April’s fiscal stimulus is likely not about to happen following a budget deficit of 12.6% of GDP. This figure is far
higher than what was predicted by the Chancellor Alistair Darling. Darling announced that an 8% GDP rise in borrowing was expected over next year. This amounts to 118 billion pounds. As a result, the April budget will have to be upgraded. Public finances are deteriorating rapidly and eating up on tax revenues and the surge in employment has also come about with a sharp increase in benefits payments. February experienced the biggest budget deficit on record that saw the public sector net borrowing amount to almost 9 billion pounds. This is 8 times higher than what it was a year ago. Credible forecasts will thus be needed in order to restore the health of public finances.
Posted by Shue on May 2nd, 2009 :: Filed under
Uncategorized
Despite the internet bank Egg changing hands from Prudential to Citigroup, Citigroup intends to retain the
bank’s name but offer much wider range of services to its UK clients than what Prudential was previoulsy
able to offer. Citigroup claims that its experience in lending and its ideal credit histories will ensure
that Egg will become profitable in short order. As part of the sale, Egg customers will continue to receive
pensions and life assurance products from prudential for another 5 years after which Citigroup is expected to
distribute life assurance products to parts of Asia.
Posted by Shue on May 1st, 2009 :: Filed under
Uncategorized
The billionare investor Warren Buffet, who has huge investments in the banking and insurance industries, recently
said that the US economy has ‘fallen off a cliff.’ Speaking on US cable network CNBC, Buffet said that the economy
has not only slowed down, but habits of the Americans have changed considerably. The 78-year old owner of the investment and insurance firm Berkshire Hathaway added that it is up to the US government to turn around the economy and reduce the effects of the recession. His long term view of the recession was however optimistic but warned that unemployment will rise further before the recession is over. “We’re in a big war,and we’re going to use money to fight it. ”Change won’t happen overnight, he concluded. “You can’t turn around on a dime.”
Posted by Shue on April 30th, 2009 :: Filed under
Uncategorized
Prior to the G20 meeting in London, POBC has released a series of articles on its opinion regarding the causes of the
current financial crisis. In one of the reports, POBC said that regulation has failed to keep up with new emerging
financial institutions, products and markets. The statement said that there is a lack of understanding by regulators
of the cross-border activities among internationally active financial institutions. “In particular, there is a lack of
understanding of international capital flows,” the statement said. It thus called upon the International Monetary Fund
to set up a warning system that would watch out for imbalances and destabilizations of international capital flows.
Posted by Shue on April 29th, 2009 :: Filed under
Uncategorized
In Europe, the British stocks experienced a rise in february following the news on inflation that had also
caused the prices of food and fuel to go up. This has offset the deflationary effects of the economic crisis.
It was expected that consumer price index would drop as weaker demand would drive retailers to bring down
their prices to attract more shoppers. However, the index rose from 3.0% in January to 3.2% in February.
Commodity stocks have experienced heavy losses recently while markets across Asia continue to gain with
Hong Kong and Japan’s indexes each experiencing a stunning 20% surge over the month of March.
Posted by Shue on April 24th, 2009 :: Filed under
Uncategorized
Banks have noted that more than 90% of all homeowners currently are on their mortgages. While they argue
that their assets will ultimately perform, the discounted prices being offered by investors do not
thus reflect the real worth of these investments. In addition, recognizing the assets at a lower value may
leave them worse off than if they do not sell out and make them potentially insolvent. Government-backed financing
seems to be a sweetener but it is likely the banks will remain reluctant until they are offered a price that
matches or exceeds the value recorded in their books. FDIC chairman, Sheila Bair however lamented that
the banks will have to take the hit if they are to survive. There is no incentive for banks to participate.
Posted by Shue on April 23rd, 2009 :: Filed under
Uncategorized
The plan is straightforward; investors in the private sector will bid in buying stakes in the pools of assets
tied to troubled debts, either in commercial or residential mortgage loans or other securities and their
investments to be matched dollar for dollar by the Treasury. The leveraging will be as much as sixfold
and it will be issued through insured loans by the Federal Reserve or the Federal Deposit Insurance Corp.
However, the dynamics could discourage banks from participating, experts say. The real issue is that banks
disagree as to the real worth of the assets since the worsening economy could put further pressure on
underlying borrowers.
Posted by Shue on April 22nd, 2009 :: Filed under
Uncategorized
The Federal Reserve recently offered a bid of $1.2 trillion in order to have the interest rates come down and as a result, encourage americans to start spending again. This in turn is expected to improve conditions in the credit markets and this will help revive the ailing economy. This economy recovery package has been offered at a time when it is hoped that the Fed and the Obama administration will be successful in stabilizing the financial system. Bernanke, the Federal Reserve boss, said the economy package will only serve as a hinge. In the meantime, the efforts of the government and the Fed to overhaul the regulatory system that is expected to act as a protection from any future financial crisis seems to be going well.
Posted by Shue on April 21st, 2009 :: Filed under
Uncategorized
The government baillouts of top American Financial institutions like CitiGroup Inc, Bank of America Corp and AIG have
put billions of taxpayers dollars at risk in the last year. This has come with anger and criticism from the
American public, more so amid executive bonuses being issued by the ailing AIG. However, according to the Fed chief,
Ben Bernanke, this move was necessary since the failure of these globally interconnected companies would have
had far more potentially devastating effects on the financial system as well as the broader economy. Bernanke said that
there were no other realistic alternatives to preventing such failures at the time.
Posted by Shue on April 20th, 2009 :: Filed under
Uncategorized
The Federal Reserve Bank Chairman Ben Bernanke has spoken out saying that banking supervisors are the ones
responsible in paying close attention to compensation practises that would determine the soundness of banks and
other financial institutions. “Poorly designed compensation policies can create perverse incentives that can
ultimately jeopardize the health of the banking organization,” Bernanke spoke as he was addressing a meeting of
community banks in Phoeniz, Arizona. The Fed’s Chief remarks come as ongoing public outrage over AIG executive bonuses
continues to escalate and the U.S Congress steps in to resolve the issue. He said that regulators have a mandate
of closing regulatory gaps and ensure that there is a sufficient amount of capital that would act as a cushion
against potential losses.
Posted by Shue on April 19th, 2009 :: Filed under
Uncategorized