Friday, March 14, 2008

Why is it always Fridays?

Stearns crisis sparks UK recession fears

Millions of British households face soaring mortgage rates and tumbling house prices after the global financial crisis triggered the near-collapse of one of the world's biggest banks.

Posted by enuii @ 10:16 PM (1421 views)
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9 thoughts on “Why is it always Fridays?

  • It also appears from other news articles on Reuters etc that; “Financial market traders across London have been told by their firms to stop dealing with Bear Stearns, sources in several dealing rooms said on Friday”.

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  • happyrenterz says:

    It is interesting to see the parallels with the Northern Rock case and IKB in Germany. Hedge funds are expendable but banks will be bailed out by governments/taxpayers.

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  • happyrenterz says:

    Apparently this crisis has implication for the credit default swap market:

    ““Bear Stearns is a big counterparty in the credit derivatives universe,” said Jochen Felsenheimer, head of credit strategy at UniCredit SpA in Munich. “If it were to default, definitely that situation is a horror. There would be huge distortions in the market. That is why the monetary authorities are trying to avoid any failure of banks.”

    Barclays Capital analysts last month estimated that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it may spark between $36 billion and $47 billion in losses for those that traded with the firm. That doesn’t include “large, potentially concentrated” market value losses others would face, the analysts, led by Arup Ghosh in London, wrote on Feb. 20.”

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2IxAQbg2cUM

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  • Rockinghorse says:

    Hmm. this is a pretty disjointed article is it not? Sure Stearns will have ramifications for the US market(s). But how does this directly or indirectly correlate with the UK ?

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  • who stole my pension? says:

    enuii “why is it always fridays?” The Fed and BoE etc will always try and get the bad news to arrive on a Friday as this gives the traders the weekend to calm down and for the Fed, to gauge the initial markets reaction to the bad news. The Fed can then plan a counter measure for Mondays market opening. The problem with this approach is that it will lead to a buy shares on Monday and sell on Thursday approach!

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  • The Bear Stearns crisis also severely undermines the comparatively optimistic economic forecasts delivered by Alistair Darling in his first Budget this week. The Chancellor may be forced to slash spending, raise taxes and borrow even more in the coming months as the economic slowdown takes hold, they added.

    Bear Stearns is perhaps the most severely exposed American bank to the sub-prime mortgage crisis sweeping the world’s biggest economy.

    I still, in my ignorance, do not understand why because the Bear has gone under it ‘severely’ undermines the UK economy – is UK a major share holder or something. Why are we not getting the same dramatic headlines throughout Europe. Why should the ECB not be looking to cut rates to 2%. Although I happily await a housing correction, I am at a loss to understand the willingness of the tabloids and main stream media to drag the UK into every problem that America suffers. We have seen several major european banks admit very large write downs and exposure to the credit crisis, but the Euro goes from strength to strength (I work in Europe and earn in Euros, so it helps me, but not my savings in UK). We do not seem to be bombarded with doom and gloom on the mainland, and I know that there is less debt per capita, but surely the banks are struggling as much as their counterparts in the UK and the US (as can be seen by the euribor rate going up over the last few days/weeks). I am not convinced by the constant rhetoric about under exposure in UK/US and over exposure in the developing countries (so therefore protected from the worst of it), while the UK banks and those of the US are overexposed to home grown problems and less protected by investments in the developing countries. I hope this makes sense and someone out their can shed light on this. I may be being a bit of a dullard, but I am at a loss as to how Europe appears to be brushing this off and getting stronger, especially when the Spanish, Italian, Irish and Portugese economies are struggling with teh high Euro, not to mention the French………………aidez moi, s’il vous plait.

    Roger Bootle appears to be the bear’s bear. Do they have a special club and meet in the woods, with a large picnic?

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  • happyrenterz says:

    bystander, good points. I think that the UK is exposed because of the high level of debt per capita. The failure of major banks spells the end of easy credit and therefore trouble for people with debts everywhere.

    The European situation is interesting. A lot of commentators saying Europe is in denial and will have to drop rates. But they did not experience the same boom since 2000 recession that the US and UK did. So the same degree of unwinding is not neccessary. Some places did, like Spanish housing boom, and that does need unwinding. Germany and France are the European heavy weights and their economies were derided for being so sluggish through this period. UK had the goldilocks economy etc. But it seems now that France and Germany were probably operating at a more sustainable rate given the economic climate. The UK and USA were only running along nicely because they were running up debts.

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  • With respect to Europe and in particular German Manufacturing (VW, BMW, etc) this will be very bad news. There was an interesting report on the news highlighting the drastic falls in used car resale values, they illustrated that 32K prestige cars and 4×4’s (an AUDI) was shown were trading at 8% lower than last year (the thrid year of falls) and that a typical new car of this type would loose 2/3’s of its value over the first 12 months.

    In a falling economic scenario most people will now think twice before making such purchases.

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  • tyrellcorporation says:

    Also Enuii I can’t really see how people have been able to go and hose-pipe £50k on a new Range Rover WITHOUT MEW or cheap credit. Both those economic props have gone, the tide has gone out and most flashy spenders have been found to have been starkers all along. I know a guy in Exeter who works at the Porsche garage and he said to me things dried up overnight about 6 months ago. The torrent of SE downsizers ground to a halt and with it the once booming luxury car market in Exeter.

    A severe recession is on the cards IMHO as no matter how low base rates go, the banks are not lending at anywhere near the rates needed to stimulate spending growth. Bear Stearns will compound that behaviour for the next 2 years at least.

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