Europe stuns with €1.5 trillion bank rescue, as France plays role of saviour

French President Nicolas Sarkozy as saviour

Germany, France, Italy, Spain, Holland and Austria have joined forces to launch the greatest bank bail-out in history, offering over €1.5 trillion in guarantees and fresh capital in a “shock and awe” blitz to halt the credit panic.

Telegraph | Oct 13, 2008

By Ambrose Evans-Pritchard

The move – unveiled simultaneously in the six states to maximise the show of unity – throws the full weight of the eurozone behind global efforts to stem the crisis.

The move gave a tremendous boost to bourses across Europe, lifting the Euro Stoxx index by 9.53pc in the biggest one-day rally ever.

The pan-European plan – totalling over $2 trillion, or £1.17 trillion – completes the third leg of a dramatic restructuring of finance across the Western world. Sovereign states have now absorbed the brunt of the credit risk in half the global economy.

“The greatest risk is inertia,” said French President Nicolas Sarkozy, now basking in glory as the man who refused to give up after the first emergency summit of EU leaders ended in discord.

“The French state will not let a single bank fail. We have to unblock the interbank market because money has stopped circulating, but it is a reasonable bet that by offering this guarantee, it won’t actually be needed,” he said, unveiling a French package worth €320bn in guarantees for fresh interbank loans and a €40bn bank rescue fund.

Sarkozy has emerged as the statesman of the hour, shaping events as others dithered. He appears to have understood intuitively that credit paralysis would set off a dangerous downward spiral.

Germany’s rescue package totals €500bn, far bigger in per capita terms than America’s scheme. The bulk is to guarantee interbank lending, while €100bn is for a stabilisation fund to recapitalise banks and cover losses – with strict pay limits for executives.

“We have placed the first foundation stone of a new financial order,” said chancellor Angela Merkel, underlining that nothing would ever be the same again in banking.

She also warned that the US government’s “massive support” for the Detroit car industry would create a major headache for Germany’s producers, who are already struggling. BMW said yesterday that it would idle plants in Leipzig, Regensburg and Munich as demand fell.

Italy’s finance minister Giulio Tremonti said Rome would provide as much money “as necessary” to stabilise credit markets. Italy’s plan includes the injection of up to €40bn in fresh capital into the banks on a “case by case” basis, through preference shares.

The Netherlands is offering a €200bn guarantee; Austria is putting up €100bn, as is Spain – as a “preventive measure”. Debts issued before the end of next year will be guaranteed for five years under all the national plans.

Diplomats say the world owes a great deal to France’s finance minister, Christine Lagarde. A former chair of the US law firm Baker McKenzie and a friend of US Treasury Secretary Hank Paulson, she has been a bridge between the EU and Washington, helping to end the transatlantic sniping that has damaged market confidence over the past year. The close co-operation is in stark contrast to the catastrophic rift in October 1931, when France set off a wave of US bank defaults by pulling its gold out of New York.

The Sarkozy accord was not enough to shield Société Générale yesterday, as reports circulated that it might be the first to tap into the French bank rescue fund, perhaps needing as much as €10bn. The share price collapsed 17pc at one point on fears of losses in its structured credit unit. Investors are concerned that it may suffer from exposure to Eastern Europe, where it has played a role in providing foreign currency mortgages. The shares ended down 2pc in Paris.

This week’s dramatic action by the eurozone states has gone a long way to reassure investors that EMU can weather a severe crisis, even though it lacks an EU treasury or fully fledged lender-of-last resort. The EU Stability Pact rules on budget deficits have been shunted aside by invoking the “special circumstances” clause of the Maastricht treaty, opening the way for fiscal stimulus. The Dutch-Belgian rescue of Fortis and the French-Belgian rescue of Dexia were not without friction, but at the end of the day the system was able to come up with creative solutions.

IMF chair Dominique Strauss-Kahn said the monetary union had faced its “ordeal by fire” this week. With French leadership, it survived.

IMF chief warns of global financial meltdown

MSNBC | Oct 11, 2008

WASHINGTON - The International Monetary Fund warned Saturday that debt-ridden banks were pushing the global financial system to the brink of meltdown and wealthy nations had so far failed to restore confidence.

The IMF’s policy setting panel said the economic crisis is so deep and widespread that it will require a willingness to take bold action.

