Iceland Crisis Sends Viking Descendants Back to Norway for Jobs

By Meera Bhatia and Helga Kristin Einarsdottir

December 2 2008

Almost 1,200 years after Viking chief Ingolfur Arnarson left Norway to found Reykjavik, the crisis engulfing Iceland is forcing his descendants home.

“There are no jobs here,” said Baldvin Kristjansson, an 18-year-old former container repairman from western Iceland, at a European job fair in Reykjavik. “I’m going to move away and go to Norway.”

The Atlantic island of 320,000, suffering from its worst financial crisis since gaining independence in 1944, faces the biggest exodus in a century. Iceland’s $7.5-billion economy may shrink about 10 percent next year, according to the International Monetary Fund, which is helping provide a $4.6 billion bailout package.

About half of Icelanders aged between 18 and 24 are considering leaving the country, Reykjavik-based newspaper Morgunbladid said, citing a survey of 1,117 people between Oct. 27 and Oct. 29.

“Tens of thousands” will depart, estimated Jesper Christensen, chief analyst at Danske Bank A/S, the biggest lender in neighboring Denmark.

Iceland’s biggest wave of emigration was in the late 1800s and early 1900s. Then, 15,000 out of a total population of 70,000 left, joining a flow to North America from countries including Norway, Sweden and Ireland.

Foreign Debt

A hundred years later, Iceland’s economy is struggling after the nation’s banking system collapsed under the weight of its foreign debt last month.

Inflation surged to an 18-year high of 17.1 percent in November following a currency collapse that drove up prices. A protest against the government turned violent last week as police used pepper spray to battle activists in front of Reykjavik’s main police station.

Unemployment is forecast to rise to 7 percent by the end of January from a three-year high of 1.9 percent in October, the country’s Labor Directorate estimates.

“A lot of people are registering unemployed,” said Valdimar Olafsson at European Employment Services in Reykjavik. “It’s very hectic and Icelanders are asking for jobs, especially in Norway.”

Norse settlers arrived in Iceland around 874 on sail- powered wooden longships. The country came under Norwegian control in 1262 and then under Danish dominion in 1380. It gained autonomy 90 years ago yesterday and became fully independent from Denmark in 1944.

‘State of Coma’

The Danes and Norwegians, along with Germans and Poles, returned to pluck Icelandic talent at a job fair on Nov. 21 and 22. It drew 2,500 people.

Neither country has been fully spared from the effects of the global crunch. Denmark’s economy will shrink 0.5 percent next year, according to the Paris-based Organization for Economic Cooperation. Norwegian economic growth more than halved to 0.2 percent in the third quarter.

Both remain in much better shape than Iceland, though, and Norwegian and Danish companies are seeking skilled workers.

“Iceland is more or less in a state of coma,” said Sigrun Thormar, who runs a consulting business for Icelanders moving eastward. “There’ll be an increase in the number of Icelanders seeking work in Denmark.”

Danish unemployment is 1.6 percent. In Norway, the jobless rate rose to 1.8 percent last month from 1.7 percent the previous month. Norway’s Labor and Welfare Administration, or NAV, expects unemployment to stay below 3 percent over the next two years.


Kristiansand-based Teknova, a research institution looking for scientists, and Billingstad-based Aibel AS, a provider of products and services to the oil and gas industry, are among Norwegian companies seeking Icelandic workers.

In total, NAV has 350 vacancies posted, according to Ragnhild Synstad, an adviser at NAV EURES who attended the job fair.

“I have been absolutely swamped with employers that are interested,” said Synstad. “The response was overwhelming. We heard some very sad stories about families who have lost everything.”

Stefan Gudjonsson, 37, who was let go from his job as an account manager at an information technology company, said he may have to leave his 6-year-old son behind for work elsewhere.

“I don’t like the look of things right now and also worry about what has yet to happen,” he said. “People are trying their best to be optimistic, but the prospects look anything but good.”


Protest in “Iceland” ends in Violence

Published in: on December 3, 2008 at 8:54 am  Comments Off on Iceland Crisis Sends Viking Descendants Back to Norway for Jobs  
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Save the Children Donates To Zimbabwe Crisis

December 3 2008
Save the Children New Zealand has announced that it will be sending NZD $60,000 to support the humanitarian crisis in Zimbabwe.

Following on from the disputed election run-offs between Robert Mugabe and Morgan Tsvangirai, Zimbabwe has been in a worsening state of decline.

10 million people, out of a population of 13 million live below the poverty line. Up to 5.1 million people will be in need of food aid to survive by the end of the year. One in 10 children in Zimbabwe die before the age of five, although with rocketing rates of malnutrition and disease, the child mortality rate will also rise.

A deadly outbreak of anthrax is threatening to wipe out at least 60,000 livestock in Zimbabwe’s northern Zambezi Valley. 32 cases of human anthrax have been reported in the Binga district. This figure is expected to rise.

On top of the anthrax outbreak comes reports of increasing cholera infections which have already killed hundreds of people. Zimbabwe is also in the midst of an economic crisis due to hyperinflation. On 14 November 2008 the Cato Institute released a document estimating that Zimbabwe’s monthly inflation rate to be 79.6 billion percent. This is equivalent to prices doubling every 24 hours.

Save the Children launched a global appeal on 1 December 2008 to raise money for the humanitarian crisis in Zimbabwe. With increased resources, Save the Children’s emergency team will be responding to the anthrax and cholera outbreaks by helping to vaccinate cows from anthrax, training health workers, providing food so that safe treatment camps can be set up, and educating communities how to avoid infection.

As well as setting up food programmes the aid organisation is also helping families prepare for the future by distributing seeds, small livestock and helping to set up vegetable gardens.

Philip Abraham, Acting Executive Director for Save the Children New Zealand says: “The humanitarian situation in Zimbabwe has reached unprecedented proportions which is why Save the Children has launched a global appeal for donations. We have been working in Zimbabwe for 25 years and have expertise in operating effective programmes within the country. We know we can save lives; we just need the resources to do it”.

To make a donation to support Save the Children’s work in Zimbabwe please: Visit or call our donation line 0800 167 168


Zimbabwe has reached unprecedented proportions.

A deadly outbreak of anthrax has been reported in the north of Zimbabwe, with three people and more than 160 cattle already dead.

British charity Save the Children says that, coming on top of the ongoing cholera epidemic and the desperate food shortage, the humanitarian crisis in Zimbabwe has reached unprecedented proportions.

“Many families in the Zambezi valley are so hungry that they are taking meat from the carcasses of their dead animals, even if they know it’s diseased, and are feeding it to their children,” said Save the Children’s country director, Rachel Pounds. “If the animal has been poisoned by anthrax, those children could die.”

A quarantine zone has been declared in the affected areas of Matebeleland North. But traders have been seen taking potentially infected carcasses out of the restricted zones to trade in the Victoria Falls region. This risks the disease spreading across Zimbabwe and into Zambia.

Zimbabwe has had problems with Anthrax in the past, having experienced the worst-ever recorded outbreak of the disease in 1979/80, at the time of its civil war. More than 10,000 human cases were recorded and 182 human deaths. Some have suggested, but not proved, that biological warfare was involved.

Little anthrax vaccination has taken place in Zimbabwe during the past five years and the strain now found in the Zambezi valley has been identified as particularly virulent.

Anthrax can kill when infected meat is touched or eaten, or when infected spores are inhaled.

Save the Children has launched a big appeal for funds, which will be used to help vaccinate cattle and educate people about the dangers of anthrax.  In the UK For more information and to donate, click here


Zimbabwe runs out of water-Public desperation is increasing

Lessons learned in Icelandic crisis

November 24, 2008,

A city council finance chief has admitted people have questioned their own roles in the Icelandic bank saga which has seen £42m of council cash frozen overseas.

John Beevers, head of financial projects at Nottingham City Council, said lessons are being learned about credit ratings after the authority ploughed vast sums of money into Landsbanki, Glitnir and Heritable just months before they ran into trouble.

Mr Beevers told the council’s Overview and Scrutiny Committee: “It [the Icelandic banks crisis] has provided more focus around the impact of credit ratings and what they show and whether they have been sufficient.

“There is a number of people that, as things come out, are looking at whether their role in it has been appropriate.

“I think we are taking on board the lessons we are learning.”

