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This is unheard of, the money markets should be the engine driving the financial system but they have broken down. Any institution that hasn’t completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out.
—Kornelius Purps, a fixed-income strategist in Munich for UniCredit
Counterparty fear in the banking sector is at a new extreme. Credit conditions are as tight as a drum. Unless this settles down, central banks would need to cut rates globally to bring funding costs down.
—Greg Gibbs, director of currency strategy at ABN Amro Holding Bank NV in Sydney
The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well
—Derek Holt, an economist at Scotia Capital Inc. in Toronto.
US to face Recession, regardless
Because somebody hurt their feelings, they decided to punish the country? I don’t believe they had the votes. They are covering up the fact that they don’t have the votes.
Clearly we are in a high-risk premium mode, just as we were in March. Lack of investor confidence, exacerbated by quarter-end concerns, has tilted the repo markets in favor of the collateral owners.
—Piyush Goyal, Barclays
Firm Writedown & Loss Capital Raised
Citigroup Inc.* 60.8 71.1
Wachovia Corporation* 52.7 11.0
Merrill Lynch & Co. 52.2 29.9
Washington Mutual Inc. 45.6 12.1
UBS AG 44.2 28.0
HSBC Holdings Plc 27.4 5.1
Bank of America Corp. 21.2 20.7
JPMorgan Chase & Co. 18.8 19.7
Morgan Stanley* 15.7 14.6
IKB Deutsche Industriebank AG 14.8 12.2
Royal Bank of Scotland Group Plc 14.1 23.1
Lehman Brothers Holdings Inc. 13.8 13.9
Credit Suisse Group AG 10.4 3.0
Deutsche Bank AG 10.4 6.1
Wells Fargo & Company 10.0 5.8
Credit Agricole S.A. 8.8 8.5
Barclays Plc 7.6 17.9
Canadian Imperial Bank of Commerce 7.2 2.8
Fortis* 7.1 23.1
Bayerische Landesbank 6.9 0.0
HBOS Plc 6.8 7.2
ING Groep N.V. 6.7 4.6
Societe Generale 6.6 9.4
Mizuho Financial Group Inc. 6.1 0.0
National City Corp. 5.4 8.9
Natixis 5.3 11.8
Indymac Bancorp Inc 4.9 0.0
Goldman Sachs Group Inc. 4.9 10.6
Lloyds TSB Group Plc 4.7 4.8
Landesbank Baden-Wurttemberg 4.7 0.0
WestLB AG 4.6 7.2
Dresdner Bank AG 3.9 0.0
BNP Paribas 3.9 0.0
E*TRADE Financial Corp. 3.6 2.4
HSH Nordbank AG 3.5 1.8
Rabobank 3.5 0.0
Nomura Holdings Inc. 3.4 1.2
Bear Stearns Companies Inc. 3.2 0.0
Bank of China Ltd 3.1 0.0
DZ Bank AG 2.6 0.0
Landesbank Sachsen AG 2.5 0.0
UniCredit SpA 2.5 0.0
Commerzbank AG 2.3 0.0
ABN AMRO Holding NV 2.2 0.0
Royal Bank of Canada 2.2 0.0
Fifth Third Bancorp 1.9 2.6
Dexia SA 1.6 0.0
Mitsubishi UFJ Financial Group 1.6 1.6
Bank Hapoalim B.M. 1.5 2.5
Marshall & Ilsley Corp. 1.4 0.0
Alliance & Leicester Plc 1.3 0.0
U.S. Bancorp 1.3 0.0
Bank of Montreal 1.2 0.0
KeyCorp 1.2 1.6
Groupe Caisse d’Epargne 1.2 0.0
Hypo Real Estate Holding AG* 1.1 0.0
Sovereign Bancorp Inc. 1.0 1.9
Gulf International Bank 1.0 1.0
Sumitomo Mitsui Financial Group 1.0 4.9
Sumitomo Trust and Banking Co. 0.8 1.0
National Bank of Canada 0.7 1.0
DBS Group Holdings Limited 0.2 1.1
Other European Banks* 9.1 2.9
(not listed above)
Other Asian Banks 5.5 8.9
(not listed above)
Other US Banks 2.9 4.8
(not listed above)
Other Canadian Banks 0.4 0.0
(not listed above)
________ ________
TOTAL 590.8 434.2
Today’s blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders. On the other hand, “the Fed’s balance sheet is about to explode.
—Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
These steps are being undertaken to mitigate pressures evident in the term funding markets both in the United States and abroad
—The Fed
A wide swath of investors are going to be harmed by this, but the FDIC fund is going to come out of this unscathed. That’s the happy part.
—Chip MacDonald, a partner in the capital markets group at Jones day in Atlanta
WaMu’s collapse, the largest U.S. bank failure, came at a “zero cost” to the insurance fund for deposits, said FDIC Chairman Sheila Bair in an interview with Bloomberg Television. A “clean, seamless transfer” of the Seattle-based lender’s banking unit helped shield the $45 billion fund, Bair said.
The plan is a trickle-down approach from banks to Main Street, but if you reduce the flood of foreclosures and defaults, it will make mortgage-backed securities worth more.
If the US government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it’s not the end of the world, it is the end of the current international financial system.
—Yu Yongding, published August 30, 2008, during the closing ceremonies of the Olympics
“Men like Yu Yongding don’t just get up one morning and say this sort of thing. US Treasury Secretary Paulson was put on notice.”
We are in the same boat, we must cooperate. If there’s no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets…
China is very worried about the safety of its assets. If you want China to keep calm, you must ensure China that its assets are safe.
It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that. China knows what to do. We don’t need your intervention.
Why are we piling up these IOUs if they may default? … This is paper and it may default and it will not increase China’s national welfare.
Our export-growth strategy has run its natural course. We should change course.
—Yu Yongding, a former academic member of the central bank’s monetary policy committee and former adviser to the Chinese central bank in an interview in Beijing on Sept. 23.
Paraphrase of Yu from Bloomberg reporting of the interview
China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. While this would cause pain for exporters, China could ease the transition by using its strong fiscal position to aid those who lose their jobs. It also should stimulate domestic demand to offset lower income from overseas sales.
Treasury Holdings:
- Asia: $2.67t
- Japan: $593b
- China: $519b
- Export growth has led to the accumulation of $1.81 trillion in FX reserves
“Whether some kind of agreement between them to continue to hold Treasury bills is viable, I’m not sure. It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it’s something to be avoided.”
—James McCormack, head of sovereign ratings at Fitch Ratings, Hong Kong.
The U.S. financial system was regarded as a model, and we tried our best to copy whatever we could. Suddenly we find our teacher is not that excellent, so the next time when we’re designing our financial system we will use our own mind more.
—Yu Yongding, a former adviser to China’s central bank
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