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1. Barack Hussein Obama took power as the first black US President – wins Nobel Peace Price seen as call for action on challenges like climate change and Middle East peace talks – polls report a falling Obama approval rating in 2009, facing criticism over priority issues such as healthcare reform, unemployment and national security, losing support from independent voters, receiving credit from most Americans for governing in difficult times, naming also his moral values
Barack Hussein Obama was sworn in as the 44th President of the United States, calling on Americans to join him to confront the economic crisis and wars and Government initiatives should obtain a more comfortable support in a Congress, where the Democratic Party has strengthened its majorities in the House reaching 257 seats remaining 178 seats for the Republican Party and in the Senate reaching a supermajority with 60 seats leaving 40 seats to the Republican Party, after the Minnesota Supreme Court ruled that the Democrat Al Franken had won the race, ending Republican Norm Coleman the battle over the Minnesota Senate seat after fighting 8 months and including Senator Arlen Specter, who switched from the Republican to the Democratic party. Paul K. Kirk jr., a former aid and confident of the late Edward M. Kennedy had been appointed as interim replacement to fill his Senate seat until special election Jan.19, 2010 in Massachusetts, won by Republican Senator Scott Brown defeating State Attorney General Martha Coakley picked by Democrats, upsetting her loss of a crucial Senate seat in one of the country’s most traditionally liberal states President Obama and the Democratic Party, losing the supermajority of 60 votes in the Senate to avoid a GOP filibuster. Choosing the Republicans their ‘Obama’, the party named former Maryland Lieutenant Governor Michael Steele, an African-American, as its first black chairman, to rebuild the party after continued devasting defeats. Republicans won races for governor in New Jersey and Virginia, as voters focused on local issues, but seen as the first good news for the party in more than a year, however Democratic victory in New York’s 23rd Congressional District signaled the Republican Party continues to face ideolo- gical fissures over how to return to power. Democrats declared themselves united behind important commitments, such as that every American man, woman and child be guaranteed to have affordable, comprehensive health care, the expectation to complete withdrawal of U.S. combat troops from Iraq within 16 months, promises of energy rebates to struggling families, pension subsidies, higher taxes for families earning over $250.000, for others tax brakes, Billions for economic stimulus, direct high-level diplomacy, without preconditions, in the case of Iran and eventual negotiations to amend the North American Free Trade Agree- ments/ NAFTA with Canada and Mexico. The federal budget deficit surged to $454,81 Billion for the fiscal year ending September 30,2008/3,2% of GDP up from $161,53 Billion in 2007/1,2% of GDP. President Obama, sharing worries as budget deficit and size of U.S. debt rise faster, alarming credit rating agencies, widening budget deficit for the fiscal year ended in September 2009 to $1,41 Trillion/9,9% of GDP and for the current fiscal year started in October of 2009 and ending in September 2010 to a record high of $1,56 Trillion/10,6% of GDP including $100 Billion job creation proposals increasing total Government spending to $3,72 Trillion, while a country’s annual deficit should not exceed 3% of GDP, is redefining budget priorities, proposing a $3,83 Trillion budget for fiscal year 2011 aiming to reduce deficit to $1,27 Trillion and in 2012 to $828 Billion, calling for a total freeze of Government spending other than national security and public insurance programs over three years beginning in 2011, cutting deficits over the next decade to an average of 4,5% of GDP. However the official estimate for the 10 year budget deficit worsened from $7,1 Trillion to about $8,5 Trillion which would increase Government debt by 2019 to roughly $17 Trillion hitting public debt more than 76% of GDP from about 56% this year (the U.S. economy produces about $14,28 Trillion worth of goods and services a year). As the U.S. gross national debt, expanding by over $1 Trillion a year, reached nearly $12,107 Trillion exceeding the Federal debt limit of $12,104 Trillion, Congress approved to increase debt ceiling by $290 Billion to $12,394 Trillion, raising Congress debt ceiling again $1,9 Trillion to $14,294 Trillion supporting the Government borrower needs for 2010. Obama’s ‘American Recovery and Reinvestment Bill of 2009′, including permanent middle-class tax cuts, tax cuts for individuals and businesses, reaching with about $275 Billion an important proportion of the new stimulus package, getting relief about 95% of taxpayers, and planning the creation and preservation of 3 Million and up to 4 Million jobs during the next two years through large infrastructure investments, school and hospital modernisation, an energy savings program for public buildings, investing also money in some high-tech areas, with costs up to $544 Billion, totalling tax breaks and spending about $819 Billion, was approved by Congress agreeing finally on $787,2 Billion and signed into law by the President, claiming the Obama administration the stimulus bill has saved or created up to the end of October 2009 already about 650.000 jobs, proposing new job-creation incentives using free TARP funds to reduce reluctance of employers to hire. Completing its previous pay limits and a last minute provision included in the economic stimulus bill restricting bonuses for bankers at firms receiving or that already have received federal aid, the Government appointed Kenneth R. Feinberg as official to oversee pay systems and executive compensations in companies on Federal assistence. The new economic stimulus legislation is including a ‘Buy American’ clause, rising worldwide concerns about increasing protectionism, always rejected by the United States, however is also full of exceptions, like imports from 38 countries with which the United States has trade agreements, quieting for the moment the strongest critics of that provision. But there are complains and retaliations from Canada, as U.S. states and local authorities are not party to the trade agreements of the Federal Government ignoring and infringing upon the U.S.-Canada trade agreement, having the Obama administration the task to resist protectionist pressures ensuring domestic job opportunities and respecting trade obligations. Congress has started to vote on a new health care bill aimed to guarantee affordable health insurance for most Americans. Opposition to a Government-run health insurance program, the President’s top legislative domestic priority, as option to private insurance plans and seen as a crucial competition for private insurers, helping low-income people and including a provision to exempt Americans who cannot afford it, leads to increasing efforts of Democrats to find alternatives, like making the public option applicable only in states where the legislation fails to provide an affordable insurance to enough people, giving states a key role in the health reform, or consumer owned nonprofit insurance cooperatives or a Government regulated marketplace to shop the most convenient insurance plan and to qualify for new Government subsidies. House Democrats passed by a narrow 220-215 margin with a sole Republican vote a healthcare bill costing $894 Billion/gross cost $1,055 Trillion over ten years, fully offset by new taxes and spending cuts, providing affordable quality health insurance to 36 Million more Americans extending coverage to 96% of all legal residents, introducing as compromise the creation of a new Government regulated insurance ‘exchange’ allowing to compete private companies with the Government, making available Federal subsidies to lower- income people and small business, and including a restriction on abortion coverage. The Senate approved on a 60-39 vote its own historic healthcare reform which will cost estimated $871 Billiones adding coverage to 31 Million Americans reducing deficits over 10 years, including amendment to make preventive health screenings for women easier, expanding Medicaid, the Federal-State health program for the poor, cutting Medicare payments to health care providers, creating a national exchange or marketplace where individuals and small businesses could buy insurances. The Senate version scrapped the idea of a Government-run insurance plan, adopting a compromise language on abortion dividing Senate and House Democrats over these issues, and has to be reconciled with the House bill before a final legislation can be signed into law, however throwing GOP victory in special Massachusetts Senate election a quickly approving of a health care bill into doubts, planning President Obama a bipartisan summit on health care. In his first State of the Union address President Obama challenged Republicans for their insistent obstruction and his party for tending to ‘run for the hills’ rather than wield the power of its majority, declaring that his economic program had cut taxes for 95% of working families, making jobs the No.1 priority this year, defending health measures, tough new financial regulations and energy legislation to channel the economy into the right direction, recognizing Washington is still facing a deficit of trust.
Former President Bush allowed to use the $700 Billion bailout fund to help Detroit announcing a rescue package of $17,4 Billion, deciding President Obama to delegate fixing of Chrysler and General Motors to an auto panel integrated by his most senior economic advisors. General Motors reported it lost $9,6 Billion in the fourth quarter of 2008, totalling losses for 2008 of $30,9 Billion and auditors raise doubts about the viability of the com- pany as concern. Ford declined to use Government emergency loans, pulling Kirk Kerkorian, the billionaire investor out of the company, selling his remaining shares. The carmaker sold its Swedish Volvo unit to China’s Geely Group and earned $2,7 Billion or 86 cents a share on revenues of $118,3 Billion in 2009, the first profit in four years, increasing its market share in North America, South America and Europe. GM outlined a new survival plan reporting that a key group of bondholders agreed to an improved debt for equity swap offer accepting a 10% stake with warrants to buy an additional 15% in exchange for accepting bankruptcy plan, obtaining the United Automobile Workers Union, which approved a new cost-cutting labor agreement with GM, 17,5% and warrants to increase stake up to 20%, considering the U.S. Government to provide at least $30 Billion more in addition to the $19,4 Billion already invested to get the company through chapter 11, while Canada will lend about $9 Billion, leaving the U.S. Government and Canada initially with a majority stake reaching about 72,5% of the new GM to be reduced to 55% as soon as bondholders and UAW raise their stakes. Chrysler filed for bankruptcy protection after not reaching an agreement with private debt holders, closing a partnership deal with Fiat obtaining the Italian carmaker initially a stake of 20% which could rise to 35%, providing the U.S. and Canada financing during the bankruptcy proceeding receiving the U.S. a stake of 9,85% and Canada a stake of 2,46%, while the United Automobile Workers Union will have an initial stake of 67,69%. Clearing the United Supreme Court the sale of Chrysler’s key assets to a group led by Fiat, the Chrysler-Fiat alliance emerged out of the bankruptcy protection faster than expected, hoping the new Chrysler Group managed by Fiat to become a competitive and viable automaker. Fiat showed also interest to purchase GM’s European Opel/Vauxhall unit, favouring GM an offer of Magna International, a global supplier of automotive systems, with Russian carmaker Gorky Automobile Factory/Gaz and in partnership with Russia’s Sberbank, existing two other bidders Ripplewood Holdings through its European subsidiary RHJ International, a private equity company and China’s Beijing Automotive Industry Corp/BAIC. GM reached a tentative agreement with Magna signing a letter of intent, while the German Government, GM and the Obama administration agreed on a memorandum of understanding which included: Magna International will take over parts of the new European Opel activities from parent GM; Germany will provide €4,5 Billion in loan guarantees up to 5 years, including a bridge loan of up to €1,5 Billion from state banks; Magna International will loan Opel €300 Milliones to cover short-term liquidity; there will be a trustee scheme to protect the parts of Opel in Europe that can survive from any turbulence over GM. Magna offered €350/€450 Million immediately with another €150/€50 Million raised through convertible bonds later for a 55% stake in Opel, giving Magna 27,5%, Sberbank 27,5%, Opel’s employees 10% and the restructured GM 35% requiring German Government loan guarantees of up to €4,5 Billion, while Russian carmaker GAZ would become an industrial partner of Opel expecting Magna to increase Opel’s and GM’s Russian market share substantially. Having secured deals with the majority of bondholders, the United Automobile Workers Union and Magna International to buy control of its European operations, GM excluding Opel/Vauxhall, filed Chapter 11 bankruptcy protection to produce a court-super- vised restructuring and after completing the process of selling its best assets approved by a Federal judge of the United States Bankruptcy Court in Manhattan to a new Government- financed and -run company already could exit from bankruptcy protection. In its first earnings report since leaving bankruptcy GM posted a loss of $1,15 Billion for the third quarter of 2009, saying it will begin repaying Government loans with a first installment of $1,2 Billion due in December, staying GM’s U.S market share at 19,5% and its global market share at 11,9%. GM finalized an agreement with Chinese Sichuan Tengzhong Heavy Industrial Machinery Company to sell its Hummer operation, which will remain in the United States, however lost a deal with the Swedish sports car company Koenigsegg Automotive to sell its Saab unit as buyer faced trouble arranging financing, signing BAIC a tentative agreement to buy some assets, including intellectual property to integrate Saab technology into its own cars and after deciding GM to discontinue Saab collapsing other deal talks, Spyker Cars, the Dutch boutique sports car-maker, partly controlled by Convers banking group, and F1 racing Mogul Bernie Ecclestone through private equity firm Genii Capital, Luxembourg, made new offers, agreeing GM to sign a provisional agreement to sell its Swedish unit to Spyker offering to pay $74 Million in cash and $326 Million in preferred shares of Saab Spyker Automobile N.V., remaining pending Sweden to guarantee a $563 Million European Investment Bank loan to Saab. Opel survived on a German €1,5 Billion bridge loan due on November 30 and the German Government had asked the other European nations with Opel plants to participate in the remaining financial aid of €3 Billion, rejecting EU concern over state aid, answering that this help remains available to an investor exclusively chosen on the basis of economic criteria, requesting a confirmation from GM it had picked Magna for business and not political reasons. GM preferring not to reply and having improved its financial situation, but still regarded in the industry greatly at risk expected to lose money in 2010, decided finally not to sell anymore its European Opel/Vauxhall unit, known for its small car competence, increasingly important also for the U.S. market. GM received $52 Billion from the Government of which $45,3 Billion were converted into equity giving the U.S. a controlling stake of 61%, while the automaker has to repay $6,7 Billion in quarterly installments starting in December 2009 with $1,2 Billion. U.K. unions reacted with delight to GM’s determination to keep Opel/Vauxhall saying that its own restructuring plan of up to €3,3 Billion downsizing operations in Europe, was significantly lower than other bids like the Magna option requiring €4,5 Billion in State aid. But the notice raised anger in Germany, insisting that GM had to assume now the complete financial responsability for the European unit, stepping down its chief executive leaving to the Indian carmaker Tata Motors. As requested by the German Government GM repaid the remaining outstanding amount of $400 Million of the €1,5 bridge financing, enabling the U.S. carmaker to dissolve the trust board as the custodian of a 65% stake in Opel regaining a complete control of the company. German IG Metall union made it clear that the annual pay concession of €265 Million over 5 years negotiated with Magna against a 10% stake for Opel workers in the company became null and void and Opel dealers cancelled an assistance of up to €500 Million promised in case of a separation of Opel from GM. The company informed that it will move activities of its European headquarters from Zuerich to Opel’s headquarters in Ruesselsheim and might agree Opel to be run in the future with more independence ob- taining greater control over corporate decisions, requesting German unions the transformation of Adam Opel as a limited liability company into a German stock company to get back its industrial property rights. GM presented a new program for its Opel effort planning to invest €11 Billion over 5 years, cutting 8.300 jobs out of a workforce of about 48.000, reducing production by 20% and closing the Antwerp plant, expecting after having transferred €650 Million in January 2010 to Opel, European Government aid of up to €2,7 Billion and about 60% of the total from Germany. Magna, looking still forward to cooperate with Opel, and Sberbank are likely to demand a compensation from GM for the €50 Million invested in relation with their rescue plan for Opel, which the U.S. carmaker will try to use at least partly. The U.S. automaker said it will keep all 4 German plants located in Ruesselsheim, Bochum, Eisenach and Kaiserslautern which may face about 3.900 job cuts, saving also the Vauxhall plant in Ellesmere/UK without job losses, but losing the other British factory in Luton 354 jobs and Saragossa/Spain 900 jobs. GM announced that chairman Edward Whitacre Jr. who replaced temporary the resigning automaker’s chief executive Frederic Henderson, will become its permanent CEO, looking for a faster recovery and growth of the corporation and rose the stake of Shanghai Automotive Industry Corp/SAIC Motor Corp from actually 50% to 51% ceding control of its key Chinese joint venture, considered as a strategic move as China is passing the U.S. as the world’s largest auto market.
