Paulson cannot be allowed a blank cheque

Paulson cannot be allowed a blank cheque
폴슨은 백지수표를 쓸 수 없을 거다.
By George Soros

Published: September 24 2008 20:28 | Last updated: September 24 2008 20:28

Hank Paulson’s $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretary’s decisions from review by any court or administrative agency – the ultimate fulfillment of the Bush administration’s dream of a unitary executive.
ill-conceived:발상이 나쁜 abdicating:포기하다 unitary :단일
폴슨의 발상은 좋지 않다. 의회는 이를 받아들여서는 않된다.

Mr Paulson’s record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund “broke the buck” and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
discretion:자유재량 punitive:징벌의 demise:소멸 disrupted:붕괴
폴슨이 7000억 달러면 해결할 수 있다고 했지만 이제 까지 그가 해 왔던 일들을 보면 믿음을 주기 어렵다. 폴슨은 에이아이지를 구제하지 않겠다고 했다가 징벌적 구제안이라는 명목을 들고 나와 돈을 쏟아부었다. 리먼이 망하자 기업어음시장이 붕괴되었는 데 폴슨은 또 다시 구제책을 제시했다.

Mr Paulson had got a blank cheque from Congress once before. That was to deal with Fannie Mae and Freddie Mac. His solution landed the housing market in the worst of all worlds: their managements knew that if the blank cheques were filled out they would lose their jobs, so they retrenched and made mortgages more expensive and less available. Within a few weeks the market forced Mr Paulson’s hand and he had to take them over.
retrenched:긴축하다.
폴슨은 이미 백지수표를 사용했다. 프레디매와 패니맥을 구제하기 위해 그는 공적자금을 투입했다.

Mr Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief. But if the scheme is used to bail out insolvent banks, what will the taxpayers get in return?
distressed:투매한 poses:문제를 일으키다. dregs:찌꺼기 rife:나쁜 것이 가득찬 latent:잠재적인
scheme:계획 insolvent:부실한
시장에 나온 모기지관련 채권을 정부가 매수하겠다는 폴슨의 정책은 정보의 비대칭성 문제를 불러왔다. 파는 사람은 모기지채권의 가치를 알지만 매수자는 모른다. 이해관계가 충돌할 위험도 있다. 정부가 채권가격에 웃돈을 주지 않으면 회사는 회생할 수 없다. 그러나 부실한 은행을 걸러내려는 계획이라면 세금을 내는 사람들에게 돌아오는 것은 무엇인가?

Barack Obama has outlined four conditions that ought to be imposed: an upside for the taxpayers as well as a downside; a bipartisan board to oversee the process; help for the homeowners as well as the holders of the mortgages; and some limits on the compensation of those who benefit from taxpayers’ money. These are the right principles. They could be applied more effectively by capitalising the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.
ought to:당연하다. imposed:부과한 bipartisan:초당파적인
오바마의 네가지 제안: 1.... 2.초당파적 기구 설립. 3. 모기지채권자만큼 주택보유자 지원 4. 공적자금을 받는 기업의 수당 제한. 정부가 채권을 자본화 해서 보유 하라는 뜻? 채권업체는 죽이고?

The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
sufficient:충분하다
기업에 돈을 채워 넣는 것보다 주식시장에 돈을 푸는게 더 낫다. 7000억 달러로 신주인수권을 가진 우선주를 사면 버블이 터진 시장의 붕괴를 막을 수 있다. 반면에 수요부문은 11조시장이기 때문에 7000억달러를 풀어도 효과는 적다.

Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners’ ability to pay.
공급부문에도 조치를 취해야 한다. 주택가격이 떨어지지 않도록 모기지 계약내용을 바꿔 주택소유주가 주택을 보유한 채로 채무를 갚을 수 있게 바꿔야 한다.

The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.

Now that the crisis has been unleashed a large-scale rescue package is probably indispensable to bring it under control. Rebuilding the depleted balance sheets of the banking system is the right way to go. Not every bank deserves to be saved, but the experts at the Federal Reserve, with proper supervision, can be counted on to make the right judgments. Managements that are reluctant to accept the consequences of past mistakes could be penalised by depriving them of the Fed’s credit facilities. Making government funds available should also encourage the private sector to participate in recapitalising the banking sector and bringing the financial crisis to a close.


The writer is chairman of Soros Fund Management

[FT]Capitalism in convulsion: Toxic assets head towards the public balance sheet

Capitalism in convulsion: Toxic assets head towards the public balance sheet
By John Plender

Published: September 19 2008 19:25 | Last updated: September 19 2008 19:25

In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free-market capitalism.

Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street – and indeed financial institutions around the world – in a bail-out of unprecedented size.

EDITOR’S CHOICE
US consumer prices fall in August - Sep-16Full coverage: US downturn - Sep-16Fears over Texas oil supplies - Sep-15Editorial comment: US fiscal challenge is in long term - Sep-10John Gapper: Take this weekend off, Hank - Sep-10Analysis: Is America’s house price crash at last bottoming out? - Sep-09The sequence of events that led to this extraordinary socialisation of finance began with the de facto nationalisation of Fannie Mae and Freddie Mac, the bankrupt government-sponsored mortgage lenders at the heart of the US housing finance system. There followed a rise in the cost of insuring against default in the world’s most powerful economy. On some independent estimates, the overall response to crisis could take the outstanding US public sector debt from readily manageable status to a level comparable with such fiscally stretched countries as Italy and Japan.

Concern about the creditworthiness of the US is nonsensical, according to Charles Goodhart of the London School of Economics. It has nonetheless surfaced, along with worried punditry about the dollar’s role as a reserve currency.

Then came the absorption of Merrill Lynch by Bank of America and a bold decision by Hank Paulson, US Treasury secretary, to allow Lehman Brothers, the fourth largest US investment bank, to go to the wall. This constrasted with the government orchestrated rescue of the smaller Bear Stearns by JPMorgan Chase earlier this year.

The disappearance of these two Wall Street securities giants raised questions about the durability of the independent model of investment banking. Shares in the two independent survivors, Morgan Stanley and Goldman Sachs, were quickly savaged by short-sellers. In the UK, such short-selling is alleged to have been what pushed HBOS, the country’s biggest mortgage lender, into its shotgun marriage with Lloyds TSB.


Still more startling was news that the Federal Reserve was advancing $85bn (€59bn, £47bn) of taxpayers’ money to AIG, the world’s biggest private insurer. Thanks to its role in the global market for credit insurance, AIG was so interconnected with other financial institutions that its bankruptcy would have been catastrophic for the whole system.

Yet despite the rescue, the festering lack of trust that has dogged the banking system since August last year worsened after this move. On Wednesday, the interest rate on one-month US Treasury bills turned negative, bearing the astonishing message that investors would rather lose money on government paper where repayment was certain than invest in money market funds. The climactic point had been reached where nobody trusted any credit other than the government’s.

In such circumstances, experience teaches that central banks have to lend freely. In the event, the Federal Reserve injected $180bn into the markets, while other leading central banks said they were taking co-ordinated measures to help short-term dollar markets.

To round off the week, Mr Paulson announced discussions with political leaders to create a government-sponsored vehicle to take on toxic assets created during the bubble, prompting a manic stock market bounce.

The paradox in this remarkable tale is that extreme illiquidity exists in a world awash with the excess savings of Asia and the petro-economies. Russia illustrates the point. Thanks to the oil windfall, it sports high economic growth, the third largest foreign exchange reserves in the world and low public sector debt. Yet Moscow stocks are collapsing and trust in the financial system has eroded to the point where overstretched Russian investment banks are starved of funds and threatened with bankruptcy.

This is what happens when an overleveraged global financial system unwinds. Borrowing is being forcibly reduced across the world after the greatest credit bubble in history. It amounts, says David Roche of Independent Strategy, a research boutique, to a “tectonic shift from leverage to thrift as the means of financing growth and the concomitant dramatic reduction in global imbalances such as the US current account deficit”.

The reality is that the financial system has been operating as if it were an off-balance-sheet vehicle of the government. Private-sector companies and individual bankers have been making huge profits in the bubble. Their risk appetite has been enhanced by previous bail-outs and, in the case of Fannie and Freddie, by the government’s implicit guarantee. Yet their market pricing does not reflect the potential cost to the system of their own collapse.

This inability to handle externalities has again been apparent in the markets over the past two weeks as speculators have engaged in short-selling strategies against AIG and the investment banks in the US and HBOS in the UK. This threatens the financial system because the rating agencies respond to the consequent falls in share prices by cutting credit ratings, so jeopardising the victims’ ability to fund the business.

Once again, property has been at the heart of a financial debacle, in spite of the assurances of central bankers that a nationwide fall in US house prices was an impossibility. Yet the peculiarity this time lies in property being wrapped in complex financial products that few could understand.

When investors go outside their areas of competence, trouble follows. Walter Bagehot, the 19th-century economist who defined the rules for central bank management of financial crises in his book Lombard Street, said: “Common sense teaches that booksellers should not speculate in hops, or bankers in turpentine; that railways should not be promoted by maiden ladies, or canals by beneficed clergymen ... in the name of common sense, let there be common sense.”

The twist in the current decade is that even bank boards and bank executives have failed to understand complex mortgage-backed banking products, as have central bankers, regulators and credit rating agencies.

In this off-balance sheet Alice in Wonderland world, the most absurd feature has been a reward system that has granted huge bonuses to those who peddled toxic mortgage-related products and does not permit much of the money to be clawed back now that the going is bad. Almost as absurd has been the degree of leverage racked up by investment banks.

As Michael Lewitt, the Florida-based money manager, puts it: “Allowing investment banks to be leveraged to the tune of 30 to 1 is the equivalent of playing Russian roulette with five of the six chambers of the gun loaded. If one adds the off-balance-sheet liabilities to this leverage, you might as well fill the sixth chamber with a bullet and pull the trigger.”


So what stage in the the crisis have we reached? Bagehot quoted the banker Lord Overstone’s description of the progress of an unstable cycle thus: “quiescence, improvement, confidence, prosperity, excitement, overtrading, CONVULSION [Bagehot’s capitals], pressure, stagnation, ending again in quiescence”.

Over the past two weeks we have experienced convulsion. Yet it ought to be possible to avoid stagnation, because the authorities are following the prescriptions of Hyman Minsky, the economist whose work Stabilizing An Unstable Economy best explains the dynamics of this crisis.

Minsky saw fiscal activism by big government, alongside last-resort lending by central banks, as the modern way of coping with financial distress. That is now taking place. In effect, the US government is replicating what happened in the private banking system earlier in the crisis, when institutions were obliged to take entities they had created, such as structured investment vehicles and conduits, back on to their balance sheets as funding dried up.

Having implicitly guaranteed Fannie and Freddie and underpinned the operations of irresponsible bankers at AIG and elsewhere, the US government is putting bankrupt institutions back on to the public sector balance sheet via nationalisation. Now, Mr Paulson’s proposal for the system’s toxic assets has the makings of a turning point.

What will the banking landscape look like after this saga? Much depends on the regulatory response. At the very least, tougher capital requirements will be imposed, which could mean the banking system reverts to a lower-risk, utility-like function. Yet one of the most important questions concerns the independence of central banks.

If central banks have to be recapitalised, as seems likely, politicians may want to extract a price that diminishes their operational independence. That could have damaging consequences. For a central point of Minsky’s thesis is that fiscal activism and last-resort lending set the stage for serious inflation.

