Friday, October 17, 2008

Roundup: October 17


Conditions in the interbank lending market are improving slightly. Overnight dollar Libor fell another 27bp, to 1.67%, with three-month money down 8bp to 4.42%. But consensus is growing that liquidity provision by central banks is having little effect on the situation. Fed data shows banks and primary dealers borrowed $437.5bn/day in the week to Oct 15, a record, and one not calculated to alleviate concerns that banks will become dependent on their national lifelines -- rather than restarting the interbank market, they may substitute for it.

Calculated Risk has highlights from the Capital One conference call -- auto loan originations for 2008 will be down 45% from 2007 and the company is reducing credit lines. Deflation, anyone?

Single family housing starts were at 544k in September, their lowest level since February 1982. Until housing construction slows, it will be impossible for prices to find a bottom -- the glut of existing house inventory (including houses in foreclosure which are having trouble finding buyers) needs to be cleared. The NYT's Economix carries a great chart of housing starts per household.

Uwe Reinhardt has a cutting and to the point criticism of Paulson's blind flailing for solutions to the economic crisis. Krugman is right to say that the real economy needs help and a fiscal policy response to the financial crisis is more important than a monetary. Meanwhile, Ambac and other bond insurers are preparing a proposal that would allow them to sell assets to the Treasury or receive some government backing. Moral hazard is a quaint and outdated notion.

Libyan investors have bought more than 4% of Italy's UniCredit and said they are considering taking a stake in Telecom Italia as well. Berlusconi knows very little, but he knows that taking a highly-publicized stand against foreign takeovers of Italian enterprise plays well with the unions -- European capital directives, the health of the Italian economy, and solutions other than statist be damned.

Germany has cut its 2009 GDP growth forecast to 0.2%, from April's forecast of 1.2%. With German growth stalled, a wide Eurozone recession is inevitable.

Russia's budget is under serious fire as oil pressure dipped below $70/barrel, the crucial price for Russia to keep its budget balanced. Russia's foreign reserves have fallen $32bn in the last two weeks, or almost 10%, in a sign of the growing financial stress. And CDS on Russian sovereign debt are rising steadily. Separately, Rusal said thart 75% of aluminum producers are unprofitable at current aluminum prices. Nigeria has also announced major budget cuts in the face of falling oil prices.

Rogue traders at the French state-owned savings bank, the Caisses d'Epargne, lost EUR600mn betting against the market last week. January's rogue trader scandal at Societe Generale led to what were claimed to be meaningful changes in risk management at French banks -- clearly not.

Banks stuck with debt from the Chrysler LBO are pushing the company to do a deal with GM.

The Ukraine is seeking up to $14bn from the IMF to stabilize its financial system, even as government remains hamstrung by the breakdown of the ruling coalition.

The FT projects China will become the world's largest manufacturer next year, in value-added terms.


Even if the power-sharing deal in Zimbabwe hadn't stalled over cabinet posts, the new government was always unlikely to hold for very long, opines South Africa's Mail & Guardian. The MDC is asking for the UN to step in as a mediator in the discussions over the allocations of ministerial positions between it and ZANU-PF. This is long overdue.

The DOJ has created a new tautology. Apparently, the Uighur detainees whose release has been ordered by the US courts should not be released because their tenure at Guantanamo has rendered them dangerous. The brief filed notably fails to assert that they were dangerous in the first place.

The US and Iraq have drafted an accord formalizing the presence of US troops in Iraq in the near-future. No details have been released yet, but it will be interesting to see how contentious issues regarding immunity for U.S. soldiers and the role of military contractors have been dealt with.

A Kuwaiti newspaper reported that George Bush has offered to pressure Israel to surrender the Golan Heights if Syria promised to cut its relations with Iran.

HRW says Colombian President Alvaro Uribe has obstructed investigations into links between members of government and right-wing paramilitary groups.

The French police are investigating the possibility that Russian human rights lawyer Karinna Moskalenko, who has represented Mikhail Khodorkovsky and was to appear in the inquest into Anna Politkovskaya's death today in Moscow, may have been deliberately poisoned earlier this week by mercury placed in her car.

Michel Platini proves more sensible than Nicolas Sarkozy, even as Sarkozy plans to "refound capitalism" at Camp David this weekend. He also looks better jogging.


Britain has formalized a target of cutting carbon emissions by 80% from 1990 levels by 2050. This is a very ambitious target that will be difficult to achieve without substantial regulatory overhaul, which, hopefully, there is sufficient political will to bring about.

Science presents a paper on methods of converting carbohydrates to liquid fuels, instead of hydrocarbons.

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