Are The -world- Governments Able To Prevent The Recession ?

[LaoPo]

Are The -World- Governments Able To Prevent The Recession ? The move in the USA by the FED is showing the situation is much worse than anticipated

Fed Moves to Thaw Credit Markets

By Steven Mufson and Neil Irwin

Washington Post Staff Writers

Tuesday, October 7, 2008; 9:31 AM

The Federal Reserve said today it is establishing a special fund to lend money directly to businesses so they have adequate cash to operate, a major move by the central bank to ensure that "main street" companies are not crippled by the financial crisis gripping Wall Street and other money centers around the world.

Under the new program the Fed will buy up commercial paper, the short term debt that large companies around the country use to fund their day-to-day operations. That puts the Fed in the unprecedented position of, in effect, funding individual companies by buying their debt.

The "Commercial Paper Funding Facility" will be a special entity, funded by both the Fed and the Treasury Department, that will purchase three-month notes issued by corporations. It will include debt backed by specific assets, but also will make unsecured loans. Entities that sell unsecured debt to the new entity will have to pay a fee to account for the higher risk.

After a day of sharp losses, Wall Street market futures turned higher on hopes that the Fed announcement will help ease a credit crisis in which banks and financial firms have become hesitant to lend, and companies have worried about raising the money needed to pay their bills.

Problems in the commercial paper market have been one of the most direct ways in which the financial crisis has threatened to affect the nuts and bolts economy.

With financial markets in near-meltdown, governments around the world have been scrambling to find new ways to infuse vast amounts of cash into banks and even directly to companies to help resuscitate the global financial system.

The Fed yesterday said it would push $900 billion into the U.S. banking system, a six-fold increase in its program of lending money to banks.

The measures followed similar efforts by other central banks and governments around the world over the weekend and yesterday to get financial institutions to stop hoarding money and start lending to one another and to their customers.

It wasn't enough. Stock markets began a steep tumble in Asia, where most national markets were down considerably, and then declines accelerated in Europe on fears of new bank failures. The French stock index tumbled 9 percent, the German index dropped 7 percent and the British benchmark index fell nearly 8 percent. Russia was off nearly 20 percent.

Continues:

http://www.washingtonpost.com/wp-dyn/conte...ml?hpid=topnews

Note:

At the same time a situation will be created whereby companies who are -severely or not- in debts will have possible access to relatively easy capital, more then their healthy counterparts/competitors and thus a situation of false competition will be created............

It's the same with the bail outs/nationalizations of the financial institutions and banks.

There are still many banks who are in healthy and good shape.

And, what on earth should the other countries do...follow ?

Sigh: what a world

LaoPo

[LaoPo]

October 7, 2008

Global Fears of a Recession Grow Stronger

By MARK LANDLER

WASHINGTON — When the White House brought out its $700 billion rescue plan two weeks ago, its sheer size was meant to soothe the global financial system, restoring trust and confidence. Three days after the plan was approved, it looks like a pebble tossed into a churning sea.

The crisis that began as a made-in-America subprime lending problem and radiated across the world is now circling back home, where it pummeled stock and credit markets on Monday.

While the Bush administration’s bailout package offers help to foreign banks, it seems to have done little to reassure investors, particularly in Europe, where banks are failing and countries are racing to stave off panicky withdrawals after first playing down the depth of the crisis.

Far from being the cure for the world’s ills, economists said, the rescue plan might end up being a stopgap for the United States alone. With Europe showing few signs of developing a coordinated response to the crisis, there is very little on the horizon to calm rattled investors.

The vertiginous drop in stock markets on both sides of the Atlantic on Monday reflected not only those fears, experts said, but also a growing belief that the crisis could tip the world into a global recession.

Indeed, the ripple effects from Europe and the United States were amplified as they spread to stock markets in Russia, Brazil, Indonesia and the Middle East.

These countries had little to do with the subprime crisis but were vulnerable to a sudden halt in the flow of money. They lack even the veneer of national or regional cooperation that protects Europe and the United States. Stock markets in emerging economies recorded their worst one-day decline in 21 years on Monday, with trading in Russia and Brazil halted to stem an investor panic.

