Lehman

[Julian Delphiki]

Russia Offers Sberbank, VTB, Gazprombank $44 Billion (Update1)

Sept. 17 (Bloomberg) -- Russia's government will lend the country's three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, as much as 1.13 trillion rubles ($44 billion) for at least three months to boost liquidity.

``These are market-making banks capable of insuring the liquidity of the banking system,'' the Finance Ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers bankruptcy. The one- day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 241 basis points to a record 10.83 percent. Today's move has a better chance of success, analysts said.

``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.

State-run Sberbank can borrow as much as 754 billion rubles, VTB has a limit of 268.5 billion rubles and Gazprombank can get 103.9 billion rubles, the Finance Ministry said. About 400 billion rubles more of unspent budget funds is available to other banks.
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Commies

[OneFootInTheGrave]

Originally posted by DanS
Ugghh. I don't have the heart to defend this.

I am just afraid that they don't screw up so much that we will be seeing 1930's in 12-24 months time for real, after the initial dust settles and mismanagement shows it bureaucratic head (or the other way around), companies competing and winning "unfairly?" those with US gov backing vs those without + US taxpayer runs out of money enough to start the negative growth + all that debt spiral

the house has to fall... but this way it will be protracted pain with focus on holding on to the trash instead of cleaning what's left and rebuilding.

We shall see as they say.

[MarkG]

Originally posted by DanS
Ugghh. I don't have the heart to defend this.

sorry dan

[DanS]

Originally posted by OneFootInTheGrave
companies competing and winning "unfairly?" those with US gov backing vs those without

As far as I understand it, this will not happen as a practical matter. To get out from under this 11.5% $85 billion loan plus handle its losses on mortgage paper, AIG will be selling off assets as quickly as possible.

AIG still may declare bankruptcy at the end of the day, it will just be a much diminished company.

Its stock is falling in pre-market trading by over 30% as people come to grips with the implications of this.

[Colon™]

Gotta love Russia's lack of pretense they treat everyone equally.

[DanS]

I feel like I'm living in a glass house, Colon.

[DanS]

The Russians closed their stock market indefinitely, after closing yesterday.

http://www.ft.com/cms/s/0/6ff9306c-83f1-11dd-bf00-000077b07658.html

Those margin calls are a *****, good luck!

[Imran Siddiqui]

The Megan McArdle blog on the Atlantic has been very good in discussing all the issues. She rips Obama a new one over trying to blame this all on Bush:

http://meganmcardle.theatlantic.com/archives/2008/09/obama_goes_for_the_jungular.php

This is high-test hooey. This was not some criminal activity that the Bush administration should have been investigating more thoroughly; it was a thorough, massive, systemic mispricing of the risk attendant on lending to people with bad credit. (These are, mind you, the same people that five years ago the Democrats wanted to help enjoy the many booms of homeownership.) Lehman, Bear, Merrill and so forth did not sneakily lend these people money in the hope of putting one over on the American taxpayer while ruining their shareholders and getting the senior executives fired. They got it wrong. Badly wrong. So did everyone else.

What, specifically, should the Bush administration have done, Senator? Don't tell me they should have beefed up SEC enforcement, since this is not a criminal problem (aside from minor lies by Bear execs after the damage was already done). Perhaps he should not have reappointed Greenspan, or appointed Ben Bernanke? Both moves were widely hailed at the time. Moreover, to believe that a Democrat could have done better is to assert that a Democratic president would have found a Fed chair who would pay less attention to unemployment, or a bank regulator who would have tried harder to prevent low-income people from buying homes. Where is this noble creature? And why didn't Barack Obama push for him at the time?

Indeed, I ask the Senator to name one significant thing that Bush has done to create this crisis that couldn't also be laid at the feet of St. William of Little Rock. If Democratic policy is so good at protecting the little guy from asset price bubbles, how come the stock market crashed in 2000?

This kind of foolish grandstanding is not the change we need. It's just more of the same.

Before you start, she doesn't blame it on Clinton either. She's just saying that blaming Bush for this is ridiculous.

And here is a post called "Hindsight Legislation":

http://meganmcardle.theatlantic.com/archives/2008/09/hindsight_regulation.php

[Arrian]

Slate has an article up ripping both parties for Fannie and Freddie, and gives a particular hat tip to the WSJ for calling it well in advance. That must've stung a bit.

These things don't happen unless both Republican and Democratic palms are greased.

-Arrian

[EPW]

Originally posted by Imran Siddiqui

This kind of foolish grandstanding is not the change we need. It's just more of the same.[/q]

Before you start, she doesn't blame it on Clinton either. She's just saying that blaming Bush for this is ridiculous.

And here is a post called "Hindsight Legislation":

http://meganmcardle.theatlantic.com/...regulation.php

Bush and the Republicans are responsible for the deregulation of the industry. Greenspan probably deserves a good deal of the blame for letting the housing bubble get out of control.