That, together with an increased burden on future generations of taxpayers, could be the cost of the last two weeks’ frantic efforts to stave off deflation and keep some semblance of the Anglo-American model of capitalism afloat.

The writer is an FT columnist and chairman of Quintain
Copyright The Financial Times Limited 2008

@ Mobilize: Om Malik Talks With Nortel's CTO John Roese On The Promise Of 4G

3G처럼 해서는 4G도 성공할 수 없다.

paidContent.org
@ Mobilize: Om Malik Talks With Nortel's CTO John Roese On The Promise Of 4G
Thursday September 18, 2:09 pm ET
By Tricia Duryee


GigaOm's own Om Malik sits down during Mobilize to talk to Nortel's CTO John Roese, who he claims is one of his favorite technologists. The discussion melded together the idea of future technologies, such as WiMax and LTE, with a dose of business pragmatism. Here's highlights from the discussion:
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-- Wireless and wireline networks aren't in sync: "New technologies, like mobile WiMax and LTE are so important. It transforms it into a pipe in the sky and a mobile Internet experience that you can afford to provide users with greater bandwidth, lower latencies and still make money. You are seeing problems with iPhone. When you deploy it on a 3G network, everyone has a poorer experience. Is that a flaw of the network or the iPhone? No, it's a synchronization problem."

-- Limited bandwidth: He said there's companies like Verizon (NYSE: VZ - News), which is building a landline high-bandwidth FiOS network, and SprintNextel, which is building a high-bandwidth wireless network, which will provide the big pipes developers will need to deliver a lot of content. "We aren't ten years away from it, we are one or two years away from it, so now is the time to recognize and put the pieces in place, so people have interesting things to do with these networks."

-- 4G opportunities for developers: The bottom line is as we move to this [4G] model, where there's an IP transport connection, which will be like the Internet in the cloud, we start to see the opportunity to layer on applications. As we start to get to that model it becomes much easier for the operator to let them [high-bandwidth applications] exist because it won't break the network. It's very hard to do that today in the 2G and 3G world. It's a catalyst for new ecosystems to be formed." On the killer app for 4G: "My answer is simple. The killer applicaiton in the 4G world is now that you are able to take every killer application that's been popular in wireline and then make it mobile."

-- Nortel backing away from LTE?: "We've been very clear from day one that 4G cannot be successful if the ecosystem and structure is exactly like the 3G networks. There's too many competitors doing too much in a vertical fashion...We have to be careful about creating a new business model, or replicating the systems in the past. We have to go into a world where there's collaboration, and co-competition. The structure doesn't work, and we have to look at Internet structure rather than the cellular structure for it to work. A lot of people interpreted that as us saying we are backing away."

[FT]Panic grips credit markets

Panic grips credit markets
grips: 움켜쥐다
By Krishna Guha in Washington, Michael Mackenzie in New York and Gillian Tett in London

Published: September 17 2008 18:23 | Last updated: September 18 2008 00:01

The panic in world credit markets reached historic intensity on Wednesday, prompting a flight to safety of the kind not seen since the second world war.
intensity :맹렬함 prompting:촉진
안전자산 선호현상이 나타난다.

Barometers of financial stress hit record peaks across the world. Yields on short-term US Treasuries hit their lowest level since the London Blitz, while gold had its biggest one-day gain ever in dollar terms. Lending between banks, in effect, stopped.
채권과 금값이 올랐다. 은행간 거래는 끊어졌다.

Speculation mounted that the Federal Reserve, which refused to cut rates on Tuesday, could be forced into an embarrassing U-turn or might further expand its market liquidity operations.
투기때문에 유동성을 더욱 공급해야 할지 모른다.

The $85bn emergency Fed loan for the troubled insurance group AIG, announced on Tuesday night, failed to curb the surge in risk aversion. Instead, markets were hit by a fresh wave of anxiety.
curb:억제 surge:밀려오다 anxiety:걱정

One cause for fear came when shares in a supposedly safe money market mutual fund fell below par value – or “broke the buck” – owing to losses on debt in Lehman Brothers, which filed for bankruptcy protection on Monday. This raised the risk that retail investors in other such funds could panic and pull out their money.
supposedly:아마도
손실액을 추정하기 어렵기 때문에 시장의 불안은 커지고 있다.

All thought of profit was abandoned as traders piled in to the safety of short-term Treasuries, with the yield on three-month bills falling as low as 0.02 per cent – rates that characterised the “lost decade” in Japan. The last time US Treasuries were this low was January 1941.
abandoned:황폐한 piled in :우르르 몰려오다
채권을 사려는 사람이 많아지면서 채권 수익률은 잃어버린 십년의 일본 수준까지 떨어졌다.

Shares in the two largest independent US investment banks left standing – Morgan Stanley and Goldman Sachs – fell 24 per cent and 14 per cent, respectively, as the cost of insuring their debt soared, threatening their ability to finance themselves .
살아남은 투자은행인 골드만과 모건의 주가는 각각 14%, 24%씩 빠졌다.

Morgan Stanley was holding preliminary merger talks with Wachovia, a troubled regional lender, and could approach other banks and look at other options in the coming days, people familiar with the situation said. Washington Mutual, another regional lender, has hired Goldman Sachs to contact potential buyers.
모건과 골드만은 각각 와초비아, 와무와 합병논의를 하고 있다.

HBOS, a leading UK mortgage lender pressed into sales talks by the government after its share price halved this week, agreed to a £12bn takeover by Lloyds TSB.

A key measure of fear in the fixed-income markets - the so-called Ted spread, which tracks the difference between three-month Libor and Treasury bill rates - moved above 3 per cent, higher than the record close after the Black Monday stock market crash of 1987.
리보 3개월 물과 미국채간 이자율차는 3%로 벌어졌다.

US authorities fired back with the Treasury announcing it was borrowing $40bn to give to the Fed to use for its emergency lending – in essence removing balance sheet constraints on the size of this assistance.
constraints:압박

The Securities and Exchange Commission announced new curbs on short selling.

Some analysts have criticised US authorities for adopting an arbitrary approach to rescues - saving AIG, but not Lehman - that was impossible for investors to predict and therefore did not boost confidence.
한 분석가는 미국 정부가 리먼은 죽이고 에이아이지는 살렸기 때문에 정책의 일관성을 의심할 수 밖에 없으며 이에 따라 시장이 확신을 가질 수 없게 되었다고 말한다.

The S&P 500 fell 4.7 per cent, led by a 8.9 per cent slump in financials. Equity volatility was near its highest level since March. The dollar fell against other major currencies.

Gold benefited from safe-haven buying, with prices rising 11.2 per cent to a three-week high of $866.47 a troy ounce.

Andrew Brenner, co-head of structured products and emerging markets at MF Global, said: “It feels like no one wants to take anyone’s credit...it feels like we are on a precipice.”
precipice:절벽
Copyright The Financial Times Limited 2008


신용위기 때문에 시장은 혼란에 빠졌다. 주식 같은 신용자산은 가격이 떨어지고 금, 채권 같은 안전자산은 수요가 넘쳐 가격이 솟구치고 있다.

[Economist] Bail-out or bust?

AIG
Bail-out or bust?
Sep 16th 2008From Economist.com
AIG could be the next casualty of the credit crisis, unless the authorities step in
AP
BARRY RITHOLTZ, a prominent financial pundit, writes with tongue not entirely in cheek that the first lesson from the government’s bail-out of Bear Stearns in March was to “Go Big”. “Don’t just risk your company, risk the entire world of finance. Modest incompetence is insufficient—if you merely destroy your own company, you won’t get rescued. You have to threaten to bring down the entire global financial system.”
On Tuesday September 16th, a day after America’s Treasury boldly let Lehman Brothers go bust, again the “Go Big” theory is being tested. This time, the focus is on American International Group (AIG), one of the world’s biggest insurers. As well as writing general-insurance policies all over the world, the firm has plunged disastrously into the market for derivatives linked to housing and credit. Its exposure to the murky credit-default swaps market alone is a notional $441 billion, enormous by anyone’s standards. Do such exposures make it too big to fail, especially given the possible risk, however small, to ordinary folk around the world who insure with AIG?
Hopes that this question would be met with a tentative “yes” helped New York stocks erase some of their earlier losses on Tuesday—though AIG’s shares were still down sharply. There were reported rumours that Treasury support for AIG would be forthcoming. But the Federal Reserve, whose policymakers were meeting on Tuesday, resisted pressure to give a boost to markets and chose not to cut rates.
These rumours were not confirmed, but it has already become painfully clear how hard it is for America’s financial authorities to steer a straight course through a crisis that is piling one systemic threat onto another. On Monday, Hank Paulson, America’s treasury secretary, was hailed for bringing back moral hazard, or the risk of failure, to the banking system by letting Lehman fall into Chapter 11. Faced with the collapse of the much bigger and more entangled AIG, can he afford to defend that line in the sand?
Even those battling to find a solution for AIG admit that time is running out. On Monday the Fed asked two banks, Goldman Sachs and JPMorgan Chase, to find up to $120 billion in new funds for AIG. The firm also won a concession from New York state, which supervises it, to raise $20 billion by borrowing against the insurance assets of its subsidiaries. On Tuesday markets around the world tumbled after two ratings agencies, Moody’s and Standards & Poor’s, cut AIG’s credit rating. That decision forced the insurer to seek at least $13 billion in extra collateral to back its credit derivatives.
But cash is not easy to come by for big institutions with concerns about their solvency, as Lehman’s collapse showed. As of Tuesday, there appeared to be no private-sector solution for AIG, and the matter was in the hands of the government.
Meanwhile, fears that a collapse of AIG could paralyse the financial system were reflected in the interbank market, where banks tap each other for cash. Dollar rates of the London Interbank-Offered Rate, known as LIBOR, doubled overnight. Central banks, including the Fed, pumped in liquidity.
Not all the news was bad. Goldman reported a 70% slump in third-quarter profits, which may have looked ghastly, but it beat analysts’ estimates. There had been fears that it and Morgan Stanley, the other Wall Street bank left standing, were at risk from a possible collapse of AIG. But a Goldman spokesman said its exposure was “not material”, according to reports. Washington Mutual, America’s largest savings-and-loan bank, helped its share price by declaring it would be able to withstand the latest cut in its credit rating.
Meanwhile, August saw the first drop in America’s consumer-price index in almost two years. The 0.1% fall was helped by the decline in fuel prices, and the oil market remained in retreat on Tuesday, with prices hovering above $91 a barrel. The dollar remained firm.
But in this crisis, the only things that have given Wall Street real fillips have been the chances of government intervention, and easier monetary policy. Now almost all the markets’ hopes are pinned on the authorities. If AIG goes, it is hard to think what else would be considered as too big to fail.