The Group of 20 nations, which includes the world’s wealthiest nations and the largest developing countries such as China, Brazil and India, issued a joint statement late Saturday night stressing their resolve to work together to overcome the current financial turmoil.

President Bush paid an unexpected visit to the group’s meeting. Brazilian Finance Minister Guido Mantega said the president had stressed the seriousness of the situation and told the finance ministers he was doing all he could to involve other countries in efforts to resolve the crisis.

Bush appealed for patience as world leaders raced to stabilize financial markets and avert the deepest global recession in decades, but the 185-nation IMF said even more steps would be needed in the coming months.

“Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,” IMF chief Dominique Strauss-Kahn said.

The IMF endorsed a plan of action adopted Friday by the G-7 economic powers to protect the financial system and get credit flowing again.

Bush huddled with economic chiefs from the G-7 — Japan, Germany, Britain, France, Italy and Canada — and officials from the IMF and World Bank, and said top industrial nations grasped the gravity of the crisis and would work together to solve it.

“In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together,” Bush said. “There have been moments of crisis in the past when powerful nations turned their energies against each other or sought to wall themselves off from the world. This time is different.”

“I’m confident that the world’s major economies can overcome the challenges we face,” Bush said, adding that Washington was working as fast as possible to implement a $700 billion financial bailout package approved a week ago.

Yet there was no concrete offer of new moves when Bush spoke on a Rose Garden stage just after daybreak, flanked by representatives from nearly a dozen nations and international organizations.

Resolving the crisis

The fresh message of the day was Bush’s plea that nations work together to address the crisis, avoiding the go-it-alone protectionist trade strategies that worsened conditions during the Great Depression.

“We will do what it takes to resolve the crisis and the world’s economy will emerge stronger as a result,” he said.

White House spokesman Tony Fratto said Bush’s commitment to collaborative action was repeated and agreed to by every official and minister who took part in a private White House meeting before the statement. Participating in that session with the president were top officials from the G-7 — the United States, Japan, Germany, France, Britain, Italy and Canada — as well as from the European Union, World Bank and IMF.

Bush did not mention any specific action that prompted his call. But Ireland recently moved to guarantee all bank deposits, triggering similar actions in Germany and other countries concerned that nervous depositors would move their bank accounts to Ireland.

The president barely referenced a significant new step from his administration — partial nationalization of some banks. After days of speculation this move was coming, Treasury Secretary Henry Paulson announced late Friday night that the government would buy part ownership in an array of American banks.

Intense market turmoil

President Hoover tried something like that in 1932 during the Great Depression. No detail was provided about how the new approach would work, only that it was similar to Britain’s move to pour cash into its troubled banks in exchange for stakes in them. The U.S. government would use an unspecified portion of the $700 billion approved by Congress a week ago to purchase stocks in a wide variety of banks and other financial institutions.

The rescue program originally was sold to Congress and the public as a plan to buy mortgage-related loans from financial institutions. The goal was to remove troubled assets from those institutions’ books and inspire them to restart more normal lending operations.

Congress passed the massive and hard-fought legislation, and Bush signed it. The government raised the amount of bank deposits it insured. Billions of dollars of reserves have gone into banking systems in the U.S. and other countries. Yet credit, the economy’s lifeblood, has remained virtually frozen.

This paralysis in the credit markets has translated into intense turmoil in the stock markets. The Dow Jones industrial average just completed its worst week in history, plummeting more than 18 percent. Over the past year, people in the U.S. have watched $8.4 trillion drain from investment accounts and retirement savings.

So the administration decided to use the bailout bill to pump equity directly into the banks — an idea never mentioned during the congressional debate. The administration says it is authorized in an obscure corner of the 400-page legislation.

Officials are not saying how long it will take to get this program under way — just as is the case with the even more complicated effort to buy mortgage-backed securities.

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Hank Paulson warns that more banks and businesses will fail

Hank Paulson: US companies will continue to collapse in coming weeks

Hank Paulson, the US Treasury Secretary, has warned that more banks and businesses will fail amid the financial crisis despite America’s $700 billion bail-out plan.

Telegraph | Oct 8, 2008

By Gordon Rayner and Jonathan Sibun

Mr Paulson said US companies will continue to collapse in the coming weeks and months despite efforts by the American government to rescue its ailing economy and financial markets.