Would the Democrats have done the same thing? I don't know, but you certainly can't blame both equally when one party was in total control for six years.

[rmsharpe]

AIG is getting a bailout.

Velkome to zee zocializt republik of Amerika! Vere are your papersss?

[Saras]

Originally posted by Colon™
Gotta love Russia's lack of pretense they treat everyone equally.

Sber has ~80% of Russian deposits, so this is almost a sector-wide bailout...

[Colon™]

Originally posted by EPW


Bush and the Republicans are responsible for the deregulation of the industry. Greenspan probably deserves a good deal of the blame for letting the housing bubble get out of control.

Would the Democrats have done the same thing? I don't know, but you certainly can't blame both equally when one party was in total control for six years.

I believe the most notable piece of deregulation was repealing the Glass-Steagall act, under Clinton's watch. I suppose one could argue it helped creating instability, though it'd also seem part of the solution since stand-alone investment banks aren't considered to be viable anymore.

Anyhow, the message Imran was trying to get across is that people simply made honest mistakes.

Another take on the origins of the crisis:

Credit and blame
Sep 11th 2008
From The Economist print edition


A must-read on the origins of the crisis

ANOTHER week, another drama. The unveiling of the second bail-out plan for Fannie Mae and Freddie Mac on September 7th—to say nothing of the dwindling fortunes of Lehman Brothers in the succeeding days—was a reminder that the credit crunch is proving infuriatingly difficult to bring to an end.

The crunch has lasted long enough to spawn its own publishing mini-boom, as authors have raced to give their diagnoses in print. George Cooper, a strategist at JPMorgan, an investment bank, has produced by far the best so far*, skewering both academic orthodoxy and central-bank policy in the process.

The problem, says Mr Cooper, is that central banks have subscribed to one economic philosophy in an expanding economy and quite another when the economy is contracting. When things are going well, central banks leave the markets alone. But at the merest hint of crisis, central bankers have responded by cutting interest rates to stimulate their economies and prevent asset prices from falling. Tongue firmly in cheek, Mr Cooper describes this as “pre-emptive asymmetric monetary policy”.

This approach, he argues, stems from a belief in efficient-market theory which states, at its simplest, that prices reflect all available information. On that basis, asset prices are always “right”, there can be no bubbles and central banks should not intervene to restrain speculative excess. Similar reasoning seems to have persuaded Alan Greenspan, the former chairman of the Federal Reserve, not to ***** [Does pr1ck really needs to be censored?] the dotcom bubble of 1999, even after warning of “irrational exuberance” in 1996.

To be fair, Mr Greenspan did not argue that there were no bubbles, only that it was impossible to spot them while they were inflating. Instead, he felt that central banks should wait to mop up the mess once the bubble had burst.

In contrast, Mr Cooper argues that markets are far from efficient, as they often get locked into feedback mechanisms that lead to booms and busts. Indeed, if markets were really as efficient as some believe, why would economies need central banks in the first place? The market would set the appropriate level of interest rates for the economy and would automatically rebalance itself in the event of a problem in the financial system.

However, crises occur time and again, and far more frequently than most financial models would predict. Perhaps this is because investors are not the perfectly informed paragons found in efficient-market theory. Instead, they may simply be unable to get enough information to make correct judgments about the value of securities, or indeed may be given misleading information by insiders such as company executives or salesmen from the financial-services industry.

Central-bank intervention to prop up markets is often popular at the time; few people relish banking collapses or recessions. But it creates problems in the long run. The first is that consumers (and companies) are encouraged to borrow, not save, thanks to the low level of interest rates and a belief that central banks and governments will always rescue them if things go wrong. But as Mr Cooper writes: “A depressed savings rate leaves the economy precariously positioned to deal with future adverse shocks.”

The second danger is that the system becomes progressively less stable as risk-taking is encouraged. Instead, central banks should permit some short-term cyclicality in order to purge the system of excesses. They can do this, Mr Cooper argues, by preventing excessive credit creation (which he defines as credit growth far ahead of economic growth).

This is not a new thesis, as the author accepts. Hyman Minsky developed a theory of financial instability in the 1970s. Jeremiahs have been warning about a looming debt crisis for at least 20 years. But Mr Cooper’s book is by far the most cogent and reasoned of the modern-day “credit excess” school.

Alas, the author does not see an easy way out of today’s mess, in effect arguing that we “shouldn’t start from here”. Letting the markets have their way would risk a repeat of the 1930s, and the Fannie and Freddie rescue shows the authorities are desperate to avoid that. But the danger is that central banks inflate another credit bubble, saving the economy from disaster in the short term but raising the stakes still further when the next crisis comes around. The Fannie and Freddie rescue, though unavoidable, suggests the world is heading in that direction.

*“The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy”. Published by Harriman House.

[DanS]

FXI down 8.5% in early trading!

I guess all those BRIC funds are selling Chinese shares to raise money for redemptions caused by the Russia collapse.

[Arrian]

I like this Mr. Cooper fellow.

-Arrian