He also said there had been changes in some of the banks’ credit ratings around the time the investments were made.

“There had been some negative rating outlook changes on some of the banks,” he told the meeting. “That has not developed through to a complete meltdown of the bank itself.”

He later added: “Our actions are reinforced by over 100 other institutions. If the message were so loud and clear we would have been a number of two or three.”

The meeting heard the council was continuing to use the same credit rating agency, Butlers.

Deputy chief executive Carole Mills-Evans said an update on recovering the money was expected in the next “couple of weeks”.

She claimed that it would have been “almost impossible” for the council to get its money back before the end of its agreement with the banks.

“There is some talk that some councils have exit clauses. We have yet to find one council that that applies to.”


UK anti terror laws right move against Icelandic banks?

“Not all conversations concerning this matter have been made public . . . When the matter is investigated, other conversations will have to be made public. I am aware of what they are about and I am aware of what in fact determined the position of the UK authorities,” the Financial Times quotes Icelandic central bank chairman David Oddsson as saying.

The implication, the article continues, is that the UK was right to use anti terror laws to freeze Icelandic assets at the beginning of the banking crisis in October. Furthermore, the FT states that any such revelations could damage any potential lawsuit filed against the British government by Reykjavik. The Icelandic government has hired Lovells, a UK law firm to investigate whether London acted illegally and significantly and unnecessarily worsened the economic crisis already unfolding.

Oddsson’s comments were made during a speech to the Iceland Chamber of Commerce late last week. As a former long-standing Prime Minister, current head of the central bank and prominent Independence Party figure, Oddsson is seen as a close ally of PM Geir Haarde, who once served as his minister of finance.

Oddsson and Haarde, among others, are credited with liberalising the Icelandic financial sector and also blamed by many for allowing the current crisis to unfold. As many as 90 percent of people now want Oddsson replaced, and a Frettabladid poll this weekend revealed that 70 percent of respondents no longer support the current government.

David Oddsson protests his innocence however; stating in his speech that he had been warning the government on the state of the banks for 18 months and was repeatedly ignored.

He also described the inquiry recently announced by the government as “a whitewash”.

“The investigation . . . is in all respects unsuitable and insufficient. It is almost laughable to see the posturing in the entire organised propaganda campaign which has been carried out by those who bear the prime responsibility,” he said.



Who Could Have Predicted Revolution in Iceland?

Iceland’s Economic Meltdown is a big Flashing Warning Sign

Iceland isn’t the only one needing help: Point of Interest.

The United States has asked four oil-rich Gulf states for close to 300 billion dollars to help it curb the global financial meltdown, Kuwait’s daily Al-Seyassah reported Thursday.

Quoting “highly informed” sources, the daily said Washington has asked Saudi Arabia for 120 billion dollars, the United Arab Emirates for 70 billion dollars, Qatar for 60 billion dollars and was seeking 40 billion dollars from Kuwait…….

Seems Because of Capitalism we have a planet full of beggars.

The lesson to be learned from all of this is “Capitalism” SUCKS.

Simple and to the point.

A Lesson the Entire would should have learned by now.

Published in: on November 25, 2008 at 3:13 am  Comments Off on Lessons learned in Icelandic crisis  
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World Leaders Must Roll Back Radical WTO Financial Service Deregulation

Nov. 14, 2008

To Address Crisis, World Leaders Must Roll Back Radical WTO Financial Service Deregulation Requirements, not Push WTO Doha Round’s Further Financial Sector Deregulation

Bush’s Stubborn, Ideological Defense of Market-uber-alles Global Economic Deregulation Model Threatens Summit’s Prospects

WASHINGTON, D.C. – Remedying the financial crisis will require significant changes to existing World Trade Organization (WTO) rules that lock in domestically and export worldwide the extreme financial services deregulatory agenda favored by the world’s banking and insurance giants that fostered the crisis, Public Citizen said.

“President Bush’s insistence that further deregulation and liberalization is the solution to addressing the financial crisis spawned by radical financial services deregulation is the sort of backwards, ideological approach that could squander the prospects that Saturday’s summit produces any remedies for the crisis,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division.

Calls by many other world leaders for new global financial services regulation have been accompanied by a seeming total lack of awareness that most of the world’s countries are bound to expansive WTO financial services deregulation requirements to stay out of the business of regulating financial services. More than 100 countries signed the 1997 WTO Financial Services Agreement.

Despite the pervasive role of the WTO in worldwide financial service deregulation, in the lead up to this Saturday’s G-20 Global Financial Crisis Summit in Washington, D.C., the only comments regarding adherence to global trade rules have been of the red herring variety: panicky warnings about the perils of countries raising tariffs to block imports in response to dire economic conditions – something no country has proposed.

In contrast, in recent weeks, the Bush administration and governments worldwide have taken various measures to counter the crisis. These measures contradict the fundamental precepts of the current globalization model – and in some cases violate the rules implementing this model, such as those of the WTO. Plus, many of the most basic national and international remedies now being proposed to fix the mess and avoid future meltdowns occupy policy space that governments ceded to the WTO a decade ago.

“Altering the WTO financial services rules is critical for creating domestic policy space to address the crisis,” Wallach said. “However, even in the face of this crisis, the United States and the European Union are pushing for further financial services liberalization in the ongoing WTO Doha Round, the conclusion of which they are now pushing as a cure to the crisis, even as they find that flaunting the existing WTO terms is the necessary course of action.”

As part of its original WTO commitments, the United States agreed to conform a broad array of financial services – including banking, insurance and other financials services – to comply with WTO rules.

“Unless the radical financial services deregulation agenda that has been aggressively promoted and entrenched by the WTO, World Bank and International Monetary Fund is understood as a source of the current crisis, reform proposals will not address the crisis’ root causes,” Wallach said.

For more information about the WTO’s role in the crisis, read our memo to reporters, Elimination of WTO’s Radical Financial Service Deregulation Requirements Must Be Addressed at Nov. 15 Summit.


Letter to U.S. Congress from 243 Civil Society Groups in 90 Developing Countries: To Combat Global Poverty and Allow Developing Countries to Develop Please Reject Pressure to Give President Bush New Fast Track Authority to Push WTO Escalation Via the Doha Round

More Fair Traders have been elected.

Fair Trade Gets an upgrade

The GM genocide: Thousands of Indian farmers are committing suicide after using genetically modified crops

The World Bank and IMF in Africa

Published in: on November 15, 2008 at 7:30 am  Comments Off on World Leaders Must Roll Back Radical WTO Financial Service Deregulation  
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Should the US Experts be trusted?

November 12 2008

By Jeremy Gaunt and Alex Richardson


A number of deals designed to cure the global financial crisis were in danger of unravelling on Wednesday, with losses mounting at banks and economies deteriorating.

The International Monetary Fund withheld official backing for a $6 billion (4 billion pounds) bailout plan for Iceland, the Financial Times reported, putting loans to the North Atlantic island nation at threat.

Some of banking giant Barclays’ biggest shareholders have threatened to vote against a planned 7 billion pound capital raising unless it improves the terms of the deal, British newspapers said.

The latter follows a row over the crisis-driven planned purchase of lender HBOS by Lloyds TSB with leading banking figures arguing a more competitive deal should be sought.

Aides to U.S. President-elect Barack Obama, meanwhile, were playing down reports of tension with the Bush administration over help for the stricken car industry.

A feud within Japan’s cabinet over whether rich people should get payouts as part of a stimulus package looked set to be put aside after delaying the plan for weeks.

Questions are also beginning to be asked about just how much help governments can give.

“The U.S.’ financial resources are already stretched and a flood of news demands may overwhelm a government already staring down at a record budget deficit next year,” UBS economists said in a note.

Financial markets were rocked again under the combined pressure of a global economic downturn and the worst financial crisis in 80 years.

European shares rose 1.6 percent after losing more than 4 percent on Tuesday, reflecting the sharp volatility currently infecting investors.

There were more corporate profit warnings with General Motors shares falling on Tuesday to levels not seen since World War Two.

“Whether it’s economic indicators or company news, it’s just too awful,” said Takashi Ushio, head of the investment strategy division at Marusan Securities in Tokyo.


The financial industry showed more pain with Dutch group ING posting its first-ever quarterly loss as impairments on stocks and bonds, counterparty losses and property writedowns ate into its income.