Mr Paulson called for patience, saying: “the turmoil will not end quickly and significant challenges remain ahead”.

He added: “Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.”

Speaking after the Federal Reserve’s decision to cut interest rates by half a per cent, Mr Paulson said: “US and global financial markets continue to be severely strained.”

He said it would be several weeks before the bail-out plan makes its first purchases of troubled assets, and warned that even when the plan is implemented more banks are likely to fail.

Calling for a special meeting of the G20 group of leading industrial nations, he said: “In consultation with Brazil, the G20 president, I am calling for a special meeting of the G20 that will include senior finance officials, central bankers, and regulators from key emerging economies to discuss how we might coordinate to lessen the effects of global market turmoil and the economic slowdown on all of our countries.”

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. will “use all their authorities to promote the process of repair and recovery and to contain risks to the financial system that might arise from problems at individual institutions,” Mr Paulson added.

“It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,” he said. “We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.”

Claiming the “ultimate taxpayer protection will be a stable financial system”, Mr Paulson said financial markets were suffering the joint challenges of system risk and a lack of confidence, capital and liquidity.

“Uncertainty has clogged our basic financial plumbing,” the Treasury chief said, pointing out that consumers and businesses were having trouble getting student loans or mortgages.

In a veiled attack at governments including Ireland and Greece, which have made unilateral moves to save their own banking systems, Mr Paulson said: “We must take care to ensure that our actions are closely co-ordinated and communicated so that the action of one country does not come at the expense of others or the stability of the system as a whole.”

We’re all socialists now, comrade

Given the socialistic leanings of our Prime Minister, it may well have been a move he undertook calmly and, quite possibly, with a little excitement

Telegraph | Oct 9, 2008

By Simon Heffer

A quarter of a century ago, in the era of the Labour manifesto that was dubbed (by a member of the Labour shadow cabinet) “the longest suicide note in history”, when one wanted to depict the absurdity of the view of the world advanced by Tony Benn and Michael Foot one simply had to say: “They want to nationalise the banks!” People fell about laughing.

Today, it is all considerably less funny. We are all socialists now.

For the Government to take stakes in our leading banks in order to re-capitalise them is not quite the sovietisation of Britain, but it is a pretty good start. Given the instinctively socialistic leanings of our Prime Minister, it may well have been a move he undertook calmly and, quite possibly, with a little excitement.

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Perhaps the consequences of his not having socialised our financial system in this way could have been catastrophic - a view taken not just by his closest Cabinet colleagues but also by the main opposition parties. Equally, the consequences of his having done so could be catastrophic, too, because the socialist experiment rarely ends up with people feeling happier, richer and more free until it has ended.

Anyone over the age of 40 will recall the abiding result of the days when we had a socialist economy in this country: poverty. We had better prepare for some more of that. The state does not have its own money to engage in stock market speculations, such as buying shares in clearing banks. It undertakes this gamble with our money.

That is the money we, as taxpayers, have involuntarily handed over to pay for the things we generally accept as being socially necessary: a health service, schools, pensions, a police force and the defence of the realm.

With anything up to £500 billion having been pledged by Alistair Darling yesterday to create a state-backed banking system, there is now going to be a struggle to find the money. Mr Darling hopes that most of that guarantee will never have to be called on. If he is wrong - if a substantial bank or banks go under, and the money is called upon - then the Treasury will be heading for bankruptcy. We have been there before under socialism, in the autumn of 1976.

Even the limited purchases the Chancellor is prepared to make of bank stock will be costly - a first tranche of £25 billion, with the same available later. Mr Darling says the banks will pay the Treasury a price for any such money. He perhaps hopes that, as with the Swedish bank rescue in 1990, he will be able to sell the shares at a premium a couple of years later. In the meantime, the loan has to be funded.

That means either public spending cuts or a rise in taxation, or even both. As with any other shareholding, the value of the investment can go down. The liability and risk to the taxpayer is terrifying. The political cost to Labour if all this fails will be as nothing compared with the cost to the British public.

This is what socialist economics brings. The intervention, or rather interference, of the state in financial and economic matters can only lead to sclerosis, the suppression of enterprise, the raising of taxes, starvation of investment, lack of innovation, technological retardation and the rise of the power of organised labour. Judging from yesterday’s interest cut, the much-vaunted independence of the Bank of England has already gone out of the window and state control of the central bank is back with a vengeance.

