Super Moderator
Location: essex ma
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Enter the IMF (Debt Crisis New Round)
first, a context bit from this morning's guardian---which routinely reports on stuff the american press forgets to look at...
Quote:
IMF adds to pressure on Congress to approve bail-out
• FTSE 100 continues to bounce back
• Asian stocks also gain on deal optimism
The International Monetary Fund has added to the growing pressure on the US Congress to approve the Wall Street bail-out, as stockmarkets rose on optimism that a deal will be hammered out this week.
Dominique Strauss-Kahn, managing director of the IMF, warned last night that the US must take urgent steps to protect its economy from the ongoing financial crisis.
"We're right at the moment where action is needed," warned Strauss-Kahn. "A non-perfect plan is better than no plan at all," he added, in an interview with Reuters in Washington.
The prospect of a deal this week sent shares up in London, where the FTSE 100 continued yesterday's bounce-back. After leaping by 92 points in early trading it was up 82.5 at 4985 at 1.30pm. Asia was also more buoyant, where Japan's Nikkei recovered some of yesterday's heavy losses to close almost 1% higher. Hong Kong's Hang Seng index gained 0.75%.
But the Dow Jones industrial average is expected to fall by around 100 points when trading begins on Wall Street.
The House of Representatives sent shockwaves around the world on Monday when it voted down the $700bn (£390bn) rescue plan, under which the US government would cleanse the banking sector's balance sheets.
With politicians worldwide demanding action, the US Senate is due to buck convention and vote on an amended version of the rescue plan this evening – before the lower house has given its approval. In an effort to win Congress's backing, it now includes a clause to raise the government's guarantee on savings from $100,000 (£56,000) to $250,000.
But in a sign of the problems facing the financial industry, JP Morgan warned that Europe's banks will take fresh asset writedowns totalling €28.4bn (£22.5bn) before the end of this year.
The research note predicted the following writedowns:
• Lloyds TSB (including HBOS): £4.5bn
• Deutsche Bank: £3.6bn
• UBS : £2.1bn
• Barclays: £2.9bn
• Société Générale: £2.1bn
Strauss-Kahn demanded that Europe draw up contingency plans in case its own banking system needs to be rescued. Unlike in America, there is no single regulator overseeing the system.
"Developing a contingency plan does not mean it's announcing a lot of trouble coming. But they're not totally immune … and so they need to organize," he added.
But the president of the European Central Bank, Jean-Claude Trichet, has rejected the idea that Europe should organise its own bail-out.
"We are not a fully fledged federation with a federal budget," Trichet pointed out. "Each country has to mobilize its own efforts."
He also echoed calls for rapid action on the bail-out.
"It has to go, for the sake of the US and for the sake of global finance," Trichet said.
Both presidential candidates have also called for a new push to get the rescue plan through.
On the campaign trail yesterday, Barack Obama warned of "catastrophic" consequences unless a deal is reached soon.
"We cannot risk another week or another month where American businesses are afraid to extend credit and lend money," he said.
There was also renewed optimism on Wall Street that the treasury would eventually be able to hoover up "toxic" mortgage-related assets.
"Cooler heads are prevailing - we'd had a little bit of panic at the close yesterday," said Anthony Conroy, head trader at BNY ConvergEx in New York. "There's anticipation that some sort of deal will be passed by Congress in the next day or two."
The US public has blamed the shambolic handling of the bail-out plan on both Congress - whose approval rating has fallen to 10% - and president George Bush, who is accused of caring about "fat cats" rather than ordinary people.
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IMF adds to pressure on Congress to approve bail-out | Business | guardian.co.uk
it seems to me that congress is pretty thoroughly boxed in now, that the time fir screwing around is over with, that the rightwing republicans made their move and we'll see if it makes an already problematic bill even more so.
notice too that the televisual talking head set was in panic management mode last night, trying maybe to assuage folk so they'll stop calling congresspeople.
that one of the implications of this crisis is the outstripping of nation-states, that capital flows are too big and too fast for old-=style regulatory mechanisms and old-style political units is not something that i am just making up. this statement from the imf outlines the same basic position, and proposes that the next world bank-imf meeting be used to begin putting together a transnational-level regulatory mechanism.
Quote:
IMF Head Urges Greater Regulation of Financial Sector
IMF Survey Online
September 29, 2008
* IMF head calls for global reform of financial system
* Welcomes U.S. authorities' plan to "put out the fire"
* Urges systemic response to crisis affecting global economy
IMF Managing Director Dominique Strauss-Kahn called for a global solution to the U.S. financial crisis, saying coordination of the reform effort "is a job for the IMF." .
Reform of the international financial system could begin when finance ministers and central bankers convene in Washington next month for the IMF-World Bank Annual Meetings.
In an interview with France's Journal du Dimanche newspaper—one of several he has given to international media over the past few days—he said a proposed U.S. $700 billion bailout plan should be a first step toward reform of the global financial system, and called for greater regulation of financial institutions and markets.