ING Group NV had projected the loss in October before agreeing to a 10 billion euros (8.2 billion pounds) cash injection by the Dutch government to shore up its core capital.

Its net loss for the third quarter was 478 million euros, after writedowns totalling 1.5 billion euros. ING posted a profit of 2.3 billion euros a year earlier.

Insurer Swiss Life said third-quarter premium volumes fell 11 percent to 3.075 billion Swiss francs (1.7 billion pounds) and warned it would not meet its full-year net profit guidance.

This came against a background of continuing decline in world economies.

China’s retail sales data on Wednesday pointed to slowing consumption and the World Bank said more countries were seeking its help. The head of the Organisation for Economic Cooperation and Development, Angel Gurria, said there was room for further interest rate cuts in the stagnating euro zone.

World Bank President Robert Zoellick said global trade may drop next year for the first time in more than a quarter of a century as the worldwide credit crisis cuts into trade financing.

“It is our estimate that trade could actually fall, not grow more slowly or have growth fall, but actually fall next year, for the first time since 1982,” Zoellick said in an interview with Reuters ahead of a meeting of world leaders.

Zoellick said the bank expected its lending to increase to $35 billion this year from $13.5 billion last year, adding that countries such as Mexico, Indonesia and Colombia were tapping its contingency financing fund amid worries about access to credit.

Investors, meanwhile, were looking to a summit of world leaders in Washington on Saturday for solutions.

President-elect Obama, however, is steering clear of the meeting.

“I think he wants to have a free hand after the inauguration,” Dale said. “If he gets too closely associated with the summit, he might find himself associated with views with which he might not necessarily agree,” said Reginald Dale, a scholar at the Centre for Strategic and International Studies.

(Editing by Elizabeth Piper)


My rant for the day.

For all the Geniuses in the Financial Field, I really have to wonder if they know anything at all. They pretend to be such experts, but it seems they aren’t such geniuses.

This mess was created in the US, so their experts are not so brilliant. That speaks for itself.

Their advice should be scrutinized very carefully.

We should trust them because???????????? ,

Why so they can drag us into yet another one if their capitalistic nightmares.

Their rhetoric and propaganda is nauseating to say the least.

George Bush and all his so called advisors are not to be trusted.

Free Trade, deregulation, pandering to profiteering Corporations, listening to lobby groups and the cost of war have all played a great part to the demise of the US economy.

The so called experts fail to actually see the problem as a whole.

All countries around the world should be taking care of their people.

America is not the most wonderful place in the world.

They do not have the most intelligent people taking care of them.

They do not take care of their people. They just pretend a lot.

Over the years and observing the ups and downs of America and their leaders the two most intelligent people I have noted to date are Ron Paul and Barack Obama.

One of the notes I have taken on both of them is they actually seem to care about the people. When they speak they actually know what they are talking about.

That is special. Considering some of the slop we have had to listen to over the years.

When Bush or Cheney open their mouths, I want to scream at the stupidity of it all.

Hide under my bed in fear of yet another war.

Their wisdom is not wisdom at all it’s just full blown ignorance.

Their fear mongering and rhetoric should have been stopped years ago.

Instead everyone pandered to their garbage.

They turned America into the most hated nation in the world and with good reasons.

They threaten, course and lie. We are trapped on the planet with them until January 2009.

They should be in jail for crimes against humanity yet they are still allowed to run free and attempt to destroy what is left of the world with their so called expert advice.

Spare me the agony.

The Bush Administration has done little or nothing to improve the lives of the American people. They certainly are very adept at destruction not only of their own people but in destroying the rest of the world, whether is be through war of the financial blundering of this administration.

Their advice is not to be trusted. If they are such experts why is their country where it is today?

Their Health Care leaves a lot to be desired. It is horrible, costly and doesn’t serve the people only the profiteering, insurance companies.

Their wars are destroying millions of lives.

Their financial crisis is destroying the world.

Oh yes they are very cleaver indeed.

Their free trade agreements are more like give the profiteering, Corporations cheap, slave labour, massive profits and if they pollute no big deal. They want to take over the naturel resources of each and every country. They want to steal their water and privatize everything they can get their grubby hands on to the demise of the people in said country as well. Live becomes unaffordable for many and poverty rises as does the cost of living.

Privatization is just profiteering at the expense of people. Free Trade agreements drive farmers out of business as it does other homegrown businesses.

The Corporations move in and take over. This practice has to be addressed by all countries. Those who fight back are called evil among other things.

The American media more times then not jump on the propaganda band wagon.

Ensuring the American people never get the truth.

Universal Health Care is apparently a horrible thing in the US. Just ask any one.

Well the American people have been lied to for years over that one.

Michael Moore has tried to tell the Americans things could be different.

He had the guts to go up against the propaganda machine.

When one takes that one Example and really thinks about it that alone says a lot about the lies Americans have been told.

If America cared one iota about their citizens it would have given them Universal Health care years ago. Instead they were spoon fed propaganda and lies. Their media has played in great part a very large role in this and they of all should be telling the American people truth. That is apparently their job. Apparently they are not doing their job very well. .Instead they pander to the insurance companies. They pander to the Government officials who gets loads of money from insurance companies. How very disappointing it all is.

The Bush administration reminds me of a two year old temper tantrum throwing, brat that should be given a good sound spanking and have their privileges taken away.

If my child behaved in such a manner I would ground them for years.

Should they be trusted? They are like and infectious disease.  Spreading their illness world wide. Much like the plague.

Published in: on November 12, 2008 at 8:46 pm  Comments Off on Should the US Experts be trusted?  
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Can Anyone Halt The Mortgage Meltdown?

Wall Street and Washington come together to help troubled mortgage borrowers. Too late?

Fifteen months into the worst credit crisis in decades, major banks and the federal government are coming together on a solution for struggling mortgage borrowers.

The goal is to hasten the process for renegotiating hundreds of thousands of delinquent loans, either those held by major banks or held by Fannie Mae and Freddie Mac , the mortgage finance giants that faltered and were taken over by the government this summer.

Renegotiating loans for struggling homeowners has taken on more urgency as jobless claims rise and the economy declines. Housing prices continue to fall, leaving many with mortgages greater than the value of their homes, and banks continue to suffer major credit losses as a result.

Citigroup , JPMorgan Chase and Bank of America have separately announced plans to help ailing borrowers. On Tuesday, the Federal Housing Finance Agency, the regulator for Fannie and Freddie, announced its own sweeping plan.

The agency is targeting delinquent borrowers who haven’t filed for bankruptcy. The goal is to modify mortgages for borrowers who can support payments but make sure those payments don’t make up more than 38% of income.

James Lockhart, head of the agency, urged U.S. mortgage servicing firms–companies that process payments of loans rather than owning them outright–to adopt the plan as a national standard.

For the government, halting the steady slide in housing prices is the holy grail of all of its big plans to prop up the ailing banking system. It is throwing trillions of dollars at shoring-up banks caught in the housing mess, but nothing has, so far, put a floor under the plunging housing prices at the heart of the credit crisis. Going at the problem from the perspective of a borrower is yet another way to achieve that end.

The government studied the Federal Deposit Insurance Corp.’s approach to modifying loans of failed IndyMac Bank and used that as the model for this broader program.

Neel Kashkari, the Assistant Treasury Secretary in charge of the department’s $700 billion Troubled Asset Relief Program, said the plan will take pressure off mortgage servicing companies, “helping ensure that borrowers do not fall through the cracks because servicers aren’t able to get to them.”

Earlier on Tuesday, Citigroup announced its loan modification plan. The bank is stopping foreclosures for borrowers who live in their own homes and have enough income to stand a chance at repaying a renegotiated loan. It will also expand the program to include mortgages for which the bank collects payments but does not own.

Over the next six months, Citi will contact 500,000 borrowers who are not currently delinquent but close to falling behind to see if those loans could be modified.

Two weeks ago, JPMorgan said it would expand its mortgage modification program to an estimated $70 billion in loans, representing 400,000 borrowers. That is on top of the $40 billion in mortgages JPMorgan has rewritten since early 2007.

Bank of America will begin next month modifying 400,000 loans held by Countrywide Financial, the troubled lender it acquired this year. The plan, which starts Dec. 1, is part of an $8.4 billion legal settlement with 11 states.

