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
The Obama addministration is doing all it can to battle the deepening recession and to do this, it has decided
to adopt a 3-pronged approach to rid the financial system of what are called ‘toxic assets’. The approach aims
to carry out plans to purchase mortgage-backed securities and other forms of securities by use of public and
private funds and have them run by private investment managers. These funds will reach a staggering $1 trillion
and are expected to clean the balance sheets off bad assets. This comes amid public outrage that have seen
large corporations like AIG issue out-sized bonuses to its executives despite their financial state. These efforts have
however been faced with a measure of worry over new tough rules of engagement.
Posted by Shue on April 18th, 2009 :: Filed under
Uncategorized
The ongoing financial crisis may have hit developed countries severely and crippled some major
financial giants. However, the developing countries are not out of the woods. A report by the World
Bank reveals that developing countries will also likely feel the pinch. Investors have put aside
these emerging markets to resolve investments in developed regions and this may severely impact the
economies of these countries. It is expected that, as a result of lost investment, mostly from private
sector creditors, developing countries will loose up to $700 for this year alone. According to the World
Bank managing director Mr Ngozi, “Poorer countries such as Latin America, Central Europe, Asia and Africa
were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences.”
Posted by Shue on April 17th, 2009 :: Filed under
Uncategorized
The World Bank recently provided a forecast of global economy this year and what it would mean.
It is predicted that this year, the economy will shrink further and is expected to be worse for
first time since the time of the Second World War. By the mid of this year, it is expected that
industrial output will go down by as much as 15% from last year. Global trade is expected to
experience the largest fall since the Great Depression of the 30s. Developing countries have not
been spared either and they are expected to face a financial fall of about $700 billion for the
year. This is as a result of private sector creditors who seem to have shunned emerging markets.
Posted by Shue on April 16th, 2009 :: Filed under
World Bank
The long-awaited government bailout plan was finally announced on March 23. This is the latest in the government’s efforts to stabilize banks and to have frozen credit markets up and running again. The plan will use between $75 billion and $100 billion of federal bailout funds together with federal loans, guarantees and an almost equal amount of private-sector money to buy questionable and mostly mortgage-backed assets from banks. The total investment package could come to close $1 trillion. While the financial industry hailed the plan as a solid fix that is expected to unlock the frozen credit market, critics called the move a series of opaque subsidies that would, at best, only prop up banks and their shareholders but do little in reviving lending. Indeed, huge challenges still lie ahead for the Treasury.
Posted by Shue on April 15th, 2009 :: Filed under
Uncategorized
In his new proposed reviews to prevent a future occurence similar to the current financial crisis, Financial Services Authority chairman Lord Turner said that the implementation of a new system will need to have regulation of ’shadow’ banking institutions that pose systemic risks like hedge funds. Other recommendations included setting up a new regulatory body to supervise cross-border banking and stronger national supervisory authority over foreign banks. He added: “A global market economy remains the best means of delivering global prosperity: it requires a global banking system focused on serving the needs of businesses and households, not in taking risks for quick return.”
Posted by Shue on April 14th, 2009 :: Filed under
FSA
Financial Services Authority(FSA) chairman, Lord Adair Turner unveiled his review of the financial crisis in which he explains the the causes of the current credit crunch. In the review, he also outlines proposals that will help prevent similar economic meltdowns from happening in the future. In the review, Lord Turner identified 3 main causes of the credit crunch as: the financial innovation of little social value, macro-economic imbalances and significant deficiencies in bank capital and liquidity regulations. His proposals included regulatory changes that would create a banking system that would be very different from the one of the last decade.
Posted by Shue on April 13th, 2009 :: Filed under
FSA