[FT]The end of lightly regulated finance has come far closer

The end of lightly regulated finance has come far closer
By Martin Wolf
Published: September 16 2008 18:47 Last updated: September 16 2008 20:28

These are dramatic times. By Monday of this week, three of Wall Street’s top five investment banks – Bear Stearns, Lehman and Merrill Lynch – had disappeared as independent entities. The insurance group AIG is in serious trouble. What was, until recently, the brave new US financial system is melting away before our eyes.
EDITOR’S CHOICE
Economists’ forum - Nov-16
Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com
Over the past few weeks three experiences have helped clear my mind on this crisis. First, I reread Hyman Minsky’s masterpiece, Stabilizing an Unstable Economy. Second, I engaged in a debate on the future of regulation with my admired colleague and friend, John Kay.* Finally, on Monday, I moderated a session on this crisis at the Swift International Banking Operations Seminar in Vienna.
I structured this latter discussion around four questions. What went wrong? Is the worst over? What are the lessons for financial institutions? What are the lessons for governments? Here then are my current answers to these questions.
What went wrong? The short answer: Minsky was right. A long period of rapid growth, low inflation, low interest rates and macroeconomic stability bred complacency and increased willingness to take risk. Stability led to instability. Innovation – securitisation, off-balance-sheet financing and the rest – has, as always, proved a big part of the story. As Minsky warned, undue faith in unregulated markets proved a snare.
This is the rake’s progress enjoyed by the US over the past decade. But it has not been alone. Both equity and house-price bubbles affected parts of Europe, as well. But they were particularly important for the UK.
Is the worst now over? Certainly not. Unwinding of excesses on such a scale involves four giant processes: the fall of inflated asset prices to a sustainable level; de-leveraging of the private sector; recognition of resulting financial sector losses; and recapitalisation of the financial system. Making all this worse will be the collapse in private sector demand, as credit shrinks and wealth falls.
None of these processes is even close to completion. Some have barely begun. In particular, property prices are still falling, even in the US. Similarly, the adjustment in the real economy, particularly the inevitable rises in household savings rates in the US and UK are at an early stage. Because even uninformed people understand how uncertain the outcomes are, fear is pervasive. This is demonstrated by, among other things, the high spreads on interbank loans over expected official rates.
The biggest outstanding question is whether government-led rescues of undercapitalised financial systems will be needed. This is now looking increasingly likely. In today’s world, governments rescue such crisis-hit economies in four ways: they offer generous lender-of-last-resort liquidity, via central banks; they run huge fiscal deficits, to offset the shift of the private sector into financial surplus; they substitute public debt for private debt, in order to recapitalise undercapitalised financial systems (often after outright nationalisation); and they may adopt inflationary erosion of the value of private (and public) debt. All of this is now likely, including, alas, even the last.
What then are the lessons for financial institutions? Stable doors are being shut after herds of horses have bolted. The Institute for International Finance has, for example, produced an excellent report on the things the financial industry ought to do (or, better still, ought to have done).**
This report focuses, properly, on risk-management (which was a disaster), compensation (which was grotesquely irresponsible), the originate-and-distribute model (which was rife with irresponsibility and fraud) and so on and so forth. No doubt people scarred by this crisis will take such advice seriously, for a while. But some years from now – 20, if we are lucky, less than 10 if the fallout is contained by the authorities – it will be ancient history. In deregulated financial systems crises are inevitable, like earthquakes on a fault zone. Only timing is uncertain.
What, finally, are the implications for governments now? The questions are two: how to restructure regulation for the long haul; and how much of their crisis tool box to use now.
John Kay argues that regulation must be restricted. His argument is based on two propositions: first, the payment system is the core financial utility; and, second, regulators cannot successfully second-guess the decisions of huge institutions staffed by better-paid and more highly motivated people than themselves.
Governments should, he argues, not even pretend they can make the financial system stable. They must, instead, try to “insulate the real economy from consequences of financial instability”. The latter, he suggests, can be achieved by insuring small deposits, creating a special resolutions regime for banks and making the deposit insurance scheme a preferred creditor.
I find John’s position both attractive and unrealistic. A compelling reason for the latter view is that governments rightly define provision of financial intermediation and insurance as essential utilities in the modern economy. Another is that it is impossible to protect the real economy from a breakdown of the credit system. For this reason, governments cannot credibly promise to wash their hands of a financial breakdown. This is the lesson of at least a century of financial history.
Greater regulation is, alas, inescapable, even if doomed to be imperfect. Two steps must be taken.
One is to look for simple rules to improve the operation of the system as a whole, the obvious one being counter-cyclical capital requirements.
The other and far more controversial step is a shift in the psychology of supervision away from the presumption that institutions know what they are doing. In particular, far more attention must be paid to behaviour that may appear rational for each institution, but cannot be rational if all institutions are engaged in it at the same time. Financing house-price bubbles with loans equal to 100 per cent of the barely appraised value, because prices only go up, comes to mind.
Today, however, the authorities must also ask themselves whether what they are doing will make the system safer after the crisis is over. By these standards, the decision not to bail out Lehman looked right. But it was also risky, because we have to get through the crisis. Let us hope the decision proves to be part of the solution, not an aggravation of the challenges we face. I would now take no bets on this benign outcome.
* http://podcast.ft.com; ** Final Report of the IIF Committee on Market Best Practices, www.iif.com
martin.wolf@ft.com
Copyright The Financial Times Limited 2008

[FT]US considers $85bn AIG rescue

US considers $85bn AIG rescue
By Francesco Guerrera in London, Aline van Duyn in New York and Krishna Guha in Washington
Published: September 16 2008 14:47 Last updated: September 17 2008 01:33
US authorities on Tuesday night were considering a deal to take control of AIG in return for an $85bn loan aimed at staving off a collapse of the giant insurer that plays a crucial role in the global financial system, people familiar with the talks said.
Under the plan, the authorities would receive equity warrants giving them a 79.9 per cent stake in AIG. In returrn, the insurer would receive a bridge loan of $85bn to keep it afloat until it could dispose of billions of dollars in assets.
The issuance of the warrants to the government is designed to prevent existing shareholders from profiting from a rescue of the company, which has been hobbled by the losses on complex securities backed by mortgages and other assets.
AIG’s board was meeting on Tuesday night as the Treasury and Federal Reserve were working out details of a plan that would mark the latest intervention to pull a troubled financial group back from the brink.
People close to the situation warned that a decision on the AIG rescue had not been taken and the plan could fall apart.
Spiralling subsidiaries
AIG is a huge multinational insurer, but it is much more than that. A glance at the group’s structure shows why. Should it follow Lehman into administration, it would create shockaves across global financial markets. View our diagram of AIG’s structure
Even as the plan was being being mapped out, there were already signs of political opposition.
“I hope they don’t go down the road of a bailout, because where do you stop?’’, Richard Shelby, top Republican on the Senate Banking Committee, told Bloomberg Television.
During a day of emergency meetings at the New York Fed, the Treasury and Fed reversed initial reluctance to bail out another financial institution.
In March, the Fed helped JPMorgan Chase buy Bear Stearns by providing a $29bn credit line. This month, the Treasury seized control of troubled mortgage giants Fannie Mae and Freddie Mac.
But at the weekend the authorities refused to back Lehman Brothers and encouraged Merrill Lynch to sell itself to a rival. Lehman filed for bankruptcy early Monday, rocking the financial system, while Merrill announced a $50bn takeover by Bank of America the same day.
AIG’s plans for a private sector capital infusion were dashed by a further slump in its shares after sharp cuts in the insurer’s credit ratings on Monday threatened to fuel a liquidity crisis and push it into bankruptcy.
Tim Geithner, president of the New York Fed, skipped the Fed’s interest-setting meeting to focus on AIG – a sign of the regulators’ heightened state of alert over the insurer’s plight.
AIG shares fell 21 per cent in New York to $3.75. It was not clear how an intervention would affect equity and debt holders.
Amid increasingly desperate lobbying for help, David Paterson, New York governor, had said earlier that the beleaguered insurer had “a day” to solve its problems.
Goldman Sachs has been hired by AIG to assess the potential losses on its bad assets. JPMorgan Chase and Blackstone are advising the company, while Morgan Stanley is helping the Fed consider its options.
AIG’s fight for survival came as Hank Greenberg, AIG’s former chief executive and the company’s biggest shareholder, said he was considering a bid to take over all or part of the company.
Mr Greenberg has sent a letter to AIG’s board and its chief executive, Robert Willumstad, complaining about its refusal to take up repeated offers to help the group he ran for decades.
In a letter in today’s Financial Times, Mr Greenberg urged the government to provide a loan. He said AIG needed a temporary bridge loan in order to prevent further ratings cuts “which would likely prove fatal” and “pose systemic risk to the US and international financial systems”.
Analysts at RBC said the demise of AIG could result in over $180bn of losses for financial institutions.
AIG is the biggest provider of commercial insurance and life assurance in the US.
Copyright The Financial Times Limited 2008

[FT]Investment banks’ future questioned

Investment banks’ future questioned
By Peter Thal Larsen and Francesco Guerrera in London

Published: September 15 2008 20:26 Last updated: September 15 2008 20:26

When Chase Manhattan bought JPMorgan in the autumn of 2000, many thought the deal would trigger a series of mergers in the investment banking business. Senior bankers predicted that other Wall Street firms such as Bear Stearns, Lehman Brothers and Merrill Lynch would have to join forces with larger lenders or risk being marginalised.

Eight years on, those predictions are finally coming true. After an extraordinary weekend on Wall Street, Lehman on Monday filed for bankruptcy protection while Merrill Lynch rushed into the arms of Bank of America, its larger rival. Combined with the collapse of Bear Stearns earlier this year, the ranks of the Wall Street banks have been cut in half. Among the so-called “pure” investment banks, only Goldman Sachs and Morgan Stanley remain.

Not surprisingly, the crisis has once again raised serious questions about the viability of investment banks that are not part of a larger institution. “Merrill has been a strong and respected competitor in the marketplace,” Ken Lewis, BofA’s chairman and chief executive said on Monday. “But the market continues to question the viability of a stand-alone investment bank.”
viability :생존능력

That process continued on Monday. Shares in Morgan Stanley were down almost 9 per cent by early afternoon in New York on Monday, and have lost almost half their value in the past 12 months. Goldman Sachs, which has survived the credit crunch in better shape than any of its direct competitors, was down 7 per cent. The cost of buying protection on a default of both banks also jumped sharply on Monday as traders absorbed the consequences of the decision by Hank Paulson, the US Treasury Secretary, not to support Lehman. “What’s got everyone on edge is that Paulson has effectively declared that the broker-dealer model has no backstop,” one banking executive said, referring to the fact that there is no regulator standing behind it.

absorbed:여념이 없는

For executives at larger universal banks – which combine deposit-taking activities with their investment banking operations – the turmoil is long-awaited proof of the vulnerabilities of Wall Street banks, which tend to have smaller balance sheets and rely entirely on the wholesale markets for their funding. They believe the recent takeovers are merely a delayed consequence of the 1999 repeal of the Glass-Steagall Act – the depression-era legislation that separated commercial banks from Wall Street broker-dealers.

vulnerabilities:취약성 merely:단지~에 불과하다 repeal:무효로 하다

“This is a tough time to be an investment bank,” a senior executive at a US commercial bank said on Monday. “Given the events of the past few months, it is difficult to argue that it is better to be monoline at anything, be it investment banking, credit cards or insurance.”

Vikram Pandit, the former Morgan Stanley banker who now heads Citigroup, made a similar point in an internal memo aimed at reassuring the financial giant’s 360,000-plus employees of the company’s ability to weather, and even profit, from the current turmoil.

“Our industry is in a state of change, but I am confident that this should be an opportunity for Citi,” Mr Pandit wrote. “Citigroup continues to boast a strong deposit base that is diversified across products and regions.”

boast: 자랑하다

But others dismiss the idea that the business model of investment banks such as Goldman Sachs and Morgan Stanley, is broken and that they are doomed to merge with a deposit-taking institution as too simplistic.

dismiss: 내쫒다

They argue that the disappearance of three fierce competitors in the space of a few months would benefit the two surviving firms.