If you doubt this analysis, recall what happened in this country between 1945 and 1979, when such an ethos as we are now returning to existed unchallenged, even by Tory governments. The more the state intervened, the more it had to intervene: the appetite grew with eating.

By the 1970s the inevitable endgame of socialism was being played out: unions battling with government over rates of pay, prices and incomes policies, food subsidies, the three-day week, the winter of discontent. The state had to create jobs because there was precious little incentive for the private sector to do so. Investment was scarce. The state was everywhere.

The maxim of the American writer and philosopher Ayn Rand came close to fulfilment before the denouement of Old Labour on May 3 1979: that the difference between a welfare state and a totalitarian state is a matter of time.

With the Government about to take shares in banks - and substantial shares at that - the effect of the new socialism will be felt first of all by the customers of those banks. Perhaps again there will be money to lend. But the bank manager will have to lend in accordance with government policy.

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Pope says financial crisis shows money an illusion

The tip of the iceberg of Vatican wealth and opulence on display at St Peter’s Basilica

Reuters | Oct 6, 2008

VATICAN CITY (Reuters) - Pope Benedict said on Monday that the global financial crisis showed that faith in God trumped a lifetime spent pursuing material wealth.

“We see it now in the collapse of the great banks that money disappears, it’s nothing,” the Pontiff said.

The global financial turmoil, the worst since the Great Depression, has wiped away hundreds of billions of euros (dollars) in shareholder wealth and felled banking institutions that just months ago seemed untouchable.

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The pontiff, using a biblical metaphor, said people who ignored the word of God to pursue wealth had effectively built their homes on sand instead of on a solid foundation of faith.

It was a possible reference to the collapse of the U.S. housing market, which triggered the financial crisis.

“Whoever builds his life on this reality, on material things, on success … builds (his house) on sand. Only the word of God is the foundation of all reality,” he said.

(Writing by Phil Stewart; Editing by Sami Aboudi)

British taxpayers to foot bank bailout bill

British taxpayer to be tied into £50bn bank bailout

The Times | Oct 8, 2008

by Philip Webster and Patrick Hosking

Taxpayers will be committed today to providing more than £50 billion to bail out high street banks in an attempt to avert a cataclysmic failure of confidence.

Alistair Darling was due to tell the City in an early morning announcement today that the sum will be available for “investment” in banks that have demanded help from the Government. The drastic rescue move is designed to help to reassure savers and to kickstart the paralysed credit markets by encouraging banks to lend to each other again.

After meeting Mervyn King, the Governor of the Bank of England, Downing Street was forced to make the announcement earlier than it had intended because of fears that a second day of hammering for bank shares had made leading institutions vulnerable. HBOS shares slumped by 42 per cent yesterday, Royal Bank of Scotland was down 39 per cent and Lloyds TSB dived 13 per cent in another torrid day for the banks.

The taxpayer will take a stake in banks that seek assistance through the purchase of preference shares, which the Chancellor will say could mean ordinary people making a profit once the crisis is over. Holders of preference shares are the first in line for the payout of dividends but they do not carry voting rights. The bailout is expected to be structured so that the Government also receives rights to ordinary bank shares at low prices, holding out the prospect of profits if and when banks recover. Mr Darling will also announce extra help from the Bank of England to ensure that the banks have enough cash to run their day-to-day activities.

The collapse of the online bank Icesave, leaving 300,000 British depositors with no certainty that they will get their £4.5 billion of savings back, added to the urgency for a scheme to restore confidence. The part-nationalisation of the banks — “recapitalisation” will be the term used by Mr Darling, while Gordon Brown will refer to a “stability and restructuring plan” — comes amid fresh evidence that the economy is deteriorating quickly because of the drying-up of credit. The British Chambers of Commerce said that Britain was now in recession and faced 350,000 job losses in the next year. Confidence had collapsed in the manufacturing and services sectors, it said, and it joined the CBI and other employer groups in calling for an immediate interest rate cut. The Bank of England’s rate-setting committee begins its regular monthly two-day meeting today and is widely expected to cut its base rate by half a percentage point to 4.5 per cent.

