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Thursday, October 09, 2008

More Whatever

The European Central Bank, Swiss National Bank and Bank of England are combining to dump 120 billion into the overnight cash market. In addition, ECB is offering "unlimited" cash to banks, and Trichet said they will do "whatever is necessary". Indonesia's stock exchange had to close two days running. It will reopen today, and the Indonesian Finance Minister announced a five step plan to restore stability. Steps include asking companies to buy back their shares, to stem the price decline, an almost 1.6% cut in bank reserve requirements, and a "relaxation" of accounting rules.

Russia's throwing over 180 billion in cash at their banks. Italy has moved. The Italian government is guaranteeing no losses to depositors and no bank failures because although the government believes the banks are very strong, it's going to give them money if needed. It will cost them, but, you know, whatever. France appears to be insisting that there is no problem but if there were they would prevent it from ever causing anyone any problem whatsoever. Belgium, France and Luxembourg are guaranteeing Dexia, so that other lenders will lend to Dexia.

Some analysts say the UK may end up owning 30% of their biggest banks after their buy-in is fully executed.

Real life examples of why everyone is bailing as fast as they can:

Here's an estimate that one-third of funding for ship building will be cut this year. Not all of this is due to credit woes - in part it is because cargo rates are falling. Russian farmers may not be able to repay their loans and some may not have the cash to plant in the spring. The Czech Republic is finally feeling it - industrial production dropped very significantly and new orders have dropped even more. No doubt this is related to the delays in iron ore shipments to China, FerroChina's default, which is effectively a bankruptcy, and Japan's 14.5% capital equipment order drop. Japan's government is now going to start an economic stimulus package. This is one reason I am leery of the yen; Japan's likely to go negative current balance for a while and will increase government spending. On top of its preexisting mountain of debt! OPEC is of course threatening an emergency meeting to stem oil price slides, but the economic fundamentals are not with them. If they cut production enough to jack the price up, the world economy will slide more, and anyway, a lot of countries need the money.

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