“It looks pretty ugly down the road,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund who specializes in financial crises. “Everybody is going to get caught up in this.”

The global nature of the crisis and its growing collateral damage ought to galvanize countries to work together to fashion a concerted response, Mr. Johnson said. There is a chance to do that this week, with dozens of finance ministers and central bankers converging on Washington for the annual meetings of the I.M.F. and the World Bank.

The trouble is, these institutions no longer have the resources or authority to lead such an effort. The I.M.F., which played a central role in the Asian crisis, has been relegated to the sidelines this time — its credibility tarnished by that episode and its skills ill-suited to a crisis in advanced economies. These days, it mainly issues lonely warnings about the impact on developing countries.

The Group of 7, which once functioned as a sort of command center for the global economy, is similarly depleted, according to critics. It no longer represents the world’s economic drivers, they said, and badly needs to be expanded to include rising powers like China and India.

“The globalization of the crisis means we need a globalization of responses,” said C. Fred Bergsten, the director of the Peterson Institute for International Economics. “But most of the responses will be national. For all the institutions we have, we don’t have the right institutions to do this.”

That is particularly true in Europe, which has an effective central bank but lacks a unified legislature or treasury to coordinate or finance a rescue of the banking system. So far, economists say, Europe’s response to the crisis in its banks has been mostly marked by denial and dissension.

From London to Berlin, governments are clinging to a piecemeal approach. The British and the Germans have resisted a broader solution, because they fear they will end up rescuing their neighbors.

A weekend meeting of European leaders in Paris, called by President Nicolas Sarkozy, ended with a pledge that Europe would not countenance a bank failure like that of Lehman Brothers, but little else.

Part of the problem, experts said, is the nature of this crisis: bailouts of banks are costly and unpopular with taxpayers — even more so, as in Europe, where burden sharing is a perennial sore point.

“Taxpayers won’t agree to bail out the banking system of other countries,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “Not even in Europe, where you have a neutral framework, could you get people to cooperate on a joint effort.”

As the problems in Europe have worsened, the crisis has taken on an “every country for itself” quality. When Ireland placed a guarantee on all bank deposits and debt last week, it angered neighbors, who feared capital would flee their banks to the safer haven of Dublin. Now, Germany, Sweden, Denmark and Austria have all pledged to guarantee deposits.

“If you do this one by one, it destabilizes people’s deposits in other countries,” Mr. Johnson said. “It’s mind-boggling that the Europeans have coordinated so little up until this point.”

With Europe and the United States deep in crisis, economists said, the rest of the world could not help but suffer. Robert B. Zoellick, the president of the World Bank, warned that the crisis could be a “tipping point” for the developing world.

“A drop in exports, as well as capital inflow, will trigger a falloff in investments,” Mr. Zoellick said in a speech on Monday. “Deceleration of growth and deteriorating financial conditions, combined with monetary tightening, will trigger business failures and possibly banking emergencies.”

The immediate danger, economists say, are countries in Eastern and Central Europe, like Bulgaria and Estonia, which run steep trade deficits and are vulnerable to a sudden flight of foreign capital.

Iceland, with an overheated economy and suffocating foreign debt, may prove to be the first national casualty of the crisis. On Monday, threatened by a wholesale financial collapse, the government in Reykjavik assumed sweeping powers to intervene in its banking industry.

“We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” Prime Minister Geir H. Haarde said on Monday.

But with global growth slowing sharply, the problems could spread to larger emerging markets, even China, which has a hefty current account surplus and immense foreign reserves.

“Where is China going to sell its exports?” Mr. Johnson of M.I.T. said. “Everyone is going into recession at the same time.”

This week, the focus will be on the Group of 7, whose finance ministers and central bankers are scheduled to meet on Friday at the Treasury Department. The group issued a perfunctory statement of support for the United States, after the Treasury secretary, Henry M. Paulson Jr., briefed members about the rescue plan in a conference call two weeks ago.

But European finance ministers, notably Peer Steinbrück of Germany, noted that the crisis began in the United States, and played down the need for a systemic European response.

