November 16, 2008

Ctrl BG: A Shortcut to Financial News 11/15

This week was actually quite eventful.

It started off with China announcing a $600 billion fiscal stimulus plan effective from now until 2010, to be spent on infrastructure and social projects. Even this Asia powerhouse is not imperious to the global economic downturn, they are expecting growth to slow down to 8-9% as opposed to the double digit growth in the last 5 years. On the plus side, at least they're able to and are doing something to increase the liquidity in their economy.

Over in Europe, things are not so positive. Latvia a small European country, part of the former Soviet Union, just took over their second largest bank, Parex, last weekend. Are they going to be the next Iceland?

Back in the US, American Express got approved to become a bank holding company on Tuesday (just like Goldman Sachs and Morgan Stanley). This way, they'll have better access to capital both from deposits AND from the government, which is probably a good move since consumer loans is expected to hit next and Amex has a LOT of business in that (obviously).

The latest bank in the spotlight is Citigroup. The good news is that on Tuesday, they joint the ranks of Bank of America and JP Morgan to refinance mortgages to help people stay in their homes. The bad news is that Citigroup will be laying off 10% of their workforce (which may add up to 40,000 layoffs!) and doing some serious cost cutting.
People are also not very happy with their (relatively) new CEO Vikram Pandit. He lost the Wachovia deal to Wells Fargo and the share price has gone down from $50 last year to $9 on Friday. The board is now questioning whether he's up for the job after all (granted it really wasn't his fault that Citi is in such deep trouble, he was just called in to fix Chuck Prince's mess). He is expected to be making a huge speech about all this on Monday.

On Wednesday, Paulson announced that they were changing their strategy for the use of the $700bn bailout- now known as the Troubled Asset Relief Program (TARP) funds. Instead of buying up bad mortgage debt, they are now going to use the remainder of the funds to directly inject capital into financial institutions. They realized that given the current situation, the original plan was becoming cumbersome and it was just easier and more efficient this way to directly inject capital in order to stabilize the financial system and get lending going, which right now they seem to have achieved (temporarily anyway). But then the question becomes, at which point do they stop giving capital injections to anyone who asks?

This question is especially interesting with the current fiasco in the auto industry. The big 3 are now desperately lobbying for a $25 billion financial aid package to save them from filing for chapter 7 bankruptcy, which means liquidation and going out of business. This would potentially indirectly lead to millions of job losses, due to its huge supply chain. Obama and the democrats are all for it, but some of the Republicans are more reluctant. I can actually see where they are coming from. Bailing out the banking industry is one thing, since banks are a huge part of our economy and will still be around in 50 years time. The auto industry on the other hand, is a dying industry. American cars are simply not globally competitive enough to survive on the long term. They are not as luxurious as European cars, they are not as cheap as Chinese cars and they are not as endurable and gimmicky as Japanese cars. They would slowly go out of business anyway. The current economic situation is just speeding up the process.
I'd invest in a Chanel flap bag because I know that it will still be elegant and classic 20 years down the road, but I wouldn't spend the same amount of money on a Coach bag, even if it is limited edition and super luxed up. But I guess the $25 billion will buy us more time to "prepare", so it doesn't add to oil to the current fire. They are also quibbling about where this money should be coming from. The Democrats want it to come out of the TARP money (which makes sense, especially given the "new" strategy) and Bush wants to widen the budget deficit. I believe they're hoping to approve the package this week in the lame-duck session (if anyone is interested in why it is called the lame-duck session, as I was, check it out here).

The G20 also had a meeting on Saturday
to discuss the world economy. There weren't any specific guidelines, but they agreed to join their efforts to achieve common objectives, like to improve the regulations and functioning of the financial markets. It's a start. And the power of 20 is definitely more powerful than that of one.

18 Comments:

Blogger Juliet said...

Nowadays I'm actually waiting these posts.

juliet xxx

11/17/2008 1:55 PM  
Anonymous Anonymous said...

I love your blog, and appreciate you expressing concerns on the economy. But turning this into an endless series is a bit too much.. Bring back your awesome fashion posts!

11/17/2008 9:05 PM  
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Anonymous Wal*mart Girl said...

Dow has dropped -1350 since November 4.

11/18/2008 12:03 AM  
Blogger Sukyung said...

I love your economy series. Keep them up!!!
They're so much easier to understand than the crazy amount of things on the newspapers. :)

11/18/2008 3:10 AM  
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11/18/2008 5:03 AM  
Anonymous Zara said...

The economy crisis didn't touch me, i will still by cloths that i like! Paulson will not scare me and Cjineese bailout would not make me feel better than i do. :)

11/18/2008 10:26 AM  
Anonymous Sophie said...

Scary but helpful
thank you

11/21/2008 4:53 AM  
Blogger belhana said...

Thank you for the wonderful effort

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7/05/2009 7:59 PM  
Blogger belhana said...

Thank you for the wonderful effort

إني تذكـرت والذكرى مؤرقـة *مجـداً تلـيدا بأيـدينا أضعـناه

أنَّى اتجهتَ للإسـلام في بـلـدٍ * تجْده كالطيرِ مقصـوصًا جناحـاه

كـم صرفتنا يـدٌ كنـا نـصرفها * وبات يـملكنا شعب مـلكناه

بالله سل خلف بحر الروم عن عرب * بالأمس كانوا هنا واليوم قد تاهوا

وانزل دمشق وسائل صخر مسجدها * عمن بناه لعل الـصخر ينعـاه

هذى معـالم خرس كـل واحـدة * منهن قامت خطيبـا فاغرا فـاه

الله يعلم ما قلبت سـيرتهم يومـا * وأخطـأ دمـع الـعين مـجراه

يا من يرى عمـراتكسوه بردته * الزيت أدمٌ لـه والكـوخ مـأواه

يهتز كسـرى على كرسيه فرقـا * من خوفه ، وملوك الروم تخشـاه

يا رب فابعث لنا من مثلهم نفـرا * يشـيدون لـنا مـجدا أضعنـاه

7/05/2009 8:17 PM  
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Anonymous Sildenafil said...

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