World Bank Promotes Fossil Fuel Pollution

One thing leads to another and yet another. One story can lead to some valuable information.

Anyone who has been reading “Did You Know” has noticed there are many things on the IMF and the World Bank. Their policies have contributed to Social problems and Corporations being allowed to go into countries and do some rather devastating damage, to countries who receive the loans.

Monsanto has devastated Indian cotton farmers for example. Of course they have also been involved in many other  problems as well.

There are other corporations that are equally as bad but, for the moment I will just use them as an example.

The World Bank and IMF in many cases, as a part of the agreement to get a loan,  stipulate the markets in the recipient country must open their markets up to some of these not so wonderful corporations, among other stipulations which can vary from one recipient country to another.

In Iceland they had to raise their interest rates to 18%. Of course this I found rather odd, considering during the Financial Crisis of late every other country is lowering them.

After reading the story below I of course went for a wander and found a few things.

So I am sharing my findings with you.

I love to share especially when it comes our planet and our environment.
Time to see green in the red
By James Blunt
November 17, 2008

This year, I have visited more than 180 cities on my world tour, and wherever I went — from Aberdeen to Auckland — one thing never failed to amaze me: air conditioning. It was blasting at sub-arctic levels in nearly every hotel I stayed, when most times it would have been just as easy — and better for the environment — to open a window.

To me, hotel air conditioning is a small but telling reminder of the luxuries we have grown so accustomed to in an age of prosperity but could often do without. They are things — like SUVs, or fish caught half a world away or even disposable hand wipes — that barely improve our daily lives but, altogether, are taking a terrible toll on our planet.

So, as we read  in newspapers like Metro about the economic slowdown, I wonder if there might be a silver lining in such grim news: The possibility that after a period of so much consumption, we might cut back a bit on extravagances we don’t need, and give our over-worked planet a bit of a breather?

I realize that many people roll their eyes when a celebrity preaches about the environment — or rescuing baby seals, or any other worthy cause. (I don’t like preaching, either, and — contrary to what you might have read in the tabloids — I don’t think of myself as a celebrity).
As an army officer and a musician, I have had the privilege of seeing some of the planet’s natural treasures. Sadly, I have also seen the way that we abuse it by dropping bombs and building shopping malls.

I don’t pretend to be an environmental expert, but I am learning. Before my concerts, we screen a preview of An Inconvenient Truth, the remarkable documentary by former U.S. vice-president Al Gore

I am installing solar panels at home, and for every ticket to one of my concerts sold online, we plant a tree.

I’m a supporter of The Big Ask.

It is a campaign by Friends of the Earth to get govern­ments to reduce carbon dioxide emissions — the main cause of global warming. Thanks to them, the European Union is now debating laws that would force members to cut emissions by 20 per cent by 2020. If approved, it would be the most ambitious plan in the world, and just might convince the U.S., China and others to come aboard.

Unfortunately, some politicians are pointing to the economy and saying that now is not the time to fight global warming. I think they have it backwards: We cannot afford to wait any longer. Global warming is a problem that is only going to get worse, and more costly to fix, the longer we delay. By joining The Big Ask, you can remind our leaders that the environment should not depend on the stock market.

And one more thing: next time you switch on the air conditioning, think about cracking a window open instead.

Source


Well I had to go and see what the “The Big Ask” was all about. Curiosity you know.

Seems the Friends of the Earth do numerous things.
Fuel Poverty being one of them.
November 13

Friends of the Earth and Help the Aged have lodged an appeal today (13 November 2008) against last month’s High Court ruling that the Government has not broken the law over its failure to tackle fuel poverty.

The High Court gave Friends of the Earth and Help the Aged permission to appeal because the case raised difficult and novel legal questions.  The organisations have asked the Court of Appeal to reconsider the issues and order that the Government release previously secret fuel poverty documents.
Friends of the Earth’s executive director, Andy Atkins, said:

“We believe the Government has acted unlawfully by failing in its legal commitment to end the suffering of fuel poverty. The Government must introduce a massive programme to cut energy waste, slash fuel bills and ensure that people heat their homes and not the planet.”

Mervyn Kohler, Special Adviser for Help the Aged, said:

“The intention of Parliament to end fuel poverty was very clear in legislation – it must happen.  The Government has to come up with a fresh fuel poverty strategy immediately to end the suffering of millions of vulnerable people.  Low income households need crisis payments simply to get through the coming winter, but in the longer term, the energy efficiency of our homes must be improved.”

Although the Government is legally bound to do all that is reasonably possible to eradicate fuel poverty for vulnerable households by 2010 and for all households by 2016, five million households in the United Kingdom will struggle to heat and power their homes this winter. The number of households in fuel poverty has now reached the highest level in ten years.
Help the Aged and Friends of the Earth and are calling on the Government to develop a far more effective and comprehensive programme of domestic energy efficiency to simultaneously end suffering from fuel poverty and tackle climate change.

Unfortunately this problem is not limited to just the UK.  It is a problem in many other countries as well.

This I found to very interesting.

Brown urged to U-turn on $1.6bn contribution to disastrous climate funds

April 11 2008

Civil society groups from around the world are today (Friday 11 April 2008) calling on the World Bank to withdraw its proposal to establish climate investment funds ahead of this weekend’s spring meetings in Washington, due to concerns the fund will be used for carbon offsetting schemes including industrial-scale tree plantations, coal projects and other polluting, energy-intensive industries and could undermine international efforts to tackle climate change.

The World Bank this week detailed its plans for the funds, which are being set up outside the United Nations Frame Convention on Climate Change [1] and into which the UK will channel its $1.6 billion Environmental Transformation Fund.

Friends of the Earth International climate campaigner Joseph Zacune said: “Gordon Brown’s decision to spend hundreds of millions of taxpayers’ money on the World Bank’s disastrous climate funds is set to do much more harm than good by undermining UN, developing country and community-based efforts to address climate change.

“The World Bank is responsible for major emissions through its financing of dirty fuel projects around the world – putting it in charge of multi-billion dollar climate funds is like putting a mafia don in charge of law and order.”

The World Bank Group is the largest multilateral lender for fossil fuel projects, spending around $1 billion per year in financing for the oil and gas industry. This week the Bank approved a $450 million loan for the 4,000 megawatt Tata Mundra coal project in Gujarat, India which is expected to emit 23 million tons of carbon dioxide per year.

The World Bank’s climate investment funds are expected to be worth between $7 and $12 billion. The US, UK, and Japan originally proposed the funds with a view toward their approval at the G8 summit in Japan in July 2008.

The Bank’s funds are also earmarked for tropical rainforest countries taking part in the Forest Carbon Partnership Facility. This global offsetting scheme would allow rich countries and their corporations to buy up carbon locked in developing country forests in order to pollute as usual at home. The proposals have been opposed by Indigenous Peoples who would have their land rights undermined.

The Group of 77 and China criticised the proposed funds at UN climate talks in Bangkok last week.

The World Bank’s own Extractive Industries Review (EIR) in 2004 recommended that the Bank “phase out investments in oil production by 2008”.

Notes

[1] Details on these new climate funds became available this week on the World’s Bank website

[2] Bernaditas Muller, chief negotiator for the Group of 77 and China, stated, “The governance of these funds is also donor-driven. There is clearly money for climate actions, which is the good news, but the bad news is it is in the hands of institutions that do not necessarily serve the objectives of the Convention.”

[3] A new report “World Bank: Climate Profiteer” from the Institute for Policy Studies, shows how the World Bank’s growing engagement in carbon markets is dangerously counter-productive. The Bank’s $2 billion, and growing, carbon finance portfolio is forging a path through the $60 billion international carbon market toward a dirty energy future. While the World Bank continues to fund greenhouse gas-emitting coal, oil and gas projects, it skims an average 13% off the top of carbon deals. The report is available on the IPS website

(There are a number of reports at the IPS website , about the World bank worth reading. ( Challenging Corporate Investor Rule ) is one of them. There are about 5 or 6  reports on the World Bank . They do help pollution increase. There are other reports on pollution like (Radiation) as well.

Do be sure to check it out. There is a wealth of information there.

[4] More information is available including Third World Network’s critique on these funds.

See also Bretton Woods Project “World Bank climate funds: a huge leap backwards” .

Source

The Environment belongs to all of us and we must protect it.

Then we also have this type of pollution as well. War “Pollution” Equals Millions of Deaths

The domino effect: Road to recession

It began with the banks. Then house prices began to tumble. In the months that followed, the shock waves spread, engulfing first high streets, then factories – and thousands of jobs. In this gripping account, Paul Vallely travels across Britain to meet the people whose lives – and livelihoods – have fallen victim to the domino effect that left a nation broken

November 12 2008

We could begin with Peter Sastawnyuk. The 53-year-old businessman filled his £370,000 detached home with petrol canisters, sealed the locks, set tripwires and threatened to set the place alight. More than 40 of his neighbours were evacuated from the posh cul-de-sac on the edge of the Pennines from which Sastawnyuk sent his children to be educated at private school. But the cradle of his dreams imploded, in the end, as the scene of a five-hour police siege. The trigger for it all, a court in Rochdale was told last month, was that he had lost his job, got into debt and had had his home repossessed.