“Capital markets are not going to disappear, the investment banking business is still going to be there and you will only have two companies exclusively focused on it: that does not sound like a recipe for disaster,” a senior investment banker said on Monday.

recipe:해결책

With Goldman considered a notch above the rest due to its trading prowess and enviable client base, much of the spotlight will be trained on Morgan Stanley, which reports third-quarter results on Wednesday. John Mack, the firm’s chief executive, on Monday was at pains to stress that Morgan Stanley’s solid capital position and healthy revenues put it in a good position to benefit from the industry’s re-shaping.

a notch above the rest : 나머지보다 한 단계 위 prowess:훌룡한 솜씨 enviable:부러운
trained: 겨누다

However, stand-alone investment banks face two fundamental challenges: capital and liquidity. The bursting of the credit bubble and the drying up of the securitisation market favours banks that can put large balance sheets to work in support of their clients.

securitisation: 채권의 증권화(주택담보채권을 유동화하는 행위)

The turmoil has also highlighted the vulnerabilities in the investment banks’ dependence on the short-term repurchase market for secured funding. Wall Street banks, which have historically been overseen by the Securities and Exchange Commission, are also set to be brought under the supervision of the Federal Reserve, leading to tighter regulation of the risks the banks can take.

“The brokers may not be broken, but in future we expect the financial system in general – and the brokers in particular – to become shadows of their former selves,” Matt King, a strategist at Citigroup, wrote in a recent note.

None of this means Goldman or Morgan Stanley will be forced to surrender their independence. In the past, Wall Street banks have proved adept at reinventing themselves and adapting to a changing market. For the time being, however, the Wall Street banks must be feeling increasingly lonely.

adept:숙달한

Copyright The Financial Times Limited 2008

베어스턴스, 리만, 메릴린치의 몰락으로 투자은행의 미래가 불투명해 졌다. 남은 두 투자은행인 골드만과 모건은 투자은행만 유지하며 살아갈 수 있나? 미래는 자본과 유동성에 달려있다. 이제 거품이 터지면서 부풀려 졌던 자산은 줄어들었고, 채권을 유동화해서 끌어모았던 자금은 사라졌다. 정부의 규제가 심해지면서 새로운 사업을 하기도 어려워졌다. 미래는 두 은행에게 기회를 줄까? 그들의 능력으로 보아서 그들은 변한 환경에 적응해 나가겠지만 쉽지만은 않을 것 같다.

[FT]Intensive talks failed to prevent demise

Intensive talks failed to prevent demise
demise: 사망, 양도
By Krishna Guha in Washington and Francesco Guerrera in London

Published: September 15 2008 20:26 Last updated: September 15 2008 20:26

For bankers with long memories, the irony was inescapable. Ten years after Wall Street was called upon to bail out Long Term Capital Management, the fallen hedge fund, the world’s top banks had once again been called into an emergency meeting in the headquarters of the New York Federal Reserve.
롱텀사태 후 10년만에 다시 위기가 찾아왔다.

This time, though, the gathering of bankers, which began at 6pm on Friday night as downtown Manhattan emptied for the weekend, was to save one of their own.


Hank Paulson, the US Treasury secretary and Tim Geithner, the president of the New York Fed, had hauled Wall Street’s finest into the cavernous first floor of the Fed’s building to discuss the plight of Lehman Brothers.

hauled into:소환하다. cavernous:동굴같은 plight:곤경

With its shares in free-fall and concerns over its ability to withstand another day of trading, Lehman’s crisis had to be solved over the weekend one way or the other. Dick Fuld, the Lehman chief executive, who had sat at one end of the table for the LTCM talks, was not in the room this time to allow rivals to discuss matters more freely.
롱텀케피털 때 긴급회의에 참여했던 레만의 사장은 이 날 이 자리에 나오지 못 했다.
withstand:버티다

The original plan, outlined at the beginning of the meeting attended by banking chiefs such as Goldman Sachs’ Lloyd Blankfein, Morgan Stanley’s John Mack and Merrill Lynch’s John Thain, was to seek a takeover of Lehman from one of two interested suitors, Bank of America and Barclays of the UK. To facilitate that, the banks had to agree to fund collectively the purchase of a “bad bank” containing at least $33bn of Lehman’s commercial assets.

facilitate :~하기 쉽게하다 collectively:총괄하여

As Mr Paulson and Mr Geithner left the room, leaving the bankers to discuss the situation, it appeared that the “bad bank” plan had slim chances of succeeding.

정부는 이번 안건에 반대했다.

A number of Wall Street executives expressed reluctance to use their firms’ strained balance sheets to buy yet more toxic assets, according to people familiar with the discussions. Others pointed out that their efforts and resources would only benefit a rival, enabling BofA or Barclays to acquire Lehman’s still-powerful investment banking franchise.
회의에 참여한 투자은행 관계자들도 레만을 도우면 결국 그들의 라이벌에게만 좋은 일이 될 거라고 생각했다.
reluctance:꺼림 strained:팽팽한

From the start the discussions extended beyond the problems at Lehman, with officials and private sector executives debating the systemwide stress and a succession of companies – including Merrill Lynch, the investment bank, AIG, the insurance group, and Washington Mutual, the largest savings and loan – which were under severe market pressure.

severe:심한

As the talks drew to a close at 8pm on Friday, a specific Merrill track began to emerge, according to people familiar with the discussions. These people say that Mr Thain was encouraged by regulators to seek a deal that would help Merrill escape Lehman’s fate. Mr Thain did not need much encouragement. As Lehman’s problems intensified, he had already told colleagues he would act decisively should Merrill find itself in a similar position.

intensified: 증대하다

With growing fears that if Lehman had to file for bankruptcy, Merrill would be the next to be abandoned by investors worried about its capital position, it was time for Mr Thain to take action.

레만이 위기에 빠지자 메릴린치도 어떤 방법이든지 써야 하는 상황에 놓였다.

People close to the talks said Mr Thain and his lieutenants contacted several banks on Saturday morning, including BofA, Morgan Stanley and some foreign lenders. Ken Lewis, BofA’s chief executive, was the most enthusiastic respondent.

lieutenants: 부관 enthusiastic:열렬한

Mr Lewis had been a long-time admirer of Merrill and believed that adding its army of retail brokers with BofA’s commercial and retail banking strengths would turn the bank into a formidable rival.

formidable:무시무시한

On the Lehman front, after a lot of haggling, the wider group of bankers neared agreement on what one person familiar with the situation said was a pool of funds “in the tens of billions” to take care of the toxic assets.

haggling:논쟁하다 neared:접근하다

But the proposed takeover of the rest of Lehman was faltering. By Saturday lunchtime, Lehman’s fate was all but sealed, with BofA having pulled out to enter merger talks with Merrill and Barclays withdrawing after the US government stuck to its guns and refused to provide any interim guarantees to facilitate the takeover.
리먼의 인수는 정부가 보증을 거부하면서 물거품이 되었다.

faltering:비틀거리는 sealed:봉인된 interim:임시

From the outset, while trying to achieve a Lehman takeover the principals and staff-level groups of experts had been working on strategies to mitigate the damage if it failed. These preparations intensified on Sunday as a deal slipped away, with particularly intense efforts to figure out ways to curb the impact in the vulnerable repo and derivatives markets.

outset:발단 mitigate :완화하다 preparations :준비 intensified:강렬하게 하다 slipped away: 빠지다. figure out:해결하다 curb:억제하다 vulnerable:공격당하기 쉬운 repo:환매

In part by design but also in part by the momentum of discussions and the chance outcome of pressured negotiations, a new strategy was emerging to let Lehman go, and contain the damage by creating a firewall against market disruption and pressing other weak institutions into shotgun marriages.

disruption:붕괴

Late on Sunday, 11 of the banks agreed to create a $70bn liquidity pool to self-insure against loss of access to fi­nance. The Fed, meanwhile, prepared to announce it was sharply easing the terms on which it lends to in­vestment banks. The Securities and Exchange Commission was charged with orch­estrating an orderly wind-down of Lehman – no small task given the lack of a special legal framework for investment bank insolvencies.
Copyright The Financial Times Limited 2008

회의 초반에는 레만을 살리는 방안을 논의했으나 정부가 발을 빼면서 레만은 망하게 하고 시장의 충격을 어떻게 완화할 것이냐를 고민했다. 이제 정부는 부실은행에 투입할 돈이 없다는 것을 드러냈다. 사기업들은 자구책을 마련하지 않으면 위기를 벗어나기 어려울 것이다.

[FT]Take this weekend off, Hank

Take this weekend off, Hank
By John Gapper

Published: September 10 2008 19:15 | Last updated: September 10 2008 19:15

I do not know what plans Hank Paulson, the US Treasury secretary, has for the weekend. Bird-watching, perhaps. Whatever they are, may I suggest that he sticks to them?
헨리폴슨이 어쩌려는지 모르겠다. 지금까지 해온 데로 지켜보기만 할까?

Mr Paulson is a keen ornithologist but he is also an energetic intervener in financial markets and, when he has worked on weekends recently, the US taxpayer has paid dearly.
폴슨은 방관자이면서 간섭자이기도 했다.

In March, it was a line of funding to steer Bear Stearns, the investment bank, into the hands of JPMorgan Chase. On Sunday, it was the bail-out of Fannie Mae and Freddie Mac, the quasi-public mortgage lenders, which could cost the US government $200bn (€143bn, £114bn) or more.
3월에는 제이피 모건에게 베어 스턴스를 살려주도록 요청했고, 이번 일요일에는 페니매와 프레디맥에 공적자금을 투입했다.

It is only Thursday and, already, others seem to be preparing to interrupt his days of rest again.
그가 다시 간섭하지 않을까?

The first is Lehman Brothers, whose shares fell sharply after the failure of its talks with Korea Development Bank aimed at gaining a capital injection to offset its mortgage-related losses. It yesterday disclosed a $3.9bn loss and plans to sell a stake in its fund management arm.
레만이 첫 목표물이다. 레만은 한국산업은행이 인수를 포기했고, 최근 상각액이 39억 달러로 드러났다.

Then there are the US regional banks that hold preferred shares in Fannie and Freddie, which Mr Paulson caused to plunge in value. They face their own financial crises and Tony James, president of Blackstone, the private equity group, this week predicted “massive defaults”.
다음은 미국 지역은행이다. 그들은 페니매와 프레디맥의 우선주를 가지고 있다. 블랙스톤의 토니 제임스는 강력한 채무불이행선언이 이어질 걸로 예상한다.

Apart from banks, there are the Detroit carmakers, which have persuaded Congress to give them $25bn in soft loans. That is far more than the 1980 Chrysler bail-out but they want to double the hand-out, and both presidential candidates, Barack Obama and John McCain, have meekly fallen in line.
디트로이트 자동차 시장도 문제다. 자동차 회사들은 정부에 보조금을 달라고 요청했다. 대통령 후보들은 여기에 적극 찬성하고 있다.

In an election year, neither party dares to place fiscal discipline above politics and the urge to placate US voters and foreign investors.
투표가 있는 해에 어떤 정당도 재무정책을 제한 할 수 없고 미국 투표권자와 외국 투자자의 눈치를 봐야한다.