"It's because there were no regulations or controls, or not enough regulations or controls, that this situation was born," he said. "We must draw conclusions from what has happened—that is to say regulate, with great precision, financial institutions and markets."
"This (U.S.) plan is welcome because it's comprehensive. But it has to be the first step of international political action," said Strauss-Kahn, a former French finance minister who took over as head of the Fund in November last year
IMF-World Bank Annual Meetings
He said the IMF would be happy to coordinate the global reform process, which could begin next month when finance ministers and central bankers convene in Washington for the annual IMF/World Bank meetings on October 11-13.
Without the will to reform, there was a danger that the state would be seen as running to the "rescue of incompetent managers and greedy speculators", he said, noting the criticism in parts of Europe about banking profits being privatized but their losses being nationalized.
Defending the IMF's role in the crisis, Strauss-Kahn said the Fund had estimated in April that there would be $1 trillion in financial sector losses and had predicted a sharp slowdown in the global economy. "But people did not want to listen to us. We were criticized for being pessimistic," he said. The IMF has recently raised this estimate to $1.3 trillion.
Proposed multilateral consultation
The interview with the French weekly was one of a series of media interviews on the financial crisis over the past few days.
Speaking to the New York Times, Strauss-Kahn called for a multilateral consultation—involving the United States, Europe, China, and other financial powers—to develop a coordinated response to the crisis.
"We're facing a systemic crisis, and it needs a systemic response," Strauss-Kahn told the paper last week. "The IMF is the right place to organize a global response to weaknesses in the global financial system."
His remarks built upon his call in an op-ed in the Financial Times for a systemic solution to the crisis.
Understandable U.S. response
In other remarks, Strauss-Kahn spoke about the speed and effectiveness of the U.S. response to the crisis to the Singapore Straits Times:
"It's absolutely understandable that the government in any country, when the first wave hits, says that it's a small wave and we'll manage. And then comes a bigger wave and they say we'll fix it. And then when the tsunami comes, it's too late. So I understand the way the American authorities wanted to address this step by step.
"Of course it's easier to say now that the Americans should have chosen a more comprehensive plan earlier. The IMF did, in June, propose to the U.S. a more comprehensive plan. It is in the report we made on the American economy under the Article IV consultations. We said things are going that badly that you should organize a comprehensive solution—like they are talking about today. And that was only three months ago."
On the difference with the Asian crisis
"What originated in Thailand and spread to Korea, Indonesia, and other countries was mainly a balance of payments problem. That was our core business. This crisis, even if it is a huge crisis, is different. It has had almost no impact on the exchange rate, on the dollar. You could have expected the dollar to fall but it did not. This is a different kind of crisis, so the solution to be applied is not the same. The main actors today are the central banks and treasuries; the main actors in the Asian crisis were institutions like the IMF."
Speaking to the Brazilian news magazine Veja, he spoke about the likely impact of the crisis on the financial sector:
"It will look very different. For the first time, the crisis did not originate at the periphery, but at the center of the system. This crisis has originated in the U.S. housing market, but it has deeper roots. The expansion in the financial market has far surpassed the growth in the real economy in the last decades, with a complexity never seen before, while banking supervision and regulation have not been prepared for such a challenge.
"Most investment banks lowered their risk analysis criteria to increase their profits, without proper oversight. Therefore, one of the probable outcomes of this crisis will be to have a smaller financial system, more compatible with the real economy and in a more controlled and regulated environment."
On the dollar
"The curious thing is that, even with the US economy today facing many different blows at the same time, there is no panic with regards to the dollar, which would have been expected. On the contrary. The dollar's status has remained intact."
Finally, in remarks to the Straits Times, Strauss-Kahn looked at the impact on the real economy.
"One of the effects on the real economy has been a sharp slowdown. Nevertheless it is only a slowdown, not a recession. Two or three years ago, if you had asked the experts, `We will have a trillion dollars of distressed assets in the financial sector—what will be the consequences on the world economy?', many would probably have said there would be a huge recession. But we don't contemplate that; we contemplate a slowdown.
"The linkages between the financial sector and the real economy are not as easy to understand. The IMF is in a unique place to try to take into account this connection, and that is probably the reason why our forecast is more accurate.
More resilient economy
"We see recovery in 2009. The economy is more resilient than expected. Our forecast is that commodities will stabilize in 2009: oil and food prices will not be as high as their peaks in past months. We see the U.S. housing market finding a bottom in the coming months.
"So we have good reason to expect that growth will come back. There are some downside risks, of course, from the financial sector and the (lack of) confidence in the corporate and housing sector. That's why it was important to propose a comprehensive solution which appears reliable to people. When you are sorting the problems one after another, you don't give the impression you are managing the whole problem. I hope the plan now being proposed in the U.S. will restore investor confidence next year."
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IMF Survey: IMF Head Urges Greater Regulation of Financial Sector
what do you make of this?
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