Soros:Crisis Worse Then Lehmans'

http://www.cnbc.com/id/44419154


Remember the collapse of Lehman Brothers? Europeans certainly do. As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008.


European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros [EUR=X 1.4033 0.0039 (+0.28%) ] of bailout money to prevent any major bank from failing.

But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations.

American financial institutions, seeking to inoculate themselves from the growing risks, are increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts — moves that could exacerbate the funding problems of European banks.

Similar withdrawals, on a much larger scale, forced Lehman into bankruptcy, as banks, hedge funds and others took steps to shield their own interests even though it helped set in motion the broader market crisis.

Turmoil in Europe could quickly spread across the Atlantic because of the intertwined nature of the global financial system. In ad-dition, it could further damage the already struggling economies elsewhere.

“This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros, the hedge fund investor, citing the lack of an authoritative pan-European body to handle a banking crisis of this severity. “That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

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The growing nervousness was reflected in financial markets Tuesday, with stocks in the United States and Europe falling 1 percent and European bank stocks falling 5 percent or more after steep drops in recent weeks.

European bank shares are now at their lowest point since March 2009, when the global banking system was still shaky following Lehman’s collapse.

Investors also continued to seek the safety of United States Treasury bonds, as yields on two-year bonds briefly touched 1.90 percent, the lowest ever, before closing at 1.98 percent.

Adding to the anxiety, several immediate challenges face European officials as they try to calm markets worried about the debt crisis spreading.

In the coming weeks, the 17 countries of the euro currency zone each could agree to a July deal brokered to bail out Greece again and possibly the region’s ailing banks. Along with getting unanimity, more immediate obstacles could trip up the agreement.

On Wednesday, Germany’s top court is to rule on whether it is legal for that country’s leaders to make such an agreement. On Thursday, officials in Finland are to express their conditions for approving the deal, and other countries may follow with their own demands to ensure their loans will be paid back.

Though they have not succeeded in calming the markets, European leaders have taken a series of steps to avert a Lehman-like failure. New credit lines have been opened by the European Central Bank for institutions that need funds, while the proposed Greek bailout would provide loans to countries that need to recapitalize their banks. In addition, the central bank has been buying up bonds from Italy and Spain, among other countries, to keep interest rates from spiking. Many of these have been bought from European banks, effectively allowing them to shed troubled assets for cash.

While the problems in smaller countries like Greece and Ireland are not new, in recent weeks the concerns have spread to banking giants in countries like Germany and France that are crucial to the functioning of the global financial system and are closely linked with their American counterparts. What is more, worries have surfaced about the outlook for Italy, whose debt dwarfs that of other smaller troubled borrowers like Greece.

“It seems like the banking sector globally is being hurt on multiple fronts,” said Philip Finch, a bank strategist with UBS in London. “It’s definitely getting worse.”

In Europe, the worry is that government bonds owned by European banks could fall sharply in value if economically distressed countries cannot pay back their loans. That would saddle the most exposed banks with huge losses.

As a result, banks are reluctant to lend money to one another and are hoarding cash. “If sentiment continues to deteriorate, ultimately we’ll see a deposit run,” Mr. Finch said. “I’m extremely worried about that.”

CONTINUED. Go to Link at top of page

Risk of Further Global Recession Has Increased to One-in-Two, Krugman Says

By Henry Meyer and Ilya Arkhipov - Sep 9, 2011 5:24 AM ET

People walk near the logo for Lehman Brothers Holdings Inc. in Tokyo, Japan. Three years after the collapse of Lehman Brothers Holdings Inc., the global recovery is faltering and the euro-region debt crisis is roiling markets and clouding growth prospects across the 17-nation euro region.