Mr. Zoellick, in his speech, said flatly that the Group of 7 “is not working.” He advocates expanding the group — which includes the United States, Canada, Britain, Italy, France, Germany and Japan — to include emerging economies like Brazil, China, India and Saudi Arabia.

The urgency of the moment, experts said, demands a bolder response from the Group of 7. Mr. Bergsten said the group should commit to a coordinated stimulus plan to stave off a recession.

“Just as the U.S. rescue plan may not be enough,” he said, “a U.S. stimulus plan by itself will not be enough.”

--The New York Times

LaoPo

[phomsanuk]

October 7, 2008

Global Fears of a Recession Grow Stronger

By MARK LANDLER

WASHINGTON — When the White House brought out its $700 billion rescue plan two weeks ago, its sheer size was meant to soothe the global financial system, restoring trust and confidence. Three days after the plan was approved, it looks like a pebble tossed into a churning sea.

The crisis that began as a made-in-America subprime lending problem and radiated across the world is now circling back home, where it pummeled stock and credit markets on Monday.

While the Bush administration's bailout package offers help to foreign banks, it seems to have done little to reassure investors, particularly in Europe, where banks are failing and countries are racing to stave off panicky withdrawals after first playing down the depth of the crisis.

Far from being the cure for the world's ills, economists said, the rescue plan might end up being a stopgap for the United States alone. With Europe showing few signs of developing a coordinated response to the crisis, there is very little on the horizon to calm rattled investors.

The vertiginous drop in stock markets on both sides of the Atlantic on Monday reflected not only those fears, experts said, but also a growing belief that the crisis could tip the world into a global recession.

Indeed, the ripple effects from Europe and the United States were amplified as they spread to stock markets in Russia, Brazil, Indonesia and the Middle East.

These countries had little to do with the subprime crisis but were vulnerable to a sudden halt in the flow of money. They lack even the veneer of national or regional cooperation that protects Europe and the United States. Stock markets in emerging economies recorded their worst one-day decline in 21 years on Monday, with trading in Russia and Brazil halted to stem an investor panic.

"It looks pretty ugly down the road," said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund who specializes in financial crises. "Everybody is going to get caught up in this."

The global nature of the crisis and its growing collateral damage ought to galvanize countries to work together to fashion a concerted response, Mr. Johnson said. There is a chance to do that this week, with dozens of finance ministers and central bankers converging on Washington for the annual meetings of the I.M.F. and the World Bank.

The trouble is, these institutions no longer have the resources or authority to lead such an effort. The I.M.F., which played a central role in the Asian crisis, has been relegated to the sidelines this time — its credibility tarnished by that episode and its skills ill-suited to a crisis in advanced economies. These days, it mainly issues lonely warnings about the impact on developing countries.

The Group of 7, which once functioned as a sort of command center for the global economy, is similarly depleted, according to critics. It no longer represents the world's economic drivers, they said, and badly needs to be expanded to include rising powers like China and India.

"The globalization of the crisis means we need a globalization of responses," said C. Fred Bergsten, the director of the Peterson Institute for International Economics. "But most of the responses will be national. For all the institutions we have, we don't have the right institutions to do this."

That is particularly true in Europe, which has an effective central bank but lacks a unified legislature or treasury to coordinate or finance a rescue of the banking system. So far, economists say, Europe's response to the crisis in its banks has been mostly marked by denial and dissension.

From London to Berlin, governments are clinging to a piecemeal approach. The British and the Germans have resisted a broader solution, because they fear they will end up rescuing their neighbors.

A weekend meeting of European leaders in Paris, called by President Nicolas Sarkozy, ended with a pledge that Europe would not countenance a bank failure like that of Lehman Brothers, but little else.

Part of the problem, experts said, is the nature of this crisis: bailouts of banks are costly and unpopular with taxpayers — even more so, as in Europe, where burden sharing is a perennial sore point.

"Taxpayers won't agree to bail out the banking system of other countries," said Thomas Mayer, the chief European economist at Deutsche Bank in London. "Not even in Europe, where you have a neutral framework, could you get people to cooperate on a joint effort."