Or we could start with Karl Harrison. The father-of-two was found hanging in his garden shed in Anglesey. The 40-year-old surveyor had lost his job when the housing market began to turn down. He fell behind with his payments on his home loan and was being harassed by a firm called Oakwood Homeloans to pay the arrears, the recent inquest was told. Harrison’s widow has now put the house on the market.

But we do not need melodrama or tragedy to tell this story. So, instead, let us begin with what is becoming a more everyday misfortune.

It was an ordinary Thursday morning in early October when Jackie Horn, a 43-year-old IT worker, left her neat little Edwardian town house behind Stockport Grammar School to make the short journey to work. Her destination was the Vauxhall Industrial Estate in which the largest site was occupied by the company for which she had worked for the past 16 years – Chemix, which manufactured the compounds from which uPVC window frames and cladding are made.

She looked back casually at the house, with its handsome stained-glass windows, and got in her car, a small silver Peugeot. She had bought the house 12 years ago and, though she lived alone, her mortgage was nicely manageable. She had had the car for two years and it was all paid for. At Chemix, she had risen from being a receptionist to being a computer programmer. She was better paid now. Hers was a settled life.

She had had an inkling that things were not quite right at work. She noticed from her IT processing that orders for resin, Chemix’s incoming raw material, had been down for a while. So were orders for the compounds the firm produced as the nation’s door-to-door salesmen found ever-larger numbers of people saying no to the idea of having their windows replaced.

Then, about four weeks earlier, the management had told the workforce that it might have to move to only three or four days’ working each week. The workers had rejected the idea in a ballot and a couple of weeks later were told there might have to be selective redundancies. But letters had gone out a few days before saying that jobs in sales and IT were safe.

When she arrived at the little factory, “a lot of blokes in suits” had appeared. A meeting of the whole workforce was called. The firm was in administration, the bankruptcy accountants told them. They had all lost their jobs. They should leave immediately.

“It was a real shock,” she says. “One day I was receiving a letter telling me my job was safe; the next it had gone. The mood was bad. Everyone was saying goodbye. They were hugging and shaking hands.” She was told she would be kept on for an extra two weeks to help with the shutdown. “I couldn’t look the men in the eye.” Now she, too, sits idle at home.

The Domino Effect

The chain of events – which began with salesmen on commission wildly dishing out sub-prime mortgages (to poor people the United States who did not even have to prove they had the earnings to repay them) and ended with Jackie Horn losing her job – is a long one.

I have spent the past few weeks tracing each link in that chain through the stories of a series of people:

The fall-off in demand for Chemix’s products was the result of decisions such as the one made by a Birmingham newsagent, whose domestic economies included not having his windows removed and replaced with uPVC frames because his cigarette sales were down.

Cigarette sales at the newsagent’s had fallen because staff at the nearby Range Rover production plant had had their hours cut.

Range Rover sales are down because a wide variety of businesses are now tightening their belts; not replacing company cars is an obvious money saver.

Among the businesses not replacing company cars as part of general cost cutting are the shop-fitting, sign-writing and advertising firms employed by retail giant Marks & Spencer, which has had two-thirds wiped from the value of its shares this year.

Trade in shops is down because consumer confidence has fallen in line with catastrophic drops in the prices of shares.

Share market volatility was provoked by the sudden refusal of the banks to lend money to anyone, including each other.

The crisis of confidence within the banks was fed by the dramatic multi-billion dollar collapse of the investment bank Lehman Brothers, which was the biggest bankruptcy the world has ever seen.

To make sense of this complex saga, I set out to travel around the United Kingdom to speak to individuals who had played a key part in each stage of the tumbling of the economic dominoes. There were repeated surprises along the way. Encounters with the real world are like that. Not everything turns out as you might expect.

Northern Rock – Panic Begins

The giant tower of the new Northern Rock building stands empty, like a monument to the folly of the years of reckless capitalism. It has never been occupied. Out at Gosforth, on the northern edge of Newcastle, it is the place where the first rumblings of the seismic shakeout that is now gripping the globe were first detected in the UK.

Today, the yellow-brick buildings that surround it are still staffed, but by managers and employees humbled by the events of the past 12 months which have turned them from freebooting buccaneers of a banking world – in which the possibilities of growth seemed unlimited – to servants of a nationalised service industry. Even the bricks seem symbolic, for the yellow brick road in The Wizard of Oz led to a gleaming city with a giant fraud at its heart.

The man who is driving me round the once-mighty complex is Dennis Grainger. He was once a senior employee of the firm and is now the leading light in the Northern Rock Shareholders Action Group. The combination makes him uniquely placed to tell the story of the building society that turned bank after Margaret Thatcher’s deregulation of the financial sector and which last year provoked the first run on a British bank since the Victorian era.

“Northern Rock was not involved in dodgy sub-prime lending,” says Grainger, 61, of Cramlington, Northumberland. “Our loans were good, safe lending to people who could afford to repay. The Rock was very strict in asking whether people could afford to borrow that amount.” He knows this because one of his jobs was to manage the people checking the paperwork.

“After the crisis broke, the media said the problem was that Northern Rock lent people more than they needed to buy their homes. And it is true that we did offer 125 per cent loans, to cover the house purchase and additional expenses. But the rates of default on those were just half the national average.”

What did for Northern Rock was that so much of the money it lent did not come from depositors but was borrowed by the bank on the international money markets. That is what had turned a provincial building society into the UK’s fifth largest mortgage lender – and a FTSE 100 company. “Some 80 per cent of the mortgages we gave out had been borrowed in this way,” Grainger says. ” I know I used to sign the documents for millions of transfers each month.”

The problem came when, on 9 August 2007, one of France’s three biggest banks, BNP Paribas, told investors that they could not take money out of two of its funds because it was unable to value the assets in them. This was because the financial world had created complex financial packages out of the sub-prime debt and sold them on to other investors. It was like pass the parcel; investors had, in effect, bought blind because the deals had so many layers that no one knew what lay at their heart.

The crunch came when some investors wanted their money back and Paribas realised it did not know whether it had the money to pay out. It was, in the words of Northern Rock’s former chief executive Adam Applegarth, “the day the world changed”. Money markets across the globe shut down because they did not know which banks would remove the final wrapper from the “credit default swaps” – and find they were holding a booby prize.

When the money stopped flowing, banks like Northern Rock – which had, in the jargon, “borrowed short-term to lend long-term” – could not get hold of the cash to finance their next day’s business. On 13 September 2007 the BBC’s business editor, Robert Peston, revealed that Northern Rock had asked for emergency support from the Bank of England. But there was no danger of the bank going bust, he added, so customers need not panic.

“It had the same effect that Corporal Jones does in Dad’s Army,” observes Grainger wryly. “When you shout, ‘Don’t panic! Don’t panic!!” people do exactly the opposite. Peston should have known that.” Outside Northern Rock’s branches, massive queues formed of savers demanding to withdraw their money.

But, if there was compassion for savers, there was scant sympathy for those running Northern Rock, whose chairman was a non-banker – the local oddball free-market environmentalist aristocrat Matt Ridley – and whose risk committee was chaired by Sir Derek Wanless, who had previously been ousted from NatWest with a reported £3m payoff. It was they who had endorsed the aggressive growth strategy of bullish chief executive Applegarth and, in the words of the financial journalist Alex Brummer, author of The Crunch: the scandal of Northern Rock and the Escalating Credit Crisis, “allowed him to run riot, without checks and balances”.

The people most often forgotten in all this are the shareholders. “People assume all the shares were held by big institutions and greedy hedge funds,” says Grainger, “but a quarter of the shares are held by little folk.” Again, he knows because he has met 2,000 of them in the streets where he sets up his Shareholders Action Group stall. Another 4,000 have emailed him.

“These people are not speculators or gamblers. They are people in their seventies, eighties and nineties living on very small incomes who received a few hundred shares in the original demutualisation. Many are old ladies keeping their shares to pay for their funeral arrangements and who I’ve seen crying in the streets, saying they will now be a burden to their family. They are Mr and Mrs Shipyardworker who put their savings, with pride, into the local bank.”

Again, this is not academic to Dennis Grainger. Every month for 10 years he put £250 of his salary into the Northern Rock employees’ Share and Save scheme. It was to be his retirement pot. At one point it was worth £114,000. Today it is utterly worthless. “The real losers in all this are the small investors who worked for Northern Rock or savers who bought shares and remained loyal to the bank,” he concludes. “The treatment they have suffered is very unfair.”

It is not the only consequence. To accelerate the payback to the taxpayer, the new management at the now-nationalised company is pursuing an aggressive policy of repossessing the homes of borrowers who get into arrears. Northern Rock’s rate of repossessions is currently running at around double the industry average. And leaked documents from inside the bank reveal that it is set to double numbers in its debt collection arm.

There is a quiet indignation in Grainger’s conclusion. “We have been treated very badly by the Government,” he says. “Northern Rock was illiquid, not insolvent. When there was a run on the bank they wouldn’t lend us £2.7bn, but they’ve had to stump up £400bn to prop up other banks since. We should have been given the same terms as other banks were subsequently given.”