Sept. 9 (Bloomberg) -- Nobel-prize winning economist Paul Krugman discusses the global economy, Europe's sovereign debt crisis and President Barack Obama's $447 billion jobs plan. Krugman spoke yesterday with Bloomberg's Henry Meyer in Yaroslav, Russia, prior to Obama's address to a joint session of Congress. (Source: Bloomberg)
Enlarge image
Nobel-Prize Winning Economist Paul Krugman. Photographer: Craig Ruttle/Bloomberg
The risk of another global recession has increased to one-in-two, said Nobel-prize winning economist Paul Krugman.
“There is a pretty good chance of an actual stall which would lead the global economy to slide backward,” he said in an interview in Yaroslav, central Russia, yesterday, describing the risk of a recession as “quite high, maybe 50 percent.”
Krugman, who last month said the risk of a global decline may be “a bit higher” than one-in-three, urged advanced economies to reverse fiscal belt-tightening and central banks to adopt a more expansionary monetary policy.
Three years after the collapse of Lehman Brothers Holdings Inc., the global recovery is faltering and the euro-region debt crisis is roiling markets and clouding growth prospects across the 17-nation euro region.
“They need to realize that for those countries which are not having financing problems -- at least five of the G-7 are able to borrow quite freely -- that they need to postpone austerity measures on the fiscal side and that the central banks need to be expanding, not tightening,” Krugman said, referring to the Group of Seven major industrialized nations.
Krugman, a columnist for the New York Times who was invited to give a speech at Russian President Dmitry Medvedev’s global policy forum in Yaroslav, said China’s fast-growing economy isn’t large enough to help reverse the slump.
China, the world’s second-largest economy, on Sept. 7 raised its growth estimate for 2010 to 10.4 percent.
‘Close to Zero’
Krugman also said President Barack Obama has “close to zero chance” of getting his $447 billion jobs plan passed by the Republican-held Congress, which means unemployment will stay persistently high.
“Realistically, the chance of getting any of it is very close to zero,” Krugman said before Obama unveiled his plan. “That’s a bad thing. We’re going to be seeing unemployment at something like its current levels, perhaps even higher, right through next year and beyond.”
Job growth in the U.S. stalled last month and the unemployment rate has hovered at or above 9 percent for more than two years. Obama, who faces re-election next year, has job- approval ratings at new lows as public doubts about his stewardship of the economy rise. Public opinion of Congress has dropped even lower.
Courting Republicans
U.S. gross domestic product climbed at a 1 percent annual rate from April through June, down from a 1.3 percent prior estimate, figures released by the Commerce Department on Aug. 26 showed. Combined with the 0.4 percent annual rate of growth in the first three months of the year, the past two quarters were the weakest of the recovery that began in mid-2009.
Tax cuts account for more than half the dollar value of the president’s latest plan to turn the economy around, and administration officials said they believe that will have the greatest appeal to Republicans in Congress, who favor austerity over higher taxes and new spending. Obama dared his adversaries to oppose a provision that would extend and deepen payroll tax cuts due to expire on Dec. 31.
“The underlying situation is that with the fading out of the tail end of the original stimulus, plus cutbacks at state and local level, we’re effectively in a regime of fairly harsh fiscal austerity with the economy still dead in the water, so this is a very bad scene,” Krugman said.
Obama’s jobs plan follows the contours of his $830 billion infrastructure spending and assistance to local governments. Krugman said the plan is big enough to make “a significant dent” in unemployment.

No Hiding Place From Crisis Bigger Than Lehman: Economist
Published: Monday, 12 Sep 2011 | 5:21 AM ET Text Size
By: Patrick Allen


Carl Weinberg, the chief economist at High Frequency Economics is very worried about Europe. His central forecast is that the debt crisis will lead Europe into a depression that will mean soaring unemployment, deflation and zero interest rates for the foreseeable future.


CNBC.com
After months of inaction, Weinberg believes the time to stop a Greek default has now passed. He believes that once it becomes clear that Greece has defaulted, the market will quickly come to the realization that other euro zone members like Portugal, Ireland, Spain and Italy will be allowed to fail as well.

With the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) sitting on 3 trillion euros in debt, Weinberg is assuming losses could ultimately hit 50 cents in the euro, leading to a 1.5 trillion euro hit to the financial system.

This will in Weinberg’s opinion force banks to stop lending. Governments will then be forced to bail them out, elevating debt-to-GDP ratios for national governments to "horrific levels"

“In comparison, Lehman’s bankruptcy left about 600 billion euros in assets to be resolved. The ultimate recovery rate is still unknown,” said Weinberg in a research note on Monday.

The true cost of a euro zone default is impossible to know beforehand due to the huge amount of CDS (credit default swaps) that have been written, according to Weinberg.

“This is a shock that easily spread around the world quickly, as did the hit from Lehman,” he said.

Having spent 2 years offering up solutions to the crisis that have fallen on deaf ears, Weinberg has been looking at how the European Central Bank and national governments can react at this point.

“The most important thing the ECB can do at this time is to use its repo facility to ensure that all banks have enough cash to operate regardless of their short-term solvency or longer-term prospects,” he said.


