders, which include a large French government-owned savings bank, the Caisse des Depots et Consignations, according to announcements in Paris and Brussels. In addition, the Luxembourg government will provide guarantees for more than $500 million in convertible bonds for the bank's operations in the dutchy.

With the rescue deal, the French government will control directly or indirectly about 25 percent of the capital, giving it what Sarkozy's office called a "blocking minority" in the bank's affairs. Alluding to Sarkozy's recent pledge to sanction traders and executives responsible for the crisis, the announcement added that the French government will take advantage of its power in Dexia to insist on improvements in the way the bank is run -- and by whom.

The bank was reported to have come under pressure after refinancing a U.S. subsidiary, the bond insurance firm Financial Security Assurance (FSA), which had posted losses linked to subprime mortgage loans in the United States.

The Dexia rescue continues a flow of crisis-related developments around the globe, as U.S. lawmakers wrestled with a proposed bailout package. Stock markets around the world cascaded lower Monday, European regulators announced the rescue of four major banks, and U.S. and foreign officials pledged to make hundreds of billions of dollars available to ensure that banks would continue lending to one another.

European confidence was eroded over the weekend by a raft of emergency bank rescues. By Monday morning, after Asian stock markets had nose-dived, credit markets were seizing up, meaning that the normal flow of trading among banks wasn't taking place. The European Central Bank then announced it was pumping an extra $173 billion into European markets. In Washington, the Federal Reserve said it would make an additional $620 billion available for future lending to nine foreign central banks.

The head of one of those nine, Bank of Japan Governor Masaaki Shirakawa, said Monday that global financial liquidity "has almost dried up."

European banks are strained by the recent collapse of property booms close to home, notably in Britain, Spain, Portugal and Ireland, by exposure to bad U.S. mortgage securities, and by the general drying up of short-term credit. Japan's economy is already suffering from a highly unusual trade deficit, and domestic demand for goods appears to be waning, too, the Tokyo government reported Tuesday. Last month household spending fell 4 percent and factory output dropped 3.5 percent.

The House rejection Monday of the White House's $700 billion rescue plan seemed likely to increase international concern over what might be next.

In Europe, the banking crisis "can hardly spread further -- it is everywhere," said Willem Buiter, a professor at the London School of Economics and former member of the Bank of England's monetary policy committee.

European Central Bank President Jean-Claude Trichet sat down Sunday with several European finance ministers in Brussels to discuss loosening European Union rules on government guarantees for banks in need of quick infusions of capital. Their meeting suggested that European governments feared they would need to intervene again.

Sarkozy, who said Thursday that French banks appeared able to overcome the threat, summoned the country's top bank executives, his senior financial aides and the governor of the Bank of France for an urgent meeting Tuesday. His finance minister, Lagarde, renewed her promise that "the government will assume its responsibilities" to prevent losses to French savings and investment account holders.

Sarkozy's office said he had conferred Friday with President Bush, pushing his idea for a meeting of heads of state from the major industrial powers by year's end to envision a top-to-bottom overhaul of the world financial system. The summit could be held at Bretton Woods, N.H., where officials met in 1944 to set the basics of today's world financial system, the Paris media reported.

European markets were closed by the time the House of Representatives voted, but in Brazil, located in a closer time zone, the news sent the Bovespa index down 9 points, its largest drop in a decade. Trading was halted for half an hour.

Some economists attributed the fall to concerns that economic troubles in the United States could hurt Brazil's commodities trade. "If the United States goes through a huge recession, other countries will suffer," said José Márcio Camargo, an economist at Opus Gestao de Recursos, an asset management firm in Rio de Janeiro. Brazil's treasury, meanwhile, injected nearly $8 billion into the country's national development bank to help companies that are having trouble accessing credit.

Guillermo Mondino, an analyst with Barclays Capital, wrote in a new report that "the global credit crunch seems increasingly to be spilling over to emerging markets. Lines of credit are tightening, disruptions in domestic banking systems are on the rise, and domestic interest rates are increasing. The result is likely to be slower growth."

Mondino wrote that Latin America may feel a credit pinch because foreign banks are such major players in the region. Foreign banks account for 80 percent of the financial system in Mexico, 51 percent in Peru, 29 percent in Chile and 22 percent in Brazil.

Europe's sense of confidence was particularly undercut by the rescue of Fortis, a Dutch-Belgian banking and insurance giant that once ranked among the world's top 20 financial institutions. The Dutch, Belgian and Luxembourg governments said Monday they had put up the equivalent of $16 billion to buy the group's faltering banking operations, in effect nationalizing them for now.

Fortis's troubles were partly related to its role in a huge takeover deal and fears among investors that, despite their leaders' reassuring comments, European banks are too tightly linked to their U.S. counterparts in a globalized monetary system to escape the crisis. Even after the rescue plan was announced, Fortis stock dropped 12 percent during Monday's trading.

As the possibility of bailouts loomed in Europe, many officials had worried whether the European Union, composed of 27 countries with sometimes opposing points of view, would be paralyzed. Buiter, of the London School of Economics, said the speed of the Fortis rescue showed otherwise.

The injection of funds into Fortis "happened overnight and without anyone needing to consult with parliaments," he said. "The political capability for addressing a crisis like this is significantly greater in Europe than in the U.S. There was doubt, until today really, that multiple national treasuries would be able to agree on sharing rules."

In Britain, authorities Monday announced a bailout for Bradford & Bingley, a bank specializing in mortgage loans. The government put up $90 billion to absorb questionable loans, the announcement said, while the Spanish bank Santander paid $37.8 billion to take over retail and savings bank branches.

The German government, meanwhile, announced Monday that it had orchestrated a bailout of the country's second-biggest commercial property lender, Hypo Real Estate Holding AG. The German Finance Ministry said it arranged an emergency credit line of $50 billion for the bank from several private lenders.

The rescue came four days after Finance Minister Peer Steinbrueck said the country's banking system was "extremely stable."

Problems at Hypo Real Estate, which lends primarily to local governments and property developers, had been known for months; the bank had posted big losses on its subprime loans in the United States. But Hypo's access to credit rapidly eroded and other problems with speculative investments emerged in recent days, forcing the German government to intervene, according to government and bank officials.

Analysts said that German banks remained on a stronger footing than those in the United States or Britain and that it was unlikely the government would need to fashion an industry-wide bailout.

In Iceland, the government said Monday it had taken control of Glitnir bank, the country's third-largest, paying about $878 million for a 75 percent stake.