U.S. – relations with Moscu got more fragil during the Georgia crisis lacking a necessary mutual trust, although Russia’s economic elite, with close ties to Prime Minister Putin, has the desire to integrate with the rest of the world, being Russia member of the Group of 8 major powers/G8 and existing the NATO-Russian permanent Joint Council. Russia’s parliament recognised the independence of Georgia’s two separatist regions South Ossetia and Abkhazia, wan- ting to join the Russian Federation, establishing Moscu diplomatic relations with both. Due to the conflict with Georgia, to become jointly with Ukraine member states of NATO, and the global financial crisis foreigners have pulled out assets from Russia coming its stock markets under unprecedented pressure, falling its foreign currency reserves from $597,5 Billion to less than $400 Billion, as authorities were spending more than $200 Billion to support the ruble, the stock markets and the banking system to avoid a collapse of its economy, also hurt as oil prices dropped producing a budget deficit, remaining volatility and sistemic risks in Russia’s financial markets, lowering Standard and Poor’s the country’s foreign currency credit rating, contracting Russia’s economy. Due to rising energy prices investors are returning to Russia, increasing again its gold and foreign exchange reserves to $436 Billion, remaining its stock market volatile and the struggling economy may shrink by 6% in 2009. Russian President Medwedjew, who has launched a constitutional amendment to extend the presidential term from actually 4 to 6 years, expects the relations with the U. S. will improve again during the Obama administration and called for a more pragmatic foreign policy, modernizing Russia’s aging economy promoting investment to allow growth as conditions to remain a world power. With the attention on military issues, the U.S. and Russia reached a preliminary agreement to reduce nuclear arsenals, and businessmen, who signed some $1,5 Billion worth of deals during the U.S.President’s visit to Moscu, hope the meetings between Presidents Medwedjew and Obama and Prime Minister Putin, who signals desire to return to presidency running in elections 2012, will help to reset the relationship, lead to a greater cooperation, creating a new atmosphere improving American investments and trade ties. President Obama decided to scrap planned missile defense shield in Eastern Europe, opposed by Russia, to be replaced with a new configuration providing a better missile defense capacity to meet Iranian threat, and President Medwedjew, called the determination a responsable move helping to restart cooperation restoring strategic partner- ship between the U.S. and Russia, proposing NATO/North Atlantic Treaty Organization to cooperate with Russia considering to link eventually U.S., NATO and Russian missile-defense-systems, expecting Prime Minister Putin, praising also Obama’s decision, Washington will help Russia to gain admission into The World Trade Organization/WTO. Russia plans to abandon deployment of missiles near Poland, reporting progress to close deal with the U.S. on a successor agreement replacing a key Cold War - era nuclear disarmament treaty.
The $700 Billion rescue plan of the former Bush administration for the financial sector created the Troubled Asset Relief Program /TARP and included a provision to raise the federal insurance limit for consumers’ bank deposits from $100.000 to $250.000 to restore public confidence, allowing the Federal Deposit Insurance Corporation to borrow unlimited amounts of money from the U.S. Treasury Department in connection with this larger coverage that would extend until the end of 2009, backing up the decision of the Securities and Exchange Commission to losen rules to figure out the value of assets for which there are no buyers, adding also $100 Billion in tax breaks for households as well as business and indivi- dual tax reductions, and an extension of unemployment pay. The legislation constitutes one of the largest-ever government inter- vention in the economy, formally known as the Emergency Economic Stabilization Act/EESA. Creating the Money Market Investor Funding Facility/MMIFF to stimulate further credit markets the Federal Reserve planned to lend up to $540 Billion to a group of five specially created funds administered by J.P.Morgan Chase, that will buy up to $600 Billion of three-months unsecured and asset-backed commercial papers to provide liquidity to the money market mutual funds, taking the first 10% of losses, supplementing an earlier program under which the Federal Reserve planned to by commercial paper directly from issuers. The Bank of New York Mellon was named under a contract lasting three years as master custodian firm overseeing the $700 Billion bailout fund, while the primary focus of the rescue package was changed, buying the Government as a short-time intervention up to the amount of the first installment of $250 Billion of the rescue package preferred equity stakes in major U.S. banks, saying the fresh capital is not to hoard it but to deploy it. Federal regulators announced they will guarantee for a fee new bank debt up to three years and extend insurance for non-interest-bearing accounts through 2009. Banks that were invited to join the U.S. Treasury Department´s capital purchase program with the respective amounts proposed, encouraged to expand and look for mergers taking over competitors: $10 Billion each Goldman Sachs and Morgan Stanley, $25 Billion each Bank of America (including the soon to be acquired Merrill Lynch) and Citigroup, $20 Billion to $25 Billion Wells Fargo, $3 Billion Bank of New York Mellon, $2 Billion State Street Corp, another $125 Billion for smaller banks. The Federal Reserve, planning the way to use part of the $700 Billion rescue fund to buy and renegotiate mortgages, as to address the underlying fundamentals of the crisis, worked closely with the Federal Deposit Insurance Corporation/FDIC which released a new plan to refinance mortgage loans of 1,6 Million households costing the Government an estimated $24,4 Billion and widened financial rescue to insurance companies buying equity stakes to improve their balance sheets and to help troubled US car sector through their financing arm. GMAC, the financial arm of General Motors, became a bank-holding company after the Federal Reserve granted a respective request, getting access to capital from the $700 Billion bailout fund and to the Federal Reserve’s low interest short term emergency loans, announcing the Federal Reserve it will take a stake of $5 Billion in GMAC against preferred shares paying a dividend of 8%, lending another $1 Billion to GM to help GMAC to reorganize itself as bank holding company, revealing the bank ’stress test’ that GMAC needed $11,5 Billion to strengthen its capital reserves. GMAC continues to make loans to customers of General Motors and begins to assist Chrysler car buyers and dealers, receiving a second bailout of $7,5 Billion, and considered as critical to the success of GM and Chrysler, initiated talks with the Government for a new capital injection, and will get another $3,8 Billion against preferred stock, increasing total aid from $12,5 Billion to $16,3 Billion and U.S. stake in the company from 35% to 56%. The Treasury Department using its Exchange Stabilization Fund, offered, at least temporary, to protect the nation’s eligible publicly offered money market funds for up to $50 Billion from outflows, insuring their holdings against a fee the fund has to pay to participate in the program. There are roughly $3,4 Trillion resting in such funds which hold about $230 Billion in asset-backed commercial papers, accepting the Federal Reserve to lend money through banks against these short-term obligations in an effort to stabilize the $1,7 Trillion commercial paper market, a vital funding source for US business. Putting the original plan to buy troubled mortgage assets on hold and giving priority to reactivate credit markets helping consumers, not accomplished with the capital injections into banks, the Treasury Department said it wanted to focuse on banks, non-bank financial institutions and consumer lenders, eventually requesting to raise private capital to qualify, to increase availability of credit to people and stimulate consumer purchase, reducing foreclosures and provi- ding credit card loans, student loans, car loans and small business loans. The idea was to commit up to $1 Trillion starting early March 2009 to unfreeze the consumer debt market helping house- holds and small businesses to borrow money, providing the Federal Reserve under a new Term Asset Backed-Securities Loan Facility/TALF $200 Billion in low cost loans and guarantees at rates ranging actually from 1,5% to 3% to hedge funds and private equity firms that buy securities backed by consumer and business loans, of small employers, student loan providers, credit card issuers and auto lenders, funding the Treasury Department through the Troubled Asset Relief Program/TARP $20 Billion, which could be increased to $100 Billion, to absorbe losses under the program, extended until June 2010, up to this amount. Investors would be able to borrow between 84% and 95% of the face value of triple-A rated bonds, without being liable for any potential losses beyond the 5% to 16% equity they share in the investment. The Obama administration planned to inject $15 Billion to unfreeze credit for small businesses as from the end of March beginning the Treasury Department to purchase directly securities backed by loans guaranted by the ‘Small Business Administration’, including provisions to increase loan guarantees for small businesses to 90% of the loan value to encourage banks and other lenders to extend credit, waiving the loan fees of the ‘Small Business Administration’. The Federal Reserve said it will buy up to $200 Billion instead of the original $100 Billion in mortgages held by Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks to improve their cash-flow and to lower mortgage rates, purchasing another $500 Billion adding $750 Billion increasing substantially the amount to up to $1.250 Billion in mortgage-backed securities issued by these agencies, extending the program through the end of March 2010, and planning also the adquisition of $300 Billion in long-term Treasury Bonds, helping to reduce long-term interest rates for the Government. The Treasury Department disclosed guidelines for Systemically Significant Failing Institutions/SSFI program, it uses to justify emergency aid under the Emergency Economic Stabilization Act/EESA out of the $700 Billion bailout fund, preventing disruption of financial markets to limit impact on the economy, protecting American jobs, savings and retirement security. The Senate approved release of the remaining $350 Billion of the $700 Billion bailout fund and the Obama administration announced a financial stability initiative for as much as $2,5 Trillion, including the remaining $350 Billion out of the bailout fund, projecting - the creation of public private investment funds with financing jointly by the Government and private investors, reaching eventually $1 Trillion, to buy up illiquid assets from banks, – direct capital injections into banks subject to strict examinations to establish their lending capacity, making available additional information about their lending practices, revealing also more about their mortgage holdings and in general increasing tranparency of financial institutions, and confirming to commit as much as $1 Trillion increasing the originally $200 Billion planned under the TALF program to unfreeze credit markets for consumer, student, small business, auto and commercial loans, needing the Treasury Department eventually more bailout funds, and finally providing $75 Billion of the remaining $350 Billion bailout fund/TARP program to help avoiding foreclosures. The plan includes to leverage resources amounting to $75 Billion and up to $100 Billion of the Treasury Department’s bailout program/TARP with money from the private sector to buy initially $500 Billion expanding to as much as $1 Trillion in troubled loans and toxic assets creating the ‘Public-Private Investment Partnership plan/PPIP’, combining efforts of the Federal Deposit Insurance Corporation/FDIC, the Federal Reserve and private investors, setting up the FDIC a partnership program lending about 85% of the money the partnerships need to purchase troubled assets, expanding the Treasury Department its TALF program hiring at least five investment management firms, expected to help price toxic assets, pooling private money with Government funds. Moving ahead with the toxic asset plan the Treasury Department allocated $30 Billion of public funds naming nine fund managers, who together will have to commit another $30 Billion. The Government explained three basic principles: 1. Mix of FDIC, Federal Reserve and private money to optimise taxpayers resources, 2. Private investors, like equity firms, hedge funds and sovereign wealth funds, enabling also smaller and women or minority-owned firms to participate, share risk and potential profits and 3. Purchase through competitive auctions to obtain appropriate asset pricing, needing the price setting process to be transparent. The selected investment manager firms will establish ‘Public- Private Investment Funds’ raising equity capital matching the Government every dollar of equity that private capital provi- ders invest; besides helping with a 100% equity co-investment the Treasury Department will also provide a ‘nonrecourse loan’ to the ‘Public-Private Investment Fund’ up to 50% of the total equity capital of the fund, considering eventually an additional loan request up to 100% of its total equity capital, obtaining the fund as well access to the already operational expanded TALF program which could make additional $1 Trillion available, to commence a purchase program of targeted mortgage and asset backed securi- ties originated before 2009, enabling the fund to follow under its own discretion a long-term buy and hold strategy. Problem loans would be treated separately offering banks pools of loans for sale, awaiting the determination of the FDIC if it accepts to leverage any pool up to six times the equity, auctioning the FDIC the approved pool winning the highest bidder, who has to form a ‘Public- Private Investment Fund’ to purchase the pool of residential mortgages, guaranteeing the FDIC up to six times the equity and providing the Treasury Department 50% of the equity funding in ‘nonrecourse loans’, contributing the private investor with his investment to complete financing, remaining the ‘Public-Private Investment Fund’ subject to the FDIC’s oversight. Major banks found regulators scrutinizing their books to establish their viability under worse- ning conditions, insisting the Obama administration it had no intention to nationalize banks, easing terms of its investments in more than 350 financial institutions, testing regulators the health of the country’s 19 biggest banks, starting with Goldman Sachs, Morgan Stanley, Bank of New York Mellon, American Express and JP Morgan Chase, considered relatively healthy, and Citigroup, Bank of America and Wells Fargo, seen as more vulnerable, to check how much more money those banks need to overcome crisis and to ensure they have the capital and the liquidity to provide credits necessary to restore economic growth, as lending of major banks keeps dropping despite receiving Government loans. After the test the Obama administration asked big banks to increase capital reserves, some having negotiated with regulators a reduc- tion of capital requirements, needing BofA $33,9 Billion selling close to 6% of its CCB stake for about $7,3 Billion to Asian investors, Citigroup about $5,5 Billion, Wells Fargo $13,7 Billion raising already $7,5 Billion in equity, and Morgan Stanley $1,8 Billion having raised already $8 Billion selling $4Billion in common stock and $4 Billion in bonds, leading new aid probably the Government to acquire common stock of financial institutions obtaining in some cases a controlling ownership stake and to study removing chief executives, considering that banks may raise capital from private investors as non-Government backed debt, or converting, as needed, the Government’s existing loans granted to them into common equity, turning the Federal aid into available capital for a bank. Under political pressure the Financial Accounting Standards Board/FASB changed the actual ‘fair value’ rules, admitting banks to use their own valuation models to value toxic assets, relaxing the reality based ‘mark-to-market’ accounting, removing also the pressure to get those assets off the books. Although this decision seemed to be one of the few options to save banks by improving their balance sheets, critics said it will further damage credibility of financial institutions by allowing banks to report higher profits avoiding to recognize losses on their invest- ments in toxic assets, removing the necessity to sell those assets, assuming the risk of potential losses to be realized later. Showing the financial system signs of repair regaining strength, Treasury Department is starting to unwind extraordinary Federal programs like emergency credit support for banks and financial markets, but insists in the need to continue reinforcing recovery as the economy is growing again but remaining weak. President Obama proposed to charge a so called ‘financial crisis responsability fee’ raising an estimated $90 Billion over 10 years from about 50 financial institutions, including 10-15 subsidiaries of foreign companies, to reduce federasl debt, and is confident it will become law, seeking also new limits on the size and concentration of financial institutions.