The US government has talked tough about moral hazard and its not wanting to bail out failed institutions but has been a soft touch. Eventually, someone must say “no” to the line of those angling to pile their own losses on to the budget deficit, which could reach $440bn next year. Mr Paulson, who headed Goldman Sachs before what Mr James called “the meltdown years”, needs to be that man.
미국 정부는 도덕적 해이를 강력히 다루고 부실한 회사를 밝혀내야 하지만 밍기적 거린다. 결과적으로 누군가는 반드시 도움요청에 아니요라고 대답하고 정부재정적자액을 줄여야한다. 폴슨이 그렇게 해야 한다.

It was not exactly comforting that credit ratings agencies had to declare to investors that the Fannie and Freddie bail-out would not affect the country’s triple-A sovereign rating. When people are assured that nothing is wrong, it makes them wonder. The rating has supported the dollar’s reserve currency status for most of the past century. Yet, on Tuesday, the cost of insuring Treasury bonds against a US government default spiked to a record level.
페니와 프레디에 정부가 공적자금을 투입하면서 미 정부채의 위험도는 사상 최고치를 기록했다.

It is true that the Fannie and Freddie intervention does not, in itself, pose grave financial risks to the US. Standard & Poor’s estimates the worst case loss at $325bn, or 2.5 per cent of US gross domestic product, less than a third of the bill for Japan’s banking crisis in the 1990s. “It is one of the largest financial interventions not only in US history but in any country’s history. But the cost to the government is manageable,” says John Chambers, an S&P analyst.
정부가 페니와 프레디에 개입한다고 해서 미국의 금융위기가 심각해 지는 것은 아니다. 부실 정도는 일본의 90년대 은행위기보다 덜하다. S&P는 정부개입이 미국 정부가 감당할 만한 정도라고 말한다.

The bigger problem is the precedent that it, once again, sets. Mr Paulson emphasised on Sunday that Fannie and Freddie were “unique” bodies that deserved special treatment. One analyst describes this as a “dog whistle” to Lehman not to expect capital from Capitol Hill.
더 큰 문제는 이번 일이 전례로 남아 정부의 공적자금 투입이 계속 이뤄질 수 있다는 것이다. 정부는 분명히 페니와 프레디에 한해서만 공적자금을 투입한다고 했다. 한 분석가는 이를 두고 정부가 레만에게 도움을 바라지 말라는 신호를 보내는 거라고 말했다.

If it was a signal, then good, and I trust Mr Paulson will stick to his warning. Lehman, like other big investment banks, can get short-term funding from the Federal Reserve if all else fails, a guarantee put in place after Bear Stearns’ takeover.
만약 그렇다면 좋은 일이고 폴슨이 이를 고수할 걸로 본다. 레만은 다른 투자은행처럼 연준에서 단기자금을 빌리면 된다.

That should prevent a run on the bank and it is the only money the Fed or the Treasury should offer. Mr Paulson or Tim Geithner, president of the New York Fed, can put pressure on banks or investors with deep pockets to give Lehman capital but must not do so themselves.
정부는 투자자들이 돈을 대도록 요구할 거다.

The reality is that Lehman, like General Motors and Ford, got itself into this mess and ought to address it itself. Dick Fuld, Lehman’s prickly and obstinate chairman and chief executive, has turned down offers valuing it at less than book value. His pride has led to Lehman’s fall.
레만의 고집쟁이 사장은 장부가치보다 낮은가격에 레만을 매각하지 않겠다고 했다. 사장이 레만을 나락으로 몰고 있다.

Similarly, no one forced US regional banks to invest in Fannie and Freddie preferred shares. It should have occurred to them that their dividends were high because of the risk of losing their money if the two entities got into trouble. I thought bankers knew that kind of thing.
지역은행도 마찬가지다. 그들이 프레디와 페니메에 투자한 것은 위험을 감수하고 높은 배당을 주기때문이 아닌가. 그동안 높은 수익을 거둬갔다면 위험도 받아들여야 한다.

In normal times, no one would entertain the notion that such supposedly sophisticated financial institutions should get a handout from the taxpayers. But these are not normal times and Mr Paulson’s fear of allowing financial chaos has pushed him on to the defensive.
평소같으면 누구도 세금이 부실한 은행에 들어가는 것을 바라지 않을 것이다. 하지만 지금은 독특한 상황이다. 금융혼란을 우려하기 때문에 폴슨은 방어적으로 대응하고 있다.

It is time to push back. The Fed and the government had to stand behind Bear Stearns and prevent a run on the dollar by making good the promises that Fannie and Freddie issued to foreign investors. But there is a cost to playing with the government’s balance sheet.
상황을 되돌릴 시간이다. 정부와 중앙은행은 부실한 기관을 보증하면서 외국투자자들의 이탈을 막아야만 했다. 그러나 비용은 정부의 장부에 남아있다.

It sounds outlandish that the US could lose its triple-A status, which it has held since before Standard merged with Poor’s in 1941. But stuff happens. A full-blown recession and bail-out of the banking system would put public finances under severe strain.
미국은 최상위 신용등급을 잃는 기이한 처지에 놓였다. 경기침체와 은행위기가 정부재정에 심각한 위기를 가져왔다.

Japan lost triple-A status for a time, as did Denmark, Finland and Sweden during the Scandinavian banking crisis. Mr Paulson has tried to keep the dollar strong and confidence intact but endless intervention will have the opposite effect.
일본, 덴마크, 스칸디나비아반도의 국가들도 그런 적이 있다. 폴슨은 달러를 강하게 유지하려 하지만 끊임없는 개입은 정반대의 효과만 나타낸다.

If he takes the weekend off and allows events to unfold, it will show that Fannie and Freddie were indeed unique and that the government has not lost its nerve. Inaction speaks louder than words.
만약 폴슨이 휴가를 가서 더 이상 개입하지 않겠다는 자신의 생각을 명확히 시장에 전달한다면 정부는 체력을 회복할 수 있을거다. 게으름이 단어들보다 소리가 크다.

john.gapper@ft.com
Copyright The Financial Times Limited 2008

[FT] US move triggers CDS default

US move triggers CDS default
By Aline van Duyn in New York

Published: September 8 2008 19:21 | Last updated: September 8 2008 19:21

One of the largest defaults in the history of the $62,000bn credit derivatives market has been triggered by the US government’s seizure of Fannie Mae and Freddie Mac, raising questions about how dealers will unwind billions of dollars worth of contracts.

Although the $1,600bn of debt issued by the troubled mortgage groups is regarded as safe after the US government’s move to take control of the companies, their move into “conservatorship” counts as the equivalent of a bankruptcy in the credit derivatives market.

This triggers a default on credit default swaps – instruments that provide a form of insurance on fixed-income assets. Dealers in the market are now working to settle these contracts.

The exact amount of CDS on Fannie Mae and Freddie Mac are not known, reflecting the private nature of the market, but they are part of widely traded indices and the amounts are likely to be significant. Analysts at Lehman Brothers said: “There is likely to be a considerable amount of notional protection outstanding.”

The industry body, International Swaps and Derivatives Association, said on Monday it would launch a protocol to facilitate settlement of credit derivative trades involving Fannie Mae and Freddie Mac and would publish further details in due course.

The uncertainty surrounding the Fannie Mae and Freddie Mac CDS contacts highlights the need for improved settlement and trading procedures. Already, regulators have put pressure on CDS dealers, including all the large financial institutions, to reduce settlement and trading risks.

The near-collapse of Bear Stearns in March highlighted the extent to which many large financial institutions were linked together through the CDS market, and the Federal Reserve and other regulators want to reduce such systemic financial risks.

The growth of the CDS market over the past decade has outpaced development of settlement systems and trading infrastructure. One worry is the lack of standard procedures in contracts for dealers to agree ways to settle defaulted credit derivatives.

The actual payments on credit default swaps on Fannie Mae and Freddie Mac are expected to be limited because the value of the mortgage agencies’ debt remains high after the US government stepped in to back it.

That means that meeting any claims on CDS may not be that costly, although the details are still being worked out and the impact is unknown.

Analysts at Creditsights said regulators could “use the bail-out as another lever” to enhance the CDS market’s efficiency.
Copyright The Financial Times Limited 2008

[Economist] Islamic finance

Islamic finance

Savings and souls
Sep 4th 2008 | MANAMA
From The Economist print edition

Muslims have a lot of money to invest. But it is a constant struggle to reconcile faith and finance

Gillian Blease
TO SEE Islamic finance in action, visit the mutating coastline of the Gulf. Diggers claw sand out of the sea off Manama, Bahrain’s capital, for a series of waterfront developments that are part-funded by Islamic instruments. To the east, Nakheel, a developer that issued the world’s largest Islamic bond (or sukuk) in 2006, is using the money to reorganise the shoreline of Dubai into a mosaic of man-made islands.

Finance is undertaking some Islamic construction of its own. Islamic banks are opening their doors across the Gulf and a new platform for sharia-compliant hedge funds has attracted names such as BlackRock. Western law firms and banks, always quick to sniff out new business, are beefing up their Islamic-finance teams.

Governments are taking notice too. In July Indonesia, the most populous Muslim country, said it would issue the nation’s first sukuk. The British government, which covets a position as the West’s leading centre for Islamic finance, is also edging towards issuing a short-term sovereign sukuk. France has begun its own charm offensive aimed at Islamic investors.

Set against ailing Western markets such vigour looks impressive. The oil-fuelled liquidity that has pumped up Middle Eastern sovereign-wealth funds is also buoying demand for Islamic finance. Compared with the ethics of some American subprime lending, Islamic finance seems virtuous as well as vigorous. It frowns on speculation and applauds risk-sharing, even if some wonder whether the industry is really doing anything more than mimicking conventional finance and, more profoundly, if it is strictly necessary under Islam (see article).

Sukuks in the souk
As the buzz around the industry grows, so do expectations. The amount of Islamic assets under management stands at around $700 billion, according to the Islamic Financial Services Board, an industry body. Standard & Poor’s, a rating agency, thinks that the industry could control $4 trillion of assets. Others go further, pointing out that Muslims account for 20% of the world’s population, but Islamic finance for less than 1% of its financial instruments—that gap, they say, represents a big opportunity. With tongue partly in cheek, some say that Islamic finance should by rights displace conventional finance altogether. Western finance cannot service capital that wants to find a sharia-compliant home; but Islamic finance can satisfy everyone.

Confidence is one thing, hyperbole another. The industry remains minute on many measures: its total assets roughly match those of Lloyds TSB, Britain’s fifth-largest bank (though some firms that meet sharia-compliant criteria may attract Islamic investors without realising it). The assets managed by Islamic rules are growing at 10-15% annually—not to be sniffed at, but underwhelming for an industry that attracts so much attention. Most of all, the industry’s expansion is tempered by its need to address the tensions between its two purposes: to serve God and to make as much money as it can.

That is a stiff test. A few devout Muslims, many of them in Saudi Arabia, will pay what Paul Homsy of Crescent Asset Management calls a “piety premium” to satisfy sharia. But research into the investment preferences of Muslims shows that most of them want products that benefit their savings, as well as their souls—rather as ethical investors in the West want funds that do no harm, but are also at least as profitable as other investments.