The severity of the seizure in credit markets worldwide was underlined when the US Federal Reserve took the unprecedented step yesterday of offering short-term loans beyond the beleaguered banking sector to large US corporations. A hint from Ben Bernanke, the Chairman of the Federal Reserve, that he was prepared to cut US interest rates failed to lift the gloom. Wall Street dived, the Dow Jones industrial average sliding by 508 points last night to 9,447.11.

Mr Darling’s restructuring scheme has echoes of a successful operation by the Swedish Government in the 1990s to rescue its banks. Putting in taxpayers’ cash means that the equity value to ordinary shareholders will be reduced, which is why the shares have taken a battering in recent days.

While no single bank wants to be the first to take up the Government’s offer, regarding it as an admission of capital weakness, at least four banks — Royal Bank of Scotland, Barclays and the prospective merger partners Lloyds TSB and HBOS — were inching towards agreement in principle last night. It was not clear whether HSBC would join.

Banks still wanted to see the detail. They want the interest they pay on the preference shares to be as low as possible and the equity rights given to the Government as small as possible.

Ministers are putting the blame for disclosures yesterday morning firmly on the banks, who were accused of briefing the BBC about a meeting between Mr Darling and Barclays, the RBS and Lloyds TSB and other institutions on Monday night. At that gathering Mr Darling was urged to speed up his bailout plans. The leaking of what went on was denounced as irresponsible by Downing Street. For their part, the banks accused Mr Darling of dithering for not going ahead with his announcement earlier.

After the meeting, Mr Darling confirmed that he would be making a statement before the London stock markets opened today and another in the Commons later. It was believed that the first would come at about 7am. Although he gave no details, he said that the aim was to put the banks on “a longer-term sound footing”. The National Economic Council of senior ministers and officials, formed by Mr Brown last Friday as an economic “war Cabinet”, will meet at 8am.

George Osborne, the Shadow Chancellor, reiterated that the Tories would work with the Government, although he added: “We must make sure that any support from the taxpayer is used to help save small businesses from closure and enable families to stay afloat, not to pay the bonuses of bankers. We should be rescuing the banks to rescue the economy, not to rescue the bankers.”

The go-ahead for today’s historic announcement, providing the astonishing spectacle of a Labour government bailing out the banks with taxpayers’ help and Conservative Party support, came at a meeting in Downing Street last night between Mr Brown, Mr Darling, Mr King and Lord Turner of Ecchinswell, the chairman of the Financial Services Authority.

Mr Darling, Mr King and Lord Turner initially met in No 10 as the tripartite committee responsible for maintaining financial stability before being joined by the Prime Minister. President Bush and Mr Brown had talks yesterday about the need for co-ordination of international efforts to tackle the crisis.

John Cridland, the Deputy Director-General of the CBI, said: “The Chancellor’s much-anticipated announcement of capitalisation will herald the first essential step on the road to financial recovery.”

Martin Slaney, head of derivatives at GFT Global Markets, said that the FTSE 100 index was likely to open 100 points lower today after further heavy falls on Wall Street. “What the market wants, the market is unlikely to get. After the constant ‘whatever is needed’ reassurances from the Government there is every chance the reality does not live up to the hype.”

He said that the “best-case scenario” would be a £50 billion injection of funds and a simultaneous 0.5 per cent interest rate cut. Mr Slaney added: “The market’s loss of confidence is seemingly only going to be resolved with an extensive co-ordinated G7 response.”

James Hughes, an analyst at CMC Markets, expected a small improvement in the markets but feared that it could prove to be short-lived.

Global credit crisis is like 9/11, says New York Mayor Bloomberg

Mr Bloomberg speaks after being presented the Freedom of the City of London Photo: AP

The credit crisis that is sweeping global financial markets is akin to the 9/11 terrorist attacks, according to the Mayor of New York Mike Bloomberg.

Telegraph | Oct 6, 2008

By Christopher Hope, Home Affairs Editor

In a speech in London, Mr Bloomberg said that the global economy was “facing the worst confidence crisis in our lifetime”, adding that “the pain is going to be spread far and wide”.

He told an audience in the City of London: “It is going to affect anyone who wants to borrow money to buy a car or a house or to expand their business or take out a student loan.

“Millions of people are just not going to be able to do those things - and millions of people who carry a balance on their credit cards are going to see their costs go up, or their credit limits slashed.