http://www.WhiteHouse.gov/news/
“Organizing for America” http://my.barackobama.com/neworganization/
American Recovery and Reinvestment Act – Transparency and Participation – President Obama: track every dollar spent and every job created -
http://whitehouse.gov/OpenForQuestions/
Government web site tells you if eligible to refinance mortgage, taking advantage of record low average rate on 30-year-fixed mortgages of actually 4,98% p.a.:
http://makinghomeaffordable.gov/
Health care reform:
http://my.barackobama.com/SenateReformBill/
http://my.barackobama.com/SenateLetter/
http://my.barackobama.com/FinishTheJob/
http://my.barackobama.com/Action/
President Obama is calling on all of us – United We Serve:
President Obama recorded a video for supporters:
http://my.barackobama.com/Year/
What’s next in 2010?
http://my.barackobama.com/2010/
Help Haiti!
http://my.barackobama.com/Haiti/
President Obama: ‘We want our money back, and we are going to get it’!
http://my.barackobama.com/Banks/
After U.S.Supreme Court ruled by a 5-4 vote that corporations may spend freely to support or oppose candidates for President and Congress, CEO’s urge passage of taxpayer financing for campaigns. Congress: I support bold action to ensure faire elections!
http://my.barackobama.com/FairElections/
President Obama: help me show the American people are ready to join fight for the middle class – add your name to a letter to Congress today:
http://my.barackobama.com/SOTU/
http://my.barackobama.com/SOTU-LTE/
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2. Economic Outlook 2010 – moderate recovery leaves many Governments excessively indebted – increasing inflation risks – weaker banking sector exposed to rising losses on loans and assets, facing stronger regulations – credit tightening - higher interest rates - climbing unemployment - weaker U.S. currency – shifting structure and balance of political and economical power between North America, Europe and Asia, surging BRIC countries gradually as new economic powers and global players expecting more influence at the IMF and in the World Bank, assuming G20 role as architect of a new world economic order
The prestigious independent National Bureau of Economic Research declared that the Nation has been in recession since December 2007, dropping economic growth in the last three months of 2007 as the credit crunch took effect, producing severe financial market problems in the United States and progressively a global financial crisis. To calm financial markets and help desesperate homeowners, former President Bush signed a two year bipartisan $168 Billion economic stimulus plan with tax rebates for consumers and tax relief for business, putting the Federal Reserve into force liquidity measures with repeated interest rate cuts, reducing its key interest rate to a historic low, dropping target range for federal funds rate to between zero and 0,25%, level where it probably will stay unchanged over an extended period until 2010, and lowering the federal discount rate to 0,5%, coordinating emergency measures with the world’s most important central banks also reducing main and direct lending rates, expanding currency swap agreements with the European Central Bank, the Bank of Japan, Bank of England and Swiss National Bank to secure access to foreign currency for US banks, authorizing at the same time these central banks unlimited amounts of dollars to cover dollar needs of their local banks. Maintaining key rate at record low to keep recovery going the Federal Reserve signaled plans to slow pace of purchases of U.S. Treasuries as the recession eases. Jobless rate jumped to 10,2% in October 2009 with 190.000 more Americans unemployed, raising the total to 15,7 Million, remaining flat at 10% in December with 150.000 jobs lost, after reaching 10% in November with originally reported 11.000 job losses, revised to a net gain of 64.000 jobs, dropping unemployment rate to 9,7% in January 2010 even though U.S. employers cut 20.000 jobs, declining the number of unemployed persons to 14,8 Million, falling the so-called underemployment rate from 17,3% in December 2009 to 16,5% in January 2010, decreasing claims for jobless benefits. Taking into account the first signs of economic recovery consumer confidence improved in August 2009 rising the index to 54,1 (1985 = 100) up from 47,4 in July, however dropped in September to 53,4, slipping further to 48,7 in October, increasing to 50,6 in November and to 53,6 in December, showing a modest rise to 55,9 in January 2010. U.S.- consumer spending, which accounts for about 70% of the U.S. gross domestic product, increased 2,8% in the third quarter of 2009, slowing to 2% in the fourth quarter, tumbling consumer spending capacity as wages and benefits for U.S. workers rose a weak 1,5% in 2009. Consumer credit declined for the 10th straight month in November falling $17,5 Billion leaving overall consumer credit at $2,46 Trillion, decreasing consumer’s demand for revolving credit, primarily credit cards, by $13,7 Billion. The U.S. consumer price index/CPI rose 0,4% in August, 0,2% in September, 0,3% in October, 0,4% in November, just 0,1% in December and 2,7% for the whole of 2009, increasing the core index excluding volatile food and energy prices 0,1% in August, 0,2% in September and October remaining unchanged in November, 0,1% in December and 1,8% for the 12 months ending in December. U.S. manufacturing activity signales first signs of a recovery, rising the Institute for Supply Management/ ISM index to 55,7 in October 2009 from 52,6 in September, its highest level in three years, indicating a reading above 50 growth and below 50 economic contraction, showing the overall industrial production in October a slow down rising only 0,1% combined with a weakness in producer prices, however improving production and ordering activity in December rising the ISM index to 55,9 from 53,6 in November, jumping to 58,4 in January 2010, climbing new orders to 65,9 from 64,8 in December 2009. Economic recovery helped to improve U.S. car sales, showing the market in November 2009 signs of stability with sales of Ford up 0,1%, of Toyota up 2,6%, dropping GM’s sales 1,8%, falling Chrysler sales 25%, posting Ford a 33% sales gain in December down 15% from a year earlier, estimating its U.S. market share to reach about 15%, declining GM’s sales 6,1% and 30% off from 2008, dropping Chrysler’s sales 4% and 36% from a year ago, ending the industry 2009 at an annualized selling rate of around 10,4 Million vehicles, the lowest level since 1982, surpassing China the U.S. as the world’s largest auto market with sales expected to top 12 Million in 2009. Ford U.S. sales rose 25% in January 2010, expecting analysts also sales gains of GM and Chrysler, estimating GM sales up 16% and Chrysler to report a 3,3% increase. Toyota said it will recall worldwide about 436.000 units of the 2010 Prius and other hybrid models to fix braking system problem. U.S. retail-sales climbed 2,7% in August 2009 pushed by auto purchases boosted by the Government’s cash-for-clunkers program, decreased 2,3% in September due to dropping car-buying, rising 1,2% in October, mainly due to strong auto sales and increased 1,8% in November, falling 0,3% in December led by a decline in auto sales, but still up 5,4% compared to December 2008 sales, shrinking sales 6,2% for the whole of 2009, reporting top retail chains strong January 2010 sales increasing 3,3%. The U.S. annual inflation rate 2008 was 3,85%, reaching the inflation rate in December 2009 2,72% and the actual 1 year inflation expectation 2,8%. U.S.-GDP reached a weak annual growth of 1,3% in 2008 and contracted 2,4% in 2009, the biggest decline since 1946, after the U.S. economy leaving recession expanded at a downwardly revised annual rate of 2,2%in the third quarter of last year, growing at a vigorous pace of 5,7% in the fourth quarter, and growth rate of 2011 is expected to reach up to 2,7%. The IMF adjusted its world GDP growth forecast for 2009 to 1,3% from 1,4% and for 2010 to 3,9% from previously 3,1%. Improving trade flows the OECD revised its economic outlook expecting the combined gross domestic product of the G7 leading nations will contract in 2009 by 3,7% from a previously projected 4,1%. The 27-nation European Union GDP grew 0,3% in the third quarter of 2009, declining 4,3% compared with the same quarter a year ealier, making EU up about 30% of the world economy, predicting the IMF a contraction of 4,1% for 2009, worser than in the US and also a slower recovery than in the U.S., and the economy expanded 0,4% from July through September 2009 in the 16-nation Eurozone, decreasing 4% compared with the third quarter 2008, projecting the OECD a contraction of 4% for the whole of 2009, improving the IMF its growth forecast from 0,3% to 1% for 2010 and to 1,6% in 2011. The annual inflation rate 2009 in the EU was 1,4% and in the Eurozone 0,9% reaching 1% in January 2010, while unemployment rate increased in 2009 to 9,6% in the EU and to 10% in the Eurozone, expected to rise to 10,3% respectively to 11,5% in 2010. The European Central Bank/ECB lowered its key rate in small steps from 4,25% in September 2008 to a historic low of 1%, which should be the floor of ECB, and helped to fight credit crunch in the Eurozone, lending banks unlimited 1 year funds, up from actually 6 months, pumping a record amount of €442 Billion into the Eurozone’s financial markets, pledging also to purchase €60 Billion in covered bonds issued by Eurozone companies, maintaining its main rate unchanged at 1% as economic recovery in the Eurozone remains fragile, staying inflation at around 1%significantly below the 2% target set by the central bank. EU leaders reached agreement on an economic stimulus package of €200 Billion, the equivalent of about 1,5% of the EU’s gross domestic product, coming €30 Billion from the European Investment Bank to increase lending to small businesses and for projects supporting renewable energy and cleaner transport , including €4 Billion in soft loans for the car industry, planning also to spend €5 Billion to finance energy projects and expanding broadband connection in the EU, increasing its emergency fund available for EU nations facing financial trouble and that have not yet introduced the Euro from €25 Billion to €50 Billion. However pumping central banks unlimited liquidity into the markets along with an expansive stimulus policy that leaves Governments heavily in debt, growing concerns over sovereign debt risk, there are doubts how all that money can be re-absorbed by the monetary authorities to avoid a huge long-term inflationary potential. According to the European Commission EU’s public debt could reach up to 100% of GDP as early as 2014, rising EU budget deficits to an average of about 7% of GDP in 2010 from 6% this year, facing as main problem increasing long-term pension costs and other age related expenditure. G8 countries confirming some signs of economic stabilization consider that it is important to support families and businesses confidence in order to trigger a faster economic recovery and to continue implementing strategies capable to reduce the impact of the crisis on employment, expecting that exit strategies from massive fiscal and monetary stimulus will vary from country to country. But there are fears that delaying exit strategies cheap excess liquidity worldwide invested into more risky assets, like stocks, real estate and commodities, could create after the housing bubble a new sort of U.S. asset market bubble and a global asset market bubble, leading the Federal Reserve to step up scrutinity of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global asset prices. Developing BRIC countries Brazil and Russia, commodity producers and beneficiaries of higher commodity prices, experienced with 5,1% and 5,6% respectively lower growth rates in 2008, reducing Brazil its growth target for 2009 to 0,59%, shrinking Brazil’s economy in annual terms 1,8% in the first quarter of 2009, but expanding 1,9% in the second quarter, announcing Russia that its gross domestic product growth would fall to zero or probably much lower in 2009, projecting the IMF the Russian economy will contract by 6%, while the somewhat frenetic growth in India and China, both commodity consumers, also is expected to slow down from estimated 6,8% and a revised 9,6% respectively in 2008, reaching India’s growth forecast for 2009 6,5%, for 2010 7,7% and for 2011 7,8%, growing its economy at an annualized rate of 5,8% in the first quarter of 2009, of 6,1% in the second quarter and of a strong 7,9% in the third quarter, projecting China a growth target of 8% compared to an IMF forecast of a revised 7,5% for 2009, 10% for 2010 and 9,7% for 2011. The 4 BRIC countries, the fastest growing emerging market economies, account for 42% of the world’s population, 14,6% of the global Gross Domestic Product/GDP of about $60,7 Trillion, 12,8% of the global trade volume and more or less 40% of the world’s foreign exchange reserves. Global economic contraction has produced a decreasing demand of commodities and lower commodity prices, easing pressure on inflation, however recovery will lead to increase demand of raw materials and feed inflation, remaining the interest differential between the Euro and the weakening Dollar still in favor of the U.S. currency.
