Financial Crisis Is Bigger than You Think – some Quibbles and Bits 10/3

Pushed up by SusanUnPC — I will re-post Marc Rubin’s exceptional essay later today [in the early evening when everyone's home and can read it] — LisaB’s research needs to get up now because it’s so important and time-sensitive. See also: LisaB’s item below the fold on how the A.P. shifted news stories — the MSM is ethically bankrupt. Now, for LisaB:

1)There will be way too many stories about last night’s debate for me to bother with them all or even a representative sample. Today, I’m going to see what other news is out there. For my money, a story from the Telegraph (UK) is the biggest one of the day. As you may or may not know, Europe has seen this financial crisis as an American led / bred problem, filled with American greed and malfeasance. But this article shows something very different.

As we’ve all figured, this bailout / rescue / wealth transfer package is a LOT bigger than the general public understands so far. According to this piece, Paulson saved AIG largely because of European requests.

It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an “American problem”, the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its “superpower status”. Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary.

By Monday, Mr Steinbrück was having to orchestrate Germany’s biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was “staring into the abyss,” he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).
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We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for “regulatory capital relief rather than risk mitigation”. In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of “off-books” chicanery than the Americans. Mr Paulson may have saved Europe.

The author feels this crisis may threaten the EU as an entity.

The storyline is evolving much as eurosceptics predicted, yet the final chapter could end either way as the recriminations fly. Germany has already shot down the French idea. The nationalists are digging in their heels in Berlin and Madrid. We are fast approaching the moment when events decide whether Europe will bind together to save monetary union, or fracture into angry camps. Will the Teutons bail out Club Med? If not, check those serial numbers on your euro notes for the country of issue. It may start to matter.

While everyone worries about the vp debate last night, I think this may be the story of the day. If you are following the financial crisis, follow this as well.

2)However, there is an interesting debate-related bit at edgeoforever. It seems the AP posted a story after the debate and then almost immediately replaced it with another.

Here’s the original title, author and beginning:

Palin stands her ground in VP debate with Biden
By JIM KUHNHENN, Associated Press Writer 42 minutes ago

ST. LOUIS (AP) — Under intense scrutiny, Republican vice presidential candidate Sarah Palin stood her ground Thursday night against a vastly more experienced Joe Biden, debating the economy, energy and global warming, then challenging him on Iraq, “especially with your son in the National Guard.”

After the above article was replaced, here’s what appeared in its place:

Biden, Palin spar on taxes, war and ‘change’

By BETH FOUHY, Associated Press Writer 1 hour, 38 minutes ago
ST. LOUIS – Republican Sarah Palin and Democrat Joe Biden sparred over taxes, energy policy and the Iraq war in a high-profile debate in which Palin sought to reclaim her identity as a feisty reformer and Biden tried to undercut the maverick image of GOP presidential hopeful John McCain.

Palin, in the 90-minute forum broadcast Thursday night from Washington University in St. Louis, was under intense pressure to show basic competence on issues facing the next president after a series of embarrassing television interviews called into question her readiness for high office.

The original article had no obvious writing errors that might have led to its replacement. It might be argued that the first article was slightly too friendly to Palin, although if you read the entire thing, I’d disagree. The second one, though, changes the tone from possibly friendly to dismissive. That’s not a good editorial decision of bias is your problem. Bad on the AP.

Interested in reading both? NOLA.com has the original.

Yahoo.com has the replacement.

3) Also at the Telegraph (UK), someone got ahold of a confidential memo to the prime minister offering an assessment of BO as a potential US President. It starts with this:

Barack Obama is a “decidedly liberal” senator “who was finding his feet, and then got diverted by his presidential ambitions”, according to a frank verdict delivered to Gordon Brown by the British ambassador to the United States.

The letter is not negative or particularly positive, but is intended to give an overall assessment of Obama to the British government. It details strengths and weaknesses of the candidate.

Mr Obama “can seem to sit on the fence, assiduously balancing pros and cons”, Sir Nigel wrote, and “does betray a highly educated and upper middle class mindset”. Charges of elitism “are not entirely unfair” and he is “maybe aloof, insensitive” at times.

“He can talk too dispassionately for a national campaign about issues which touch people personally, eg his notorious San Francisco comments [in April] about small-town Pennsylvanians ‘clinging’ to guns and religion.”

Mr Obama’s Democratic primary victory over the former First Lady showed that “he is tough and competitive. This is of course the Chicago school.

You don’t beat Clinton without being resilient” but “his energy levels do dip and he can be uninspiring e.g. in debates”.