“There’s no sugar coating this - it’s bad. And it’s only going to get worse as more and more jobs are lost.”

Mr Bloomberg said that he hoped that comparisons with the Great Depression were “grossly overstated”, especially when it came to working out what to do next.

But Mr Bloomberg, who was speaking after receiving the Freedom of the City of London, compared the severity of the crisis to the impact of the terrorist attacks on New York on 6 September 2001.

He said: “The better analogy to make - at least in terms of how we should be thinking about our next steps - might be to a terrible crisis that is far more recent: the attacks of September 11th.”

The 9/11 terrorist attacks showed that cities and countries had to work more closely together to prevent future problems, setting up early warning systems and encouraging a transparent flow of information.

Cities like London had to make their own moves to minimise the risks from a major economic shock - and not wait for national governments to do the job for them, he said.

Mr Bloomberg said that “there’s no doubt that the months ahead are going to be awfully difficult”.

He said: “It would be nice to believe that the financial crisis is only a problem for bankers - and that taxpayers shouldn’t bail them out. But that’s the same kind of wishful thinking that got us into this mess in the first place.”

Speaking at a press conference ahead of last night’s speech, Mr Bloomberg stressed that the downturn was not likely to be long term.

He said: “If it rains today I am disappointed that I cannot go out and play golf but I still think my golf game is good and that is what it is likely to be.

“We have a short term crisis that we have to address. If we don’t it could lead to something much longer.”

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• be exempt from naval impressment

• enjoy certain legal privileges with respect to being tried and imprisoned.

List of Honorary Freemen of the City of London

Europe calls for global summit on bank crisis to ‘rebuild the world’s financial system’

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British Prime Minister calls for New Financial World Order at UN

Gordon Brown at EU finance meeting

The Observer | Oct 5, 2008

By  Toby Helm in Paris

Gordon Brown and other European Union leaders called last night for a global economic summit to ‘rebuild the world’s financial system’ as they held emergency talks on how to prevent a repeat of the current international credit crisis.

At a hastily convened meeting in Paris, French President Nicolas Sarkozy said the heads of the EU’s four biggest economies - Germany, France, the UK and Italy - were united on the need to call all leading economic nations together to create ‘a new financial world just as Bretton Woods did 60 years ago’.

The summit, planned for next month, is expected to include the G8 leading industrial nations, as well as India, China, South Africa, Brazil and Mexico. Sarkozy, who called last night’s meeting in his role as EU President, said it was time for governments to clamp down on speculators and restore a moral element to the heart of a regime that had failed.

‘We need to literally rebuild the international financial system. We want to lay the foundations of entrepreneurial capitalism, not speculative capitalism,’ he said.

As part of a rolling programme of announcements, the EU’s ‘big four’ agreed to release £12bn of emergency aid to ailing small businesses across the EU immediately, and a further £12bn as soon as possible after that. The European Investment Bank had said the money would be released gradually over the next four years.

Calling for a more co-ordinated response to the credit crisis, Brown said international co-operation on regulation was needed. ‘We are seeing, in addition to the national action we are taking, that these global problems about oil, about the credit crunch, need global solutions,’ he said. ‘I think in the next few weeks we have got to show how we can do more in Britain and across Europe to help small businesses, as well as households, through what is a difficult economic time but where I believe Britain can lead the way out of the difficulties.’

Action was needed, and would be taken, to protect all solvent banks in the EU. ‘I want the message to go out from this meeting today that no sound solvent bank should be allowed to fail for lack of liquidity,’ Brown added. The meeting’s main pledges on restoring sound financial systems will be looked at next week by finance ministers from all 27 EU states during talks in Luxembourg.

Germany repeated its opposition to the use of taxpayers’ funds to help ailing banks after calls from France for a European equivalent of the $700bn US bail-out agreed on Friday night. Germany’s Economy Minister, Michael Glos, said such a €300bn rescue fund was a non-starter. ‘I do not think it can be justified in this situation to ask the state to restore trust that has been gambled away with large-scale debt relief plans financed by tax money,’ he said.

Rothschild criticizes City of London for lack of ethics

Rothschild: Banks turned a blind eye to sub-prime

This is Money | Oct 2, 2008

by Jonathan Prynn and Hugo Duncan

One of the banking world’s most respected grandees criticised the City today and called for a massive overhaul of regulation.