But there was one other bank not included in the rescue deal. When Lehman Brothers investment bank folded it provoked the biggest corporate bankruptcy ever seen.

Lehman – The Untouchables?

Until recently, Andrew Gowers had an office on the 30th floor of a tower in Canary Wharf which offered a stunning panorama of the City of London. It seemed an appropriate location for the UK arm of an investment bank that was one of the big five beasts of Wall Street. If there was any institution whose members might fall prey to the hubris of believing that they truly were Masters of the Universe – as top City traders described themselves with an irony which depreciated with the passing years – then the men at the top of Lehman Brothers might be among their number. The air indeed seemed rarefied at that height. The shame was that nobody bothered to pack the oxygen.

For the past month, Gowers, a former editor of the Financial Times – and now a former director of communications at the 150-year-old US investment bank which had begun life in the 1850s as a cotton-trading partnership – has sequestered himself away in a far less public place, having quit the bank just before it collapsed. He has had a month “watching the autumn go by” in the south of France.

Northern Rock was the prequel to the concatenation of events which has seen £3,000bn wiped off the value of the world’s shares. It has also seen taxpayers across the globe spend double that amount to prop up the world’s banks. But it was the collapse of Lehman Brothers – and the sight of well-paid bankers carrying their belongings from their Canary Wharf offices in black sacks and cardboard boxes – which first suggested that something was going on that might have ripples that moved beyond the United States, or indeed, the Northumbrian fastness of Northern Rock.

But for Andrew Gowers, the writing had been on the Wharf for a good deal longer.

“There was a general awareness of difficulties,” he says, “from August 2007 onwards.” Lehman was a very large borrower, with, according to some estimates, around $130bn in debt, much of it in sub-prime. “But the feeling was that we weren’t as badly exposed as some and there appeared to be some good and clever hedging strategies in place, Gowers says. So 2007 ended as a record year with bumper revenues and the balance sheet grew in the first quarter of 2008 – “which a lot of people, after the fact, found pretty incomprehensible.”

There was no excuse for this complacency. In March, a smaller investment bank, Bear Stearns, had collapsed. In response, Lehman’s share price fell 48 per cent in less than a morning. “But the Lehman management told itself that we were different from Bear Stearns,” Gowers recalls, “because we weren’t so reliant on short-term borrowing and we had large amounts of liquidity.” Anyway, the US Federal Reserve – America’s equivalent of the Bank of England – had stepped in to save Bear Stearns. Perhaps the top people at Lehman – a far bigger bank – believed they would have a state safety net, too.

Even so, says Andrew Gowers, “it all scared the living daylights out of the top management and some major effort was made to shrink the balance sheet, to cut the borrowing and get rid of some of the problem assets.”

The trouble was that other banks were doing the same thing at exactly the same time. As a result, the prices of the assets they wanted to sell fell at a shockingly fast pace. Lehman began to run out of time. It could not offload enough of the dodgy sub-prime debts. To make matters worse, the “good and clever hedging strategies” began to come unstuck. Indeed, instead of offsetting losses, some of the hedges magnified them.

“From April, I became aware of quite a sizeable loss accumulating. Nobody was quite sure how big it was going to be.” In June, executives at Lehman’s money management subsidiary, Neuberger Berman, sent emails to the top managers at Lehman Brothers suggesting that they forgo bonuses – to “send a strong message to both employees and investors that management is not shirking accountability for recent performance.” Lehman’s executive committee dismissed the idea out of hand.

When the news of the first loss ever in Lehman’s independent history came out the market was shocked. Senior managers, including the chief executive, Dick Fuld, didn’t seem to get the measure of the problem. Gowers recalls: “They just thought: we’re not in a catastrophic place, we’ve suffered some buffeting from abnormal developments in the market, but we have a plan to get out of it.”

The market did not agree and the Lehman share price continued to plummet. “That caused jaws to drop, says Gowers and the bank’s chief financial officer Erin Callan and its president Joe Gregory, who had been Dick Fuld’s right-hand man for 34 years, resigned.

But it was not enough. “Eventually, at one minute before midnight, they came out with an explanation of what had gone wrong and what they planned to do,” Gowers recalls. “But it was too late.”

In the end, what did for Lehman was that its executives failed to understand that the politics had changed. On 7 September, America’s biggest mortgage providers, Fannie Mae and Freddie Mac, had to be rescued by the US government. It was one of the largest bailouts in US history. “A feeling grew in Congress that there had to be a limit,” Gowers says.

Lehman Brothers became that limit. “At quite a few points in the downward spiral Lehman’s could have been bought, but Dick Fuld was too proud to accept that,” Gowers adjudges. The result was the largest corporate bankruptcy in history.

Andrew Gowers got out just before the collapse, having concluded that his job had become untenable. The evening that I interviewed him, he had just returned from a relaxed day at the market in Cahors. There would be sea bream for dinner that night. But things looked a little more bleak for some of his former colleagues.

Investment bankers rank fairly low on the public sympathy index. Gowers acknowledges that, yet warns against broadbrush judgements. “There were a lot of people in Lehman’s who took 80 per cent of their pay in shares which were deferred for five years and a relatively low salary,” he says. Many borrowed against those shares and are now hiding away and licking their wounds.

“It had been rolling along in a fantastic way for so long that everybody really did began to think there was no way it was going to end. They applied that to their own personal finances, as well as the way they ran the firms, borrowing against tomorrow.”

But now, grimly, tomorrow has become today.

Blame it on the young guns

The seats are of the kind of red plush velvet that speaks not of your local Indian restaurant but of discreet wealth. The menu offers seared Isle of Skye scallops with pork belly squares and cauliflower purée. With the chateaubriand of Aberdeen Angus, served with a béarnaise sauce, I suspect that Duncan Glassey’s eye might alight at a £58 bottle of 1975 Château Cantenac Brown. But I am wrong. He is happy, he says, with an Australian shiraz, the cheapest on the list of bin ends in the smart Circus Wine Bar & Grill in the austere Georgian elegance of Edinburgh’s New Town.

“How did the world’s cleverest financiers get into this almighty mess?,” I ask him.

There is a lot about Duncan Glassey which is not what you might expect. The child chess prodigy who turned professional runs a wealth planning consultancy for the mediumly-rich. It grew out of his experience of working with lottery winners at the accountant Ernst & Young in the mid-Nineties. His firm Wealthflow LLP now specialises in clients with between £1m and £5m to invest.

For all that, he is modest in his own lifestyle. So much so that in the past he has been told that he lost business from new clients after turning up for the initial interview in a car which they decided was insufficiently grand. There is something about him of the solidity of old money. His client list includes aristocrats as well as advocates. Like those whose money he manages, his bias is towards the conservative and away from the febrile psychology of “active management” where, he insists, over-activity can sometimes substitute for solid long-term investment.

Glassey has some interesting thoughts on the generational conflicts that have tipped the world into financial crisis and to the brink of recession: “The people who made the strategy in the banks are of the baby-boomer generation born from 1945 onwards. They are a generation of grand visions, optimism and high ideals about combining individual empowerment with social values. They are the big talkers and the people with the vision and mission statements.”

By contrast, the generation who have managed us into the present situation have a very different set of attitudes and values. Generation X are the children of the Thatcher era. “They are at home with globalisation and the information revolution,” he says. “Change is normal, as is the idea of lifelong learning. They are not scared of failure.

“What’s important to them is individualism, choice, self-reliance and immediate gratification. They are thrill seekers.” They can be pessimists, cynics and selfish.

But the younger generation who created sophisticated financial products which have so dramatically imploded – the “masters of the universe” – are different again, Glassey says. “They are Generation Y, born from 1985 onwards. They are the generation who have not known a world without the internet. They are highly techno-savvy and street smart but information overload has made them hugely naive in many other ways. They are the Facebook and Bebo generation – networkers who live in a world where divorce and geographical dispersion has broken down the family. They are self-obsessed and close-focused.

“The belief systems of the three groups – the strategists, the managers and the traders – are entirely different,” concludes Glassey. “They don’t really understand one another at all. And they didn’t know what each other really wanted or expected out of the complex financial architecture they created.

“Everybody was locked into the Nick Leeson scenario; no one asked questions so long as everyone was making money.”

The shaven-headed Glassey, aged 39, characterises himself as on the cusp between generations X and Y but his values hark back to what he calls “the old days when banks were trustworthy and on your side, before they became out-and-out sales organisations”. His approach is to keep his clients away from financial fads and fashions and “commission-based products which are deliberately made so complex that clients can’t understand them”. Glassey was always suspicious of the world of credit-swap derivates which he saw as a parade of emperor’s new clothes. “I view all that as speculation. I’m not paid to make huge money for my clients; I’m paid to diversify risk.”

But his clients, Glassey acknowledges, will not be the ones to suffer. “Their portfolios may be down 15 per cent where others are down 35 per cent or more. But their homes and jobs are not as risk.” So whose jobs and homes are in peril? And why? The trail pointed away from the world of pure finance and into that of the stock market.