Loan modifications have been complicated by the way the banking industry has approached mortgage lending in recent years, selling their loans off to other banks that bundle and resell them as securities rather than holding all loans separately.

For the banks, modification plans are self-preservation. Virtually no bank has been left untouched by the credit crisis, and Citi, JPMorgan, Bank of America and others will undoubtedly have rising credit costs for the next few quarters. Any plan to blunt those costs would be welcomed.


Well I don’t really have a lot of faith in these guys. They are in great part the cause.  These very banks are the ones that had to get bailouts and now they are going to fix it are they?

Trusting them is a lot like letting the fox guard the chickens coup.

Russia says IMF inadequate

November 10 2008

Russia’s finance minister reiterated Moscow’s call for reforming global financial institutions, saying in comments televised Monday that the International Monetary Fund was inadequate as a crisis manager.

Alexei Kudrin spoke ahead of a meeting of top international financial ministers Saturday in Washington to discuss the deepening global crisis.

Russia has proposed creating new international agencies to replace or take on some of the functions of existing ones, like the IMF or the World Bank. Moscow has said those organizations do not adequately represent some of the larger economies such as China and Russia.

“We are absolutely sure that today the current system of institutions used for crisis settlement, including the IMF, are inadequate,” said Kudrin in comments on the state-funded English language network Russia Today.

Kudrin called for a new agreement along the lines of the Maastricht Treaty, the 1992 treaty that paved the way for the euro, that would obligate nations to meet a certain set of budget and economic criteria in order to prevent new crises.

Russia has been hard hit by the global crisis, with economic growth forecasts slashed and its stock markets losing some two-thirds of their value since the start of the year.

The Kremlin has laid the bulk of the blame with the United States.

On Friday, a top Kremlin aide suggested the IMF’s role be reduced to that of an ordinary financial institution.

“The IMF should work as a bank, not as a project finance institution. It should not act as a manager in countries it lends to,” Arkady Dvorkovich told a news conference. “It should put forward financial conditions on loans, not political ones.”


Well it seems this treaty didn’t exactly prevent the Financial Crisis.
But for what it’s worth. Take a look.

Maastricht Treaty

Published in: on November 11, 2008 at 7:52 am  Comments Off on Russia says IMF inadequate  
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In Pakistan -Sherpao seeks parliamentary debate on IMF loan issue

November 10 2008

PESHAWAR: Pakistan People’s Party-Sherpao (PPP-S) Chairman Aftab Ahmed Khan Sherpao said on Sunday that International Monetary Fund (IMF) loan issue should be debated at length in Parliament before taking loan from the IMF.

Addressing a press conference at his Peshawar residence after a party meeting, Sherpao said that economic crisis had further worsened due to deteriorating law and order situation in the country, necessitating an in-depth discussion in Parliament on the IMF loan before the government took a final decision on taking loan from the IMF.

The PPP-S leader said Pakistan should give a befitting replying to those attacking sovereignty, integrity and solidarity of the country. Sherpao demanded that 14-point resolution passed by Parliament after a joint in-camera session should be implemented.

Though the whole world is facing financial crisis, Pakistan is suffering from the worst one than other countries, Sherpao said.

He said that he was not invited to Pak-Afghan Jirga held recently in Islamabad. However, he added, such jirgas were useful for both the countries. He said more jirgas should be held to restore peace in the region.

Earlier, the PPP-S meeting condemned US missile attacks on the Pakistani territory, including Waziristan. staff report


Published in: on November 10, 2008 at 5:57 am  Comments Off on In Pakistan -Sherpao seeks parliamentary debate on IMF loan issue  
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Economist, deregulation and loose fiscal policies lead to Meltdown

Bush critic wins 2008 Nobel for economics

Oct 13, 2008

By Anna Ringstrom, Sven Nordenstam and Jon Hurdle

STOCKHOLM (Reuters) – U.S. economist Paul Krugman, a fierce of the Bush administration for policies that he argues led to the current financial crisis, won the 2008 Nobel prize for economics on Monday.

The Nobel committee said the award was for Krugman’s work that helps explain why some countries dominate international trade, starting with research published nearly 30 years ago.

While the research for which he won the prize was not obviously partisan, Krugman is best known as the author of columns and a blog called “The Conscience of a Liberal” for the New York Times. He has long been tipped as a likely winner.

A professor at Princeton University, the 55-year-old Krugman argues that President George W. Bush’s zeal for deregulation and loose fiscal policies helped spark the current banking meltdown.

He said news of the prize took him by surprise. “I took the call stark naked as I was about to step into the shower,” he told a news conference at Princeton on Monday afternoon.

Speaking by telephone to a news conference earlier, Krugman offered a snap analysis on the turbulent times.

“We are now witnessing a crisis that is as severe as the crisis that hit Asia in the 90s. This crisis bears some resemblance to the Great Depression.”

Praising world leaders’ efforts to staunch the financial bleeding, particularly in Europe, he added: “I’m slightly less terrified today than I was on Friday.”

World policy makers met at the weekend, after a black week on financial markets, to agree on radical measures to rescue banks, revive liquidity and avert a global recession.

It was the second year in a row that a major Nobel prize was awarded to an American known for his strong criticism of Bush — last year’s peace prize went to former U.S. Vice President Al Gore for his work on climate change.

Asked at the Princeton news conference if he saw a trend of Nobels going to people who were anti-Bush, Krugman said “A lot of intellectuals are anti-Bush.”

The prize committee dismissed any suggestion its choice was influenced by the current crisis or political considerations.

“I don’t think the committee has ever taken a political stance,” committee secretary Peter Englund told Reuters. “The real, dramatic crisis is an event of the last month or so, which is in practice after the committee took its decision.”


Krugman’s latest column in the New York Times, published on Monday, praised Britain for thinking clearly and acting quickly to address the crisis, unlike the United States. He mused: Did British leader Gordon Brown just save world markets?

Britain unveiled a plan last week to bolster ailing banks, and on Monday it waded in with 37 billion pounds ($64 billion) of capital, a move that could make the state the banks’ main owner.

Readers of Krugman’s blog posted hundreds of comments congratulating him as an accessible voice of common sense.

“Sometimes it feels as though you are the only sane person in America,” said a writer who identified himself as Martin Gruner Larsen.

Krugman said he was encouraged by recent steps to address the crisis and said it was vital there should be a combination of capital injection and guarantees for banks.

Commenting on policy proposals from the two U.S. presidential candidates, he said: “It would be kind of nice if we did have a sophisticated government, but that may change.”

Asked about accountability for the crisis, Krugman said the financial system had outgrown the regulatory system.

“There is a lot of grotesque greed under this crisis but greed isn’t illegal,” he said.

The Royal Swedish Academy of Sciences said the prestigious 10 million crown ($1.4 million) award recognized Krugman’s formulation of a new theory that addresses what drives worldwide urbanization.

“He has thereby integrated the previously disparate research fields of international trade and economic geography,” the committee said. “Krugman’s approach is based on the premise that many goods and services can be produced more cheaply in a long series, a concept generally known as economies of scale.”

Krugman’s theory clarifies why trade is dominated by countries that not only have similar conditions but also trade in similar products.


Published in: on October 14, 2008 at 12:38 am  Comments Off on Economist, deregulation and loose fiscal policies lead to Meltdown  
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A Crisis Made in the Oval Office

This is the first time in the history of the United States that the president has sought to provoke a financial panic to get legislation passed through Congress. While this has proven to be a successful political strategy – after the House of Representatives finally passed the bank bail-out plan today – it marks yet another low point in American politics.

It was incredibly irresponsible for George Bush to tell the American people on national television that the country could be facing another Great Depression. By contrast, when we actually were in the Great Depression, President Roosevelt said: “We have nothing to fear, but fear itself.”

It was even more irresponsible for President Bush to seize on the decline in the stock market five days later as evidence that his bailout was needed for the economy. President Bush must surely understand, as all economists know, that the daily swings in the stock market are driven by mass psychology and have almost nothing to do with the underlying strength in the economy.

The scare tactics of President Bush, Henry Paulson, the Treasury secretary, and Ben Bernanke, chairman of the Federal Reserve, created sufficient panic, so that by the time of the first vote on the emergency package in Congress, much of the public believed that the defeat of the bail-out may actually have had serious consequences for the economy. Millions of people have changed their behaviour because of this fear, with many pulling money out of bank and money market accounts, and adjusting their financial plans in other ways.