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“The ECB will have to buy a dominant position in all PIIGS bond markets, sterilize those purchases by absorbing cash, and then return that cash to banks in long-term repos,” said Weinberg, who expects such a move to add 2 trillion euros to the ECB’s balance sheet.

Given the euro zone has so far balked at creating some kind of TARP fund and cannot even agree on the scale of the European Financial Stability Fund, Weinberg said governments will have to come up with individual schemes to recapitalize the banks.

“Not all will be able to do so. For stronger fiscal players, like Germany and France, funding can likely be found to create national banking support systems,” said Weinberg, who believes attempts at fiscal consolidation be “torn asunder”.


"The ECB will have to buy a dominant position in all PIIGS bond markets, sterilize those purchases by absorbing cash, and then return that cash to banks in long-term repos"Carl Weinberg
Chief Economist at High Frequency Economics Partners
For the PIIGS, things will much tougher. “If the IMF can invent a facility to lend money to bankrupt governments with no hope of repayment, it may be able to help,” he said. “Otherwise, most PIIGS banks will fail, and no credit at all will be available in these countries.”

This will mean cold turkey with governments forced to live within their means, according to Weinberg.

“Let the Tea Party in the United States watch this experiment carefully,” said Weinberg who believes such action would mean far lower government spending, incomes, demand and employment.

With US and UK banks likely to have big on and off balance sheet exposure, Weinberg warns all they can do is prepare for the worse.

“There is no place to hide from this, at least not in the Euroland. German banks are no safer than Greek ones in this disaster scenario. The myth that bunds are a safe haven from Euroland debt woes will be proven wrong the minute the first German bank announces that it needs public help to recapitalize it,” he said.

Gold will offer the safest haven, according to Weinberg, who fully expects Europeans to move cash under their mattresses in early phases of this crisis.

“The beneficiaries of this flight of cash out of Euroland will be the hot economies of Asia, notably China, India and Korea.” said Weinberg.

© 2011 CNBC.com

http://www.cnbc.com/id/44368995


We Are in 'Worse Situation' Than in 2008: Roubini
Published: Friday, 2 Sep 2011 | 3:50 AM ET Text Size
By: Catherine Boyle
Staff Writer, CNBC.com



The world’s developed economies are trapped at the “stall speed” of low growth and need to have greater fiscal stimulus and less austerity to kick-start growh, leading economist Nouriel Roubini told CNBC Friday.

Speaking at the Ambrosetti Forum on the shores of Lake Como, near Milan, Roubini said in an interview: “We are in a worse situation than we were in 2008. This time around we have fiscal austerity and banks that are being cautious.”

Roubini, known for his bearish views on the world economy, thinks that there is a 60 percent chance of a second recession imminently. Economic data of recent weeks presents a mixed picture.

On Thursday, the US government announced that jobless claims dropped by 11,000 to 409,000 last week. Friday's employment report in the US is expected to show a gain of only 75,000 nonfarm jobs during August, with the unemployment rate steady at 9.1 percent.

Recent surveys point to slumping business and consumer confidence across the developed world.

Asked if there was still a chance the developed economies could avoid recession, Roubini said: "That’s very optimistic if you look at the data."

"The hard economic data (which has come out recently) is all relevant to July while the soft data which has come out is for the future and that’s all moving in the wrong direction," he added.

He also believes that a third round of quantitative easing in the US may not have the desired long-term effects, and that further fiscal stimulus across Europe and the US will be needed.



"The market may rally but unless the real economic data moves with asset prices, then eventually asset prices are going to go," he said. "Last year the economic data was already improving when QE2 was introduced."

Europe has come into increasing focus in recent weeks, with some even questioning whether the single currency can survive this crisis.

Roubini believes there will eventually be an enlargement of the European Financial Stability Facility (EFSF) or a common euro zone bond.

He thinks that the euro zone governments should try to weaken the value of the euro. The strength of the currency is worrying some economists because of the potential effect on exports from the euro region.

"Unless there is economic growth there will be this problem again,” said Roubini. “Fiscal austerity is negative for growth… (Governments) should work on denominated GDP not just on austerity."

He was pessimistic about the UK’s immediate economic future, and believes the British economy is "on the verge of a double dip."

I mistakenly thought S&L read more than just Peter Schiff on economic issues. Lmfao.
Oh well.