The trillion-dollar wipeout

They are still selling oysters and champagne in the great courtyard of the Royal Exchange which was founded in 1565 as the centre of commerce for the City of London. In the 17th century, stockbrokers were not allowed within its elegant portals because of their rude manners, but today it is no longer a stock market. Instead, it is a luxury shopping centre whose pillared and marbled atrium is lined with discreet boutiques bearing names like De Beers, Hermès, Tiffany, Bulgari and Cartier. A couple of lattes in its magnificent courtyard will set you back the price on an entire lunch for two in Bury market, of which more later.

I was there to meet Richard Hunter, head of British equities at the fund manager Hargreaves Lansdown – which manages £11bn in shares for its small investor clients. I wanted to find out why the alarm over bank shares that gripped the stock market then infected other areas. After the collapse of Lehman Brothers, it was not just banking shares that fell; equities plummeted in a wide range of companies that had no connections with the financial services industry.

“Credit is the oil in the machinery of the business world,” he says. Every business needs to borrow to finance the gap between buying its raw materials and the income arriving for what it sells. “The money that used to be available to do that just isn’t there any more because the banks have stopped lending to one another. All that has been impacted by the credit squeeze. That’s why share prices fell first in certain sectors – the banks and financial services companies – but soon spread to other areas.”

But there were a collection of other forces in the real economy that accelerated the speed with which prices fell.

“It was a cocktail of factors,” he says. “After the sub-prime crisis broke in the US and after the collapse of Northern Rock here, some people became more cautious and started to spend less.” Then came the global rise in food prices which raised the cost of bread, rice and other staples in the supermarkets; in April, rice prices were double what they had been seven months earlier. Next followed the international hike in the price of oil – it rose as high as $147 a barrel in July, almost treble what it had been a couple of years earlier. And that massively increased both domestic fuel bills and petrol prices.

“If it costs you an extra £10 a week to fill your car and you’re on a budget,” he says, “you have to find that £10 by cutting back somewhere. If you’re paying more for your gas and electricity you have to cut back on something else.”

Then, on top of all that, house prices had started to fall. The fall-off began slowly, last November. By April this year, house prices were lower than they had been a year before. It was the first time an annual drop had been recorded for 12 years. The number of new houses being built fell to the lowest level for 60 years. The building industry, after 13 years of unprecedented growth, faced a major slump; in July the housebuilder Taylor Wimpey asked shareholders for an extra £500m and failed to raise it. Mortgage lending crawled to a near standstill in August as approvals for new homes hit a record low. By September, house prices across the country had fallen by about 10 per cent. Repossessions rose to triple their previous level. In the worst hit areas, such as the centre of Manchester where thousands of buy-to-let apartments had been made in converted inner city warehouses, prices fell by more than 20 per cent.

Half the flats in one prestigious block, Albion Mill – a converted Victorian biscuit factory with double-height living rooms and stunning views across to the Pennines – were repossessed. One woman, Jeanette Leach, 31, got off the plane at Manchester Airport after a holiday in Tenerife and received a text message saying her home had been repossessed; she went straight into the toilets at Terminal Two and hanged herself with the cord from her tracksuit bottoms.

The majority of those falling into difficulties as result of the credit crunch were not driven to such extremes. But, says Richard Hunter, “the stock market tries to discount the falls in value that will come over the next nine to 12 months.” As soon as the banking system was pulled back from what the head of the International Monetary Fund called “brink of systemic meltdown”, investors began to consider what might be the short-to-medium term implications for the real economy. House prices were a key indicator.

And further contraction was obviously on the cards. Some 1.2 million homeowners in the UK are now faced with the prospect of negative equity because the prices of their properties have fallen below what they paid for them. Another 1.4 million households are due to come off short-term fixed-rate mortgage deals by the end of 2008. The credit crunch on the wholesale markets was making mortgages harder to come by. It contributed to a growing “feel-bad” factor on the markets. “With shares and house prices you don’t crystallise your loss till you sell, but you feel poorer because of all the bad news,” says Hunter, “and so your behaviour begins to change. Everyone cuts back.”

Some people do more than that. They panic.

“People who have been in the city 40 years are telling me that they’ve never seen this degree of volatility before,” Hunter says. “Panic overtakes logic. Just a few people running round like headless chickens can infect others because people look at the headless chickens and say: What do they know that I don’t? In the past they used to say that the market was driven by one prevailing emotion – greed or fear; this time it’s a cocktail of both.”

The result was an orgy of frenzied selling in which £2.7 trillion was wiped off the value of shares globally in a single week of extraordinary financial mayhem in October. This was when a crisis that had for months seemed confined to the world of banking began to ripple out into the real world.

Source

US stocks plunge as recession woes resurface

November 06, 2008

A case of postelection nerves sent Wall Street plunging on Wednesday as investors, looking past Barack Obama’s presidential victory, returned to their fears of a deep and protracted recession. Volatility swept over the market again, with the Dow Jones industrials falling nearly 500 points and all the major indexes tumbling more than 5 percent.

The market was widely expected to give back some gains after a runup that lifted the Standard & Poor’s 500 index more than 18 percent and that gave the Dow its best weekly advance in 34 years; moreover, many analysts had warned that Wall Street faced more turbulence after two months of devastating losses.

But investors lost their recent confidence about the economy and began dumping stocks again.

“The market has really gotten ahead of itself, and falsely priced in that this recession wasn’t going to be as prolonged as thought,” said Ryan Larson, head of equity trading at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. “Regardless of who won the White House, these problems are not going away.”

“We’re in a really bad recession, period,” he said. “People are locking in profits and realizing we’re not out of the woods.”

Beyond broad economic concerns, worries about the financial sector intensified after Goldman Sachs Group Inc. began to notify about 3,200 employees globally that they have been lost their jobs as part of a broader plan to slash 10 percent of the investment bank’s work force, a person familiar with the situation said. The cuts were first reported last month. Goldman fell 8 percent, while other financial names also fell; Citigroup Inc. dropped 14 percent.

Commodities stocks also fell after steelmaker ArcelorMittal said it would slash production because of weakening demand. Its stock plunged 21.5 percent.

Although the market expected Obama to win the election, as the session wore on investors were clearly worrying about the weakness of the economy and pondered what the Obama administration might do. Analysts said the market is already anxious about who Obama selects as the next Treasury Secretary, as well as who he picks for other Cabinet positions.

“The celebration is over. Today we saw a bit of reality,” said Al Goldman, chief market strategist at Wachovia Securities in St. Louis. “President-elect Obama is coming into a situation with limited experience, having to handle an economy in serious trouble, a couple of wars and terrorism. It’s an extremely tough job.”

Analysts said investors were also uneasy in advance of the Labor Department’s October employment report, to be issued Friday. Economists, on average, expect a 200,000 drop in payrolls, according to Thomson/IFR.

Late-day selling by hedge funds helped deepen the market’s losses during the last hour. More selling by the funds is expected to weigh on the market ahead of a Nov. 15 cutoff for shareholders to notify fund managers of their intent to cash out investments before year-end.

The Dow fell 486.01, or 5.05 percent, to 9,139.27. The blue chips had risen more than 300 on Tuesday, and last week rose 11.3 percent, their biggest weekly gain since 1974.

The S&P 500 index fell 52.98, or 5.27 percent, to 952.77. Through the six sessions that ended Tuesday, the index, the one most closely watched by market professionals, rose 18.3 percent.

The Nasdaq composite index fell 98.48, or 5.53 percent, to 1,681.64, while the Russell 2000 index of smaller companies fell 31.33, or 5.74 percent, to 514.64.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to a light 5.29 billion shares compared with 5.45 billion shares traded Tuesday.

“We’re seeing people come into the market at the last minute and the low volume exaggerates moves to the downside and the upside. That really scares the heck out people,” Goldman said.

Wednesday’s trading showed that the market is living up to expectations of continued volatility as it tries to recover from the devastating losses of the last two months.

Bill Stone, chief investment strategist at PNC Wealth Management, said the uncertainty over the direction the government’s financial bailout plan will take under the next administration likely weighed on financial stocks Wednesday.

Analysts agree that Obama’s most immediate priority will be dealing with the nation’s financial crisis and deciding how to further implement the $700 billion rescue package passed by Congress last month.

Goldman said trading could remain turbulent as investors begin assessing the shape and direction of Obama’s forthcoming economic policies.

“The market has to go through a period of figuring out if they are going to gain confidence in Obama and the Congress or lose it,” he said.

Obama’s victory means that industries such as oil and gas producers, utilities and pharmaceuticals may face greater regulation and even taxes, while labor unions and automakers are expected to benefit.

In addition, banks, insurance companies, hedge funds and the rest of the financial sector will almost certainly face attempts at a regulatory overhaul by the Democratic Congress next year.

Among financials, Goldman Sachs fell $7.57, or 8 percent, to $87.43. Citigroup fell $2.05, or 14 percent, to $12.63, while Bank of America Corp. dropped $2.78, or 11.3 percent, to $21.75.

Other sectors that are being closely watched in light of the election results are pharmaceuticals and alternative energy, analysts said.

