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Archive for 13. November 2009

If the Fed is Looking to Inflate Away Problems, What Should Asia Do?

Posted by hkarner - 13. November 2009

 Nov 11, 2009

Andy Xie thinks the Fed is on an inflationary path.  Last month, he wrote an article in Caijing which says that ‘stagflation lite’ is the Federal Reserve’s preferred outcome. What’s interesting is his recent article about the need for China and Japan to join forces under an ASEAN umbrella, rejecting the APEC umbrella shared with the U.S.

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Senate Bill Would Break-Up TBTF Banks

Posted by hkarner - 13. November 2009

 

Barry Ritholtz | Nov 9, 2009

“If an institution is too big to fail, it is too big to exist. We should break them up so they are no longer in a position to bring down the entire economy.”

-Senator Bernie Sanders, (I, Vt)

“It’s the natural action of capital to grow and exceed. Now we’re going to contain it.” -Representative Paul Kanjorski

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The Zombies are Coming… Again

Posted by hkarner - 13. November 2009

 | Nov 9, 2009

Which banks are “zombie banks?” How many of them are there, and what kind of shape are they in?

A zombie bank is a financial business that can no longer function without governmental guarantees of some kind. The term was first coined in the late 1980s to describe systemic risks associated with keeping too many non-viable banks on their feet through government support.

The term was revived earlier this year when the U.S. government directly subsidized America’s four biggest banks: Bank of America, Citigroup, JP Morgan Chase and Wachovia. But deciding which bank is and which bank isn’t reliant on government support is not so straightforward. As the Obama administration’s chief economist Lawrence Summers put it recently, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

How then to assess the health of the financial counterparty that is bidding for your business?  

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Fitch Downgrades Ukraine After Uncertain IMF Support: Ukraine Back on the Brink?

Posted by hkarner - 13. November 2009

In November 2009, the IMF delayed the loan disbursement after the Ukrainian parliament defied the IMF prerequisite for disbursement of the tranche of US$3.4 billion by adopting a minimum wage and pension law and refusing to raise domestic fuel prices. The bill raises minimum wages and pensions by 20% and will be in effect by the end of 2010. Following the IMF suspension, Fitch downgraded Ukraine’s long-term foreign-currency rating to ‘B-’ with a negative outlook. Fitch argued that the “unaffordable minimum wage and pension law has effectively forced Ukraine’s IMF program off-track and has materially increased risks to fiscal financing, macroeconomic stability and creditworthiness.”  (Bloomberg)

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MGIC, Radian Private Mortgage Insurers in Trouble: Another Hampered Business in the Subprime Aftermath?

Posted by hkarner - 13. November 2009

Fannie Mae and Freddie Mac remain liable if the mortgage and bond insurers they bought protection from fails to pay. “Fannie Mae has about US$109.5 billion of mortgage-insurance coverage in force, which represents 4% of all single-family home loans it owns or guarantees. Freddie Mac had US$63.4 billion in mortgage insurance and US$12.2 billion in bond insurance.” Moreover, The GSEs can only buy high LTV loans if the buyer has mortgage insurance. In October 2009, S&P downgraded MGIC, the largest insurance provider for the GSEs, and placed seven other mortgage insurance companies on watch for downgrade. (Wall Street Journal)

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