This effort to promote panic is especially striking since the country’s dire economic situation is almost entirely the result of the Bush administration’s policy failures. First and foremost, the decision of Paulson and Bernanke (and previously Alan Greenspan) to ignore the housing bubble, allowed for the growth of an $8tn bubble, which is now collapsing.

It is the collapse of this bubble – which has already destroyed more than $4tn in housing wealth, and is likely to destroy another $4tn over the next year – that is at the root of the economy’s problems. While competent economists were warning of the bubble and the dire consequences of its collapse, the top officials in the Bush administration were celebrating the rise in homeownership rates.

The Bush administration made the crisis even worse by deregulating Wall Street. This led to the huge over-leveraging of financial institutions, which has vastly complicated the country’s economic policies. It is especially disturbing that Secretary Paulson personally profited from these policies, earning millions of dollars in compensation from Goldman Sachs during his years there as its chief executive.

The collapse of the housing bubble, while falling short of the magnitude of the Great Depression, is likely to lead to the worst recession since the second world war. Repairing the damage caused by this bubble will be a long and difficult process. Cleaning up the damage to the political system from President Bush’s unprecedented fear campaign may prove to be even more difficult.


Published in: on October 8, 2008 at 8:55 am  Comments Off on A Crisis Made in the Oval Office  
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Iceland government seizes control of Landsbanki

David Teather

October 07 2008

The Icelandic government this morning seized control of Landsbanki, the second-largest bank in the country, and sought to secure a €4bn loan from Russia as it worked to avert a financial meltdown.

The government moved quickly to use sweeping powers over the country’s banks granted in the Reykjavik parliament last night. The board of directors at Landsbanki has been dismissed and the bank put into receivership. The government has also loaned €500m to Kaupthing, the biggest bank in Iceland.

UK savers trying to access their Landsbanki-run Icesave accounts this morning were faced with a message telling them the bank was unable to process requests for deposits or withdrawals. Icesave offered competitive rates and has more than 200,000 accounts in the UK. The first €22,000 (roughly £17,000) held in the accounts is secured under an Icelandic compensation scheme, and the remainder up to £50,000 is guaranteed by the British government.

On state radio, commerce and banking minister Bjorgvin Sigurdsson sought to reassure people in Iceland that the bank would remain open and continue to run as normal.

The Landsbanki chairman and a large shareholder in the bank is Bjorgolfur Gudmundsson, the owner of West Ham United football club.

In an address broadcast on Icelandic television last night, prime minister Geir Haarde announced plans to rush through the emergency bill, supported by opposition parties, allowing the government to push through mergers between the battered banks or force them into bankruptcy.
“We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” he said.

There was some confusion about whether the loan from Russia had been agreed. Iceland’s central bank said in a statement that it had been informed by the Russian ambassador that Iceland would be given a €4bn loan and that it had been agreed by the Russian prime minister, Vladimir Putin. The bank said Haarde had approached the Russians about a loan some months ago.

But the Russian state news agency separately quoted the deputy finance minister, Dmitry Pankin, as saying there had been no formal approach from Iceland and that no decision had been made. The Icelandic bank then updated its statement to say that negotiations would begin “in the next few days”.

The Icelandic Financial Services Authority said it had taken control of Landsbanki to “guarantee a functioning domestic banking system”.

The fate of Iceland, which has extensive interests in the UK, is seen as a warning for the rest of the world, after a long boom fuelled by debt, a dependence on its banking industry and a buoyant housing market.

Time appeared to be running out for Iceland to deliver a solution to the financial crisis yesterday as its currency, the krona, slumped 30% against the euro, accelerating a decline that has been taking place over the past year.

The emergency bill would also allow the government to take over housing loans held by the banks.

The Icelandic government now has control of two of the biggest three banks in the country — the only one remaining in private hands is Kaupthing.

Last week, Landsbanki sold the bulk of its international operations, including the London-based Landsbanki Securities, the former Teather & Greenwood, to smaller rival Straumur-Burdaras, to try to bolster its capital base. But with the wholesale markets closing down, banks are finding it difficult to raise the short-term funding necessary for their day-to-day operations, especially when there is nervousness about an institution’s stability.

Kaupthing and Straumur-Burdaras said in a statement this morning that they continued to operate as normal and had no indication that the government intended to intervene.

The financial regulator yesterday suspended shares in Iceland’s main banks to prevent panic selling. The government also followed Ireland and Germany by guaranteeing all domestic deposits in Icelandic savings accounts.

Concerns about the Icelandic economy grew stronger last week after the government seized control of the third-largest bank, Glitnir, taking a 75% stake in return for €600m (£466m). Haarde warned Icelanders at the time of “the inevitable cut in living standards” to come.

The falling currency, which closed at a record low of 230 Icelandic krona to the euro, is worsening the crisis for the banks, which are shouldering large overseas debts, and for many thousands of individuals in Iceland who were encouraged to take out loans in foreign currencies.

In Iceland, there is widespread fear. Sigridur Dogg Audunsdottir, a local government worker in Reykjavik said everyone in the country was “holding their breath”. Yesterday, she withdrew cash from the bank all the way to her overdraft limit to make sure her family had enough to live on. “It is just unimaginable. It is so dark and gloomy, we have never experienced anything like this. I took out my money just to be safe, because I felt I had to do something. We’ve all been living ahead of ourselves, so in many ways this was inevitable. People here have been so obsessed with money. Iceland is like a nouveau riche country.

“I am not blaming the people. The problem seems to be oversized banks in a small economy. We trusted the banks and they encouraged us to borrow money.”

A collapse in Iceland would severely dent confidence in the broader financial markets. But it could also affect Britain, with the main banks funding a string of companies and entrepreneurs, including Robert Tchenguiz, a large investor in Sainsbury’s, chef Gordon Ramsay and property tycoons the Candy brothers.

One of Iceland’s biggest companies, Baugur, has stakes in a swath of the British high street, including House of Fraser, Karen Millen, Oasis and Whittard of Chelsea. One of the biggest credit insurance firms has stopped covering suppliers to Baugur-controlled stores. In a statement over the weekend, it reiterated that most of the funding of its businesses comes from international banks and that it has little exposure to the disaster-struck Icelandic economy.

Haarde is said to have approached other Nordic governments to see if their central banks might be prepared to inject liquidity into the Icelandic system. Haarde said the banks had agreed at the weekend to sell some overseas assets and bring the cash back to Iceland.

The country’s pension funds, which have assets of €12bn, are also being encouraged to repatriate cash.
Kaupthing holds deposits for thousands of UK savers through its Kaupthing Edge account. Kaupthing Edge is covered by the UK government guarantee on deposits up to £50,000. A spokeswoman for Kaupthing said there had been no rush to close accounts.

Richard Portes, an expert on Iceland at the London Business School, said the government had made a mistake by nationalising Glitnir, creating fear in the markets instead of just providing it with liquidity.
“You have the same law of unintended consequences that you had in the case of Lehman Brothers,” he said. “The Iceland problem was immediately vastly exaggerated.”

He said the Icelandic banks had been unfairly targeted. “The world is a little unjust. They don’t hold any toxic papers. The assets they will have to sell are perfectly good assets. They have been prudently managed and haven’t been excessively dependent on the wholesale money markets compared to anyone else,” he said.

Iceland has undergone a remarkable transformation in the past couple of decades, from an economy largely based on fishing to one of the richest in Europe, driven by its biggest banks after deregulation of the banking system. The banks grew rapidly on borrowing and have assets eight times Iceland’s GDP. But the party has come to an end, with the krona losing more than half its value against the euro in the past 12 months, inflation at 12% and interest rates at 15.5%.


Published in: on October 7, 2008 at 9:11 pm  Comments Off on Iceland government seizes control of Landsbanki  
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Icelands, Icesave freezes deposits and withdrawals

Hilary Osborne and Miles Brignall

October 07 2008

The internet bank Icesave has suspended all deposits and withdrawals from customers’ accounts after the Icelandic authorities stepped in to rescue its parent company Landsbanki.

Landsbanki’s other UK operation Heritable Bank has also stopped savers making withdrawals and is no longer offering mortgages.