Merck & Co. fell $2.41, or 7.7 percent, to $28.72. Pfizer Inc., meanwhile, dipped $1.09, or 6 percent, to $17. SunTech Power Holdings Co. was among the alternative energy stocks that declined, falling $6.82, or 21.5 percent, to $24.88.

In addition to monitoring the direction the next administration will take, investors continue to heed the state of the credit markets. The paralysis in the credit markets that began after the bankruptcy of Lehman Brothers Holdings Inc. in mid-September has been alleviated somewhat by a series of government interventions, but they still show some signs of strain.

Banks continued to ratchet down the rates they charge one another for borrowing on Wednesday, but the key interbank lending rate — the London Interbank Offered Rate, or Libor — remains well above the Federal Reserve’s target interest rate of 1 percent. Libor for three-month dollar loans fell to 2.51 percent from 2.71 percent Tuesday.

And the bid for Treasury bills remains high. The three-month bill, considered one of the safest assets around, fell to 0.42 percent from 0.48 percent late Tuesday. A low yield indicates high demand.

The yield on the benchmark 10-year Treasury note was unchanged at 3.73 percent.

The dollar was mostly lower against other major currencies, while gold prices fell.

Light, sweet crude dropped $5.23 to settle at $65.30 a barrel on the New York Mercantile Exchange.

In Asian trading, Japan’s Nikkei index rose 4.46 percent, and Hong Kong’s Hang Seng Index rose 3.17 percent. Britain’s FTSE 100 fell 2.34 percent, Germany’s DAX index fell 2.11 percent, and France’s CAC-40 fell 1.98 percent.

Source

Coming Soon: Congress Is Back With ‘Stimulus-2’

October 31 2008

Washington, taking a page out of Hollywood, looks set to release Stimulus 2, the sequel.

And unhappy, tapped-out taxpayers—aka voters—may get a sneak preview of the second fiscal package as soon as next week if lawmakers return to Washington for a lame-duck session under the eye of a newly elected President.

CNBC.com

Critics and supporters alike, however, should hope that the next fiscal stimulus package is more of a commercial success than its predecessor, lest another big-budget flop be tacked on to the ever-growing federal debt.

“It has to be done in a way where you get a good rate of return,” says Tom Schatz, president of Taxpayers Against Government Waste. “What can we do that will work, not how much can we spend and where can we spend it?”

The hastily conceived $168-billion stimulus package quickly signed into law last February was built around tax breaks for business and tax rebates for consumers, whose impact on the economy was fleeting, at best.

This time around—with recession a reality not a perception and consumer confidence at a record low—the package may be bigger and broader. But that doesn’t mean it will be any wiser or more likely to leave a lasting impression on the nation’s economy or psyche of consumers.

If anything, it may be the mother of all stimulus packages.

“There’s a political element, Wall Street got its bailout now everyone needs to get something,” says Robert Bixby, executive director of the Concord Coalition, which advocates fiscal responsibility.

In its recent nine-point prescription for sound fiscal policy, the coalition joined a growing chorus of groups calling for a balancing of short-term stimulus and long-term discipline, noting that spending patterns are already unsustainable and new revenue will needed.

Thus far, Congress seems to be heeding another call: reaction, not action.

“It’s a pretty dangerous process the way its been approached so far,” says Brandon Arnold, who follows public policy for the Cato Institute. Members of Congress, he adds, seem to “setting a figure before considering what is needed.”

The original price tag was about $60 billion package, but it wasn’t long before it was $150 billion, then $300 billion was thrown around.

Given the current state of the economy, $300 billion would be equal to about 2 percent of GDP. Though that’s a relatively small sum compared to the federal government’s extraordinarily expensive efforts to  shore up the financial sector, its larger than most recent stimulus packages.

In 2001, the tax rebate portion of Bush Administraion’s long-term tax-cut legislation totaled just $38 billion.

President Clinton’s unsuccessful $30 billion plan in 1993—proposed, it later turns out, after the recession had ended but while joblessness continued to rise—was rejected by Congress.

Economist Steve Hanke, a professor at Johns Hopkins University and a fellow at Cato, says that—in the context of the federal government’s “serial spending spree” of bailouts and stimulus packages—“$300 billion sounds like chicken feed.”

The high likelihood of more money this time also increases the possibility of a bigger shopping list.

“There doesn’t seem to be as much consensus about its makeup as there as there was for the one they did in January,” says Bixby.

That makes it even more vulnerable to political horse-trading and lobbyists.

“There is such a populist mentality out there,” says Arnold “The need to give something back to the people. It’s much easier to cobble something together by adding more things.”

Arnold says lobbyists are already lining up with their suggestions.

“They need to see what’s worked in the past and not turn it into pork-laden legislation,” agrees Schatz.

What works and what doesn’t, of course, is a matter of some debate and could very likely slow down the legislative process.

One-time tax cuts, or rebates—the cornerstone of the previous package—will probably not have a role in the second stimulus plan.

An extension of unemployment benefits, a boost in food stamp funding, aid to states and municipalities—absent in the first package—are widely considered to be among the must haves, according to budget watchers and legislators.

“They make sense economically and politically,” says Bixby.

Help Wanted Sign
AP

Another somewhat conventional measure is spending on infrastructure—buildings, roads and bridges—but its inclusion is less certain. Skeptics say it is likely to be end up in the package because of strong lobbying efforts, even if such spending measures tend to have a flash-in-the-pan impact.

Congressional leaders are said to support Infrastructure spending if it is for existing projects, such as ones that have been delayed, rather than new ones. Nevertheless, some are talking about ambitious new spending in the form of energy investment or a public-works program.

Among the more unusual and untested measures are tax credits for business to hire workers and a one-time allowance for the withdrawal of money from a 401(k) retirement account without the normal stringent tax penalties.

Democratic presidential candidate Barack Obama happens to support versions of both ideas.

Critics say undoing policies to encourage savings, particularly in a country that has a problem saving, is unsound and could set a bad precedent. But its inclusion in the policy debate underscores the something-for everyone approach that is seeping into the process.

“I hear people saying, ‘Where’s my bailout?’ ” says Schatz.

Former Federal Reserve governor and White House chief economist Lawrence Lindsey told CNBC that a lot of the ideas are of the “‘lets help out our friends back home’ variety.”

Arnold of Cato calls them the “innocent bystanders who have taken a pretty hard hit to their savings,” because of the stock market sell-off and economic downturn.

So at this point, if Halloween is the holiday that most resembles the economy and the financial system, then it is Thanksgiving and Christmas rolled into one for government fiscal policy.

Observers say there’s a chance a lame-duck Congress will pass a small package in the weeks ahead, leaving a bigger package to a new congress and president in January.

By that time, however, the recession—by one general measure—will be a year old and certainly deeper than today with the unemployment headed to 7 percent, leaving Congress vulnerable to criticism it delayed staving off some of the pain.

Either way, the level of spending is worrisome to many and dangerous to some. Hanke says governemnt has lost “any sense of proportion.

“It’s just spend and pass the burden on the future,” adds Schatz.

Source

Published in: on November 2, 2008 at 5:19 pm  Comments Off on Coming Soon: Congress Is Back With ‘Stimulus-2’  
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Coping with global financial crisis

By Patrick Kagenda

October 31 2008

As the American economy struggles to recover from the credit crunch and European economies jostle with rescuing their financial institutions, subsidiary of American companies operating in Uganda are maintaining an upbeat facade, claiming they are not affected by the American economic woes.

Mr. Erick Rakama, Business development manager at DHL an American courier service provider, told The Independent that despite DHL cutting operations in USA, the action will have no effect on DHL Uganda operations. “Each country operates autonomously,” said Rakama.

Ms Poonam, the operations manager at UPS Uganda, another American courier company said the effects are strictly on the American market and not on the local markets like the Ugandan market. “We are not affected at all”, she said.

At AIG Uganda, Alex Wanjohi, AIG Uganda Managing Director said AIG Inc has decided to refocus the company on its core property and casualty insurance businesses which includes AIG Uganda Limited. This means it is business as usual for AIG South African operations where AIG Uganda falls.

“We operate autonomously and throughout the challenges faced by AIG Inc, AIG Uganda’s financial position has not been affected at all,” he said, “We have retained a very strong financial position and we continue to pay claims and write new business as usual”.

The Chief Executive of the Uganda Securities exchange, Mr Simon Rutega, said the lack of confidence in financial markets poses a potential for turmoil.

“In the short run the global credit crunch may not affect Uganda because our securities, our companies and our economies have no direct correlation,” he said, “We are not entangled with those markets despite the remittances coming from those economies, however the effect would be in the long run if this problem progresses.”

Uganda exports mainly primary commodities.

He said there could be a reduction in donor aid and support to social services.

“We have also learned that we have to be careful with these derivatives so, we have to verify whether those instruments are effective or not,” he said.

Experts continue to echo Rutega’s claim that African stock exchanges are insulated from the financial turmoil because of their limited links to the global economy.

“All of Africa represents only one percent of global trade,” Willy Ontsia, head of the Central Africa Stock and Shares Market (BVMAC) in Libreville said;

“If the crisis is short, its impact on Africa and emerging market economies will be relatively weak.”