Cash rich Sovereign Wealth Funds injected more than $80 Billion to recapitalize and rescue some of the world’s biggest financial institutions like Citigroup, Merrill Lynch, UBS, Morgan Stanley, Barclays, Standard Chartered, HSBC, and in an emergency deal, authorized by the Treasury Department and the Federal Reserve, JPMorgan Chase bought the troubled fifth largest U.S. investment bank Bear Stearns reaching worth of revised deal about $1,2 Billion. Lehman Brothers with a net loss of $2,87 Billion for the second quarter 2008 and expecting a new record loss of $3,9 Billion for the third quarter after writedowns of $5,6 Billion, failing to reach an agreement with foreign investors and unable to complete a rescue plan filed for Chapter 11 bankruptcy protection and entered into liquidation, owing more than $613 Billion to creditors in the U.S., Europe and Asia. Barclays Bank, which walked away from a possible rescue of the investment bank because it did not obtain government guarantees, bought Lehman’s core US-broker-dealer-operations in a $1,75 Billion deal, turning itself into a universal bank, and Japan’s largest brokerage Nomura acquired Lehman’s flagship operations in Asia including its equities operations and investment banking in Europe and the Middle East. The S.E.C. took emergency actions to stop abusive short-selling of stocks in financial institutions in difficulties, banning temporary short-selling of 799 financial stocks and considered general restrictions on so called ‘naked’ short-selling, when covering positions after the stock is sold, and short selling of declining Wall Street stocks. In an admirable demonstration of much needed confidence Billionaire Warren Buffett/Berkshire Hathaway confirmed to invest $5 Billion in form of perpetual preferred shares in Goldman Sachs, getting also warrants to buy another $5 Billion in common stock, raising the bank additional $2,5 Billion in common equity in a public offer. Goldman Sachs raised $5 Billion in common stock from the public and repaid the $10 Billion Government aid received, posting a high $4,79 Billion fourth quarter 2009 profit or $8,20 a share, earning for the full year 2009 $13,39 Billion, continuing its leadership in worldwide mergers and acquisitions. Morgan Stanley revealed a net income of $617 Million or 29 cents per diluted share and revenues of $6,8 Billion for the fourth quarter of 2009, reporting from continuing operations a profit of $413 Million or 14 cents per diluted share for the final three months of 2009 and for the full year of 2009 a profit of $1,1 Billion on net revenues of $23,4 Billion, but a loss of 93 cents a share reflecting preferred dividends and repurchase of TARP capital. The two remaining U.S. investment banks Goldman Sachs and Morgan Stanley changed in 2009 their investment banking model transforming themselves, with the approval of the Federal Reserve, into traditional bank holding companies, getting under stricter regulations as commercial banks protected by the federal safety net, requiring them to hold more capital in relation to their portfolio of investments. Morgan Stanley suspended in 2008 discussions about increasing the participation of the China Investment Corp/CIC, already a shareholder with a 9,9% stake, after Mitsubishi UFJ Financial Group paid $9 Billion for a 21% stake in the US bank and $3,5 Billion to take over 100% of the Union Bank of California, merging the Japanese bank its security subsidiary with Morgan Stanley’s Japanese securities operations. Posting Citigroup deepening losses in 2009 declining Citi shares to its lowest level in nearly 6 years, the bank’s largest individual shareholder Saudi billionaire Prince Al-Waleed Bin Talal announced he will increase his stake from actually 4,3% to 5% considering the shares actually dramatically undervalued. According to a rescue plan for Citigroup, negotiated by worried regulators tightening control of the bank giant, the Government granted loan guarantees of up to $306 Billion backed by residential and commercial real estate, agreeing to cover up to 90% of the losses on those securities in exchange for $7 Billion worth of preferred stock earning a dividend of 8%, also providing another $20 Billion against preferred shares, in addition to the $25 Billion already injected out of the $700 Billion bailout fund. Citigroup has to absorbe $8 Billion already reserved to cover assets and $29 Billion of the first losses as well as 10% of the remaining amount of potential losses and after the rescue announcement Citi shares went up 66%. Citigroup announced plans to eventually sell its remaining 49% stake in the Smith Barney joint venture to Morgan Stanley. Reshaping its structure, isolating its money losing operations into a new unit called Citi Holdings, keeping its healthy key businesses in an unit called Citicorp, the financial giant is selling its 64% stake in Japanese Nikko Asset Management to The Sumitomo Trust & Banking Corp for about $795 Million after it sold already its Japanese brokerage business Nikko Cordial Securities and other parts of Nikko Citigroup’s Japans operations for about $5,76 Billion to Sumitomo Mitsui Financial Group/SMFG as well as its Japanese trust bank NikkoCiti Trust & Banking Corp for about $200,7 Million to Nomura Trust & Banking Corp, obtaining vital capital injections and launched a delayed $58 Billion swap offer converting preferred shares and trust-preferred securities into new common stock, including $33 Billion from private holders and $25 Billion out of the $45 Billion invested by the Government, leaving the U.S. with the largest ownership stake of 34%, helping Citigroup to bolster its balance sheet making it eventually to one of the world’s best capitalized financial institutions. As one of the last big U.S. banks, Citigroup reached agreement with regulators and repaid $20 Billion of the remaining Tarp funds managing to raise in a difficult sales environment $20,5 Billion, however forcing lower share prices the Treasury Department to delay the sale of a $5 Billion stake planned alongside Citi’s own $17 Billion stock offering, trying to sell its entire stake of 34% – about 7,7 Billion common shares within 12 months. The nation’s third largest bank reported a $7,58 Billion loss or 33 cents per share for the final three months of 2009, due to repay of TARP money and failed loans, taking the group as other banks a cautious view of consumers’ credit problems, reporting for the full year 2009 a net loss of $1,61 Billion, booking a net loss of 80 cents per share, compared with a record loss of $27,68 Billion in 2008. Citigroup is rejecting an arbitration claim filed recently by Abu Dhabi’s ADIA in relation with an investment of $7,5 Billion in the bank two years ago as entirely without merit. Wells Fargo, the biggest bank of the West Coast, announced it closed a $15,8 Billion stock deal, approved by directors of each company, to buy all of Wachovia Corpration, keeping the bank intact preserving the value of an integrated company without government support, providing a superior value for its shareholders to a transaction offered by Citigroup, and struggling with the acquisition posted a fourth quarter 2008 loss of $2,55 Billion against a profit of $1,36 Billion a year ago, obtaining a profit of $2,84 Billion for the full year 2008. The bank reveiled a $10,4 Billion share offering after it reached a deal with regulators to return the $25 Billion TARP funds, earning $394 Million or 8 cents a share after paying preferred dividends generating revenues of $22,7 Billion in the final three months of 2009, although it had also big loan losses in the fourth quarter of last year, reporting for the full year 2009 a profit of $7,99 Billion or $1,75 a share after paying costs for Government bailout funds, compared to $2,37 Billion earnings or 70 cents a share in 2008. Due to financial difficulties Merrill Lynch, encouraged by the Federal Reserve approving officially a merger, was bought by Bank of America in a rescue take over for about $50 Billion, making BofA the second largest financial institution in the world. BoFA, which also purchased the troubled mortgage giant Countrywide, made a fourth quarter 2008 loss of $1,79 Billion plus a $15,31 Billion loss at troubled Merrill Lynch, but showed still a profit of about $4 Billion for 2008, receiving a fresh Government capital injection of $20 Billion, after having obtained already $25 Billion out of the bailout fund, making the Government with a 6% stake the bank’s largest shareholder, absorbing also against an additional $4 Billion stake in preferred stock with a yield of 8% up to $98,2 Billion in losses on illiquid assets of $118 Billion, 75% of those are from Merrill Lynch. The nations largest bank paid $425 Million for unused Federal guarantees against losses at Merrill Lynch and repaid all of its $45 Billion bailout funds, raising $18,8 Billion in fresh capital, reporting a loss of $5,2 Billion or 60 cents a share jumping its revenues primarily due to the addition of Merrill Lynch to $25,4 Billion during the final three months of 2009 coming $4 Billion of the loss from costs of paying back the TARP funds in December, posting for all of 2009 a profit of $6,3 Billion, but due to repay of TARP funds the results for shareholders were a loss of $2,2 Billion or 29 cents a share. Shareholders of the bank replaced Kenneth Lewis as chairman, who remains president and chief executive officer, disapproving his role in the bank’s merger with Merrill Lynch, appointing instead long-term director Walter Massey and named Brian Moynihan to succeed Lewis who retires at the end of this year. JPMorgan Chase, having bought already the troubled investment bank Bear Stearns, acquired in another emergency deal brokered by the Government for $1,9 Billion almost all of Washington Mutual/WAMU, with $307 Billion in assets the nation’s largest savings and loan and among the worst hit by the housing crisis. WAMU account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100.000 and additional deposits will be backed by JPMorgan Chase, having to absorb at least $31 Billion in losses from this take over, creating a nationwide retail franchise rivalled only by Bank of America. JP Morgan Chase showed for the full year of 2008 a net income of $5,6 Billion, 64% lower than in 2007, but doubled its profit during 2009 to $11,7 Billion, earning $3,28 Billion in the final three months of 2009 or 74 cents per share, confirming to struggle with delinquent loans. The bank had returned the U.S. Government’s direct capital investment in the bank of $25 Billion after demonstrating that it can issue debt without a Government guarantee. Part of the profit U.S. banks revealed for the first quarter of 2009 came from accounting adjustments or one time gains and not from quality earnings, but helped the financial sector to raise $89 Billion in equity and debt issuance through 92 deals in the second quarter to offset losses on toxic assets. According to the Federal Deposit Insurance Corporation/FDIC the number of problem banks rose from 305 to 416 in the second quarter of 2009 reaching a 15- year-high, and while the Govern- ment rescued the banks too big to fail the FDIC had to seize 140 smaller banks since January 2009, compared with 25 in 2008, easing regulators rules on bank buy- outs by private equity firms. One of the nation’s leading small and medium seized business lenders the CIT Group with $71 Billion in assets and $64,9 Billion in liabilities, having received last year $2,3 Billion in Government aid, filed for bankruptcy protection, after obtaining $4,5 Billion in credit from lenders and bondhol- ders, making also a deal with Goldman Sachs to preserve a $2,13 Billion loan lowering debt payment and negotiating a $1 Billion credit line from investor and bondholder Carl Icahn. The IMF said financial institutions might face total losses from 2007 to 2010 of $4,05 Trillion on loans and other assets, $2,7 Trillion originated in the U.S. and $1,35 Trillion in Europe and Japan, needing U.S. banks $275 Billion, Eurozone banks $375 Billion and UK banks $125 Billion in fresh equity to recapitalize to a level similar to the pre-crisis years to guarantee at least a modest credit growth.
After EU regulators insisted in the necessity to increase transparency in the over-the-counter/OTC markets linked to the global credit crisis, banks agreed to an European clearing mechanism for European Union-based credit default swap/CDS contracts, acting as buyer to every seller and as seller to every buyer, absorbing losses in the event of default. European leaders negotiated a new model for financial supervision creating a European Systemic Risk Board monitoring potential threats to financial stability and a European System of Financial Supervisors checking quality and consistency of national regulatory authori- ties. While the SEC will oversee rating agencies, the Obama admi- nistration plans to overhaul financial regulations to protect con- sumers and avoid risky practices preventing a future financial crisis giving the Federal Reserve new oversight powers, passing the House a far-reaching financial regulation bill, having the Senate yet to approve measures. The Government is introducing also more control and restrictions for OTC derivatives, actually largely excluded from regulation, to be negotiated in the future through exchanges or central clearing houses regulated by the SEC and the CFTC, estimating their total amount to reach about $450 Trillion, of which the value of interest-rate swaps is put at $403,1 Trillion, the value of credit default swaps at $38,6 Trillion and the value of equity derivatives that caused a near collapse of AIG at $8,7 Trillion. Investors withdraw about $150 Billion in December 2008 from hedge funds, which had borrowed also heavily money, and as hedge fund outflows increase they have to sell assets, estimating analists that the hedge fund industry mana- ging at its peak beginning 2007 about $2,2 Trillion in assets, is going to shrink according to estimates by more or less 45%/$1 Trillion due to withdrawals and investment losses, introducing the European Union and the United States, where hedge funds with more than $30 Million in assets under management will have to register with the SEC, stricter hedge fund regulations. The credit crisis conduced to a tightening in lending standards of credit card issuers with consumers to lower risk profile, declining revolving credit card debt, estimating American Express that its annualized net charge offs climbed as high as 10,1% in April 2009 declining to 8,4% in October, while credit card issuers accepted increasingly on a case-by-case basis to receive less than the full balance. The Federal Reserve approved the transformation of American Express, the nation’s last big independent credit card company, into a bank company, getting greater access to the bailout package for banks, requesting about $3,5 Billion in assistance out of this fund. American Express posted a fourth quarter 2008 net income of $172 Million, down 79% from $831 Million a year ago, reporting earnings of $443 Million or $0,32 per share for the first quarter of 2009, of $337 Million or 9 cents per share for the second quarter, result that includes a reduction of 18 cents per share for buying back preferred shares from the Federal Reserve, and on continuing operations for the third quarter a net income of $642 Million or 54 cents a share. U.S. banking regulators and the Federal Reserve prepared stricter rules for credit card issuers prohibiting unfair practices and calling on the industry to be more user-friendly. The Senate passed with the full support of the Obama administration a relief bill for holder of credit cards with exorbitant interest rates, legislation which has been already approved by the House, prohi-biting, in accordance with the Federal Reserve’s rules getting into force until July 2010, raising interest rates on existing balances unless consumer’s payment is 30 days late, rejecting the Senate a limit on credit card interest rates but extends that late period to 60 days, saying the interest rate would have to be restored to its previous level if payments were on time for six months. Under the Senate version rates can’t be increased the first year and any rate increase has to be notified 45 days in advance, while statements must be mailed 21 days before a payment is due, approving the House the final bill which was signed by President Obama into law, taking most provisions of the Credit Card Act of 2009 effect in February 2010, with the exception of the 45 days written notice before increasing interest rate or changing terms of the card and the requirement to mail each statement of payment at least 21 days before the payment due date which both went into effect on August 20, 2009.
