The Federal Reserve is further expanding its powers under (a wide interpretation of) section 13 of the Federal Reserve Act, and will now be buying commercial paper directly, including unsecured paper, through a Special Purpose Vehicle. One more market shut down to the private sector — who will want to compete with the Fed for the dubious privilege of holding CP at rates set by the central government? And issuers not domiciled in the US will be ineligible for the program — locking them out of the market.
Treasury is hiring asset managers. Separately, Treasury announces its intention to undertake at least some TARP procurement using procedures “other than full and open competition.”
Bernanke spoke today, but his anodyne generalities don't put a great face on the panicky, ad hoc moves of the last few weeks. Bush spoke to Gordon Brown, Sarkozy, and Berlusconi today, the White House said. G8 finance ministers will meet this weekend. IMF First Managing Director John Lipsky said that a global agreement on principles for deposit insurance systems was needed.
The FDIC has proposed an increase of 7bp in the assessment for deposit insurance paid by member banks, to be effective January. The WSJ’s Real Time Economics reads the proposal and points out 14 banks with $29bn in deposits are now in the FDIC’s highest risk category — and the increase in deposit insurance premiums will have a material impact on banks’ pretax earnings.
Gordon Brown has agreed to a scheme to recapitalize UK banks to the tune of between GBP35bn and GBP50bn, expected to involve the taxpayer acquiring preferred shares, with provisions for government representation on bank boards and perhaps caps on executive compensation and a liquidity fund. Details are expected before London markets open tomorrow. Willem Buiter argues for the expropriation of existing bank shareholders and mandatory debt-to-equity conversions as a condition of any regulatory insolvencies under the Special Resolution Regime likely to be enacted in the UK. En route, he says it is reasonable to suppose that most banks in the North Atlantic are insolvent and that the system as a whole must be bailed out — and may end up being largely replaced, in the long run, by state banking. Such a partial nationalization is past due.
Spain is to raise its deposit guarantee to EUR100k, twice the minimum to which Eurozone finance ministers are said to have agreed in Luxembourg today, and set up a EUR30bn fund (extensible to EUR50bn) to buy assets from banks. Italian Economy Watch reviews the vulnerabilities of European Monetary Union and looks at UniCredit’s exposure to Germany’s HVB and its lending in Eastern Europe.
Buiter says Iceland’s nationalizations are a mistake — it will be impossible to save its banks without securitizing future revenues from geothermal power to back them — and the government should be preserving its foreign reserves to deal with the consequences of financial collapse on its international trade. And what if Iceland’s bluff is called and it ends up being forced to grant an airport lease to Russia in exchange for EUR4bn of loans? And a fire-sale of external assets by Iceland’s corporates and investment groups seems to be underway. The krona was down 17% against the Euro today.
Information Processing says the debt auction for Lehman on October 10 could have major problem for unwind of CDS tied to Lehman, and says that auction might be a good place for Treasury to start using its $700bn to stabilize markets -- of course in so doing abandoning all pretense that it will pay fair market prices for troubled assets.
Bank of America pre-announced its earnings, will cut its dividend, and will raise $10bn of capital to help finance its acquisition of Merrill Lynch -- its stock was down more than 26% on the day. Shares of Royal Bank of Scotland were off 39% in London, after reports they (along with Lloyds and Barclays) had gone to HM Treasury for emergency loans and after being downgraded by S&P.
Lukoil, Gazprom, and Rosneft are looking for loans from the Russian government to refinance existing debt. Medvedev said that the government should give Russia’s biggest banks up to $36bn in loans for five years to help unfreeze credit markets. Kazakhstan has decided against a pending deal with Gazprom. The RTS closed down less than 1% today after Russian authorities shut the markets for the first half of the trading day. Ex the oil companies, though , Russian stocks were down 5%.
The Bush administration said it will respond “soon” to Arnold Schwarzenegger’s letter saying California may need to borrow $7bn from the Federal government.
The SEC censored a publicly released report to remove references to its failures ahead of the Bear Stearns failure.
Monbiot argues the carmakers should be allowed to fail.
Russian journalist Anna Politkovskaya was murdered in her apartment building two years ago today. She had been a fierce critic of Putin’s government and the catastrophic war in Chechnya.
The Bush administration has appealed an order requiring Uighurs being held at Guantanamo Bay be released into American custody.
The excellent Time China blog asks about the possibilities for rural land reform in China ahead of this weekend’s CCP Plenum.
The lack of a credible opposition has hamstrung the ANC since 1994, William Gumede writes in the Guardian -- could a real split be in the offing, and could it change the status quo in South Africa?
The counterinsurgency in Afghanistan is failing at its core task -- restoring faith in the central government.
Jianjun Tu writes at China Brief on the possibility of closer relations between China and Venezuela being driven by China’s need for strategic petroleum reserves. China is furious over a new package of US arms sales to Taiwan.
A Russian naval task force is sailing to the Gulf of Aden and has undertaken anti-piracy exercises en route.
Denuclearization has apparently stalled in North Korea, writes Richard Weitz, raising the possibility that Kim Jong Il’s rumored illness has left no one in Pyongyang sufficiently in control of the situation to make needed concessions.
The EU Committee on Climate Change released its preliminary recommendations for the new rules for the ETS. In Balance reviews them.
China Daily looks at the consequences of warming for the Tibetan plateau.
Starbucks wastes over 6 million gallons of water each day worldwide, by a policy leaving taps running whenever its stores are open.
The commonly used standards for the dissolved oxygen content of water to prevent fish from dying are too high.
Three particle physicists shared this year's Nobel prize in physics.