A combination of ingenuity and persistence has enabled Islamic finance to conquer some of the main obstacles. Take transaction costs which tend to be higher in complex Islamic instruments than in more straightforward conventional ones. Sharia-compliant mortgages are typically structured so that the lender itself buys the property and then leases it out to the borrower at a price that combines a rental charge and a capital payment. At the end of the mortgage term, when the price of the property has been fully repaid, the house is transferred to the borrower. That additional complexity does not just add to the direct costs of the transaction, but can also fall foul of legal hurdles. Since the property changes hands twice in the transaction, an Islamic mortgage is theoretically liable to double stamp duty. Britain ironed out this kink in 2003 but it remains one of the few countries to have done so.

However, just as in conventional finance, as more transactions take place the economies of scale mean that the cost of each one rapidly falls. Financiers can recycle documentation rather than drawing it up from scratch. The contracts they now use for sharia-compliant mortgages in America draw on templates originally drafted at great cost for aircraft leases.

Islamic financiers can also streamline their processes. When Barclays Capital and Shariah Capital, a consultancy, developed the new hedge-fund platform, they had to screen the funds’ portfolios to make sure that the shares they pick are sharia-compliant. That sounds as if it should be an additional cost, but prime brokers already screen hedge funds to make sure that risk concentrations do not build up. The checks they make for their Islamic hedge funds can piggyback on the checks they make for their conventional hedge funds.

Mohammed Amin of PricewaterhouseCoopers, a consulting firm, says the extra transaction costs for a commonly used Islamic financing instrument, called commodity murabaha, total about $50 for every $1m of business. That is small enough to be recouped through efficiencies in other areas, or to be absorbed in lenders’ profit margins. In addition, bankers privately admit that less competition helps keep margins higher than in conventional finance. “Conceptually, Islamic finance should cost more, as it involves more transactions,” says Mr Amin. “The actual cost is tiny and can be lost in the wash.”

The other area of substantive development has been in redefining sharia-compliance. New products require scholars to cast sharia in fresh, and occasionally uncomfortable, directions. Some investors express surprise at the very idea of Islamic hedge funds, for example, because of prohibitions in sharia on selling something that an investor does not actually own.

“You encounter a wall of scepticism whenever you do something new,” says Eric Meyer of Shariah Capital. “It is no different in Islamic finance.” He says that it took eight long years to bring his idea of an Islamic hedge-fund platform to fruition, applying a technique called arboon to ensure that investors, in effect, take an equity position in shares before they sell them short. Industry insiders describe an iterative process, in which scholars, lawyers and bankers work together to understand new instruments and adapt them to the requirements of sharia.

Differences in interpretation of sharia between countries can still hinder the economies of scale. Moreover, the scholars can sometimes push back. Earlier this year, the chairman of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), an industry body, excited controversy by criticising a common form of sukuk issuance that guarantees the price at which the issuer will buy back the asset underpinning the transaction, thereby enabling investors’ capital to be repaid. Such behaviour contravened an AAOIFI standard demanding that assets be bought back at market prices, in line with the sharia principle of risk-sharing. The sukuk market has enjoyed years of rapid growth (see chart), but early signs are that the AAOIFI judgment has dented demand.

Although Islamic finance has done well to reduce its costs and broaden its product range, it has yet to clear plenty of other hurdles. Scholars are the industry’s central figures, but recognised ones are in short supply. A small cadre of 15-20 scholars repeatedly crops up on the boards of Islamic banks that do international business. That partly reflects the role, which demands a knowledge of Islamic law and Western finance, as well as fluency in Arabic and English. It also reflects the comfort that this handful of recognised names brings to investors and customers.

There are plenty of initiatives to nurture more scholars but for the moment, the stars are pressed for time. That can be a problem when banks are chasing their verdict on bespoke transactions. It takes a scholar about a day to wade through the documentation connected with a sukuk issue, for example. But scholars are not always immediately available. “You’ve got to have the scholar’s number programmed into your mobile phone and be able to get hold of them,” says a banker in the Gulf. “That is real competitive advantage.”

Assets are another bottleneck. The ban on speculation means that Islamic transactions must be based on tangible assets, such as commodities, buildings or land. Observers say that exotic derivatives in intangibles such as weather or terrorism risk could not have an Islamic equivalent. But in the Middle East, at least, the supply of assets is limited. “Lots of companies in the Gulf are young and don’t have assets such as buildings to use in transactions,” says Geert Bossuyt of Deutsche Bank. This limits the scope for securitisation, a modern financing technique that is backed by assets and is thus seen by sharia scholars as authentically Islamic. There are not enough properties to bundle into securities.

Governments have more assets to play with. The Indonesians have approved the use of up to $2 billion of property owned by the finance ministry in their planned sukuk issuance later this year. But oil-rich governments in the Gulf have little need to issue debt when they are flush with cash. That is a problem. Sovereign debt would establish benchmarks off which other issues can be priced. It would also add to the depth of the market, which would help solve another difficulty: liquidity.

It may seem odd to worry about liquidity when lots of Muslim countries are flush with cash, but many in Islamic finance put liquidity at the top of their watchlist. The chief concern is the mismatch between the duration of banks’ liabilities and their assets. The banks struggle to raise long-term debt. In a youthful industry, their credit histories are often limited; they also lack the sort of inventory of assets that corporate sukuk issuers have.

Desert liquidity
As a result, Islamic banks depend on short-term deposit funding, which, as Western banks know all too well, can disappear very rapidly. “Lots of assets are generally of longer term than most deposits,” says Khairul Nizam of AAOIFI. “Banks have to manage this funding gap carefully.” If there were a liquidity freeze like the one that struck Western banks a year ago, insiders say that the damage among Islamic banks would be greater.

Gillian BleaseThere are initiatives to develop a sharia-compliant repo market but for the time being the banks have only limited scope for getting hold of money fast. Loans and investments roll over slowly. The lack of sharia-compliant assets and a tendency for Islamic investors to buy and hold their investments have stunted the secondary market. The shortest-term money-management instruments available today are inflexible. Cash reserves are high, but inefficient. Western banks with Islamic finance units, or “windows”, are just as troubled by tight liquidity as purely Islamic institutions are: their sharia-compliant status requires them to hold assets and raise funds separately from their parent banks.

There are other sources of danger, too. Because Islamic banks face constraints on the availability and type of instruments they can invest in, their balance-sheets may concentrate risk more than those of conventional banks do. The industry’s ability to steer its way through stormy waters is largely untested, although Malaysian banks do have memories of the Asian financial crisis in the 1990s to draw on.

None of these tensions need derail the growth of Islamic finance just yet. There is plenty of demand, whether from oil-rich investors, the faithful Muslim minorities in Western countries or the emerging middle classes in Muslim ones. There is lots of supply, in the form of infrastructure projects that need to be financed, Western borrowers looking for capital and ambitious rulers eager to set up their own Islamic-finance hubs. The industry is innovative; new products keep expanding the range of sharia-compliant instruments. And as in conventional finance, the economics of the Islamic kind improve as it gains scale.

But further growth itself contains a threat. The AAOIFI ruling on sukuk earlier this year neatly captured the contradictory pressures on the industry. On the one hand, bankers are worried that the narrow enforcement of sharia standards is liable to stifle growth; on the other some observers fear that Islamic finance is becoming so keen to drum up business that its products, with all their ingenuity, are designed to evade strict sharia standards. This presents a dilemma. If the industry introduces too many new products, cynics will argue that sharia is being twisted for economic ends—the scholars are being paid for their services, after all. But if it fails to innovate, the industry may look too medieval to play a full part in modern finance.

Balancing these imperatives will become even harder as competition grows fiercer. Anouar Hassoune of Moody’s, a credit-rating agency, believes that unscrupulous newcomers could harm the reputation of the entire industry, “like the space shuttle undone by something the size of a 50 cent coin”. Islamic finance serves two masters: faith and economics. The success of the industry depends on satisfying both, even if the price of that is a bit more inefficiency and a bit less growth.

[FT] US jobless rise fuels fears on economy

US jobless rise fuels fears on economy
미국의 실업률 증가가 경제에 공포를 불어넣고 있다.
By James Politi in Washington, Krishna Guha in St Paul, and Michael Mackenzie in New York

Published: September 5 2008 14:09 | Last updated: September 6 2008 00:16

The US unemployment rate unexpectedly jumped to a five-year high of 6.1 per cent, suggesting a bleaker picture of the world’s largest economy than thought.
미국 실업률이 5년래 최고치인 6.1%까지 올랐다. 생각했던 것 보다 암울한 미래가 올 것 같다.

Labor Department data released on Friday showed that employers shed 84,000 jobs in August – the eighth consecutive month of job losses – significantly worse than economists were expecting.
84,000명의 노동자들이 일자리를 잃었다. 8개월간 일자리를 얻은 사람보다 잃은 사람이 더 많다. 경제학자들이 예측했던 것 보다 상황이 좋지 않다.

The news dented hopes for a stronger US economy that were stirred last week when the government announced an upward revision to its assessment of gross domestic product growth in the second quarter.
상황이 좋아질 거라고 예상했던 뉴스들은 미국경제가 강해질 거라고 활기를 불어 넣었다. 정부는 2분기 국내 총 생산성장의 예상치를 상승으로 수정했다.

The August jobs report could have a substantial effect on thinking at the Federal Reserve. Hawkishness at the US central bank had already largely subsided after falls in commodity prices, and policymakers now have to worry that unemployment may be climbing faster than they anticipated.
8월 일자리 보고서는 연방준비이사회에 강력한 영향을 줄 수도 있다. 중앙은행의 매파들은 이미 상품사격이 떨어지고 있기 때문에 경제가 침체에 접어들었다고 생각한다. 또한 정책결정자들은 그들이 예상했던 것 보다 실업율이 빠르게 늘어나자 걱정하고 있다.

An influential minority of Fed officials now think that further rate cuts cannot be ruled out. However, most policymakers still have what some call a “soft inflation bias”. 하지만 정책결정자들은 여전히 물가인상을 걱정한다.

That means they still believe the next move in rates is more likely to be up than down, though they are increasingly prepared to keep rates on hold for an extended period. 금리는 오를 가능성이 많다.

The S&P 500 fell as much as 1.6 per cent after the report was released but closed 0.4 per cent higher as financials led a late rally. 보고서가 발표되자 S&P지수는 1.6%떨어졌지만 금융주의 상승으로 0.4%오른채 장을 마감했다.

That snapped a four-day losing streak and trimmed the S&P’s loss this week to 3.2 per cent. The main US markets remained in official bear market territory on Friday, after falling more than 20 per cent from their record 2007 peaks on Thursday. S&P는 이번주에 3.2% 하락했다.미국시장은 지난 2007년 최고점에서 20%나 하락했다.


Ahead of the announcement, shares across Asia-Pacific fell for the fifth consecutive day to hit their lowest levels in 27 months.
발표 직 후 아시아 태평양 지수는 27개월래 최저치까지 떨어졌다.

In Paris, the CAC 40 closed down 2.5 per cent while in London, the FTSE 100 index ended the session down 2.3 per cent.
파리에서는 2.5%하락, 런던역시 2.3%하락.