AIG/American International Group, the world’s largest insurance company with an overexposure in real estate and in the credit default swap market, two problem segments suffering an overall decline in asset prices, was seeking $40 Billion in emergency loans, request initially rebuffed by the Federal Reserve, but to avoid that after Lehman Brothers also AIG was forced to file for bankruptcy protection, producing additional unpredictable consecuences for the world financial system, the Federal Reserve agreed on an emergency support taking a 79,9% equity stake and an effective control of the troubled insurance company, replacing its chief executive, reaching total bailout about $182 Billion. AIG reported a loss of $61,7 Billion for the fourth quarter of 2008, the largest quarterly loss in US corporate history, totalling losses $99,3 Billion for the whole year of 2008, converting the Government $38 Billion of debt into equity in two better performing Asian subsi- diaries of AIG, allowing AIG to exchange $40 Billion in preferred non-voting shares paying a dividend of 10% for new preferred shares not requiring a dividend, helping the company to save $4 Billion a year. The Government controlled insurer announced its first profit in seven quarters reporting for the quarter ending June 30, 2009 a profit of $311 Million available to common sharehol- ders, and including the Government’s portion of the profit earned $455 Million or 68 cents a share in the third quarter, remaining available to common shareholders $92 Million, while the outstan- ding Government assistance totaled $122,31 Billion on September 30.
During the financial crisis Germany started to guarantee all private savings accounts, worth at least €500 Billion/$700 Billion in the country, to reinforce confidence in its financial system, measure followed in different terms by other EU countries, agreeing the Eurozone to raise guarantee on bank deposits to €50.000/$68.000 for one year, acknowledging that many member states may increase their minimum to €100.000. Eurozone banks, blamed for tigthening of credit to the corporate sector, especially in Germany with a chronically undercapitalized banking system above all of the troubled Landesbanken, hitting Germany’s export structure, may face besides write-downs related to asset backed securities and derivatives additional risks of more than $283 Billion this year and next, mainly due to likely losses on corporate debt and other loans, existing also potential threats considering difficulties of central and eastern European economies, where many western European banks are exposed. The German Govern- ment completed a total nationalization of the Hypo Real Estate, one of Europe’s biggest commercial property lenders, to avoid that the crisis in one local financial company endangers the country’s financial system. Germany had passed through parliament the Hypo Real Estate Nationalization Bill, authorizing the state through the German bank rescue fund, SoFFIN, the control of the troubled mortgage lender, measure supported by the European Commis- sion, creating also a contingency initiative called Special Fund for Financial Market Stabilization/SoFFIN for an amount of up to €500 Billion to safeguard the overall German banking system that includes: Up to €70 Billion which could be increased if necessary by another €10 Billion, available until 12/31/09, for direct in- jections of capital into banks to restore weakened balance sheets, including German subsidiaries of foreign banks, and insurance companies against interest-bearing shares or assets, giving the Government the last word in important management decisions, like limits on executive pay and ban on dividend payments; up to €10 Billion of this part can be used to buy illiquid assets directly from banks and the Government is allowed to issue a state guaran- tee of up to 20 years for such assets which can be parked in special purpose vehicles/SPVs – so called bad banks, financial institutions would have to set up individually, approving the German parlia- ment the bad bank plan, which enables banks to place toxic assets such as asset backed securities and collateralized debt acquired until December 30, 2008 discounting 10% of their value on June 30, 2008 and once a book value has been calculated by a third party into SPV’s up to 20 years, in exchange for state-guaranteed bonds, for which banks will be charged a fee, and if these assets are at their maturities worth less than the initital value banks will have to pay the difference to account for the state-backed bonds they issued, estimating the Government that German banks may have as much as €230 Billion worth of toxic assets in their books; a pro- vision of up to €20 Billion to cover a calculated 5% risk of potential credit guarantee losses, as the main purpose of this rescue package is to unfreeze credit markets, offering on commercial terms up to €400 Billion in state guarantees to underwrite until the end of 2009 new Interbank loans up to 36 months and the Government will be able to attach conditions, like assurances to provide credits to companies and households. Germany’s export dependency is seen as a vulnerability of the German economy producing the global financial crisis in 2009 a decreasing international demand, falling German exports 14,7% contracting GDP a record 5%, expected to rise again 1,5% in 2010 and 1,9% in 2011, climbing the jobless rate from 7,7% in 2009 to 9,2% in 2010 and falling the annual inflation rate 2009 to a historic low of 0,4% compared with 2,6% in 2008, reaching the budget deficit 2009 €77,2 Billion or 3,2% of the GDP, exceeding EU – mandated ceiling of 3%. The German Government approved an economic stimulus package of €50 Billion, including tax reduction programs, low interest rate loans and infrastructure investments, announcing a second economic rescue plan for 2009/2010 worth € 49,25 Billion with long-term stimulus measures, like tax cuts, special infrastructure spending, and modernising schools and universities, setting up also a €100 Billion ‘German Fund’ managed by the KfW, the Public Sector Development Bank, to assist crisis hit businesses to overcome credit crunch, providing companies with loans and credit guarantees, approving the German Parliament additional tax reliefs to stimulate the economy. Worsening credit supply putting economic recovery at risk, the Government said it will offer €10 Billion state-backed loans from the ‘German Fund’ to banks to help especially small and medium seized companies, strengthen credit insurers providing state guarantees up to €7,5 Billion for bad debt risks and to buy up through KfW export credits to im- prove refinancing options for banks, giving also the German Central Bank/Bundesbank the sole responsabilty for the local banking sector oversight. Deutsche Bank, the biggest bank in Germany, acquiring Postbank, a big consumer banking operation from the Deutsche Post, and buying one of Europe’s oldest private banks Sal.Oppenheim, reported after earning €1,3 Billion in the fourth quarter of 2009 a net profit of €5 Billion for the whole year of 2009 following a net loss of €3,9 Billion in 2008, proposing to increase its dividends to €0,75 per share. Meanwhile French BNP Paribas took control of troubled Fortis operations in Belgium and Luxembourg in a €14,5 Billion deal, after a suprise nationalization of Fortis Dutch business and the French Government said it will guarantee up to €320 Billion of new Interbank loans and offers €40 Billion for direct capital injections into banks in exchange for equity stakes. The French Government also revealed its economic stimulus package for €37 Billion principally oriented towards investment efforts, including support for construction and small businesses, expecting to spend up to 75% in 2009, rising the GDP 0,3% in the second quarter of 2009 leaving recession, growing also 0,3% in the third quarter, predicting the IMF the nation’s economy will contract 3% this year. Both German and French carmakers are also eligible to use through their financing arms the state guarantees for new lending offered by the two Governments. The British Government nationalized part of UK’s banking system, buying up to Pstg.50 Billion preference shares or other interest bearing shares in 7 big UK banks, granting Pstg.250 Billion of loan guarantees up to three years and another Pstg.100 Billion in short-term liquidity, demanding that banks increase Tier 1 capital ratio actually in some cases lower than 5% to about 7,5% until the end of this year (core equity capital to total risk-weighted assets plus ability to sustain future losses), and limit executive compensation and dividends, while lending activities should satisfy Government. Some of these banks, more urged to be recapitalized, like the Royal Bank of Scotland/RBS, the Halifax Bank of Scotland/HBOS and Lloyds TSB participated in the program, creating the British Government the UK Financial Investments Ltd/UKFI to control its stakes in finan- cial institutions, while other banks like Barclays and HSBC raised capital from private investors to avoid conditioned Government support. The Royal Bank of Scotland/RBS, 70% owned by British taxpayers, posted with $34,4 Billion the largest annual loss in British corporate history, while Lloyds Banking Group, 43,5% owned by British taxpayers, reported a 2008 loss of about $15,3 Billion and finalizing plans to inject another $51,16 Billion into these banks, the UK Government urged by European regulators announced it will break up parts of them. Barclays increased capital by $12,02 Billion, participating mainly Persian Gulf in- vestors from Qatar/$3,8 Billion and Abu Dhabi/$5,8 Billion to control jointly more than 30% of the British bank once the opera- tion is settled, selling Barclays its asset management business Barclays Global Investors/BGI for $13,5 Billion to US money manager BlackRock obtaining a 19,9% stake in the US company now transformed into the world’s biggest investment firm, in- cluding financing of the transaction loans of $2 Billion from Barclays and the sale of equity for about $2,8 Billion to institu- tional investors, apparently to three Sovereign Wealth Funds KIA, GIC and CIC. The British Government increased its rescue package by another Pstg.100 Billion adding new measures, such as an insurance against a fee to protect financial institutions against future defaults on mortgage and other loans, urging participants in this program to increase lending to borrowers! But soaring budget deficits in the United Kingdom and the United States are alarming credit rating agencies, cutting Standard and Poor’s Britain’s so- vereign rating from stable to negative and may downgrade the country’s key credit ratings due to deteriorating public finances as debt burden could reach 100% of GDP by 2013. UK showed a 2,4% quarter on quarter GDP decline for the first three months of 2009, a fifth consecutive quarterly fall of 0,8% for the second quarter, a new decline of 0,3% for the third quarter, leaving recession showing a modest growth of 0,1% in the fourth quarter, estimating the IMF that the British economy will shrink 4,2% in 2009. Swiss authorities agreed against a 9% stake to take $60 Billion in mortgage related and other assets off the book of UBS, under- writing the bank giant up to $6 Billion of this transaction, putting them into a special Government – backed fund, cleaning the ba- lance sheet of troubled assets, helping the U.S. Federal Reserve to finance initially the deal. UBS, Europe’s biggest casualty of the U.S. subprime crisis, which so far has written off about $44 Billion of investments linked to the U.S. home market, confirmed further write downs of up to $7,5 Billion, reporting a loss for the fourth quarter 2008 of $6,9 Billion and for all the year 2008 of $16,8 Billion, revealing also net losses of about $2,6 Billion for the first quarter and of $1,32 Billion for the second quarter of 2009. One day after the U.S. and Swiss Governments agreed that UBS will submit details of 4.450 American clients suspected of tax evasion, the Swiss Government exits UBS showing confidence regarding the situation of the investment bank, selling its 9% stake at a profit of about $1,1 Billion to institutional investors. UBS is going to give names to Swiss tax authorities which will forward them to the I.R.S. under a new U.S. tax treaty with Switzerland, starting UBS to notify clients, who can appeal disclosure in Swiss courts. Credit Suisse did not want to participate in a Government rescue effort and in- creased its capital base with new investments of about $8,8 Billion from a group of private investors, informing that the largest par- ticipant is a subsidiary of the Qatar Investment Authority, a Sovereign Wealth Fund controlled by the Government of Qatar, already a major shareholder of Credit Suisse, posting a higher than expected loss for 2008 of $7,1 Billion, however reporting net profits of $2,6 Billion and of $1,47 Billion for the first respectively second quarter of 2009. And Russia supported its banking system with another $36 Billion in five-year loans via its biggest states banks VTB and Sberbank, providing much needed longer-term liquidity, and $40 Billion more in new help to strengthen top banks, setting aside $6,7 Billion to support its dropping stock markets, establishing a new recovery plan offering $90 Billion in stimulus spending through tax cuts and social welfare benefits to stimulate domestic consumer demand. Russia’s economy con- tracted at an annual rate of 10,9% in the second quarter of 2009 after shrinking 9,8% in the first quarter. Japan approved large economic stimulus packages worth about $765 Billion and planned fresh fiscal stimulus measures with spending of $154,4 Billion around 3% of the nation’s GDP, offering also $100 Billion in finan- cial assistance to Asian countries, approving parliament a record $904,7 Billion budget for the fiscal year starting in April 2009, to fight the worst economic crisis in decades, declining the country’s gross domestic product a record 4% in the first three months of 2009, however showing signs of recovery expanding 0,9% in the second quarter and a downwardly revised 0,3% in the third quarter, equivalent to an annualized growth of 1,3%, expecting the OECD an economic contraction of 5,3% for 2009, rising GDP again 1,7% in 2010 and 2,2% in 2011. Japan entered into a mild deflationary phase, dropping consumer prices 2,2% from the previous year in September 2009, or 1% excluding fresh food and energy and reveiled a record $1 Trillion budget for the financial year starting in April 2010 to boost its economy, growing worries over public debt mountain. China put into force a massive stimulus initiative of $585 Billion, including heavy infrastructure investments, tax cuts and low interest rate loans, and thanks to record government spending its economy expanded 10,7% in the fourth quarter of 2009 compared to a year earlier, growing its GDP 8,7% for the full year 2009, contribuiting also to the region’s stabilization, rising China’s exports 17,7% and imports even 55,9% in December, reaching total exports in 2009 about $1,2 Trillion ahead of the €816 Billion/$1,17 Trillion forecast for German exports, surpassing Germany as the world’s biggest exporter, planning also to replace Japan as the second largest economy after the U.S. in 2010. But China’s strong growth is accompanied by a rising inflation, hardening fears of policy tightening, ordering regulators some banks to stop new loans until the end of this month. China introduced a ‘Buy China’ policy as part of its economic stimulus program in response to the ‘Buy American’ clause, a move that will increase tensions with trade partners and trade protectionism.
