Bail-out in your favour, Go Directly to Congress
Our economy has been all over the news lately. Whether it be Fannie Mae and Freddie Mac, AIG or the Lehman Brothers, we seem to be in a financial world of hurt. This led us to wonder, how would the economy affect America’s favorite board game, Monopoly?
Foreclosure has hit the economy hard, so hard in fact that it has taken its toll on America’s favorite board game . . .
The Reasons Behind Global Economic Crisis
It is now fairly established that the recent crisis in US sub-prime housing market is the primary reason behind the global economic melt-down. In order to fully understand the dynamics and depth of current global recession, It is very important to know what led us to this crisis. I have found the illustration below very thought-provoking and useful. It helped me explain the reasons effectively.
The visual guide to the financial crisis:
We all know, Alan Greenspan and Bush said they are sorry for the Global economic crisis. But do you know what Greenspan said in 2003?
“The notion of bubble bursting and the whole price level coming down seems to me as far as a national nationwide phenomenon, is really quite unlikely,” By Alan Greenspan, Federal Reserve Chairman, in 2003.
Fed Cuts Rates by 50 Basis Points: Can It Go Below One Percent
Moments Ago Fed Funds Rate was cut to down to 1.00% bringing it down 50 basis points. It was expected as 25 basis was too low and 75 basis points were thought as too high.
This new kind of pushed Fed into corner. It is running out of Monetary options. few fiscal tools are left. It is very unlikely that Fed will lower the rates below One Percent. but some sources says that this option is still on tables. we did an article on Zero interest rate a few days back.
We at FLR don’t think that Fed cutting rate will ease the credit market. The current problem is about stinking balance sheets. Govt Bail outs Or Easy Credit from Fed can not do any thing but to inflate them by putting either equity or credit on these balance sheets. It does not take away the stink from the balance sheet. The problem with liquidity of commercial paper will not be solved unless all those toxic assets like sub prime credit are removed from them.
DOW and S&P 500 took a dip after rate cut. and 10 year bond yields rallied upwards….. watch Bloomberg for more details.
New Economic Reality Changes Financial Language
New economic realities brings its own dictionary. Your Money Mogul listed new meanings of old financial terms. Forget the losses you made and enjoy yourself.
CEO — Chief Embezzlement Officer.
CFO — Corporate Fraud Officer.
BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING — The art of buying low and selling lower.
P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.
BROKER — What my broker has made me.
STANDARD & POOR — Your life in a nutshell.
PNC Bank Bids $5.6 Billion for National City Corp.
Before the Friday’s opening bell, PNC bank has announced that it will buy National City Corp. for $5.6 billion. National City has been in trouble for quite a while now. This news was not taken well by WallStreet and shares of both banks plunged even lower. Share value of PNC dropped almost 5%, while National City Corp dropped more, shedding 30% of its opening value so far. While all stocks are going down, It is difficult to stay that this sharp decline in share value is because of the Announcement.
PNC however expects to gain a lot from this deal. If successful, this bid will make PNC-National City 5th largest bank in United States.
CNN Reports Says:
Making the announcement before Friday’s opening bell, Pittsburgh-based PNC said it would also get a capital injection from the government by selling $7.7 billion worth of preferred stock as part of a federal program aimed at propping up the nation’s banking system.
PNC Bank posted a letter from chairman and CEO Jim Rohr on its Web site, saying the bank’s underlying business remains strong: “As we have reported in our public filings, PNC continued to be well capitalized as others in the financial services industry have faltered … and our operations and credit positions have performed as expected. PNC pursues a moderate risk profile and has minimal subprime exposure.”
In other news about this bank KY Post published pictures of an armed robbery in the PNC Bank, Covington, KY.
More PNC Robbery Pictures Here
Best Commentary on Global Economic Crisis
Below is by far the best commentary on global economic crisis. Imagine you get up one morning and go to bookstall and find “The Economist” on display like this.
10 Reasons: Why Fed Should adopt Zero Interest Rate Policy?
As news continues to pour in that Fed Rates are likely to go near or at zero interest rate level, we think that Fed. should get out of its stunned posture and take more drastic measures like bringing the rates down to zero percent levels. These are indeed difficult times and magnanimity of problems require Fed. to take magnanimous steps. It should act fast and give the economy the much needed fiscal jolt. Unfortunately, Fed has a history of doing too little and too late.
After detailed analysis of issue and reading the material suggested below, we have come to conclusion that there was never before a time, so good ,for adopting zero interest rate policy. we put forth our set of 10 reasons why Fed. should go for it.
- Zero interest rate will encourage investment throughout the economy.
- Zero interest rate will make capital purchases financially more attractive.
- Zero interest rates will encourage people to Invest rather than Lend.
- It will create more jobs as people will make investments in securities or real plant and equipment.
- Zero interest rates are expected to take gas out of Commodities and Gold.
- Probably it is the best tool to get out of depression. (We used it in 1930’s)
- Liquidity trap is just a theoretical construct, not an actual phenomenon.
- Remove the burden on tax payers to bailout banks and stock markets.
- Bank of Japan has successfully used this model for decades to support Its Fiscal System.
- Fed can adopt “Non-Standard” fiscal measures to stimulate growth.
Further Reading and References(open in new window)
- http://en.wikipedia.org/wiki/Zero_interest_rate_policy
- http://economics.about.com/cs/interestrates/a/zero_interest.htm
- http://www.imf.org/external/pubs/cat/longres.cfm?sk=15474.0
- http://www.financialstandard.com.au/news/view/24185/
- http://www.mmhabits.com/what-if-the-fed-cuts-to-0-the-zero-interest-rate-policy/
- http://en.wikipedia.org/wiki/Liquidity_trap