Sir Evelyn de Rothschild said there had been a collapse in ethical standards among banks in recent years, which had been ignored by watchdogs, rating agencies, shareholders and accountants.

The 77-year-old head of the banking dynasty issued a sombre warning that the crisis would get worse before it gets better. ‘We should not be under any illusion in this country that sub-prime is only an American problem,’ he said.

It came as another senior City figure, private equity boss John Moulton, said it could take seven years for the British economy to recover from the crisis that has brought the world’s financial system to its knees.

The outspoken comments were made on another day of grim economic news pointing to increasing damage to the ‘real economy’ from the credit meltdown.

A survey from the Bank of England suggested that banks plan to rein back their lending to families and small businesses over the coming months.

The report said: “In the three months to mid-September, lenders reported that they had reduced the availability of credit to households and corporates by more than had been expected three months ago. Lenders anticipated additional reductions in credit availability in the next three months.’

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There were also bad figures from the construction industry, record falls in house prices reported by the Nationwide-and a six per cent fall in sales from Marks & Spencer.

The only good news was that City economists now believe that a cut in the Bank of England’s base rate to avert a slide into a deep and long lasting recession is likely. That would cut the rate from 5% to 4.75%, bringing instant financial relief to millions of borrowers on tracker mortgages.

But the worsening economic outlook increased recriminations over how the City landed the economy in such a mess.

Sir Evelyn, speaking on Radio Five Live, accused the banking community, including the regulators, of turning a blind eye to the explosion in the British sub-prime mortgage market.

He also declared that investors in the banks should have acted to control bankers’ pay and the risk-taking of management. ‘What are shareholders for? I think shareholders have not been speaking up.’

He added: ‘You can also look to the accountants. It is their job to dig deep into the accounts and assess the risks a bank is taking. I mean, some of these American banks were 20 to 30 times leveraged - that is something I have never heard of.’

De Rothschild said the only way out of the crisis was to improve regulation and license anybody involved in financial services.

The veteran financier, who has seen many crises, added: ‘You have to have regulators who are properly paid and who properly understand the situation. And you should have a licensing system like you have in pubs where if you break the rules, they take away your licence.’

Brown, Merkel May Be Pushed Into Paulson-Type Bailout

U.K. Prime Minister Gordon Brown may be forced to advocate a comprehensive approach of the kind U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are urging Congress to pass.

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“The gods of the markets are punishing those who showed hubris,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York.

Bloomberg | Sep 30, 2008

By Simon Kennedy

Sept. 30 (Bloomberg) — European politicians are discovering what cometh after pride.

A week after lambasting the U.S. for allowing its banks to run out of money and after resisting calls to set up their own rescue mechanisms, leaders across Europe yesterday bailed out banks from Belgium, Germany and the U.K. Dexia SA today received aid from France and Belgium, while Ireland’s government said it would guarantee bank deposits and debt for two years.

German Chancellor Angela Merkel and U.K. Prime Minister Gordon Brown may be forced to advocate a comprehensive approach of the kind U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are urging Congress to pass. The two Americans turned to a broad package after early attempts to deal with each financial-institution crisis individually didn’t work.

“The gods of the markets are punishing those who showed hubris,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Europe has been bashing the U.S., but it’s realizing now it has its own problems.”

Paulson encountered difficulties yesterday when the House of Representatives voted down the $700-billion plan by a 228 to 205 margin. The failure to pass the legislation sent the Standard & Poor’s 500 Index to its biggest decline since the 1987 crash. Paulson said he will work with Congress to salvage the proposal. Lawmakers may take up the measure again this week, House Majority Leader Steny Hoyer said.

`No Choice’

“The Americans have no choice. We must have a comprehensive solution,” European Central Bank council member Christian Noyer said on RTL radio today. “I’m counting on a solution coming very soon.”

Yesterday, the British Treasury seized Bradford & Bingley Plc, the U.K.’s biggest lender to landlords, hours after the Netherlands, Belgium and Luxembourg agreed to inject 11.2 billion euros ($16.1 billion) into Fortis, Belgium’s biggest financial-services firm, in return for minority stakes. Germany guaranteed a 35 billion-euro loan to property lender Hypo Real Estate Holding AG.