Between them the two brands have more than 300,000 customers in the UK, with Icesave winning savers with its high interest rates on savings accounts and Isas.

Today a statement on its website said: “We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly.”

Although Landsbanki is set to continue trading as normal in Iceland, it is not clear what will happen to Icesave or Heritable Bank in the UK, but the Financial Services Compensation Scheme has said it is preparing for the bank to go into default.

A message on its website tells consumers: “The Financial Services Authority in the UK has reported that Icesave is now expected to go into insolvency proceedings in Iceland and this would trigger an FSCS default.”

Yesterday, Icesave’s website went down and its UK call centre is reported to have received unprecedented volumes of calls from savers worried about the safety of their cash.

But a spokeswoman for the group insisted that call volumes had been normal and the website was down due to technical difficulties.

Concerns about the Icelandic economy came to a head yesterday, and the Icelandic government last night presented an emergency bill giving it sweeping powers over the nation’s banks.

This morning the Icelandic Financial Supervisory Authority (IFSA) announced it was taking control of Landsbanki, as it became the latest victim of the credit crunch.

The IFSA said domestic deposits were fully guaranteed by the government, and that “Landsbanki’s domestic branches, call centres, cash machines and internet operations will be open for business as usual”.


The 100% guarantee does not extend to UK savers, who would have to apply for compensation both in Iceland and the UK, and would only be able to recover up to £50,000.

The first €20,000 (£16,264) they hold is protected under the Icelandic government’s scheme, and the remainder up to £50,000 by the UK Financial Services Compensation Scheme (FCSC).

A spokesman for Landsbanki said 95% of Icesave’s customers had deposited less than £50,000, so would be fully protected by the FCSC.

At the start of 2008, Heritable had around £900m on deposit from UK savers.

It used the money to provide specialist finance for property developments, and some residential mortgages. All new lending appears to have been suspended.

Unlike, the savers who had their money in an Icesave, all Heritable savers’ money is covered by the FSCS up to £50,000 (£100,000 for joint accounts) in the event that Landsbanki ceases to exist.

Trading normally

As news of Landsbanki’s failure emerged representatives of Kaupthing, the other major Icelandic bank with a significant UK savings operation, were desperately trying to halt a Northern Rock-style run.

By mid-morning concerned savers were deluging the bank’s retail division Kaupthing Edge’s call centre keen to establish whether the bank was still trading, and in many cases to move their money.

The call centre number has been permanently engaged all morning.

Kaupthing Edge, which is thought to have at least 150,000 UK savers on its books, had been offering some of the most attractive savings rates in the market for the past few months.

A spokeswoman for the firm said: “Kaupthing has not been nationalised and is still trading normally. Yes, people are concerned, but I stress there is no reason to move your money. There is no reason to panic.”

She added: “All savers’ money is covered to £50,000 by the Financial Services Compensation Scheme (FSCS) and nothing has changed today in this respect. The company is processing all requests to move money in the normal way.”


Case study: Nick Stringer stands to lose his retirement fund after locking it away in an Icesave account

Published in: on October 7, 2008 at 9:06 pm  Comments Off on Icelands, Icesave freezes deposits and withdrawals  
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Questions the Government faces over banking guarantees

October 6, 2008

The Government is facing increased pressure to follow its European counterparts in pledging 100 per cent protection for UK savers.

What has the German government pledged?

Chancellor Angela Merkel vowed that the federal government would guarantee all private savings accounts in German banks. Finance minister Peer Steinbrueck said that from today German citizens need not worry about “a single euro of their deposits” during the global financial crisis.

Is Germany the only country to offer such a promise?

No. Last week Ireland said all money held in savings accounts at six institutions – Allied Irish Banks, Bank of Ireland, Anglo-Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society – will be guaranteed in their entirety.

Greece has likewise guaranteed its depositors’ savings.

What is the situation in the UK?

In the UK, savings of £50,000 are covered under the Financial Services Compensation Scheme (FSCS). The limit relates to deposits with an organisation, regardless of how many accounts the customer holds. The limit had, until recently, been set at £35,000 but as a result of the current crisis, ministers agreed to up the ceiling.

Can UK citizens benefit from the announcements in other countries?

Yes. Three Irish banks – Allied Irish Bank, Anglo Irish Bank and Bank of Ireland – have branches in the UK. These will be covered by the Irish Government’s guarantee and British citizens can open accounts with relative ease at branches in the UK. In addition, the Post Office’s savings products are run by Bank of Ireland, giving customers 100% protection.

There is also nothing stopping UK customers opening up an account with a bank branch in Ireland. Although it may be harder, as many will want you to appear in person to open the account.

How have British banks responded? Aren’t they at a disadvantage?

On Wednesday the British Bankers’ Association (BBA) challenged the Irish government, claiming that the guarantee was anti-competitive, especially for banks in Northern Ireland. It fears that UK savers will move their money to Irish banks in a bid to benefit from the guarantee offered.

But don’t some institutions in the UK already offer 100 per cent protection?

Yes. When Northern Rock collapsed, the UK Government made an exception to end the run on the bank, ensuring that all of the Rock’s savers will have deposits covered in their entirety.

National Savings & Investment, which is backed by the Treasury, also offers complete protection on people saving through its products.

And Bradford & Bingley savings are safe while part of the collapsed bank goes through the process of being transferred to Santander, owners of Abbey.

So, if ministers pledged complete protection for Northern Rock and Bradford & Bingley, what’s to say they won’t do the same if another bank fails?

Nothing. The whole question in many experts’ view is purely theoretical. It would, it is argued, be almost inconceivable for the Government to let savers lose their money as a result of a bank failing.

Unlike more risky investments, people are not given explicit warnings that they could lose their savings – the whole stability of the banking system depends on the belief that money is safe in the bank.

If people started to lose money, it would lead to instability on a grand scale and a return to a run on the banks as panicked savers attempt to move cash out.

So why don’t the Government just follow the German and Irish lead and guarantee all savings?

Because it shifts liability from the banks to the taxpayers. And we are talking about a lot of money. Estimates suggest it would mean a risk running into the trillions of pounds – that is £1,000,000,000,000s. This would place a huge burden on public finances.

And it could be the “thin end of the wedge”, some fear. Bank’s business customers may be next in asking for their money to be covered.

An 100 per cent guarantee could also impact on the Government’s ability to raise funds which in turn could hit public spending. The theory has it that with a promise to protect all savings, people would be less willing to buy into secure state-backed bonds.

The main attraction of Government “gilt-edged” bonds is that they are seen as one of the safest places you can put money.

If bank saving accounts are covered by a Government guarantee this will no longer be the case. As such they would be deemed to be less attractive, especially as they currently offer a return which is less than that of a top savings account.


Published in: on October 7, 2008 at 8:54 pm  Comments Off on Questions the Government faces over banking guarantees  
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EU, Iceland, Canada Suffering Fall Out, Caused By US Crisis

EU leaders come up short on economic crisis plan

Oct. 4 2008

CTV News Staff

The leaders of Europe’s most powerful economies agreed Saturday to stave off potential financial peril by backstopping their weakened banking system, but they stopped short of announcing a sweeping, U.S.-style bailout package.

Still, Germany, Britain, France and Italy pledged to work together as shrinking financial stocks continued to hammer European markets and credit shortages threatened to freeze up businesses across the continent.

Optimism over the European Union pledge, however, was dimmed by news that a US$48 billion plan to save one of Germany’s top banking institutions had fallen apart Saturday.

Economic worries in Europe have been exacerbated by a difference of opinion on how best to combat the problems. Greece and Ireland have already broken with the rest of the EU and decided to shore up bank savings.

The leaders, who were in Paris Saturday at the behest of French President Nicolas Sarkozy, also called for an emergency meeting of the Group of Eight nations – which includes Canada – to coordinate a global response to what is now a worldwide crisis.

The urgent call for a G8 meeting underscores the growing threat of a deep global recession, but stands in stark contrast to comments by Conservative Leader Stephen Harper that Canada’s economy will weather the economic storm.

While Harper maintains that Canada’s banking system is secure, opposition leaders like the Liberals’ Stephane Dion have accused Harper of having no plan to deal with the mounting economic threat.