Additional reporting by Andrew Wood in Hong Kong

Copyright The Financial Times Limited 2008

[FT] Wolf: A year of living dangerously

http://www.ft.com/cms/s/0/2cc4291c-52a2-11dd-9ba7-000077b07658.html

Wolf: A year of living dangerously
위태로운 삶의 한 해
By Martin Wolf

Published: July 15 2008 20:18 | Last updated: July 15 2008 20:18



It is now almost a year since the US subprime crisis went global. Many then hoped that the repricing of risk would be no more than a brief interruption in the progress of the US and world economies. Such hopes have been disappointed. The woes of Fannie Mae and Freddie Mac, the tumbling stock markets and the climbing oil prices make clear how far the turmoil is from its end. It has, in all likelihood, not even passed the end of its beginning.
미국의 서브프라임 사태가 세계 전역으로 퍼진지 1년이 되었다. 많은 사람들은 위험의 재평가가 미국과 세계경제의 발전에 조그마한 걸림돌 이상은 아니길 바랬다. 이러한 희망은 실망이 되었다. 페니메와 프레디맥의 불행, 요동치는 주식시장과 올라가는 석유가격은 위기가 끝나기는 아직 멀었음을 확인시켜 주었다. 오히려 이제 시작점을 통과했다고 할 수 있다.

So where is the world economy now? And where might it go? Here are some preliminary answers to these questions.
그럼 세계경제는 지금 어디에 와 있나? 또한 어디로 갈건가? 여기 그러한 질문에 단초를 제공할 답변들이 있다.

The answer to the first comes in two main parts: continued financial distress and commodity price rises.
첫번째 질문에 대한 답변은 두 부분으로 나누었다. : 금융파단의 지속과 상품가격의 상승이다.

The performance of banking stocks tells one most of what one needs to know about the financial crisis. In the US, the epicentre of the distress, banks had lost half of their market value between a year ago and the end of last week, relative to the S&P composite index.
은행주의 모습은 금융위기에 대해 알고자 하는 내용을 잘 말해준다. 파탄의 진원지인 미국에서, 은행들은 S&P 지수상으로 1년사이에 시가총액 중 절반을 까먹었다.

Equity investors are not the only people worried about the health of banks. The banks themselves are also worried. Spreads between rates of interest on inter-bank lending in dollars, euros and sterling and expected official rates over three and six months are now wider than they were in March. On six-month loans spreads are now as high as at the two previous peaks, in September and December of last year (see chart).
주식투자자들만 은행의 건전성을 걱정하는 것은 아니다. 은행들도 자신들을 걱정하고 있다. 달러, 유로화, 파운드화로 거래되는 은행간 차입 이자와 3월에서 6월물의 예상 이자간 차이는 지난 3월 보다 더욱 늘어났다. 6개월물 스프레드는 작년 9월과 12월에 기록한 두번의 최고점만큼 높아졌다.

This is no mere liquidity crisis. The banks are expressing concern about the solvency of their peers. One good reason for them to worry is that the quality of the underlying collateral for much of the lending of previous years – housing – continues to deteriorate. The Case-Shiller 20-city index declined by 18 per cent in nominal terms and 22 per cent in real terms between its peak in mid-2006 and April of this year. This rate of decline is also accelerating.
이것은 더 이상 유동성 문제가 아니다. 은행들은 동종기업들의 지급능력을 걱정한다고 말한다. 그들이 걱정하는 이유는 작년에 돈을 빌려주며 담보로 설정해 놓은 주택가격이 악화되고 있기 때문이다. 케이스-쉴러 20대 도시 주택가격 지수는 최고 수준이었던 2006년 중반에서 올해 4월까지 명목상으로 18퍼센트, 실질적으로 22퍼센트까지 하락했다. 하락률은 점점 증가하고 있다.

It is little wonder, then, that the stock market has been showing something close to panic over prospects for the two government- sponsored enterprises, Fannie Mae and Freddie Mac, which have been financing about three-quarters of all US mortgages. A formal government takeover of these entities, whose total liabilities are close to 40 per cent of US gross domestic product, is not out of the question. In terms of gross government indebtedness, this would make the US look like Italy.
주식지장이 미국 모기지 대출의 75%를 담당하는 준공공기관인 패니매와 프레디맥에대한 전망때문에 공황상태에 가까워 진 것은 조금 불안하다. 정부는 전체 부채가 국내 생산의 40%에 맞먹는 이들 기관의 채권을 모두 보증하겠다고 했고, 이는 불가능하지는 않다. 정부 순 부채에서 이는 미국을 이태리처럼 만들 수 있다.

Meanwhile, the price of oil is close to $150 a barrel. While an important part of the world economy is worrying about the risks of financial collapse and ensuing deflation, the price of the world’s most important commodity has doubled over the past year. In real terms, the price of oil is now 25 per cent higher than in 1979, at the peak of the second oil shock.
반면에 석유가격은 배럴당 150달러에 가까워 졌다. 세계경제에서 중요한 부분을 차지하는 금융붕괴가 발생할 위험과 뒤이은 디플레이션을 걱정하는 순간에 세계에서 가장 중요한 상품의 가격은 작년의 두배가 되었다. 실질가격으로 유가는 현재 2번째 오일쇼크가 발생한 1979년에 비해 2배나 올랐다.

The soaring prices of oil and other commodities are something of a puzzle, since global economic growth is slowing: consensus forecasts for June have world growth at 2.9 per cent this year (at market exchange rates), down from 3.8 per cent in 2007, largely because of the slowdown in the high-income countries, with US growth forecast at only 1.5 per cent this year, down from 2.2 per cent in 2007, and growth in western Europe at 1.8 per cent, down from 2.8 per cent in 2007.
세계경제성장이 느려진 뒤 급상승하는 석유와 상품가격은 퍼즐같다.: 6월 전망치를 평균하면 올 해 세계경제성장률은 3.8%였던 지난해 보다 하락한 2.9%이다. 이는 고소득 국가들의 저성장때문이다. 미국의 성장률 예측치는 2.2%를 달성한 지난해에 비해 떨어진 1.5%이며 서유럽은 2.8%에서 하락한 1.8%이다.

So why are commodity prices soaring when the world economy is slowing? The popular explanation seems to be “speculation”. But, since speculation is always with us, this cannot explain why prices are soaring now. Another popular explanation is the aggressive easing of US monetary policy. But this hardly explains the fact that the price of oil is rising rapidly even in euros (see chart). Nor does speculation explain the rise in the prices of commodities that do not have active futures markets: iron ore, for example.
그렇다면 왜 상품가격은 세계경제가 침체에 접어드는 데도 오르고 있나? 많은 사람들은 "투기"때문이라고 한다. 그러나 투기는 항상 있어왔다. 투기가 석유가격이 날아오르는 지금의 현실을 설명하지는 못한다. 또다른 설명은 미국의 유연한 통화정책이다. 그러나 이것은 유로화에 대해서도 상승하는 석유가격을 설명하지 못한다. 투기 역시 철과 같이 선물거래가 없는 상품의 가격상승을 설명하지는 못한다.

In the case of oil, as Daniel Gros of the Centre for European Policy Studies pointed out in the Financial Times last week (this page, July 10), speculation is inherent in deciding whether to produce. The producers are speculators on the future value of their resource – and rightly so, since it is finite.
석유의 경우, 중앙유럽정책연구소의 데니얼 그로스가 지난 주 파이낸셜 타임즈에서 지적한 바와 같이 투기는 생산에 상관없는 결정에 내재해 있다. 생산자들은 그들이 소유한 자원의 미래가치에 대한 투기자들이다. 모두가 알고 있듯이 자원은 유한하기 때문이다.

Producers will leave oil in the ground if the rise in real oil prices is expected to be faster than the return on the alternative assets. What determines the current price then is the expected future price. The most important drivers have been the prospective growth in the demand of emerging countries, particularly China, and gloom about alternative sources of supply. China’s rapid and highly resource-intensive growth is the most important factor: growth there is still expected to be 10 per cent this year and more than 9 per cent in 2009.
생산자들은 만약 실질 석유가격의 상승이 대체자산의 수익성 상승보다 빠를 것으로 예상한다면 매장되어 있는 석유를 그대로 놔둘 것이다. 현재가격을 결정하는 변수는 미래가격에 대한 예상이다. 가장 중요한 요인은 중국같은 신흥부국들의 수용성장 예상치와 대체자원의 공급에 대한 암울한 전망이다. 중국의 급격하고 높은 자원집약적인 성장은 가장 중요한 요인이다. 성장률은 10%를 유지할 것으로 보이며 2009년에는 9%이상이 될 것이다.

So what happens to the world economy next? Here perhaps the most important point is the uncertainty. It is possible to tell stories of a return to rapid growth in the world economy. It is just as easy to tell stories of something close to a financial meltdown.
이제 세계경제에 어떤 일이 일어날까? 아마 가장 중요한 요점은 불확실성일거다. 세계경제가 급격한 성장세를 회복할 것이라고 말하는 것은 가능하다. 또한 금융붕괴에 가까워 졌다고 말할 수도 있다.

Yet the balance of economic forces is contractionary: financial crises and property price collapses in the US and a number of other high-income countries; soaring commodity prices; and inflationary pressures, particularly in emerging countries. It is hard to see any outcome other than a sustained slowdown in the world economy. It is even quite likely that the trend growth of the world economy is considerably slower than was hoped a few years ago.
그러나 경제적 힘의 균형은 불황이다.: 미국과 다른 고소득 국가에서 벌어진 금융위기와 자산가격 폭락; 상품가격의 폭등; 신흥부국의 물가상승압박. 세계경제가 지속적으로 하락할 것이라고 보는 것 외에 다른 예상은 하기 어렵다. 세계경제 성장의 추세가 몇년전의 희망과 달리 상당히 느려졌다고 보는것이 적절하다.

Furthermore, some of the risks could combine in dangerous ways. An attack on Iran might push the price of oil above $200, for example. Moreover, the creditworthiness of the US government cannot be taken for granted. If the ongoing deleveraging of the US economy weakened US consumption, the economy might go into a deep recession. US fiscal deficits would then soar and long-term US interest rates might jump. This could make the debt dynamics of the US government look very unpleasant. A flight from the dollar and dollar bonds might even ensue. Who would then want to be running the Federal Reserve?
게다가 위험요소들은 위험한 방향으로 조합할 수 있다. 예를 들어 이란침공은 석유가격을 200달러 이상으로 끌어올릴 수 있다. 더 나아가 미국정부의 신용은 인정받지 못 할 수도 있다. 만약 현재 진행중인 미국경제의 부채감소가 미국 소비를 위축시킨다면 경제는 극심한 침체에 접어들 것이다. 미국재정적자는 늘어날 것이고 미국장기채권의 이자율은 솟아 오를 것이다. 이러한 상황이 미국의 부채상태를 매우 안 좋게 보이게 할 수도 있다. 뒤이어 달러와 미국채를 버리는 상황이 일어날 것이다. 그러면 누가 연방준비기금이 돌아가길 원할까?

The good news is that the world economy has held up surprisingly well. The bad news is that the risks remain squarely on the downside. It will take some luck and much judgment to pass through the storms unscathed. It is time to take a break from the gloom. That is what I will now do. I will be back at the end of August.
좋은 소식은 세계경제가 놀라울 정도로 다시 일어서고 있다는 것이다. 나쁜 소식은 위험이 하락추세로 가는 도중에 군데군데 남아있다는 것이다. 이제 조그마한 운을 가지고 알 수 없는 태풍을 지나가기 위한 결정을 내려야 한다. 그것이 지금 내가 할려고 하는 일이다. 나는 8월 말에 돌아오겠다.

