Monday, October 27, 2008

Roundup: October 27

Markets

South Korea's central bank cut base rates by 75bp at an emergency meeting today and said it would buy up to KRW10tr ($7bn) of bank bonds. Kuwait has guaranteed all local bank deposits and suspended trading in shares of Gulf Bank, rumored to have lost up to $750mn in derivatives trading. Kuwaiti brokers walked out of the exchange in protest yesterday (Sunday is a business day in the Gulf, with the weekend falling on Thursday and Friday). Nordic ministers are meeting in Helsinki to discuss a loan package totalling around $4bn for Iceland. Alea has a handy chart showing the amounts involved in the pending Icelandic CDS settlements. Saudi Arabia will give $2.7bn of interest-free credit to lower-income citizens. US September new home sales were at their lowest since 1981.

The IMF has found that Dominique Strauss-Kahn didn't abuse his power by having an affair with a colleague. The decision comes just as a wider role for the IMF looks likely: the fund today agreed on a $16.5bn loan package for Ukraine and is in talks with Hungary about aid. Dani Rodrik says that the mother of all emerging market currency crises may be in the offing, and the IMF must act as a global lender of last resort in reserve currencies. Brad Setser adds his voice to the chorus calling for a larger role for the IMF.

The Nikkei fell to a twenty-six year low today. Japan's finance minister said the country is ready to take action on currencies if needed, Bloomberg reports, after the Group of Seven said it was concerned about the recent excessive movements of the Japanese currency. Econbrowser breaks down the recent expansion of the Fed's balance sheet, in a must-read. Deutsche Bank is pitching the possibility of quantitative monetary easing by the Fed (that is, easing without lowering the Fed funds rate). The Fed's new commercial paper funding facility (CPFF) became operational today, and it went off without a hitch.

Keiichiro Kobayashi writes cogently at VoxEU about the lessons of the Japanese crisis for this crisis and warns that if zombie firms are not allowed to fail -- and if mark-to-market accounting is suspended -- the long-term consequences may be grave, preventing any orderly "reversion to trend." Today's partial recapitalization of non-performing, predatory lending institutions like Capital One is a worrying sign. These banks are not too big to fail, and the Treasury should be sponsoring consolidation if it must intervene, not recapitalization.

GM has asked the Treasury for federal aid in order to make a merger with Chrysler possible. Without a merger, the WSJ says the carmakers could be bankrupt in a year. Econompic has a very graphic look at the economic slowdown: visualizing the change in Volvo's European net orders for heavy trucks.

Press reports say Goldman Sachs approached Citigroup about a merger last month at the suggestion of the regulatory authorities -- and was quickly rebuffed. Goldman is to name the smallest number of new partners this year since its IPO, The Telegraph reports.

Mitsubishi UFG is to raise $10.6bn by selling stock, as local reports in Japan said Mizuho and Sumitomo Mitsui were also considering raising capital. Mitsubishi recently renegotiated its investment in Morgan Stanley.

Viral Acharya and Raghu Sundaram argue at VoxEU that the UK bank recapitalization scheme is significantly less costly to taxpayers than the US scheme -- and more market-driven. Marginal Revolution looks at the exposure of Euro banks to emerging markets.

A St. Louis Fed working paper reviews the record of foreclosure moratoria during the Great Depression and the creation of the Home Owners' Loan Corporation.

Willem Buiter calls Gordon Brown's behavior as Chancellor of the Exchequer -- hastening the UK's race to the regulatory bottom -- "ruinous." The Church of England has rolled out a special prayer for the credit crisis.

Credit Slips writes on the obfuscation of interest charges by credit card issuers -- the case for consumer protection laws is strong.

Interfluidity publishes a powerful piece arguing the difference between paying dividends and buying stock back lies in the information available to investors.

Two economists at the Hong Kong Monetary Authority argue that China's export-dependency has been overstated and is mostly limited to the coastal provinces.


World

Saturday's Guardian asks whether the Russian oligarchs will be able to survive the downturn as Oleg Deripaska is forced to delay an IPO. The Globe and Mail looks at the role Vnesheconombank is playing as an agent of the Kremlin in forcing oligarchs to the table. Nicholas Eberstadt opines in the NYT that Russia's demographic disaster will doom its rising importance on the world stage -- there are fewer people in Russia than in the Indian state of Uttar Pradesh. Russia may be planning a massive internet firewall like China's.