“But if the crisis is prolonged, that will have an impact on several indicators that affect growth in developing countries,” he said, noting that a global slowdown would affect trade in raw materials — the backbone of many of the continent’s economies.

“Africa is less exposed because of its limited links to the international financial community… but I have reason to worry about the economic effects of the financial crisis on the continent,” said Donald Kaberuka, head of the African Development Bank (ADB).

“It’s the long-term effects that cause us great worry,” he told a press conference in Tunis.

But World Bank President Robert Zoellick last week said that developing nations may be at “a tipping point”.

“We have seen the dark side of global connectedness,” he said as the turmoil battered markets from Cairo to Johannesburg, posing risks to foreign investment and trade that could threaten Africa’s recent economic gains.

Some economists insist that the financial crisis will hit poor and rich countries the same “because there is no decoupling between their performances”.

Due to differences in their starting situations, the outcome will be different and growth in developing economies will slow but not so much as in advanced countries as their trade and capital accounts suffer.

Egypt’s main index plunged more than 16 percent at one point last week, mirroring spectacular losses around the world amid worries about European banks and doubts about the 700 billion dollar US bailout package.

The main index in South Africa, the continent’s largest economy, fell by seven percent but stabilised with trading in marginally positive territory.

Other key markets, including oil-exporter Nigeria and Morocco, suffered far less dramatic declines, while some bourses in countries like Ivory Coast have actually posted small gains.

Economies like South Africa, which are more connected to international finance, are more easily affected by the global turmoil, seen in the volatility on the Johannesburg Stock Exchange, said Razia Khan of Standard Charter Bank in London.

“For the rest of Africa, the global financial market rout is likely to mean a rise in risk aversion,” she said, warning that international investors were likely to seek stability rather than the risks posed by emerging markets.

Daniel Makina, a risk management expert at the University of South Africa, said those indirect effects could prove just as damaging for African economies, especially if exports to the rest of the world slow down.

“South Africa does a lot of trade with US and Europe especially,” Makina told AFP. “A recession in the US and Europe will impact on South Africa exports.”

Crude oil accounts for more than 50 percent of Africa’s exports, with Angola and Nigeria the biggest producers, according to the World Bank.

Worries that weak global growth will reduce demand for fuel have already sent oil prices tumbling to eight-month lows.

“All these things have ripple effects that could hurt growth,” Ontsia said. “Our fear is that this crisis will continue.”

  • Due to a general shortage of credit, poor countries will increasingly find it difficult to access finance.
  • Inflation, which is the main problem for the poor, could be reduced.
  • General re-pricing of risk due to the crisis will increase the cost of borrowing
  • Economies that depend on exports will be most impacted, especially due to a softening in commodity prices

Source

Published in: on November 1, 2008 at 5:51 am  Comments Off on Coping with global financial crisis  
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Stock Markets Recovering

Oct 13 2008

Japan’s stock market soared in early trading Tuesday, leading a second-day rally in Asian stocks after Wall Street staged a dramatic comeback from its worst week ever.

Sparked by global efforts to fix the world’s crippled financial system, Tokyo’s benchmark Nikkei 225 index jumped 1,079 points, or 13 per cent, to 9,355. The Japanese financial markets were playing catch-up because they were closed Monday for a public holiday.

In Australia, the S&P/ASX200 index traded more than five per cent higher after the government announced plans to inject $10.4 billion Australian ($8.4 billion Cdn) to strengthen the country’s economy.

Markets in South Korea, Singapore, New Zealand and Taiwan also climbed five per cent or more.

The advance came after the Dow Jones industrial averages on Monday jumped more than 930 points, its biggest single-day point gain yet.

Traders reacted with relief to moves by the U.S. government to inject capital into major banks and get lending flowing again among companies. That followed signals that European governments were putting up nearly $2 trillion to safeguard their own banks.

“The governments are ensuring that no matter what happens, they’re not going to allow another major institution to fail,” said Nicole Sze, an investment analyst at asset manager Bank Julius Baer & Co. in Singapore. “…You’re seeing a reversal of the panic selling, and we think a temporary bottom has been found.”

Source

U.S. stock indexes closed up more than 11 per cent Monday as governments around the world committed trillions to easing the global credit freeze.

The Dow Jones industrial average was up more than 936.42 points, or 11.1 per cent, at 9,387.61

It was the Dow’s biggest single-day point gain yet, a stunning turnaround after its worst week on record. The blue-chip index recovered nearly half of the 1,874 points it lost last week.

The Nasdaq composite closed up 11.8 per cent and the S&P 500 advanced 11.6 per cent.

Canadian markets were closed Monday for Thanksgiving.

The U.S. markets were responding to injections of billions of taxpayer dollars, pounds and euros into the Western world’s leading banks.

European governments — Britain, Germany, France, Spain, the Netherlands, Austria and Portugal — have committed up to $2.3 trillion to support banks.

The British government said Monday it will inject nearly $75 billion into three of the country’s largest banks to prevent the institutions from collapsing. The move means the government is effectively taking over the Royal Bank of Scotland and will also hold a large share of Lloyds/TSB and the Halifax Bank of Scotland, Prime Minister Gordon Brown said.

A German government spokesman said Monday that Berlin had put together a package worth $780 billion to provide fresh capital for banks, guarantee loans between banks and cover potential losses.

In the U.S., the government is working on its $700-billion US financial rescue plan, consulting with six private law firms to determine the best way to buy stakes in a number of banks.

The plan to buy shares, announced by Treasury Secretary Henry Paulson late Friday, is intended to get capital quickly into financial institutions. It’s seen as a faster way to do that than the original plan, which involved buying bad mortgage-related derivatives.

The European countries and the U.S. are trying to get capital into banks quickly so they will start lending again, providing credit to people and companies on which the economy depends. The freeze in lending, the result of banks’ fears that they won’t be repaid, could tip the Western economies — and the world — into a recession.

Stock prices also rebounded in Europe and Asia on Monday after a week that saw huge losses on markets all over the world.

Hong Kong’s Hang Seng index jumped 10.2 per cent Monday. Britain’s FTSE 100 was up 8.3 per cent, Germany’s DAX 11.4 per cent and France’s CAC-40 11.2 per cent.

Japanese markets were closed for a holiday.

Source

Markets fight back around the world

October14 2008

London’s leading share index jumped more than 4 per cent today as markets continued to rally in the wake of efforts to shore up the global financial system.

The FTSE 100 Index was up more than 190 point after an hour, with the banks taking part in the Government’s £37 billion rescue plan clawing back some hefty losses seen yesterday.

Royal Bank of Scotland, which is in line to receive £20 billion, was up 12 per cent, while merger partners HBOS and Lloyds TSB were up 11 per cent and 7 per cent respectively.

Trading was boosted by surging global markets overnight as investors cheered co-ordinated efforts to stabilise the financial sector.

Japan’s Nikkei 225 soared 14 per cent, its biggest one day rise, while New York’s Dow Jones Industrial Average jumped 11 per cent, the index’s biggest daily jump since the Great Depression.

Australian shares finished up 3.7 per cent in the wake of a government package was announced to boost the economy via one-off cash hand-outs to families and pensioners.

In Hong Kong, shares rose 3.2 per cent. The benchmark Hang Seng Index closed 520 points higher at 16,832, after earlier soaring to 17,141.

In London, energy-facing stocks were making good progress as oil prices ticked up on commodity markets. BP was nearly 7 per cent up, with rival Royal Dutch Shell 6 per cent higher.

Retailers were also edging ahead despite data from the high street showing like-for-like sales fell 1.5 per cent in September.

Marks & Spencer was up more than 1 per cent, with Sainsbury’s enjoying a 3 per cent rise.

There were mixed fortunes for Barclays and HSBC, two banks not turning to the Government for extra funds. Barclays was 6 per cent higher while First Direct owner HSBC was steady.

ETX Capital broker Manoj Ladwa said: “Everyone is relieved that the market is up.

“We have probably seen the short-term lows in the market, with some of the volatility also calming down.

“After the recent falls, some of the stocks out there do look fairly interesting now.”

European indices were also firmly on the front foot, with Germany’s Dax up nearly 4 per cent, and France’s CAC 40 also up 4.6 per cent.

European governments have said they are allocating more than 1 trillion euro (£780bn) to protect the region’s banks through guarantees and other emergency measures.

So far Germany has approved a bank rescue plan worth up to 500 billion euro (£391bn), with France spending about 350 billion euros (£273bn).

The US is also expected to unveil details of a plan to take stakes in banks, following steps by the UK and European leaders.

Yesterday executives from leading US banks were summoned by the Bush administration to Washington to work out a plan to get loans moving again

London’s Footsie leapt more than 8 per cent yesterday, its second biggest one-day gain, as investors digested the banking rescue package.

Shares in RBS, HBOS and Lloyds TSB – in which the Government is set to be a major shareholder – fell heavily despite the surge as investors faced the prospect of seeing their stakes diluted. The banks will also not be paying any dividends until their taxpayer loans are repaid.

Source

Published in: on October 14, 2008 at 7:04 am  Comments Off on Stock Markets Recovering  
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Bank of Canada among nations to cut interest rate

Oct. 8 2008

Major Canadian banks are not passing along the Bank of Canada’s half-point cut to the lending rate and instead are cutting their prime rates by just a quarter of a percentage point.