[FT]Oil price of $100 a barrel on horizon

Oil price of $100 a barrel on horizon
배럴당 100달러 선에 이른 석유가격
By Javier Blas and Carola Hoyos in London and Michael Mackenzie in New York

Published: September 2 2008 20:17 | Last updated: September 3 2008 00:03

Oil prices sank to a five-month low of just more than $105 a barrel on Tuesday as traders turned their sights on signs that slower growth was spreading beyond the US into Europe, Japan and even emerging markets.
트레이더들이 미국을 넘어 유럽, 일본, 이머징 마켓까지 저성장이 확산될 것으로 시각을 바꾸자 화요일, 석유가격은 5달 중 최저치인 배럴당 105달러까지 침몰했다.

The fall led some analysts to suggest that oil prices could move back below $100 a barrel, a level not seen since March, after fears that US oil supplies could be severely disrupted by hurricane Gustav proved unfounded.
이번 하락으로 일부 애널리스트들은 허리케인 구스타브가 미국 석유 저장시설에 피해를 입히지 않는다면 석유가격이 100달러 아래까지 내려갈 수도 있다고 말한다. 석유가격은 지난 3월 이 후 100달러 이하로 내려간 적이 없다.

“With the fear of Gustav now gone, a downside ‘speed bump’ will have effectively been removed as far as crude oil prices are concerned, and we expect values to start tracking lower once again,” said Edward Meir, of MF Global in New York.
"구스타브에 대한 공포가 사라지는 지금, 하락을 막는 과속 방지턱은 사실상 사라질 것이다. 그리고 우리는 시장가치가 다시 떨어질 것으로 예상한다."고 뉴욕에 있는 MF글로벌의 에드워드 메이어가 말했다.

The slide in oil prices could be short-lived in the light of Iran stepping up efforts to persuade fellow Opec members to cut output when they meet in Vienna next week.
다음 주 비엔나에서 열리는 Opec회담에서 이란이 참가국에게 생산량을 줄이자고 설득할 것으로 알려지면서 석유가격의 하락세는 짧게 끝날 수 있다.

Iran, one of the more influential members of the group and traditionally a price hawk, wants countries to cut output to previously agreed limits to remove supplies left on the market after falls in demand.
Opec에 막대한 영향을 끼치는 나라이자 전통적으로 가격 강경국가로 통하는 이란은 산유국들이 생산량을 이전에 동의한 대로 수요의 하락 후 남아있는 공급량을 없에는 수준까지 줄이자고 한다.

If the other 12 members of Opec agree with Iran, this would reduce world oil supply of almost 88m barrels a day by between 500,000 and 1m barrels, probably from October.
만약 12개의 Opec회원국들이 이란에 동의한다면 10월 부터는 세계 석유 공급량은 현재 880만 배럴에서 50만 이나 100만 배럴까지 줄어들 수 있다.
Gholam Hossein Nozar, Iran’s oil minister, said the market was oversupplied. “Oil supply must be well proportioned with demand and control over Opec’s excess oil supply is an issue that must be discussed,” he said.
이란의 석유장관인 골람 후세인 노자르는 초과공급상태라고 말했다. " 석유 공급은 수요에 비례해야 하며 Opec의 통제력을 벗어난 공급량은 반드시 논의되어야 한다."고 그는 말했다.

It is not certain that Saudi Arabia will agree with Iran’s aggressive position. The kingdom, Opec’s most powerful member, increased its production to more than 9.5m barrels a day in July, the highest level in more than 25 years, after pressure from consumers, particularly in the US, struggling with high oil prices.
사우디 아라비아가 이란의 강경책에 동의할 지는 확실하지 않다. Opec에서 가장 큰 영향력을 행사하는 사우디 왕국은 7월에 생산량을 지난 25년간 최고치인 95만 배럴까지 올렸다. 고유가로 고통을 겪고 있는 미국을 비롯한 석유 소비국들의 강력한 요청이 있었기 때문이다.

Early indications of August supply, especially to Asian refiners, suggest the kingdom might have already decided to cut back production on some of its higher quality grades of oil, as demand has slipped and prices fallen.
아시아 정유업자들에 따르면 초기 8월 생산량 지표상으로 사우디왕국은 수요가 하락하고 가격이 떨이짐에 따라 고품질 원유에 한해서 이미 생산량을 줄이기로 결정한 듯 하다.

The drop in crude oil prices to a low of $105.40 a barrel, down almost 30 per cent from a record high of $147.27 in July, pushed Wall Street stocks higher, especially in oil-hungry businesses such as airlines. Oil recovered to $108.60.
잔인한 석유가격이 지난 7월에 기록한 최고점인 147.27달러에서 30%하락한 배럴 당 105.4달러까지 떨어지자 항공사같은 석유가 배고픈 산업의 주가는 올랐다. 석유가격은 108.6$까지 회복했다.

Oil led a broader sell-off in commodities such as copper, corn and soybeans, with the Reuters-Jefferies CRB index, a benchmark for raw materials, falling to a 6½-month low, down about 18 per cent from July’s peak.
석유는 전반적인 상품매도를 이끌고 있다. 원자재 벤치마크인 로이터 제퍼리스 CRB 지수에 따르면 구리, 옥수수, 콩은 지난 7월 최고점 대비 18%떨어진 6.5포인트 하락했다.

The drop in commodities prices will be welcomed by central banks fighting high inflation and weak growth. The Organisation for Economic Co-operation and Development said that its forecasting models pointed to weaker growth to the end of the year. “Financial market turmoil, housing market downturns and high commodity prices continue to bear down on global growth.”
상품가격의 하락은 물가상승과 저성장에 맞서고 있는 중앙은행에 좋은 소식이다. OECD는 자체 예측모델상으로 올해 하반기 까지는 저성장이 지속된다고 말했다. "금융시장은 혼란스럽고, 주택시장은 하락세이며, 원자재가 상승은 지속될 가능성이 있으므로 세계경제 성장은 하락할 것이다."
Copyright The Financial Times Limited 2008

Commerzbank to buy Dresdner in €9bn deal

http://www.ft.com/cms/s/0/08ee33f8-7781-11dd-be24-0000779fd18c.html?nclick_check=1

Commerzbank to buy Dresdner in €9bn deal
By James Wilson in Frankfurt

Published: August 31 2008 18:41 | Last updated: September 1 2008 07:23

Allianz has agreed to sell Dresdner Bank to Commerzbank in a deal that will re-shape the German banking industry.
알리안츠는 드레스너은행을 코메르츠은행에 팔기로 했으며 이로 인해 독일은행산업은 개편될 것이다.

Allianz’s supervisory board approved the sale of Dresdner after meeting on Sunday. Commerzbank’s supervisory board was meeting at the same time and was also expected to agree to the deal, which analysts have said will be worth about €9bn.
알리안츠의 이사회는 일요일 회의 후에 드레스너 매각을 확인했다. 동일한 시각에 코메르츠은행의 이사회 역시 회의를 했으며 계약이 성사되기를 기대하고 있었다. 에널리스트들의 분석에 따르면 이번 계약의 가치는 약 90억 유로이다.

acquisition, after several months of talks, combines Germany’s second and third-largest banks to create a clear domestic rival to Deutsche Bank, with the largest number of branches.
수개월간 협상끝에 이뤄진 인수로 독일에 있는 2,3위 은행이 합치게 되어 가장 많은 지점을 가지고 도이치뱅크와 경쟁하게 되었다.

The enlarged Commerzbank will have a balance sheet about half the size of Deutsche‘s, with about €1,100bn in assets.
합병 뒤 코메르츠은행의 자산은 도이치은행에 절반정도인 1조 1천억 유로로 늘어났다.

Sunday’s agreement will mark one of the biggest steps by a German listed bank to try to raise its profitability in a market analysts say is “overbanked”, with about 2,000 institutions and most deposits held by co-operative and locally owned savings banks.
일요일 협약은 독일 은행시장의 수익성이 높아지는 큰 발자국으로 기록될 것이다. 애널리스트들은 그동안 시장포화상태라고 말해왔다. 독일에는 2000여 은행이 있으며 예금중 대부분은 지방 저축은행이나 협동조합에 예치되어 있다.

For Allianz, which bought Dresdner in 2001 in a €23bn deal, it means the end of attempts to control a “bancassurance” financial services group. The Munich-based group, Europe’s biggest insurer, will take a minority stake in Commerzbank as part of the deal to be announced.
2001년에 230억 유로를 주고 드레스너를 샀던 알리안츠에게 이번 매각은 방카슈랑스 금융서비스 기관으로 도약하려 했던 시도가 끝났음을 의미한다. 유럽의 가장 큰 보험사인 뮌헨 그룹은 코메르츠은행의 경영권을 일부만 같은 것으로 협상에 참여했다.

Analysts believe Commerzbank may cut at least half of the 5,500 jobs at Dresdner Kleinwort, the investment banking arm. The deal is also expected to lead to job cuts in Germany as the two Frankfurt-based banks combine back-office functions and shut some branches.
애널리스트들은 코메르츠은행이 투자은행인 드레스너 클레인워스에 있는 5,500개의 일자리 중 적어도 절반을 없앨것으로 믿는다. 프랑크푸르트에 위치한 두 은행들이 관리기능을 합치고 지점들을 폐쇄하면서 독일 내 일자리는 줄어들것으로 예상된다.

In spite of job cuts, some German politicians had championed the idea of the merger to create a second, heavyweight domestic bank alongside Deutsche. Allianz had also discussed the sale of Dresdner to China Development Bank, which would have been more politically controversial.
일부 독일 정치인들은 일자리가 사라지더라도 도이치은행에 대적할 거대 국내은행이 생겨나는 것을 옹호했다. 알리안츠는 또한 중국개발은행과 드레스너의 매각 건을 두고 협상했었다. 그러나 이는 정치적 분쟁을 나을 소지가 있었다.

The deal follows several previous attempts by German banking rivals to combine with the aim to create more scale and become more profitable. Dresdner and Commerzbank previously held merger talks in 2000.
매각 결정은 규모와 수익성을 늘리기 위해 독일 은행 라이벌들이 합치려 했던 여러 시도 끝에 나왔다. 드레스너와 코메르츠은행은 2000년에도 합병논의를 했었다.

Martin Blessing, Commerzbank’s chief executive, is set to remain at the head of the bank.
코메르츠의 최고경영자인 마틴 블레싱은 합병은행의 최고 책임자로 남게 되었다.

The deal is the second within two months in Germany following the sale in July of Citigroup’s retail operations to Crédit Mutuel, of France, for more than €5bn.
이번 계약은 시티그룹이 리테일 부문을 프랑스의 크레딧 무츄얼에 50억 유로를 받고 매각한 계약 이 후 두 달 사이에 있는 두 번째 계약이다.

A third deal could come if Deutsche Post decides to sell its majority stake in Postbank. But analysts believe Postbank’s falling share price in recent weeks has made this less likely.
만약 도이치 우체국이 최대주주로 경영에 참여하고 있는 우체은행을 팔기로 결정한다면 이는 세번째 계약이 될 것이다. 그러나 애널리스트들은 최근 우체은행의 주가가 하락하여 계약이 성사될지 여부는 불투명하다고 생각한다.
Commerzbank had at one stage been interested in a three-way link with Dresdner and Postbank. However, this plan is not now under discussion.
코메르츠은행은 드레스너와 우체은행이 연결된 세 길에 관심이 있으나 이 계획은 현제 논의되지 않고 있다.