Existing home sales jumped 10,1% to an annual rate of 6,09 Million in October 2009 from downwardly revised 5,54 Million in September and rose in November 7,4% to a 6,54 Million annual rate, but fell 16,7% to a seasonally adjusted annual rate of 5,45 Million in December, increasing the median sales price 1,5% to $178.300. Total sales for 2009 rose about 5% compared with 2008 increasing to 5,16 Million units showing the median price a sharp drop of 12,4% to $173.500, falling the inventory of unsold homes about 7% to 3,3 Million. New home sales climbed 6,2% to a seasonally adjusted annual rate of 430.000 in October 2009, but fell unexpectedly to an upwardly revised annual pace of 370.000 units in November, dropping again 7,6% in December to an annual pace of 342.000, rising the median sales price to $221.300, and there were 231.000 new homes for sale at the end of December representing actually about 8 months of supply, reaching the total of homes sold in 2009 only 374.000. Pending home sales tumbled 16,4% in November 2009 declining NAR’s sales index to 96 from a revised level of 114,3 in October, but increased 1% in December, up 10,9% from the same month a year ago. New home starts rose 8,9% in November 2009 to an upwardly revised 580.000 annual rate, however fell unexpectedly 4% in December to a seasonally adjusted annual rate of 557.000, while applications for home building permits climbed 6% in November to a 584.000 annual rate and jumped 10,9% in December to an annual rate of 653.000, the highest level of activity since October 2008. U.S.-homebuilder confidence climbed to the highest level since September 2008 rising the index to 19 in September 2009, decreasing for the first time in four months in October to 18, reflecting a reading below 50 poor conditions. The market-value of U.S. homes in 20 major cities was flat in October 2009 and down 7,3% compared with October 2008 improving from a downwardly revised 9,3% annual rate in September and signals a trend toward stabilization in house prices. Urged by homebuilders Congress approved an extension of tax credit $8.000 for first-time homebuyers expiring November 30, 2009 until April 30, 2010 or for homes purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010, expanding it with a new $6.500 credit for existing homeowners who move, important for a recovery and generating nearly 350.000 jobs. Foreclosure activities still remain a threat to a recovery of the U.S. economy, as nationally a record 3,9 Million foreclosure related filings on 2,82 Million properties were reported in 2009, jumping notices sent to homeowners in default 21% surpassing the total of 3,2 Million in 2008 and 120% from 2007, getting one in every 45 households at least one filing during 2009. JP Morgan Chase, Citigroup and Bank of America agreed to a foreclosure moratorium, joining also Fannie Mae and Freddie Mac, while President Obama announced ‘The Homeowner Affordability and Stability Plan’, a mortgage loan-modification program, within an aggressive foreclosure strategy to reach nine Million home- owners, pledging up to $75 Billion aimed at helping three to four Million people at risk of foreclosure providing incentives to len- ders to change terms of loans to make them more affordable to struggling homeowners, reducing interest rates to as low as 2% with payments reaching 31% of their income, and allowing four to five Million homeowners to refinance their mortgages into loans with cheaper payments through Fannie Mae and Freddie Mac, increasing also the guarantee against losses on the mortgage investments of the two Government controlled mortgage giants to $200 Billion each from actually $100 Billion each, rising also the size of their portfolio limits from $850 Billion to $900 Billion. Qualify for the program mortgage loans with a principle balance of up to $729.750,- , originated before January 1 of 2009, ending the program in 2012, permitting a loan modification only once, and expanding the foreclosure prevention plan mortgage lenders signing up for the program will have to agree in advance to reduce substantially monthly payments on the second mortgage, millions of homebuyers took out to cover additional costs, as soon as the first mortgage has been modified. Beginning November 2009 nearly 920.000 loan modification offers have been sent to more than 3,2 Million eligible homeowners and more than 650.000 borrowers or 20% of those eligible have signed up for trials lasting up to 5 months, but only about 66.500 homeowners have received permanent relief, remaining pending another 46.000 approved to be finalized soon. A bipartisan package of tax breaks and the following Federal Mortgage Plan to refinance homeowners who had fallen behind their mortgage payments, with stable, government-insured loans, failed to really ease foreclosure crisis. A broader housing aid bill included a program, aimed at rescuing more than 400.000 qualified homeowners in danger of foreclosure seeking to remain in their primary home, eligible if troubled loan or loans were origina- ted on or before January 1, 2008, allowing the government to guarantee up to $300 Billion in mortgages refinanced into more affordable 30-year fixed-rate loans with lower monthly payments at more affordable rates through the Federal Housing Administration, if lenders agree to forgive a portion of the debt and write new loan/s worth no more than 90% of the home’s current, diminished value – depending largely on bankers’ willingness to take a partial loss on loan/s, an overhaul of the Federal Housing Administration, which may need itself bailout, stronger regulations of mortgage giants Fannie Mae and Freddie Mac, giving them a permanent authority to increase home loans from $417.000 to $625.000, $15 Billion in housing-related tax incentives, an amount of $150 Million to expand counseling for borrowers to prevent foreclosure, a Housing Trust Fund of $5 Billion to cover expenses related to the foreclosure rescue plan for three years to be used to create affordable rental housing, financial councelling and mortgage restructuring, and a $3,9 Billion emergency aid to stabilize hard-hit communities by purchasing vacant and foreclosed properties. And the long-sought housing relief legislation, the Housing and Economic Recovery Act of 2008, raised the national debt ceiling to accomodate the rescue plan for the two mortgage companies, intending to stabilize troubled housing companies Fannie Mae and Freddie Mac with a combined capital structure of about $83 Billion and debts of more than $1,6 Trillion, increasing the amount they can borrow from the Government, suggesting the creation of a new regulatory agency the Federal Housing Finance Agency, authorizing the Federal Reserve separately to direct lending to the two companies if necessary. Worsening troubles of the two mortgage giants finally forced the Treasury Department to seize, at least temporary, Fannie Mae and Freddie Mac, putting the two agencies into a government conservatorship that will be run by their regulator the Federal Housing Finance Agency, injecting capital on a probably quarter to quarter basis if the mortgage companies can’t fund themselves, changing top-level management, and calling the rescue plan to shrink the role of both firms, reducing their investment portfolios of actually more than $1,4 Trillion to a total of $500 Billion, or $250 Billion each company. The two agencies together lost $24 Billion in the third quarter of 2009, reaching the Government aid $51 Billion for Freddie Mac and nearly $61 Billion for Fannie Mae, including a new request for $15 Billion, granted in exchange for preferred stock paying a 10% dividend. The Obama administration pledged to provide until the end of 2012 unlimited financial assistance to Fannie Mae and Freddie Mac to stay afloat, allowing the Government to exceed the current emergency aid limit of $400 Billion for the two mortgage giants, which own or guarantee almost 31 Million home loans worth about $5,5 Trillion facing mounting losses from mortgage defaults.
The Basel Committee on Banking Supervision, which sets global standards for regulation, is outlining future plans/Basel II that would require banks to hold greater capital reserves, limit amount they can borrow and make provisions for bad debt throughout the economic cycle. Due to the recession global stock markets suffered one of its worst annual declines in 2008 dropping in the United States, Europe and Japan between 33% and 47%, U.S.-financial sector down 57%, wiping out gains of many years, de- clining commodity markets just under 40% in 2008. During 2009 the global finance crisis found a coordinated response from G7 countries, the IMF joining the bailout action helping countries affected by the global credit crisis, activating its emergency financing mechanism making available more than $200 Billion, the IADB granting financial help out of regional rescue funds and the World Bank providing up to $100 Billion in new aid to developing nations, giving priority to middle-income and poorer states. The 16 Eurozone Governments answered with a broad rescue plan involving guarantees for new bank debt until the end of 2009, allowing Governments to support banks by buying preferred shares and to rescue systemic important failing banks through emergency recapitalization, revising eventually accounting rules, proposing a world summit to refound the international finance system, reforming financial and monetary system, guaranteeing more transparency and establishing international regulations and controls. Former President Bush invited leaders of developed and developing countries /G20 Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United States, European Union and IMF, World Bank and United Nations to such a meeting. The annual session in Sao Paulo of the G20 finance ministers and central bank governors ended with pledges to take joint and coordinated action to regain financial stability, agreeing in the necessity for countries to stimulate their economies with tax cuts and increased government spending, also considering that lower interest rates are convenient. On a two-day Asia-Europe summit in Beijing, assuming China a leadership in the crisis expected to help lead the world recovery, Asian and European leaders endorsed the recommendation for a reform of the global monetary and financial system and the necessity for the IMF to assume a more active role to help troubled countries and to guard the stability of the world’s financial system, approving the G20 summit in Washington to reinforce international cooperation to boost growth policies according to domestic conditions, re- questing developing countries that developed nations fix their economies and return to growth. Gulf Cooperation Council/GCC finance ministers met in Rijadh to propose a joint response as the global financial crisis reached the Persian Gulf, after the sharp decline in oil prices left their economies vulnerable threatening their financial sector and above all government and privately funded projects across the region, falling the United Arab Emi- rates/UAE property prices. At the 20th Asian-Pacific Economic Corporation/APEC forum meeting foreign and trade ministers announced, ahead of APEC’s 16th leaders’ summit, they will strengthen regional cooperation, promoting trade and investment liberalization to address the challenging financial and economic outlook. The 21 APEC member economies, including the United States, Canada, Australia, Japan, China, Russia, Chile, Peru and Mexico, account for 49% of world trade and represent 55% of the global gross domestic product. China with the world’s largest foreign exchange reserves reaching $2,378 Trillion regarded as the most important investor in U.S. Government debt, holding about $585 Billion in Treasury Bonds and more than $370 Billion in Fannie Mae and Freddie Mac debt, worried about the outlook of its investment as Washington increases debt to fight economic crisis proposed to replace the weakening dollar as international reserve currency expanding the role of the ‘Special Drawing Rights’ of the IMF based on a basket of currencies -US$, Yen, Euro and Pound Sterling- creating a new reserve currency disconnected from individual nations. This position was reitirated by China’s central bank, suggesting that while the Dollar remains dominant to increase the share of the Euro and the Yen in its foreign exchange reserves putting new pressure on the U.S. – currency, and suppor- ted by some Latinamerican nations and Russia, increasing Chinese efforts to promote the use of their local currency internationally offering renminbi-denominated trade finance credits, pledging also $10 Billion in new low cost loans to Africa over the next three years. The G7 are lobbying the Chinese Government, up to now without much success, to let the yuan appreciate faster, moving to more flexible exchange rates to help correct imbalances in global trade. Previous to the G20 summit in London G7 countries pledged to commit to use all possible options for a collective and robust response to the global recession, avoiding financial isolationism and protectionism to uphold free trade, insisting the U.S. the IMF’s available funds of currently about $250 Billion should not only be doubled to $500 Billion, as suggested by the EU, deciding ahead of the forthcoming G20 summit a new contribution of €75 Billion/$102,55 Billion along with Japan offering $100 Billion, but increased by $500 Billion, to bailout struggling nations introducing more flexible lending terms, using the ‘New Arrangements to Borrow’/NAB, a set of credit arrangements enabling the fund to borrow supplementary resources from its richer members, agreeing with the IMF that G20 nations fiscal stimulus plans needed to increase from an average of actually 1,4% to 2% of their GDP as long as global recession lasts, but rejected by EU leaders to avoid overspending. After involving Governments huge monetary and fiscal stimulus of already $5 Trillion to fight economic recession in their countries, G20 nations pledged another $1,1 Trillion to combat global crisis, tripling available IMF funds immediately to $500 Billion and later to $750 Billion, creating the IMF additional $250 Billion in ’Special Drawing Rights’, providing $100 Billion to the World Bank and other mul- tilateral development banks and increasing world trade financing available for cross-border trade by $250 Billion through export credit agencies in each country, refraining from protectio- nism to be monitored by the World Trade Organization. G20 leaders sho- wing increased international cooperation announced that the ‘Financial Stability Forum/FSF’ will be replaced by the new ‘Finan- cial Stability Board/FSB’, including as members all the G20 coun- tries, Spain and the European Commission, to collaborate with the IMF avoiding through early warnings future macroeconomic and financial risks, creating stricter capital requirements for banks revamping risk management and accounting systems, strengthe- ning regulations of financial sector and control of systemically important financial institutions, including hedge funds and credit rating agencies, taking action against tax havens, implementing limits on bank pay and bonuses and call on accounting standard setters to work urgently on a common international approach to dealing with toxic assets on the balance sheet. G20 finance chiefs concluded talks in London preparing the G20 economic summit in Pittsburgh, where world leaders agreed to expand the role of G20 as a global forum for economic cooperation taking a lead in global recovery planning two meetings in 2010, and decided to funda- mentally reform the banking system with new rules to be deve- loped by the end of 2010 and to be introduced until 2012, re- quiring higher capital levels according to Basel II capital adequacy framework, reducing risk-taking by forcing institutions to keep bigger reserves, to tighten regulation on complex financial in- struments and to limit bonus pay, aligning executive pay with long-term value creation, committing themselves to sustain a strong policy response to secure a durable recovery avoiding a premature withdrawal of stimulus, expecting to save and create an estimated 15 Million jobs, and insisted again in a conclusion of the Doha round in 2010. G20 nations also planned to increase deve- loping countries’ voting power at the IMF by at least 5%, reviewing the IMF cuotas but only by 2011, boosting as well the emerging nation’s share in the World Bank by at least 3%, and to remove protectionist subsidies from fossil fuels. In a need to better re- present the world population and economies G8 nations had already opened already their annual summit in L’Aguila/Italia to G5 countries Brazil, China, India, Mexico and South Africa, along with special invitee Egypt, creating the G14 representing over 80% of the world economy, confirming that they want to finish a long-delayed trade deal by 2010 completing the so called Doha round and boost the world economy, inhibit emerging protectionist trends and refrain from currency devaluation to get competitive advantage by making exported goods cheaper, agreement counter- signed also by Australia, Indonesia and South Korea and G8 lea- ders promised $20 Billion over three years for a new food and agricultural assistance to the poorest nations. G8 nations con- demned North Korea’s nuclear test and missile launches and summoned Iran to accept discussing its nuclear program and after the disclosure of a second secret underground uranium enrich- ment plant President Obama joined by heads of State from allies Great Britain and France during the G20 meetings in Pittsburgh issued a new warning to Iran to cooperate, agreeing Teheran, facing stronger economic sanctions and eventually more drastic options, including military action from Israel or even the U.S., to an international nuclear inspection and to send most of its de- clared enriched uranium to Russia. Shrinking Teheran’s credibility still more after announcing a plan to build 10 enrichment plants, Security Council members/G5+1 (Germany) agreed that Iran’s response was insatisfactory, insisting Iran its ‘nuclear rights’ must be recognized pointing out former three series of sanctions proved no impact on its national economy, maintaining China its position that a fourth round of sanctions is not yet needed. Aware that the world will never be the same as before the financial crisis, risking the U.S. to lose its status as the dominant global economic player and power, President Obama visited strategic partner Japan now looking for a more equal relationship, also surging China a vital partner and competitor and cash rich Singapore to participate in the Asia-Pacific Economic Cooperation summit with other leaders of the 21 APEC nations, as well as important U.S. ally South Corea. After attack on transatlantic airliner, for which a group of Al-Qaeda took responsability as response to U.S. actions against the organization in Yemen, President Obama announced the U.S. will step up terror fight, putting focus on Yemen.