The European agreement – which includes German Chancellor Angela Merkel, French President Nicolas Sarkozy, British Prime Minister Gordon Brown, and Italian Premier Silvio Berlusconi – comes a day after U.S. President George Bush signed into law a bi-partisan, US$700 billion package that aims to thaw freezing credit markets and kick-start a sputtering economy.

“We have to make sure Europe takes its responsibilities like the United States,” said Dominique Strauss-Kahn, the head of the International Monetary Fund, on Saturday.

Over the past week alone, European countries have been forced to spend billions of dollars to ensure banks stay afloat.

Strauss-Kahn added that the financial plague, which began on Wall Street with toxic mortgage debt and has quickly spread to the world economy, amounts to “trial by fire” for Europe’s money markets, which have grown increasingly interrelated over the past decade.

Recently, worry that evaporating credit would leave European banks unable to shoulder their debts led to a drop in share prices that has forced governments from London to Berlin to intervene with aid packages.

Worse, many European countries were already facing an economic slowdown leading up to the current crisis.

Though France initially wanted to dump funds into a European Union reserve for struggling banks, Germany’s economic minister Michael Glos said in an interview with the Bild am Sonntag newspaper that banks themselves should take the lead in shoring up market confidence.

“In this situation, I don’t think it’s defensible to demand the state restore the trust that has been gambled away with large-scale debt write-offs using tax money,” he said.

Wall Street’s woes around the world

Meanwhile, British Prime Minister Gordon Brown has said that more attention should be given to the economy as a whole, including a US$21 billion contingency package for small businesses.

Still, Brown said at the Paris summit that creating stability should be paramount.

“People will be very clear that every country represented here today will want to do whatever is necessary to secure the stability of the system and to ensure the safety of hardworking families and businesses in each of our countries,” Brown said.

Wall Street’s troubles have also spread to Asia, where investors are reeling from falling stock prices and shrinking credit markets

In Hong Kong along for example, investments linked to Lehman Brothers, which filed for bankruptcy last month, were valued at around $2 billion.

In recent weeks, officials have fielded close to 4,000 calls from investors complaining about Lehman Brothers investments, The Associated Press reported.

Elaine Law, who dumped more than $70,000 of her family’s savings with Lehman Brothers, said she could lose all of it.

“We were very confident about the market,” said Law, 59.

“Who would have thought it would dive and a big bank like Lehman would collapse?”

With reports from The Associated Press


PhotoIceland’s Prime Minister Geir Haarde

Tiny island nation pays price for rapid growth

JANE WARDELL,  The Associated Press

LONDON — As the world suffers a hangover from the financial excesses of the past few years, the tiny island nation of Iceland has a bigger headache than most.The Nordic country was until recently lauded for its rapid generation of wealth despite its small size, as deregulation of domestic financial markets in the 1990s fuelled a stock market boom that underpinned an acquisition spree by cash-rich Icelandic banks and other companies.

But that success could become its downfall. The banking sector has grown to dwarf the rest of the economy with assets valued at nine times annual gross domestic product of €14-billion ($19 billion U.S.), leaving Iceland heavily exposed to the global credit squeeze.

A decision by the government this week to take over the country’s third-largest bank prompted major credit rating agencies to downgrade both Iceland’s government and its four major banks.

Iceland’s krona tumbled more than 20 per cent against the U.S. dollar this week, spurred partly by speculation that the central bank will struggle to bail out any more failing commercial banks after its rescue of Glitnir.

“Iceland is a standout case,” said Venla Sipila, a senior economist at Global Insight in London, which downgraded the country’s sovereign rating.

“The situation looks really volatile because it is so dependent on external developments now.”

With a population of just 320,000 people, the remote island nation between Europe and Canada has punched far above its weight in recent years, shifting from its mainstay fishing industry into an international investment force.

The Iceland Stock Exchange, or ICEX, was Europe’s top-performing market in 1994, leaving Icelandic companies with a large liquidity pool. Kaupthing, Iceland’s biggest bank, has doubled in size every year since 1996.

Another standout success was retailing investment group Baugur, which has expanded from one discount store in 1989 to a company that owns or has stakes in dozens of major retailers — including enough to make it Britain’s largest private company — and employs more than 50,000 people.

In Canada, HF Eimskipafelag Islands has done $1.1-billion (Canadian) in acquisitions in the cold-storage business in the past two years, buying the Atlas Cold Storage Income Trust and Versacold Income Fund, and also owns Dutch-based Daalimpex beheer, one of Europe’s biggest cold-storage operators.

But the qualities that made Iceland attractive to foreign investors and funded its expansion — essentially making it one big Viking hedge fund — are suddenly not as sought after.

A major concern is that some of Iceland’s banking liabilities will migrate on to the government’s balance sheet.

Part of problem is that Iceland’s tiny size has led to a high level of cross-ownership between banks and companies, which creates a house-of-cards scenario.

“There is still a number of cross-shareholdings … which increases the risk of contagion,” said Alexandre Birry, a director at Fitch Ratings in London.

Those worries were highlighted by the decision of investment firm Stodir, which has a major holding in Glitnir, to apply for temporary protection from creditors after the nationalization — and just before it had been due to take a 39 per cent stake in Baugur.

The risk that the crisis could spread like wildfire led to rumours this week that Baugur would be forced to sell overseas businesses to survive.

That prompted a rare public statement from the usually tight-lipped company, saying that while market conditions are tough “it is business as usual.”

The krona is also suffering from a withdrawal by a falloff in what are called carry trades — where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country with higher returns — and often risks.

Prime Minister Geir Haarde has said that the Glitnir bailout is not the end of the banking crisis in Iceland, but he has so far shunned suggestions that Iceland join the euro currency, which analysts say could provide a measure of protection.

In the longer term, Iceland is putting faith in its growing hydroelectric and geothermal energy industries to carry it through the credit squeeze and back to growth — aluminum products are expected to overtake the traditional marine products industry in terms of revenue this year.

But with a current account deficit out of control, inflation running at more than 12 per cent and interest rates at a record 15.5 per cent, it first has to ride out a rocky patch.


The gloom spreads north


MONTREAL, TORONTO AND CALGARY — Rick Lafleur is walking away from his home in Windsor, Ont., unable to renew his mortgage. Customers won’t even talk to Newfoundland manufacturer Lorne Janes as their lenders tighten the screws. New Brunswick Finance Minister Victor Boudreau fears a budget deficit may be inevitable as a collapsing stock market whacks government pension funds and the province’s export-driven economy falters further.Across the country, even in the seemingly unsinkable resource towns of the Prairies, the grim prospect of a U.S.-led global recession and credit crunch has exited the abstract realm of the financial markets and landed with a thud on the kitchen tables of average Canadians.

In most parts of the country, house prices are flat or falling – they were down 6 per cent in the city of Toronto in September over the previous year – and down with them is the net worth of millions of debt-loaded consumers. They are in poor financial shape to weather an economic downturn that is already forcing some financial institutions to review the creditworthiness of existing borrowers.

Central Canada’s manufacturing sector, already reeling from about 400,000 job losses since 2003, is bracing for an even bloodier downturn than was expected only a few weeks ago. But it is hardly alone in its misery, as evidence mounted this week that the commodity price boom that has fuelled some provincial economies and filled government coffers is out of gas.

How bad it all gets depends largely on whether the $700-billion (U.S.) bailout package passed Friday by the U.S. Congress – which aims to take bad mortgage-related loans off bank balance sheets – meets its goal of getting financial institutions to start lending again. The deep integration of global financial markets – and particularly of Canadian and U.S. ones – means that it’s not just the fate of the American economy, which lost 159,000 jobs last month, that hangs in the balance.

“Canadian banks are borrowing and lending in the same credit markets as U.S. banks, so if the credit markets seize up in the U.S., they’re going to seize up in Canada, too,” McGill University economics professor Christopher Ragan explained.

Lender skittishness is a major worry for the Bank of Canada, which Friday massively boosted the amount of cash it plans to make available to the financial system to $20-billion from $8-billion, in a bid to unclog frozen money markets.

Still, there are no guarantees that its actions, along with similar moves by central banks around the world, will be enough to avert a protracted credit crunch. That would exacerbate the economic slowdown that had already been threatening Canadian jobs, Prof. Ragan added. “It will mean that the recession will be deeper. And any extension of a U.S. downturn is just an extension of the amount of time they’re not buying Canadian wood and Canadian car parts.”