Investors will dump shares of the continent’s banks and keep borrowing costs elevated if leaders don’t coordinate a solution, Lena Komileva, an economist at Tullett Prebon Plc, the second-biggest broker of transactions between banks, said in London.

`Clear Message’

“The U.S. experience should send a clear message to Europe that you need a contingency plan,” said Komileva. “The fact there still isn’t one will focus investors on the vulnerability of Europe’s economy and financial system.”

French President Nicolas Sarkozy pledged yesterday to support that country’s banks, paving the way for the 6.4 billion euro state-backed rescue for Dexia, the world’s biggest lender to local governments. He met today with executives from banks and insurers and said he will announce measures next week to address the crisis. Peer Steinbrueck, Merkel’s finance minister, yesterday called his country’s package “the biggest bank bailout in German history.”

When Paulson asked European leaders on Sept. 21 to “do similar things” as he was with the bailout package, the response wasn’t enthusiastic.

Steinbrueck said the U.S. would lose its status as the “superpower of the global financial system” and that the “Anglo-Saxon” model of banking had “an exaggerated fixation on returns.” Sarkozy decried the “mad system” that sparked the meltdown in New York on Sept. 23. And U.K. Chancellor of the Exchequer Alistair Darling said the situation required “not a knee-jerk reaction, but a measured response.”

Rhetoric `Backfiring’

“The European rhetoric is backfiring as its own banking system comes under pressure,” said Marco Annunziata, chief economist at Unicredit MIB in London.

Last yesterday, Brown told reporters “we will continue to take whatever steps are necessary” to ensure financial stability.

Europe’s leaders may have been foolhardy to think their banks would avoid the fallout. Of the $591 billion in losses and writedowns recorded by global banks since the start of 2007, 39 percent are accounted for by European institutions.

At the same time, economists at Citigroup Inc. said in a report yesterday that European banks, with lower profits and interest margins than those in the U.S., have “less cushion to absorb financial strains and losses.”

National Needs

In theory, the 27-nation EU should be a means of coordinating policy. The bloc has unified laws on trade and labor standards. But reaching a consensus requires agreement among 27 capitals, many juggling their own political needs.

Budget deficits also limit Europe’s firepower. Barclays Capital estimates that of the large economies, only Germany, the biggest, has the fiscal room to finance a U.S.-like plan.

The European Commission, the EU’s executive body, will unveil legislation this week aimed at strengthening bank monitoring across borders. It may let national authorities set capital requirements for their lenders operating in multiple countries, according to a draft obtained by Bloomberg News.

So far, though, governments have agreed only to knit supervision closer together by 2012 and pledged to cooperate in managing a crisis. They have also resisted devising a formula for splitting the bill should a cross-border bailout become necessary.

Cross-Border Reach

“We have been for a long number of years trying to get some kind of European supervisory authority for those institutions that have cross-border reach,” EU Financial Services Commissioner Charlie McCreevy said yesterday in Dublin. “It is particularly difficult to get agreement among member states who want to preserve control of supervision.”

The ECB, which oversees monetary policy in the 15 nations sharing the euro, gives Europe one way of acting multilaterally. It joined the Fed, the Bank of England and other counterparts yesterday in injecting another $630 billion into the global financial system through currency swaps.

Politically, some European officials maintain they are equipped to deal with the crises. Dutch central bank governor Nout Wellink said in an interview yesterday that Fortis’s rescue shows “that cross-border issues can be solved by respective governments.”

Still, Greg Fuzesi, an economist at JPMorgan Chase & Co. in London, noted that Dutch and Belgian authorities already had a support agreement in place, making Fortis “a special case.” It remains “less clear whether European policy makers could agree and implement a system-wide fiscal package,” he told clients.

Bank Liabilities

Ireland’s decision to protect liabilities of about 400 billion euros for two years may be followed by other countries, economists said.

Daniel Gros, director of the Centre for European Policy Studies in Brussels, says European governments ultimately will have to put capital into their banks, which he calculates are more leveraged than their U.S. rivals.

“These are highly leveraged institutions which need to have support from the public purse,” said Gros. He suggested that governments assign the European Investment Bank, the EU’s financing arm, with the job of infusing 250 billion euros to support the region’s banks, in return for an equity stake.

Related

Federal Reserve Directors: A Study of Corporate and Banking Influence
Chart 1 reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn,Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.