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ECB – Euro exchange rate 02/09/10 USD/EUR 1,3760 - Euro slides on increasing concern of sovereign default risk of some highly indebted Eurozone nations, overreacting investors fearing that debt problems may spread, affecting overall confidence in the Eurozone economy and may prolong a downturn of the global economy as it struggles to recover, confirming G7 to maintain flow of stimulus into their economies, but moving to a more sustainable fiscal policy. Rating agencies placed Greece on a negative credit watch, putting S&P also Portugal on a negative credit watch, receiving Spain a similar warning. EU intending to keep the IMF away from Eurozone nations, placed Greece under tough budget scrutinity, requiring quarterly progress reports and initiating legal actions against the country for statistical manipulation. EU leaders and ECB want to contain problem and consider a financial support like loan guarantees for Greece conditioned to implement and cumply with the strict EU austerity program, as to end speculations against the Euro and some Eurozone nations. Budget deficit 2009 of GDP: Greece 12,7%, Portugal 9,3%, Spain 11,4%, pledge to cut deficit down to the Eurozone limit of under 3%: Greece by 2012, Portugal and Spain by 2013, economic contraction 2009: Greece 1,1%, Portugal 2,6%, Spain 3,6%, forecast 2010: Greece and Spain expected to remain in recession, while Portugal is projecting a modest growth of 0,7%.
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Gold $1.078,67 - 02/09/10 - Commodity of choice favoring long term fundamentals an upwards tendency above $1000 in 2009, reaching an all time high after India’s central bank spend $6,7 Billion buying 200 tonnes of the precious metal from the IMF, equivalent to about 8% of the world’s annual mine production. The IMF expects the remaining 203,3 tonnes it plans to sell will be purchased probably by other central banks and SWF as hedge against dollar weakness and even as an alternative currency. Global inflation outlook and rumors that Gulf states are considering to replace eventually a weakening US Dollar with a basket of currencies in trading crude helped also surging the yellow metal to new highs.
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2.a) Gold
Global gold mining in 2008 decreased 4% to 2.356 t (t=metric tonnes)compared with the output of about 2.444 t in 2007, falling gold production for the fourth consecutive year. The world’s largest producing nation with 288 t, 4,26 % more than a year ago, was again China, leaving behind South Africa which mined 232 t in 2008, 13,6% less than in 2007, the lowest level since 1922, falling in 2008 to the third place after the United States with 234 t in gold output. Other important gold producing countries in 2008 were Australia/225 t, Peru 175 t, Russia/163,9 t, Canada/100 t, Indonesia/90 t, Uzbekistan/85 t, Ghana/81 t. The largest proven and probable ore reserves are in South Africa, the United States (Nevada, Alaska, California, Colorado, New Mexico, Utah), Russia, Canada, Brazil, Ghana and Simbabwe; total reserves are estimated at 60.000 t. Of the 161.000 t ever mined, about 15% is thought to have been lost, and of the remaining 137.000 t central banks and supranational institutions hold around 32.000 t, while 105.000 t are in private hands in coin and bullion – around 22.000 t and in jewellery – around 83.000 t. The 5 largest official gold holders are: United States/8.133,5 t, Germany/3.413,1 t, IMF/3.217,3 t, France/2.540,9 t, Italy 2.451,8 t, having the Group of Seven rich Nations (G7) approved the sale of 403,3 t of gold by the IMF as part of a broad reform of its budget, raising its resources to help poorer countries and as gold prices climbed to record highs the IMF confirmed the expected sale of about an eighth of its gold reserves raising likely up to $13 Billion, promising sales would be conducted in a responsable and transparent manner. China with the world’s largest foreign exchange reserves reaching 2,270 Trillion increased its gold holdings from 600 t in 2003 to actually 1.954 t. Gold demand rose 38% to 1.016 t in the first quarter of 2009 from last year, representing a 36% increase in value to $29,7 Billion. The largest share of final demand at around 70%/$44 Billion in 2008 came from jewellery, slipping due to high gold prices 24% in the first quarter of 2009 from a year ago, accounting India, the world’s largest gold jewellery market by volume, for around 402 t in 2008, recording a 83% drop in demand in the first three months of 2009 against a year earlier, followed in terms of consumption demand by the United States, China, the Middle East (Saudi Arabia, Dubai), Turkey and Italy. Gold trade is a chief driver of economic diversification in the Gulf region, having Dubai imported 674 t in 2008 and re-exported 371 t above all into the vigorous Arab markets. The industrial, electonic and dental uses accounted for around 12% of gold demand in 2008, decreasing due to recession 31% in the first quarter of 2009 compared with the same period a year earlier, while gold investment demand in gold-backed exchange traded funds/ETFS, gold coins and bars, estimated at 18% or around $11,3 Billion in 2008, rose 248% to 596 t in the first three months of 2009 year over year with a record investment in ETFS up 540% to 465 t. The sharp fall in South African gold output, the forthcoming sale of IMF gold and the global financial crisis trigger at this time more buying interest, especially from anxious investors and private householders to defend and preserve their wealth, as well as from the big sovereign buyers – the big central banks outside the G7 -, who want to build up their gold reserves. Gold has reinstated its age old position as the best hedge against inflationary times and increasing wealth in Brazil, India and China is contributing to leave demand outstripping mine supply. Gold output is falling and gold mining will not going to be easier, it gets deeper and more expensive! It looks as if the general fundamental outlooks for gold continue to be quite positive!
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Crude oil $73,93 - 02/09/10 Economic recovery will lead to higher energy demand, rising oil prices. U.S. regulators worried about price stability consider a stricter control of speculative oil and gas trading imposing quantity limits on trading of energy future contracts. G8 nations agreed that $70-$80 was a fair price level to pay for a barrel of oil, while the IEA is warning that a price higher than $70 a barrel would put world economy recovery at risk and cut its forecast for 2010 global consumption by 20.000 barrels a day to 1,4 Million barrels a day, explaining the role of crude oil in heating is declining in favor of cleaner energy sources like natural gas.
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2.b) Oil
OPEC oil producers, satisfying about 40% of the world’s oil needs, left production level unchanged, indicating a $70 to $80 oil price target. OPEC countries like Venezuela are seeking to protect a price level of at least $100 per barrel, but considering oil consumption is slowing, expected to drop up to 450.000 barrels a day in 2009, may accept oil prices not falling below their crude cost at around $75 – $90 a barrel. The International Energy Agency/IEA alerts that new investments to increase oil output, which shows a natural annual decline of 9,1%, are necessary to meet future oil demand of China, India and other developing countries, and are delayed or discouraged by actual lower prices, reassessing oil producers viability of existing and planned investments. The IEA revised non-OPEC oil production 2009 down by 380.000 barrels a day to 50,6 Million barrels a day, while demand for OPEC oil is expected to drop to 29,1 Million barrels a day this year, down 1,8 Million barrels a day against 2008. Total world oil consumption in 2008 reached 85,76 Million barrels a day, while total world oil production for last year is reported with 85,49 Million barrels a day, coming 35,75 Million barrels a day from OPEC and 49,74 Million barrels a day from NON-OPEC countries and oil consumption is expected to fall in 2009 to 83,3 Million barrels a day contracting demand by 2,46 Million barrels a day, covering also the still very high market inventories crude oil needs, remaining the OECD commercial inventories with about 2,7 Billion barrels at a level of about 52 days. While consumption of nations belonging to the Organization for Economic Cooperation and Development/OECD, like the United States, Japan, Germany and Britain is declining in 2009, projections for oil demand is rising in China from 7,98 Million barrels a day in 2008 to 8,23 Million barrels a day in 2009 and in India from 2,97 Million barrels a day in 2008 to 3,04 Million barrels a day in 2009.
(Million Barrels per Day)
Of the 13 countries that produced more than 2 Million barrels a day in 2008, six were OPEC members – Saudi Arabia/9,26, Iran/3,83, United Arab Emirates/2,57, Kuwait/2,57, Venezuela/2,35, Iraq/2,35. The remaining 7 NON OPEC members, including United States/8,51, were Russia/9,79, China/3,98, Canada/3,35, Mexico/3,19, Norway/2,46 and Brazil/2,42. Russia, Norway, Mexico and Kazakhstan are the world’s largest NON OPEC net oil exporters. The United States/-10,97 is the world’s largest net oil importer; China/-4,- is also net oil importer, while Canada/+0,99 is a smaller net oil exporter. Canada has over 170 Billion barrels of recoverable bitumen from oil sands with today’s tecnology and Alberta oil sands with an estimated total bitumen reserve between 1,7 Trillion and 2,5 Trillion barrels, more than the total OPEC oil reserves of about 900 Billion barrels, are for decades not considered part of the world’s oil reserves because the oil there wasn’t economically extractable at prevailing prices but could become the most important source of new oil in the world in coming years. There are also expectations Arctic may hold as much as 90 Billion barrels or 13% of the world’s undiscovered oil and 30% of the world’s undiscovered gas reserves. NON OPEC oil production is expected to rise; the greatest increases were expected from Russia and Brazil, still Russia, the world’s second biggest oil producer, shows actually a declining oil production, and some believe that the period of intense oil production in the oil reach western Siberia is over. However Brazil’s newly discovered deepwater ‘pre-salt’ oilfields like Tupi, Lara and Guará, located in an area of 800 sq km offshore 16400 feet below sea level, which may contain between 50 Billion and more than 100 Billion barrels, could transform the country in the future into one of the major oil-producing and -exporting countries, announcing the state owned Petrobras it will invest $174,4 Billion over the next 5 years to increase oil output, turning to China, Brazil’s biggest trade partner, for cash, signing a loan agreement of $10 Billion with the China Development Bank and a 10 year pact for delivery of up to 200.000 barrels a day of crude oil to Chinese companies. Brazil, the world’s largest exporter of ethanol, using hydroelectic power for more than 80% of its energy needs, accounts also for almost all of Latin America’s renevable energy investment exceeding $10,8 Billion. Oil output in Mexico is also slowing down, facing the state owned oil company PEMEX a cronical lack of cash and of technical capacity for deepwater exploration and production. Concerns over President Chavéz’s socialist revolution delay one of the biggest biddings to explore oil fields, called the Carabobo auction, competing Chinese, Russian, Indian, Colombian and Brazilian state oil companies with oil majors Shell, BP, Chevron, Total, Eni and Statoil for access to the Orinoco belt with a huge potential of tar-like extra-heavy crude, requiring the Venezuelan state oil company Petróleos de Venezuela/PDVSA at least a 60% share in each project, getting partners at most a 40% share, but will have to provide a 100% financing, announcing Venezuela deals with Russia and China with investments up to $36 Billion producing until 2012 about 900.000 barrels a day from the heavy oil deposits Junin 4, Junin 6 and Carabobo. There are increased hopes in Nigeria’s offshore oil to replace disminishing worldwide reserves, while Saudi Arabia, the only OPEC member with the potential to expand oil production, put on hold any further capacity expansion plans. The world is not running out of oil! The biggest threat to the future of supplies is the lack of spare production capacity worldwide, warned Saudi Arabia’s oil minister, and Libya’s National Oil Corporation admitted that there was little more oil the OPEC could pump in case of a shortfall, confirming that there is not enough spare capacity to help. Shortfalls are caused by oil rich countries such as Nigeria, Kuwait, Venezuela, Iran and Iraq, where politics has stymied production growth. Oil rich Nigeria, where rebels are attacking oil wells and pipelines, and Iran, because of its nuclear program and concerns to stop the country from producing bomb-grade uranium, are the lingering hotspots the markets are actually focusing on, worried also about Iraqui’s oil exports through the north of the country hit by renewed crossborder raids by Turkish forces against Kurdish insurgents. Saudi Arabia suggested that the United States, where no new oil refineries have been built in 30 years, should expand refining capacity, as additional expansion of oil refining capacity is needed worldwide, and could go more aggressively for domestic exploration. Former President Bush lifted presidential ban on offshore oil drilling to ease dependence on crude imports, what would not guarantee any additional oil for as much as seven years, and in any case there is no immediate practical effect as Congress enacted its own prohibition on offshore drilling in 1981. It seems that today’s oil prices are influenced more by opinions and predictions from brokers and investment banks, focusing on perceived risks to future oil supplies and the growth in oil demand from emerging economies, exceeding stock exchange oil trading 17 times the real world crude demand! However the key problem remains the same: the inability of global oil supply to catch up with rising global demand, led by China hitting in June a consumption of 8,3 Million barrels a day accounting for almost a third of the world’s annual demand increase. Saudi Arabia, the world’s biggest oil exporter, is completing development of its giant Khursaniyah field soon, increasing its output capacity by up to 500.000 barrels a day and is willing to bring production and supplies from actually 9.450.000 barrels a day, already 300.00 barrels a day higher since last month, to a total of 9,7 Million barrels a day in July, or more if the market requires it! The kingdom, complying with a huge expansion program in its oil industry to increase its spare oil production capacity to up to 12,5 Million barrels a day by the end of 2009, said at a meeting with important producers and consumers on Sunday in Jeddah, it is capable to boost this level another 2,5 Million barrels a day to 15 Million barrels a day if needed and wants oil price stability in the global market, a fair oil price not hurting producers neither consumers. Iraq, with the world’s third largest oil reserves, is opening its giant key producing oilfields to Britsh and US companies to restore its oil infrastructure and to raise output from the actual level of 2,5 Million barrels per day by a combined 1,5 Million barrels per day.