The move comes as a surprise, as the big banks normally always follow the central bank’s cuts, even if they say they can’t afford it.

Canada slashed its key lending rate to 2.5 per cent Wednesday, one of many central banks making the move around the world.

Toronto-Dominion Bank was the first institution in Canada to make a cut Wednesday, cutting their prime rate to 4.5 per cent. The other major Canadian banks followed throughout the day.

The snub of the federal government has not gone unnoticed.

Finance Minister Jim Flaherty has called for a news conference early Thursday morning, where it is believed he will take questions to address concerns about the economy.

Sherry Cooper, BMO Capital Markets chief economist, said that the big banks simply couldn’t afford the cut.

“We’re all hording cash and as soon as that happens there is very little that the central bank or government can do directly,” Cooper told CTV News.

She added it would take a year to 18 months before the effects of the rate cuts could be seen.

The United States, the United Kingdom, Europe, Switzerland, Sweden, China and Hong Kong also cut their lending rates Wednesday trying to bolster the wheezing global economy.

The unprecedented move came as markets around the world struggled to navigate the turbulent global economy, with many offering bailouts to try and keep their economies going.

Oliver Bernard, the International Monetary Fund’s Chief Economist, said that with the global moves to cut rates the “risk of a Great Depression is nearly nil.”

Markets close up

The Toronto stock market managed to close up 225.84 points Wednesday in its first positive showing in five days.

Canada’s S&P/TSX finished the day at 10,055.39 points. On Tuesday, the TSX had lost more than 400 points and on Monday, it lost 573 points, slipping below 10,000 for the first time in three years.

Despite gains made by the TSX on Wednesday, New York’s Dow Jones industrial index finished down 189.01 points to 9,258.1. The Nasdaq composite index lost 14.55 points to 1,740.33, and the S&P 500 index dropped 11.29 points to 984.94.

BNN’s Michael Kane said the rate cut move fits with efforts by many nations to shore up their banking institutions.

England, for example, partly nationalized its banks on Wednesday to help provide stability. The British government’s efforts cost $87.5 billion.

“The event that occurred here today with the co-ordinated interest rate cut should support what the Bank of England did by buying into its banks to stabilize that situation, and other governments are making similar moves as well,” Kane said.

However, he pointed out that inter-bank lending is still at a virtual standstill, and the interest rate for those loans has not yet been adjusted.

Adam Taylor of the Canadian Taxpayers Federation said Wednesday’s interest cut shows nations are now recognizing they need to combine forces to solve the problem.

“I think it’s recognition that the global economy needs all the countries in the global economy to come together, to work together when they need to, and this is a good move and one that should allay some of the fears that are out there,” he told CTV’s Canada AM.

Earlier Wednesday, Flaherty said the Bank of Canada has already taken steps to protect the economy, such as boosting the availability of funding to banks and widening the range of collateral it will accept — as well as the co-ordinated interest rate cut announced on Wednesday.

“This significant action will provide timely support for the Canadian economy,” Flaherty said.

“I welcome the strong international co-ordination that central banks have displayed throughout the financial crisis, most clearly expressed in the co-ordinated rate cut today. This same commitment to co-operation needs to be reflected by finance ministers.”

Early Wednesday, markets in Europe tumbled amid ongoing fears over credit markets.

And in Asia, the Japanese Nikkei had its worse day since the stock market crashed in 1987.

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Published in: on October 9, 2008 at 9:20 am  Comments Off on Bank of Canada among nations to cut interest rate  
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Stock Market, History,Causes and Affects

History of U.S. Stock Market Crashes


The Crash of 2000

From 1992-2000, the markets and the economy experienced a period of record expansion. On September 1, 2000, the NASDAQ traded at 4234.33. From September 2000 to January 2, 2001, the NASDAQ dropped 45.9%. In October 2002, the NASDAQ dropped to as low as 1,108.49 – a 78.4% decline from its all-time high of 5,132.52, the level it had established in March 2000.

Causes of the Crash:

  1. Corporate Corruption. Many companies fraudulently inflated their profits and used accounting loopholes to hide debt. Corporate officers enjoyed outrageous stock options that diluted company stock;
  2. Overvalued Stocks. There were numerous examples of companies making significant operating losses with no hope of turning a profit for years to come, yet sporting a market capitalization of over a billion dollars;
  3. Daytraders and Momentum Investors. The advent of the Internet enabled online trading –a new, quick, and inexpensive way to trade the markets. This revolution led to millions of new investors and traders entering the markets with little or no experience;
  4. Conflict of Interest between Research Firm Analysts and Investment Bankers. It was common practice for the research arms of investment banks to issue favorable ratings on stocks for which their client companies sought to raise capital. In some cases, companies received highly favorable ratings, even though they were actually in serious financial trouble.

A total of 8 trillion dollars of wealth was lost in the crash of 2000.

Following the Crash:

  1. New Rules for Daytraders. Under the new rules that were introduced, investors need at least $25,000 in their account to actively trade the markets. In addition, new restrictions were also placed on the marketing methods daytrading firms are allowed to use;
  2. CEO and CFO Accountability. Under the new regulations, CEOs and CFOs are required to sign-off on their statements (balance sheets). In addition, fraud prosecution was stepped up, resulting in significantly higher penalties;
  3. Accounting Reforms. Reforms include better disclosure of corporate balance sheet information. Items such as stock options and offshore investments are to be disclosed so that investors may better judge if a company is actually profitable;4. Separation between Investment Banking and Brokerage Research. A major reform was introduced to avoid conflicts of interest in the financial services industry. A clear split between the research and investment banking arms of brokerage houses was mandated.

The Crash of 1987

The markets hit a new high on August 25, 1987 when the Dow hit a record 2722.44 points. Then, the Dow started to head down. On October 19, 1987, the stock market crashed. The Dow dropped 508 points or 22.6% in a single trading day. This was a drop of 36.7% from its high on August 25, 1987.

Causes of the Crash:

  1. No Liquidity. During the crash, the markets were not able to handle the imbalance of sell orders;
  2. Overvalued Stocks;
  3. Program Trading and the Use of Derivative Securities Software. Large institutional investment companies used computers to execute large stock trades automatically when certain market conditions prevailed. Some analysts claim that the program trading of index futures and derivatives securities was also to blame.

During this crash, 1/2 trillion dollars of wealth were erased.

Following the Crash:

  1. Uniform Margin Requirements. New margin requirements were introduced to reduce the volatility for stocks, index futures, and stock options;
  2. New Computer Systems. Stock exchanges changed to new computer systems that increase data management effectiveness, accuracy, efficiency, and productivity;
  3. Circuit Breakers. The New York Stock Exchange and the Chicago Mercantile Exchange instituted a circuit breaker mechanism, which halts trading on both exchanges for one hour should the Dow fall more than 250 points in a day, and for two hours, should it fall more than 400 points.

The Crash of 1929

On September 4, 1929, the stock market hit an all-time high. Banks were heavily invested in stocks, and individual investors borrowed on margin to invest in stocks. On October 29, 1929, the stock market dropped 11.5%, bringing the Dow 39.6% off its high.

After the crash, the stock market mounted a slow comeback. By the summer of 1930, the market was up 30% from the crash low. But by July 1932, the stock market hit a low that made the 1929 crash. By the summer of 1932, the Dow had lost almost 89% of its value and traded more than 50% below the low it had reached on October 29, 1929.

Causes of the Crash:

  1. Overvalued Stocks. Some analysts also maintain stocks were heavily overbought;
  2. Low Margin Requirements. At the time of the crash, you needed to put down only 10% cash in order to buy stocks. If you wanted to invest $10,000 in stocks, only $1,000 in cash was required;
  3. Interest Rate Hikes. The Fed aggressively raised interest rates on broker loans;
  4. Poor Banking Structures. There were few federal restrictions on start-up capital requirements for new banks. As a result, many banks were highly insolvent. When these banks started to invest heavily in the stock market, the results proved to be devastating, once the market started to crash. By 1932, 40% of all banks in the U.S. had gone out of business.

In total, 14 billion dollars of wealth were lost during the market crash.

Following the Crash:

  1. The Securities and Exchange Commission (SEC) was established;.
  2. The Glass-Stegall Act was passed. It separated commercial and investment banking activities. Over the past decade though, the Fed and banking regulators have softened some of the provisions of the Glass-Stegall Act;
  3. 3. In 1933, the Federal Deposit Insurance Corporation (FDIC) was established to insure individual bank accounts for up to $100,000.

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Have Plunging Stocks Killed Private Accounts in Social Security?

By Dean Baker

Until the recent fall in stock prices, many people viewed the stock market as a money tree that created wealth out of nothing. This was the atmosphere in which the idea of private accounts within Social Security gained popularity. The crash has helped to clear people’s thoughts.

In reality, the stock market does not create wealth. Wealth is created when we are better able to produce goods and services. Putting Social Security dollars in the stock market through individual accounts does not increase the nation’s productive capacity by one iota, compared with putting the same dollars into the Social Security trust funds. As the crash shows, individual accounts only add risk.