Supermarkets in Zimbabwe are refusing to accept checks and debit cards -- the currency depreciates too quickly during the time it takes the payments to clear -- and some are refusing Zimbabwe dollars entirely.
Meanwhile, the press reports that Thabo Mbeki's proposed cabinet for Zimbabwe barely differs from the stacked cabinet that Mugabe allocated unilaterally early this month. Bring in the UN, and send Thabo Mbeki to the bin, if not the ICC.

Tzipi Livni has called for new elections after she failed to form a government yesterday -- but the setback may not be one. New polls show Benjamin Netanyahu's Likud has lost its lead over Livni's Kadima, indicating new elections may place her in an even stronger position for negotiations. Here is analysis from FP Watch, which would also serve as a primer on the Israeli election if you have not been following the drama.

The U.S. Army has begun limiting commando intrusions into the Pakistani border regions with Afghanistan, preferring to use unmanned drone helicopters to deliver missile strikes. Syrian officials say US helicopters have struck a farm inside their borders, killing eight civilians. A US military official has confirmed the strike to the AP. The Army is likely to extend its use of stop-losses to keep soldiers in Iraq through 2009, USA Today reports.

Oil companies face a bonanza in Iraq, which has the easiest and cheapest oil fields remaining in the world. As the price of oil plummets, the political risks of working in Iraq may be outweighed by the economic risks of exploiting expensive projects like tar sands and oil shale, and may encourage more exploration and investment in the country.

Sarkozy says he would be happy to remain de facto president of the EU during the Czech and Swedish (non-EMU) presidencies, until the end of 2009. Vaclav Klaus, the Czech President, is predictably upset over Sarkozy's grandstanding.

Ted Stevens was found guilty on all seven counts of corruption. This verdict makes it more likely that Senator Stevens seat will be taken by the Democrats in a week's time, which could impact the balance of power in the Senate. Meanwhile, we say goodbye to the man who brought us all "The Bridge to Nowhere."

Alex de Waal begins a three-part series on "how genocides end" with a look at the 1992 jihad in the Nuba Mountains of Sudan.

Yu Jianrong interprets the Chinese Communist Party Congress's recent decisions on rural land reform in the Southern Metropolis Weekly.

IRIN writes on the kidney trade in Pakistan.

Internet sensation The Time Cube has endorsed John McCain. http://www.timecube.com/


Science

Methane hydrates and clathrates, the doomsday demons of climate change, may be exploited commercially for their methane, which also lends them their destructive capabilities.

EUAs (the tradable credits on the ETS) crashed to an 18 month low on fears over the economy. A slowing economy means less industrial production, less carbon emissions, and a lower price for allowances.

The EU moved friday to regulate and price the greenhouse gas emissions of airlines, who are furious about the matter.

Between a weakening market and new factories, the wind turbine market is beginning to see its supply and demand come into line. FPL cut 400 MW from its plans to install new wind capacity because of financial issues. However, according to the NRDC, the damage to the "dirty fuel" power companies from the economic turmoil should be much worse than to renewables..

The public gravely underestimates the threat of climate change and the measures which must be taken to halt its progress -- and the burden is on scientists to explain the issue better, opines Time's Bryan Walsh.

The OECD reviews the basic energy and GHG balances for various biofuels, providing the basic information that is so often lacking in these discussions.

Florida published the second phase of its report on climate change mitigation, and it shows the positive influence of the Northeastern RGGI program, as regional cap-and-trade is on the table.

Arctic ice is melting during the winter as well, British scientists report. Each year, the winter ice seems to be growing back thinner and smaller, leaving it more susceptible to the summer heat flows. Worryingly, the air temperatures measured over the winter seem to indicate that it is underwater heat currents driving the melt.

UN-HABITAT's State of the World's Cities report warns that many of the world's largest cities are at risk from flooding due to climate change.

Orcas on the West Coast may be starving as a side effect of the damage to the northwest Chinook salmon fisheries over the past two years.

4 comments:

Will121 said...

Minor correction: For most of the Gulf the weekend is Thursday and Friday, not Thursday and Wednesday as stated in today’s post. For banks in the gulf they usually give their employees Friday and Saturday as days off to get slightly better overlap with the work week in the rest of the world. Either way, the Islamic weekend is centered on Friday as that is the holy day.

Anonymous said...

The weekend in the Middle East falls on Thursday and Friday, not Wednesday and Thursday.

Anonymous said...

Excuse me, Kuwait and the Emirates now take off Friday and Saturday instead of Thursday/Friday "to improve business relations". Hmmm, a rather recent change it looks like.

Alex said...

You are all of course, correct, about the Islamic weekend. The post is corrected.