As the problems in Europe have worsened, the crisis has taken on an "every country for itself" quality. When Ireland placed a guarantee on all bank deposits and debt last week, it angered neighbors, who feared capital would flee their banks to the safer haven of Dublin. Now, Germany, Sweden, Denmark and Austria have all pledged to guarantee deposits.

"If you do this one by one, it destabilizes people's deposits in other countries," Mr. Johnson said. "It's mind-boggling that the Europeans have coordinated so little up until this point."

With Europe and the United States deep in crisis, economists said, the rest of the world could not help but suffer. Robert B. Zoellick, the president of the World Bank, warned that the crisis could be a "tipping point" for the developing world.

"A drop in exports, as well as capital inflow, will trigger a falloff in investments," Mr. Zoellick said in a speech on Monday. "Deceleration of growth and deteriorating financial conditions, combined with monetary tightening, will trigger business failures and possibly banking emergencies."

The immediate danger, economists say, are countries in Eastern and Central Europe, like Bulgaria and Estonia, which run steep trade deficits and are vulnerable to a sudden flight of foreign capital.

Iceland, with an overheated economy and suffocating foreign debt, may prove to be the first national casualty of the crisis. On Monday, threatened by a wholesale financial collapse, the government in Reykjavik assumed sweeping powers to intervene in its banking industry.

"We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy," Prime Minister Geir H. Haarde said on Monday.

But with global growth slowing sharply, the problems could spread to larger emerging markets, even China, which has a hefty current account surplus and immense foreign reserves.

"Where is China going to sell its exports?" Mr. Johnson of M.I.T. said. "Everyone is going into recession at the same time."

This week, the focus will be on the Group of 7, whose finance ministers and central bankers are scheduled to meet on Friday at the Treasury Department. The group issued a perfunctory statement of support for the United States, after the Treasury secretary, Henry M. Paulson Jr., briefed members about the rescue plan in a conference call two weeks ago.

But European finance ministers, notably Peer Steinbrück of Germany, noted that the crisis began in the United States, and played down the need for a systemic European response.

Mr. Zoellick, in his speech, said flatly that the Group of 7 "is not working." He advocates expanding the group — which includes the United States, Canada, Britain, Italy, France, Germany and Japan — to include emerging economies like Brazil, China, India and Saudi Arabia.

The urgency of the moment, experts said, demands a bolder response from the Group of 7. Mr. Bergsten said the group should commit to a coordinated stimulus plan to stave off a recession.

"Just as the U.S. rescue plan may not be enough," he said, "a U.S. stimulus plan by itself will not be enough."

--The New York Times

LaoPo

Only major inflation might work.... ....not bad if it's global and equal.

[JimsKnight]

Prevent the recession? It's already started. To prevent it you have to consider if it is even preventable in the first place!

So, depending on the mindset which you follow, the one side (a narrow majority) will say, perhaps rightly so, that the global crisis is part of a boom / bust bubble cycle that repeats itself because of the nature of a free-market, mortage-based economy.

Not the governments fault directly but more of being caught in the spotlight of it happening on 'its watch'.

Memories of the last one fade, people get caught up in the boom and say 'It won't happen again', but it does and comes as a shock.

It vindicates some opposition governments who are said to of encouraged Boom boom times it when they were in power xx years ago. Sometimes preventable

Another school of thought says that it is a direct result of governments meddling to bring about a global banking system, a New World Order conspiracy angle. Never preventable.

Alternatively just because it was incapable of doing the right thing and getting greedy for growth without responsible precautions, a conservative angle. Usually preventable.

Take your pick.

So in some of the paragraphs yes, in others, no!

Edited October 7, 2008 by JimsKnight

[ronz28]

No, we are already in a recession. U.S. appears to be doing a lot now to lessen its effects. Its too bad the chaos on Wall Street happened due to deregulation. Former GOP Sen. Phil Gramm, who now advises John McCain's campaign, pushed the deregulation through the Senate with McCain. I thought McCain had gotten rid of Grahm when he called the U.S. a nation of whiners but no... he is still in there.

Edited October 7, 2008 by ronz28