Many proponents of private accounts actually want to cut benefits. Since Social Security is fully solvent until 2041, and the shortfalls projected for later years are comparable to past shortfalls, benefit cuts seem hard to justify. But if politicians want to advocate cuts in benefits, they should be forced to do so explicitly, and not hide behind the Enron-like accounting of private accounts.

The market crash also clarified which part of the retirement system needs fixing. Millions of workers who saw much of their retirement savings disappear in the crash are now very glad that they can still count on their “Social Security“. On the other hand, we now recognize that the system of private pensions is in disarray.

Pensions have been manipulated to their administrators’ benefit and are subject to high fees, and many workers lack pension coverage altogether. If the Bush commission’s individual accounts were offered as a voluntary add-on to Social Security—instead of taking money from Social Security revenues and cutting benefits to make up for the lost revenues—they could be very useful. Such accounts would instantly make a low-cost, fully portable, defined contribution pension plan available to every worker in the country.

Dean Baker is the co-director of the Center for Economic and Policy Research and co-author of Social Security: The Phony Crisis (University of Chicago Press, 1999).

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Stock Market History

History of stock market trading in the United States can be traced back to over 200 years ago. Historically, The colonial government decided to finance the war by selling bonds, government notes promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company to raise their own money. This was a new market, and a new form of investing money, and a great scheme for the rich to get richer. A little futher on the history tumeline, more specifically in 1792, a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange(NYSE). At the meeting, the merchants agreed to meet daily on Wall Street to daily trade stocks and bonds.

Further in history, in the mid-1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company. History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies.

By 1900, millions of dollars worth of stocks were traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.

History brought us the Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fueled by highly subjective speculation about the company’s future.

This was the pretext for appearance of such stock market giants as NYSE. History books tell us that the reason the NYSE is so highly regarded among stock markets was primarily because they only trade in the very large and well-established companies. It acted as a more stable investment alternative, for people interested in throwing their capital into the stock market arena. The smaller companies making up the stock market formed into what eventually became the American Stock Exchange (AMEX). Contrary to the 80-year old history, today the NYSE, AMEX, NASDAQ and hundreds of other exchange markets make a significant contribution to the national and global economy.

The growth in the number of market participants led the government to decide that more regulation of the stock market was needed to protect those investing in stock. History was made in 1934, when following the Great Crash, Congress passed the Securities and Exchange Act. This act formed the Securities and Exchange Commission (SEC), which, through the rules set out by the act and succeeding amendments, regulates American stock market trading with the help of the exchanges. It also includes overseeing the requirements for a company to issue stock shares to the public and ensures that the company offers relevant information to potential investors. The SEC also oversees the daily actions of market exchanges and how they trade the securities offered.

Although historically, investing in stocks was a “hobby” for the rich, an average person too soon came to realize the value of the investing in stocks vs. traditional assets like land or a house.

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Panic Affect

Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact.

Other research has shown that psychological factors may result in exaggerated stock price movements. Psychological research has demonstrated that people are predisposed to ‘seeing’ patterns, and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up). A period of good returns also boosts the investor’s self-confidence, reducing his (psychological) risk threshold.

Another phenomenon—also from psychology—that works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group.

In one paper the authors draw an analogy with gambling. In normal times the market behaves like a game of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker (herding behavior takes over). The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically.

The stock market, as any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. In the period running up to the recent Nasdaq crash, less than 1 percent of the analyst’s recommendations had been to sell (and even during the 2000 – 2002 crash, the average did not rise above 5%). The media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market. (And later amplified the gloom which descended during the 2000 – 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.)

Irrational behavior

Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors, euphoria and mass panic.

Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market difficult to predict.

A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic. Often, stock market crashes end speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market.

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Greed Is Fine. It’s Stupidity That Hurts.

By Steven Pearlstein

During financial crises like this one, after people have had their fill of discussions about margin calls and credit-default swaps, they experience a strong desire to have the whole thing put in some larger and more human context. Invariably they come around to some variation of, “Isn’t this really just a story about excessive greed?”

I’ve never really figured out how to answer that question. In a capitalist economy like ours, the basic premise is that everyone is motivated by a healthy dose of economic self-interest — the shopper looking for the best bargain on tomatoes and the farmer looking to get the highest price for his produce, the grocery clerk looking to earn the highest wages for restocking shelves and the investor looking to earn the biggest profit from Safeway stock. Without some measure of greed and the tension it brings to most economic transactions, capitalism wouldn’t be as good as it is in allocating resources and spurring innovation.

Perhaps that’s why most definitions of greed refer to an excessive desire for wealth that is beyond what anyone really needs or deserves. The obvious problem with that, of course, is that those are terribly subjective criteria. Do you draw the greed line at two cars, a three-bedroom house, two weeks at the beach in the summer and college tuition for the kids? Or is it at seven houses, 50 pairs of designer shoes, a yacht, two Bentleys and a Renoir?

Others suggest that for greed to really be greed, the money or goods that are desired have to be denied to somebody else who might want, need or deserve them. A landowner who gets rich by overcharging tenant farmers who can barely feed and clothe their families — he’s obviously greedy. But somehow the owner of a restaurant in the Hamptons who overcharges his millionaire patrons for lobster salad and foie gras is a lot less greedy.

In many minds, greed may have less to do with the amount of wealth or possessions someone has, or aspires to have, than it does with the way in which it is earned. Even before they decided to give away most of their money, nobody seemed to begrudge Bill Gates or Warren Buffett their billions or criticize them for their “unbridled” greed. That seems to have a lot to do with the fact that Gates and Buffett made their money on the basis of their own ingenuity, skill and hard work. On the other hand, when people line up to buy tickets to a Powerball lottery with a $10 million payout, we don’t consider them particularly greedy just because they want to get rich through dumb luck.

If the person who wins that lottery, however, doesn’t send some of that money to his struggling Aunt Mildred or offer to fix up the local Little League field, most people would call him greedy. But no matter how many millions the overpaid corporate chief executive gives away to charity, in the minds of many, greed will always be his middle name.

Which brings us to the now widespread belief that the cause of the current financial crisis has been “the greed on Wall Street.” Both John McCain and Barack Obama believe that. So do Joe Biden and Sarah Palin. A clip search of major publications over the past month turns up about 2,700 stories that contained the words “Wall Street” and “greed.” The month before, there were less than 200.

If there is a surprise here, it is that anyone should be surprised by the level of greed on Wall Street. Wall Street is nothing if not an organized system of greed, a high-stakes game in which the object is to take advantage of customers and counterparties by buying pieces of paper from them at less than they are really worth and selling them to others for more than they are worth. And while it’s hard to see a grand social purpose in all that, it has proven a relatively efficient process for connecting people who have money with the households and businesses that want to borrow it.

The big problem with Wall Street isn’t that it’s greedy– it’s that it keeps making the same mistakes over and over. Each cycle, the masters of finance start out with reasonably good products and good intentions, only to get swept away by their success. They become arrogant, take too many risks and begin to believe their own marketing spiels. Then, when the cycle turns against them and the risks turn sour, they try to cover it up and begin lying to their customers, to regulators and to each other. Trust erodes, and the whole thing collapses.

In the populist “greed” fantasy, it is ordinary people who are the losers while the Wall Street bigwigs walk off with all the loot. But in the real life version, most of the bigwigs lose as well. They lose their jobs, their stock becomes worthless, their reputations are ruined. They spend the next several years shelling out $700 an hour to lawyers to defend themselves against lawsuits and regulatory inquiries and $250 to psychiatrists to help figure out where they went wrong. Bottom line: They wind up worse off than they would have been if they had simply done their jobs well, put their customers first and managed their companies for the long term.

To some, that may be a story of greed. To me, it looks more like old-fashioned incompetence.

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Privatization of Social Security can leave you without any retirement savings.

Investing in the Stock market is like gambling. If you can’t afford to loose it you don’t want to invest. The markets can crash anytime.

Who profits?

There are some who do profit from market crashes. I would assume those who probably created the panic, in the first place.

Profit certainly can be made from a stock market crash. Maybe one of these days someone will take the time to find out Who?

When you find out who, then you have the criminals.

Why do they do it?

For profit of course.

When will they be stopped?

Well when the power hungry, rich, greedy manipulative, liers are caught and when Governments around the world, finally do something to stop them.

Until then they will let you win for a while and then steal your hard earned money.

Personally it seems they manipulate a bunch of innocent folks into investing in the market, then after they have invested a whole lot of money, it crashes.

Those who manipulated the innocent investors into buying into the market, make the profits from it.

There seems to be a growing pattern emerging.

The stock market is somewhat like a Casino.

The owners, operators and the very wealthy are the House.

You are the gambler hoping, to make a fortune.

Like a Casino let you win for a little while.

Then they take all your money.

That is the pattern that seems to be emerging.

Just an observation.

The Stock Market was created by the wealthy, for the wealthy and controlled by the wealthy.

So what has changed since it’s creation other then nothing?

Published in: on October 8, 2008 at 9:52 pm  Comments Off on Stock Market, History,Causes and Affects  
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