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2.c) Sovereign Wealth Funds/SWF
SWF, government-backed investment vehicles, have proliferated in recent years thanks to high oil prices and surging Asian Exports, to a total worth of about $3 Trillion and there is concern about their investments compromising financial stability and sensitive sectors, such as energy or defense. However host countries and SWF see that their interest lies in building confidence and the behavior of Sovereign Wealth Funds has been so far without fail! The IMF will exercise its own judgement as to whether a country is in breach of the requirement not to undertake currency manipulation for trade advantage, and is creating a code of ‘best practices’ guiding SWF to ensure transparency and good gover- nance, – expecting SWF from the countries that are getting the funds money to accept the same rules and avoiding over-regu- lations! The US launched an ‘Invest in America’ programme and wants that the Group of Eight rich countries (G8) leads by example. US GDP is about $14,28 Trillion, the total value of traded securities (debt and equity) denominated in Dollar is estimated to be more than $53 Trillion, and the global value of traded securities is about $165 Trillion. Total assets under management by private hedge funds, a broad category of private investments funds that seek high returns, and as consequence often take on considerable risks, were estimated at the beginning of 2007 to be around $2,2 Trillion, however shrinked due to the financial crisis. Combined the top 50 hedge fund managers in 2007 earned $29 Billion, John Paulson of Paulson & Company earned $3,7 Billion, followed by the hedge fund managers James H.Simons and George Soros each earning almost $3 Billion. In that context $3 Trillion and more worth of SWF is quite significant but not so huge. Important sovereign wealth generators are China, Russia and Kuwait, and over the past 5 years the fastest growers have been Nigeria, Oman, Kazakhstan, Angola, Russia and Brazil. Abu Dhabi, the oil-rich Emirate of the Gulf region, owns actually the largest Sovereign Wealth Fund, the Abu Dhabi Investment Authority/ADIA with around $900 Billion and Abu Dhabi is today the world’s richest city! A number of Middle East investors is not interested to invest outside the region, as local real estate investments and infrastructure investments are giving higher returns than foreign investments and Middle Eastern investors have been repatriating their assets, reinvesting especially into the Gulf region’s spectacular mega projects. The Middle East was booming and Gulf states invested Billions of Dollars in tourism, culture and infrastructure, rising foreign investments into regional markets, leaving volatile western markets hit by the subprime mortgage crisis, to benefit from local outperforming price/earning ratios. Singapore’s GIC, one of the largest SWF, considers its investments in UBS and Citi- bank as long-term investments with good returns when markets stabilize again. Due to the global financial crisis SWF have suffered according to estimates declines in the value of their overall port- folios of at least 18% to 30% and have refrained from new invest- ments in financial institutions and major transactions in recent months, helping to shore up their home economies. Now especially the Gulf SWF are reviewing their investment strategy, finding a growing interest from emerging countries and considering the historic decline in share prices started to buy stakes in Central European and some German companies, while China’s CIC with investments of about $55 Billion abroad said it will invest in com- modities and real estate and less in US$ bonds, having available another $55 Billion. However oil poor overindebted Gulf Emirate Dubai hit by recession dropping real estate prices, having received already financial aid from rich neighbor Abu Dhabi prepared on a case by case basis to provide more financial support secured for example by commercial mortgages, had to freeze its debt re- payments in order to restructure liabilities amounting to $59 Billion, forming part of Dubai’s total debts estimated to reach more than $80 Billion, of the Government owned holding company Dubai World and its real estate arm Nakheel World, developer of Palm Islands Dubai, requesting from its providers of financing an extension of maturities until at least 30 May 2010, producing a financial shock and fears of new potential defaults, alarming credit rating agencies and shaking international stock markets, lifting borrowing costs as debtors around the world need to refinance obligations. To calm markets the Emirate announced that Dubai World’s debt reorganization does not affect its subsidiary the port operator DP World, and the United Arab Emirates’ central bank said it will provide a special additional liquidity facility to local banks, shouldering probably a large proportion of Dubai’s debts. As expected, Abu Dhabi provided under not disclosed conditions essential last minute bailout to Dubai helping with another $10 Billion, opening Dubai the world’s tallest 828 meters high building, named Burj Khalifa to honor Abu Dhabi’s ruler Sheikh Khalifa bin Zayed al Nahyan, also UAE’s President.
Sovereign Wealth Funds/SWF – Listing & Updates & Deals & Related Investors: http://swfmoney.blogspot.com/
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3. Globalization
Trade liberalisation rewards competitive industries and penalizes uncompetitive ones, and foments greater movement of people, goods, capital and ideas due to increased economic integration, which in turn is propelled by increased trade and investment. Global income is more than $31 trillion/year, but 1,2 billion people of the world’s population earn less than $1,- a day and 80% of the global population earn only 20% of this global income, existing in many countries a large gap between rich and poor. The 3 billion people living in 24 developing countries that increased their integration into the world economy enjoyed an average 5% growth rate in income per capita, longer live expectancy and better schooling. The digital and information revolution has changed the world’s learns, communicates, doing business and treats illnesses. Globalization has helped reduce poverty in a large number of developing countries, but too many nations and people have been left out. Important reasons for this exclusion are weak governance and policies in the non-integrating countries, tariffs and other barriers that poor countries and poor people face in accessing rich country markets and declining development assistance! But that does not justify a retreat to nationalism and protectionism, which leads to deaper poverty and is fundamentally hostile to the well-being of people in the developing nations! The challenge is to make globalization work for all, including the poor people of the world! Pope Benedict XVI called for globalization of social and economic justice! Globalization today is increasingly both flowing business from developed to emerging economies and from one developing country to another, competing everyone from everywhere for everything. Companies from emerging markets, mostly from the so-called BRIC economies Brazil, Russia, India and China are rising fast to rank between the world’s biggest firms, creating opportunities to raise living standards around the world, as well as threats if less well-run competitors enjoy subsidised capital, help from political cronies or privileged access to resource supplies. Increasing consumption in the BRIC countries might offset to a large extend the slowdown in the United States and their share of global demand is starting to move towards that of all G7 nations. China does not favor the regionalisation tendencies of Latinamerican nations and continues to support globalization, which has helped to develop the country, expecting that an economic decline of the United States will not yet occur, trusting in a recovery of the US financial system.
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4. Global Warming
The greenhouse gases that have already been put into atmosphere threaten the survival of many ecosystems and wildlife species. The dramatic change in West Antarctic Ice could produce a significant rise in global sea levels; Antarctic ice sheet is melting rapidly, as much as 36 cubic miles of ice a year. The continued greenhouse effect is an effect caused by greenhouse gases, such as carbon dioxide, nitrogen oxide and methane, that cause infrared radiation to be hindered when escaping the earth’s atmosphere. Sea level rise, warming temperatures, uncertain effect on forest and agricultural systems, and increased variability and volatility in weather patterns are expected to have a significant and disproportional impact in the developing world, where the world’s poor remain susceptible to potential damages and uncertainties inherent to a changing climate. Going oil and gas prices up, reliance on coal is increasing especially in China, India and the United Sates, meaning that global emissions of carbon dioxide will rise and there is little hope of averting the worst effects on climate change! The Kyoto protocol, ratified by over 166 countries, but not by the former Bush administration, entered into force in February 2005 and is due to end in 2012, and the US, mayor developing countries and big polluters like Brazil, China and India become fully engaged in signing up to a post-2012 agreement, centred on the United Nations Framework Convention on Climate Change/UNFCCC, which is scheduled to finish in late 2009, having G8 leaders agreed to consider and adopt the goal of achieving at least 50% reduction of global emission by 2050, but not yet assuming any short term commitments. Lights were switched off across Australia last night at 8pm for Earth Hour, drawing mixed results and reviews. Earth hour 2009 symbolized working together in the fight against climate change and had the goal of 1 Billion people in 1000 cities around the world switching off their lights as part of the global vote for earth! The poorer countries are calling on industrialized nations to guarantee financial help to adapt to the impact of climate change. Only up to $300 Million annually will be available through a U.N. adaption fund with a maximum of $1,5 Billion a year, which is much less than the $86 Billion the U.N. Development Program estimates is needed annually by 2015. The European Union proposed rich countries should give developing nations up to €50 Billion a year by 2020 to help cope with effects of climate change, pledging from 2010 to 2012 an annual contribution of €2,4 Billion for a total of €7,2 Billion. According to the International Energy Agency/IEA the world needs to invest about $45 Trillion in energy in coming decades, build some 1.400 nuclear power plants and vastly expand wind power in order to halve greenhouse gas emissions by 2050 and prevent energy shortages, within a new global energy revolu- tion, transforming the way we produce and use energy. President Obama has committed himself to play a constructive role in the international UN negotiations”Global Green New Deal” for the post-Kyoto treaty and to reduce greenhouse gas emissions in the United States by 80% – below 1990 levels – by 2050, proposing Govern- ment spending of $150 Billion over the next 10 years in clean energy infrastructure creating as many as 5 Million jobs, asking for action of developing countries like China and India to do their part. While a growing number of policy makers see climate change as threat to U.S. security, Obama’s administration announced a historic first U.S. wide regulation proposing tough standards to limit the release of greenhouse gases by cars and trucks raising also fuel efficiency standards by 2016, approving the House a climate bill, formally known as ‘American Clean Energy and Security Act’, establishing first national limits on greenhouse gas emissions. EU leaders agreed on a deal to cut by 20% greenhouse gas emissions on 1990 levels within the European Union by 2020, which could rise to 30% if other developed countries match the European target, dropping EU greenhouse gas emissions 6% in 2008 as global economic crisis slowed industrial activity, setting Japan as target to cut green- house gas emissions 25% from 1990 levels by 2020. G8 nations agreed tentatively on a goal to keep temperature increases to no more than 2 degrees celsius and a far-reaching proposal to reduce greenhouse gases by 2050 of industrialized nations by 80% and worldwide by 50%. More than 100 world leaders, including from the U.S., China and India, committed themselves at a recent United Nation session on climate change to meet their responsa- bilities on global warming, although without setting targets on cutting greenhouse gas emissions, increasing efforts to achieve a broader climate pact at the December’s 2009 climate summit in Copenhagen aimed to replace the U.N.’s Kyoto Protocol. Russia, one of the world’s greatest emitting countries, agreed with the EU to co-operate on climate change, raising its greenhouse gas emissions reduction target from 15% to 20%/25% by 2020 from 1990 levels, while President Obama offered to reduce U.S. greenhouse gas emissions by 17% below 2005 levels by 2020 setting an emission target of 28% by 2020 within the Federal Government, China proposed to cut its carbon intensity – carbon dioxide emissions per unit of gross domestic product by 40% to 45% by 2020 compared with levels in 2005 and India confirmed its intention to cut the carbon emitted relative to the growth of its economy – its carcon intensity – by 24% by 2020. The U.N. climate conference ended with the so-called Copenhagen accord, a nonbinding agreement without a global target for cutting greenhouse gases, setting no treaty deadline, however determining a January 2010 limit for all nations to submit their emissions-cutting plans to the United Nations.
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5. His Holiness Pope Benedict XVI Joseph Ratzinger
Faith is Hope. Holy Mary, mother of God, our Mother, teach us to belief, to hope, to love with you. I invoke God’s blessing of joy and peace. One can only be a Christian in the Church, not beside the Church! I invite you to observe how the Holy Spirit is the highest gift of God to humankind, and therefore is the supreme testimony of his love for us. I invite you to give time to prayer and to your spiritual formation. Lead others to love Jesus more and more and that you may follow him faithfully. Everything collapses if truth is missing. These are just some prayers, blessings and statements by Pope Benedict, who has developed an intense scientific activity. Many publications constitute a point of reference for many people, specially for those interested in entering deeper into the study of theology. In his usual clarity he made notable contributions to Church and to the Christian Society. He is the teacher, the thinker and the ponderer of deepest meanings. People came to see Pope Paul II and they come to hear Pope Benedict XVI. Pope Benedict met with Muslim religious leaders and scholars at a Catholic-Muslim forum in Rome, who showed themselves satisfied with the result of the meeting, especially with the creation of a permanent interreligious committee to prevent and resolve conflict, which is considered vital to put into practice principles both religions have in common, sharing the same fundamental values of religious freedom and respect for the physical and intellectual dignity of the individual. Followers of Islam increased in such an extraordinary way that today 19,2% of the world population is Muslim, while 17,4% is catholic, representing until now the most important religion. King Abdullah of Saudi Arabia said we have lost sincerity, morals, fidelity and attachment to our religions and to humanity, deploring the desintegration of the family and the rise of atheism in the world, a frightening phenomenon that all religions must confront and vanquish, and calls for dialogue among monotheistic religions, project which the King discussed with Pope Benedict XVI during his landmark visit to the Vatican late last year. Pope Benedict XVI visited the U.S., as he views the United States as essential ‘battleground’ in what he considers the ‘war’ of today’s era – proving that modernity doesn’t have to stamp out religious faith! Pope Benedict XVI spoke of his affection for America, a land of hope and opportunity for millions across the world, and offered his support to strengthen the United Nations, where he has promoted human rights as basis for ending war and poverty! Without referring to crackdown on illegal immigrants in Italy the Pope expressed worries about displays of racism in some countries, saying that social and economic problems could never justify contempt or racial discrimination! During his difficult Mideast tour including Israel, described as one of reconciliation and as pilgrimage of peace, the Pope expressed deep respect for Islam, making no secret of his support for the Palestinian people, calling for the creation of a Palestinian state as a solution to the conflict with Israel, saying that Christians, Palestinians and Jews should live in peace, having made a forceful condemnation of anti-Semitism, blaming the Holocaust that never should be forgotten or denied on a ‘godless regime’, and acknowledged the Vatican has committed mistakes, after revoking the excommunication of an ultraconservative bishop who denies the Holocaust. The Vatican announced it has worked out a process allowing groups of Anglicans, who are dissatisfied with their faith, to join the Catholic Church, responding to many requests submitted.
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