It’s already too late for Mr. Lafleur, in Windsor, where auto-sector job losses pushed the unemployment rate to the highest of any Canadian city at 9.6 per cent in August. Although he and his wife have both found new jobs after losing their last ones at a Chrysler car dealership and General Motors plant, respectively, their house is now worth less than the mortgage on it.

Mr. Lafleur’s lender, Xceed Mortgage Corp., has tightened its credit conditions and recently told Mr. Lafleur it would not renew the $155,000 mortgage on his modest 50-year-old bungalow because the property is now worth about 25 per cent less than that amount.

“I’m being told, no, they’re not going to renew, because they are pulling out of Ontario and, secondly, because the loan-to-value was out of sync … because of the economy and Windsor is pretty bad,” Mr. Lafleur said.

It’s a big switch from a few years ago when lenders were falling over themselves to offer a mortgage to almost any homeowner or buyer who asked for one. Indeed, Mr. Lafleur was not required to retain any equity in his property when he remortgaged it five years ago.

“I was getting married and I needed 100-per-cent financing. They said fine, no problem. Got the mortgage,” Mr. Lafleur said.

Xceed, meantime, has problems of its own and has tightened its credit after being caught up in the subprime mortgage crisis that has convulsed the United States housing market. Xceed and a handful of subprime mortgage lenders in Canada had used asset-backed commercial paper to fund their mortgage portfolios. Then the bottom fell out of the ABCP market, which is now being restructured.

“Xceed had to change its business model to where it no longer underwrites mortgages that do not qualify for the Canada Mortgage and Housing Corp. [insurance],” Xceed spokesman Richard Wertheim said.

In June, Finance Minster Jim Flaherty tightened the criteria for mortgage insurance provided by government-owned CMHC, requiring buyers to provide a down payment of at least 5 per cent. He also made the CMHC stop insuring mortgages amortized over a period of more than 35 years, in effect killing the budding 40-year mortgage market that had been popular with first-time buyers seeking to keep their monthly payments to a minimum. Both moves were aimed at preventing the kind of housing bubble that has now burst south of the border, but they may have come too late to prevent a similar rash of mortgage defaults in Canada.

Many homeowners who got mortgages under the laxer rules that existed a few years ago could find themselves in trouble at renewal time. If they have not improved their financial situations to the point where they would qualify for a more traditional mortgage, Xceed for one is turning them down, Mr. Wertheim said.

Times aren’t just getting tougher for homeowners. Home builders face bleaker prospects, too. Across Canada, jobs in the construction sector have accounted for virtually all – 99.4 per cent – of total employment growth so far this year, according to Statistics Canada data. One in 12 Canadians is now directly employed in the sector, the largest share on record.

Residential activity, which constitutes about half of the total construction market, is already cooling after a decade of growth. Now, limited access to credit is threatening to curb the start of big new infrastructure and commercial projects.

Financing “at this point in time will be very tough, so they will definitely be impacted,” said Michael Clifford, Canadian tax leader for engineering and construction at PricewaterhouseCoopers. “The banks are being cautious, so the whole scenario leads to people waiting and seeing.”

For Canadian manufacturers, the credit crisis is the third stage of a triple whammy. They have already been battered by the surge in the value of the Canadian dollar and the spike in prices of such key commodities as steel and plastic.

Companies are hunkering down, scrapping expansion projects and cutting employees. The decline in the prices of some of Canada’s key commodities, such as oil and fertilizer, could help ease their pain, since it has sent the Canadian dollar lower. But that might not matter much as a U.S. recession erodes demand for Canadian manufactured goods.

Mr. Janes, president of Newfoundland-based Continental Marble of Canada, is already getting the cold shoulder from his customers in Florida, Maryland and California. “The reply I’m getting now is, ‘Lorne, save the phone call, don’t call any more until this sorts out,’” said Mr. Janes, whose 12-employee company manufactures equipment to produce moulded stone countertops.

Across the country in Annaheim, Sask., Gurcan Kocdag has been feeling the pinch for more than a year. The U.S. downturn – new housing starts have fizzled – means fewer lumber trucks heading south, slowing demand for the trailers Mr. Kocdag’s Doepker Industries makes. The 60-year-old company has already cut the work force at its three Saskatchewan plants by about 200 people to 325 in the past year.

“It’s not just manufacturers,” Mr. Kocdag said. “Everybody who supplies services to the transportation industry – our customers, our customers’ customers, their customers. Everybody in the value chain is significantly affected.”

Falling commodity prices – which have helped knock about 25 per cent off the Toronto Stock Exchange’s benchmark index from its summer peak – have not yet eroded the confidence of Saskatchewan Premier Brad Wall. After all, despite dropping 50 per cent from its summer peak of $147, oil is still trading higher than it was a year ago.

“We are not going to be immune to what’s happening around the world,” Mr. Wall said. “But even with the drop in oil, it brings it down to $94. Our government was only elected less than a year ago and it wasn’t over $90.”

Across the border in Alberta, however, there are concerns that the U.S. downturn will be so severe that oil prices will fall further still. Together with spiralling costs for oil sands projects, it could make any new developments economically questionable, capping the province’s boom.

The consortium behind the giant Fort Hills oil sands project revealed last month that its development costs had grown by more than 50 per cent in little more than a year. With the credit crunch, investors have assumed it will be hard for UTS Energy Corp., a junior partner in the consortium, to raise the cash to fund its 20-per-cent stake. The company’s stock has dive-bombed to just over $1 from $6 a share in June.

But while some oil sands projects may be delayed or pulled, that would only slow the breakneck pace of Alberta’s oil boom, rather than stop it. Companies plan their multibillion-dollar investments on long-term price projections that still support development.

The short-term picture looks bleaker for Alberta’s natural gas sector. While larger companies – flush with cash from 2008’s previously sky-high prices – say they’ll be unaffected by any downturn, junior firms, which rely on raising funds through debt and equity, won’t be able to easily find the cash they need to grow.

“Junior companies will not be able to get the cash to do drilling this year,” said Roger Soucy, president of the Petroleum Services Association of Canada. “At best, the forecast [for drilling next year] is flat, and it could drop.”

With neighbours losing homes or jobs, even consumers not directly affected by a downturn are likely to be rattled by what’s happening around them.

“It’s more likely than not that consumers are going to be more anxious, more concerned and less likely to spend going into the Christmas season,” said Kyle Murray, director of the school of retailing at the University of Alberta. “And if consumers, en masse, just hold off on buying those things like cars and houses, that also has a real negative impact on the economy in the short term. So none of that really bodes well.”

It all means finance ministers across the country will likely be facing lower revenues from income and sales taxes, while expenditures on unemployment and welfare benefits could balloon. That could push many governments – including Ottawa, which had a relatively slim $2.9-billion surplus in the first four months of the fiscal year – into the red.

“A deficit is something that’s certainly in the cards right now [for New Brunswick],” Mr. Boudreau said in an interview Friday.

In its March budget, the government projected a tiny $19-million surplus, on spending of $7.2-billion, “so there’s not a whole lot of cushion” if the economy slips into recession, he added. On top of that, government pension funds have been sideswiped by sliding stock prices, forcing the province to top up shortfalls with its own cash.

Each of the federal party leaders has insisted that he or she would not run a deficit if elected on Oct. 14, despite pledges of billions in new spending. But Prof. Ragan thinks their “no-deficit religion” is wrong-headed.

“The last thing you would want when the economy slows down is to intentionally raise taxes or cut spending just to stay out of a deficit,” he said. “It’s bad economics and I suspect [the party leaders] know it.”

Ottawa’s budget deficit exploded to $41-billion in 1992-93, in the wake of the last big recession, up from $28-billion in 1989-90. But subsequent moves to eliminate the deficit and pay down the federal debt – which now represents about 30 per cent of gross domestic product, down from a peak of 70 per cent – means Ottawa has room to prime the pump.

“One of the reasons it was so important to bring down the deficit and debt was so that in bad times you would have a little bit of fiscal room to manoeuvre,” Prof. Ragan said. “Well, the rainy day has arrived.”

With a report from Tavia Grant in Toronto


Published in: on October 5, 2008 at 9:02 am  Comments Off on EU, Iceland, Canada Suffering Fall Out, Caused By US Crisis  
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