Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

[quote] But if lenders are unwilling to lend, or funds simply are not available, we indeed have a problem.

But if lenders are unwilling to lend, or funds simply are not available, we indeed have a problem.

The problem right now is that people are not willing to buy homes. They think the market will still go down and they would rather wait until they see some sign of property values not declining. Once the prices level off or start to go up a little bit you'll see a lot more buying of real estate.

This crisis is hardly over.

Listen to economist Nouriel Roubini who has been on target in most of his forecasts.

He predicts, according to financial writer Felix Salmon, "Credit losses of $2 trillion, half the US banking system nationalized, municipal defaults, house price declines accelerating, a sudden stop in consumer spending, global contagion, stagflation, you name it."

Roubini concludes: "At this point the perfect financial storm of the century cannot be contained. The only light at the end of the tunnel is the one of the coming financial and economic train wreck."

The US government is buying bad debt for $700 billion. Now Washington is asking other countries to jump in and help, too, but the Germans are bowing out. Believing that the rescue package sends the wrong signal, experts from the country's leading economics think tanks argue it's the right call.

Still, the financial crisis has already reached German shores, and banks here have had to announce write-downs of nearly €40 billion ($58.5 billion). "German banks are already sufficiently involved in the calamity," says Stefan Kooths of the German Institute for Economic Research (DIW) in Berlin. Either way, experts estimate that half of America's bad loans were sold abroad -- and a large part of that was assumed by Germans. And now the money is gone. "There's no reason why Germany should have to bear even more burdens," says Kooths.

Instead of standing in the way of a market shakeout with a cash injection worth billions, Dierich argues the Americans should find another way for the banks to get ahold of some fresh capital -- by putting up new shares for sale to secure new funding, for example. In the current crisis climate, though, no bank is going to voluntarily issue new shares because that would signal to the market that the institution is facing difficulties.

Accordingly, IWH's Dietrich suggests that the US government require all banks to issue stocks and that they be required to back up the issuance with a set amount of capital. Under these circumstances, Dietrich believes that investors would buy shares of the banks that they consider healthy and that the market would make it crystal clear which banks these were. And the institutions that are having a rough time because they can't find investors will go broke. "That step would send the right signal to the market," Dietrich says, adding that those who were performing the worst wouldn't be rewarded in such as situation -- as they are being now.

Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever.

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The biggest question, however, is whether the reserve managers in central banks in China and elsewhere will treat this as a justification for selling off some of their massive mountain of dollar-denominated investments. If this were to happen, it could cause a catastrophic drop in the US currency, potentially compromising its status as the world’s reserve currency.

What was perhaps even more worrying for investors was an item in the small print of Hank Paulson’s rescue plan. It said that, separate to the $700bn markets rescue package, the US Treasury would plunder the Exchange Stabilisation Fund – the US currency reserves, established in the 1930s – in order to pay for an insurance scheme for the money markets.

“The Treasury has committed the nation’s FX reserves to supporting the money market industry,” said Chris Turner, head of foreign exchange strategy at ING. “That suggests to us that the dollar has fallen down the list of the administration’s priorities – a worrying development for foreign investors in the US.”

The fund’s cash is being funnelled into a new scheme designed to protect money market mutual funds, which mirrors the Federal Deposit Insurance scheme for consumers’ bank savings. “What worries us is that the US Treasury has committed the nation’s FX reserves at a time when the dollar is exceptionally vulnerable,” said Mr Turner.

A Cascade of Ruin: Meltdown Perpetrators Position Themselves

http://www.inteldaily.com/?c=173&a=8266

Wash. DC (The Intelligence Daily) -- Well, they finally did it. The Money Party exposed the nauseating underbelly of first world finance. It's a cross between a Ponzi scheme and a complex math puzzle, all geared to let those in charge rake off as much money as they can, whenever they can, while they leave us out in the cold. Unfortunately, this time their greed and lack of control has the world poised for a systemic economic meltdown.

The collapse and subsequent government rescue of home mortgage giants Freddie Mac and Fannie Mae, stock brokerage Merrill Lynch, investment bank Bear Stearns, and, an insurance company, AIG, are designed to show we're moving away from the brink of disaster to a safer place. "The system is working" to manage what Alan Greenspan is calling a once in a century event.

One thing the system might do while it's working so hard is explain why we're bailing out a stock brokerage and an insurance company? Isn't this about banks? Don't hold your breath. The corporate elite and political misanthropes who caused this are getting ready to put the final nail in the coffin of the United States economy and the livelihood of the vast majority of citizens.

"The system is working" to manage what Alan Greenspan is calling a once in a century event.