This is interesting because the author is trying to provide useful information rather than fawning press. His assessment of Obama is presented as dispassionately as possible because the British government, understandably, will want to know with whom they might be dealing.

Commentary feels this letter is more damning.

4) It appears to be Brit day here! The Independent (UK) also has a story bout the American financial crisis. And they note that Democrats bear a large share of the blame.

Of all the characteristics of a successful politician, none is more essential than bare-faced cheek. Never has this been more evident than in the past fortnight, as senior Democrat members of the US legislature have sought to lay all the blame for the country’s financial crisis on the executive arm of Government and Wall Street.

Neither of these two institutions is blameless – far from it. Yet when I see such senior Democrats as Barney Frank, Chairman of the House Financial Services Committee, and Christopher Dodd, Chairman of the Senate’s Banking Committee, play the part of avenging angels – well, I can only stand in silent awe at the sheer tight-bottomed nerve of it. These are men with sphincters of steel.

What is the proximate cause of the collapse of confidence in the world’s banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush – and other Republicans – to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

“Sphincters of steel?” HA! Now that’s a verbal image for you. . . (WHY doesn’t the US press write such fun stuff?)

Apparently, the Independent has seen the youtube video of Democrats excoriating someone attempting to report on a lack of regulation on Fannie and Freddy. The article briefly notes the words of Maxine Waters, Barney Frank and Chris Dodd. Watch here if you want to see more players in the Dem drama.

Then the Telegraph has this:

One of the few journalists to see where this would lead was Jeff Jacoby, of the Boston Globe. Last week he reminded his readers what he had written in 1995: “Our banks are knowingly approving risky loans to get the feds and the activists off their backs… When the coming wave of foreclosures rolls through the inner city, which of today’s self-congratulating bankers, politicians and regulators plans to take the credit?”. Jacoby adds now: “Barney Frank doesn’t. But his fingerprints are all over this fiasco.”

It’s true that the improvident lending was not initiated by Fannie and Freddie: their role in this was to buy these loans and sell them on – but then the music stopped. Cynical students of the American political system will note that the biggest recipient of campaign contributions from the munificent duo of Fannie and Freddie over the past 20 years was one Christopher Dodd, Democrat Chairman of the Senate’s Banking Committee.

Rather surprisingly, given that he has only been in the Senate for four of those years, the second biggest beneficiary was Barack Obama. In August the Washington Post reported that Obama’s presidential campaign team had sought the advice of Franklin Raines “on mortgage and housing policy matters”. Perhaps Mr Obama’s team just wanted to know where all the bodies are buried – there are rather a lot of them.

Yikes!!! Bodies and sphincters! I don’t have enough coffee to deal with this.

5) Newser.com (originally from the LA Times) has the story about California needing $7 billion from the U.S. treasury. Finally, the financial crisis story starts to make some sense to me.

California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

Even governments love the holiday shopping season.

It’s customary for California to borrow billions of dollars at the start of the fiscal year to fill its coffers until the usual flood of sales tax receipts comes in after Christmas and income tax receipts arrive in the spring.

6) The Financial Times has several pieces about the financial crisis gripping Europe and the rest of the world. I realize this stuff may not be your cup of joe, but it is important to get a sense of where the edges are in this crisis. There are some who say Europe may be even more leveraged than the US. This article starts out by noting the dollar is slightly back up (although still not good).

Analysts say part of the reason for the dollar’s rally is that US legislators appeared to have hammered out a rescue deal.

However, equally importantly for the dollar, have been events in the European banking sector, with the nationalisation of Fortis in the eurozone and Bradford & Bingley in the UK focusing attention on the region’s problems.

Analysts say in contrast to the US, the approach of European policy makers appears to lack direction.

This is all the more concerning since by some measures such as assets to shareholder equity, many of the large European banks seem more leveraged than the top US banks.

Moreover, some European banks are large relative to their home country’s GDP, making it difficult for their respective countries to nationalise them without assistance from other countries.

The US government’s $700bn rescue plan is about 5 per cent of US GDP, but according to estimates, Deutsche Bank’s total liabilities are about 80 per cent of Germany’s GDP, Barclay’s total liabilities are almost as large as the UK’s GDP, and Fortis’ liabilities are roughly three-times bigger than Belgium’s GDP.

This last part is particularly important. Deutsche Bank’s liabilities are nearly equal to the sum of the entire German Gross Domestic Production. Holy cow! That’s kind of like having a $95,000 house note due all at once on an annual salary of $ 119,000.

And a good morning to you too!!