FT.com / In depth - ‘I made a mistake,’ admits Greenspan

The Financial Times about the credit crisis that today seems to spread to the industrial sector as well. The stock market is going down, down, under.

FT.com / In depth - ‘I made a mistake,’ admits Greenspan: "Alan Greenspan, the former Federal Reserve chairman, said on Thursday the credit crisis had exceeded anything he had imagined and admitted he was wrong to think that banks would protect themselves from financial market chaos.

“I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders,” he said."

Global Credit Squeeze Strangles Yamato Life - Forbes.com

Global Credit Squeeze Strangles Yamato Life - Forbes.com: "The global credit crunch claimed yet another casualty--this time a privately held major insurer in Japan. Yamato Life Insurance declared bankruptcy on Friday, after an ill-timed shift toward riskier securities doomed its portfolio once the credit crisis began to spread beyond U.S. borders.

Helge: The crisis is taking big tolls around the world.

Yamato's failure is Japan's first bankruptcy by an insurer since 2001, when Tokyo Mutual Life collapsed. Yamato, which has a 98-year history, reported debts of 269.5 billion yen ($2.73 billion), exceeding assets by 11.5 billion yen ($116 million). Japan's finance minister, Shoichi Nakagawa, called Yamato's collapse 'extremely regrettable' and said that 90% of the insurer's policies were guaranteed by law.

Helge: Old companies go bust.

'Yamato's been vulnerable for some time. Recent events seem to have been the straw that broke the camel's back,' said Tokyo-based analyst David Threadgold at Fox-Pitt Kelton Cochran Caronia Waller.

Yamato weighted alternative investments more heavily in its portfolio--about 30% at the end of September--in pursuit of higher returns. The strategy proved fatal, as the fallout from the U.S. housing crisis eventually caused credit markets to seize up and investors to flee equities for safer cover in government bonds.

Helge: Higher returns...Sounds like Icelandic banks.

Insurance companies in Japan generally have "meaningful" equity investments but also large capital bases, said Threadgold. "I wouldn't expect this to be a general problem" among Japanese insurers because publicly listed companies appear well capitalized, he added."

The story below was written 2006.

Housing Slows, Taking Big Toll on the Economy

By VIKAS BAJAJ and DAVID LEONHARDT

Published: July 29, 2006

The housing industry — which largely carried the American economy through the tribulations of the 2000 stock-market crash, a recession and climbing oil prices — has lost its vigor in recent months and now has begun to bog down the broader economy, which slowed to a modest 2.5 percent growth rate this spring.

Breakingviews.com - A Black Hole in Russian Banks - NYTimes.com

We know all about the US subprime and financial crisis. But what are the Russians struggling with? Are we going to see a meltdown of Chinese dollars invested in US as well? I think these questions need to be analyzed with bigger care. A week ago there should not be problems with European banks. Today the situation looks very different.

Breakingviews.com - A Black Hole in Russian Banks - NYTimes.com: "Nationalizing banks isn’t an option for the Russian government. It already owns the country’s largest financial institutions, and a string of smaller ones. But the global liquidity freeze has hit the country’s banks hard, and their problems have been amplified over the summer by capital flight from foreign investors who fear the Kremlin’s unpredictability. Russian exchanges have lost more than two-thirds of their value since their highs in May.

Sergei Ignatyev, left, chairman of the Russian central bank, and a banking executive, German Gref, at a meeting at the Kremlin.

The Russian government has spent tens of billions of dollars of public money and foreign reserves to assist markets and help the country’s banks — to no avail. In the latest twist, Dmitri Medvedev, the country’s president, said the government would extend $36 billion in five-year loans to the leading Russian banks, hoping the money would trickle down to the rest of the banking sector and the economy."

Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists

Helge: I'm watching. Is it going to happen? How deep is the banking crisis going to cut in economic growth? What kind of actions should companies and privates take? This week Citigroup announced that they will lay-off 45 000 employees to decrease its operating expenses. That's a huge number of people. What did Merril Lynch do? I guess the crisis is getting closer.

Subprime fallout: Preparing for the next financial crisis | vox - Research-based policy analysis and commentary from Europe's leading economists: "To reduce the chances of another subprime-like crisis without stifling innovation, financial market regulators should work to increase standardization of securities, especially derivate instruments, and encourage their trade on organised exchanges.

There is a natural tendency for financial regulators and supervisors to fight the last battle, looking for systemic weaknesses revealed by the most recent crisis. It happened after the 1987 stock market crash, during the Asian crisis, and again following the LTCM collapse. And it seems almost certain to happen again this time.

So, while it is surely important to examine the specific problems involving banking system off-balance-sheet activities, the quality of collateral used to back commercial paper, and the manner in which ratings are used, I believe that we need to look further."


Stephen Cecchetti
Barbara and Richard M. Rosenberg Professor of Global Finance at the International Business School, Brandeis University, formerly Executive Vice President and Director of Research at the Federal Reserve Bank of New York.

Helge: I learned today that banks are not willing to lend money to each others. Is there a cut-throate race for life and death starting?