Collection of Interesting, Worth Reading NEWS, ANALYSIS & ARTICLES

Back in the early stages of the financial crisis, wags joked that our trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities.

But these days, both sides of that deal are breaking down. On one side, the world’s appetite for Chinese goods has fallen off sharply. China’s exports have plunged in recent months and are now down 26 percent from a year ago. On the other side, the Chinese are evidently getting anxious about those securities.

But China still seems to have unrealistic expectations. And that’s a problem for all of us.

The big news last week was a speech by Zhou Xiaochuan, the governor of China’s central bank, calling for a new “super-sovereign reserve currency.”

The paranoid wing of the Republican Party promptly warned of a dastardly plot to make America give up the dollar. But Mr. Zhou’s speech was actually an admission of weakness. In effect, he was saying that China had driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place.

Some background: In the early years of this decade, China began running large trade surpluses and also began attracting substantial inflows of foreign capital. If China had had a floating exchange rate — like, say, Canada — this would have led to a rise in the value of its currency, which, in turn, would have slowed the growth of China’s exports.

Read the full article HERE

The plan announced this week by the US Treasury secretary Tim Geithner is designed to clear away a large load of so-called “toxic assets” clogging up America’s financial system. But what are these assets? And how will the plan work?

Financial Times provides a very good video explanation that even the beginners can understand.

Before reading further just make a guess after glancing at the headline of this post.

According to the Bank for International Settlements, the notional value of over-the-counter derivatives worldwide reached a mind-boggling $684 trillion last summer. That's more than six times the scale they had reached by 2002 when Warren Buffett dubbed derivatives "financial weapons of mass destruction".

Perhaps the trillions pledged can plug the leaks from subprime mortgages and failed auto loans, but can we reasonably expect to keep a derivatives market afloat that is at least eight times the size of a contracting global economy? I don't know, but I sure hope Bernanke and Geithner do.

The following table provides as precise an accounting of the crisis as the public record presently permits. After calculations, the combined total of existing, announced, and potential outlays from the Federal Reserve and U.S. government agencies that are directly attributable to the financial crisis will breach $13 trillion! Now match this figure with the guess you made at the start of this post. Did it match? I am sure it did not; at least mine didn't.

The adopted strategy of spending to bring United States out of this mess by propping up the system with loans and guarantees has now been etched into stone ... there is no turning back. To the contrary, experts fear the only path ahead implies still further commitments of public funds and woeful undermining of the U.S. dollar. Lets keep our fingers crossed and hope this plan doesn't go underwater otherwise not only US but whole world will sink along with this titanic ship called United States.

Did you know (At least I didn't know) that another not so well known financial crisis happened a century ago? In early 1906, the US banker Jacob Schiff told a group of colleagues that if the United States did not modernize its banking and currency systems, its economy would, in effect, fall off a cliff — that the country would “have such a panic ... as will make all previous panics look like child’s play.”

Yet the United Sates failed to reform its financial institutions, and conditions deteriorated steadily over the next 20 months. There was a worldwide credit shortage. The American stock market crashed twice. The young Dow Jones industrial average lost half of its value.

In October 1907, when a panic started among trust companies in New York and terrified depositors lined up to get their money out, Schiff’s dire prediction seemed about to come true. The United States had no Federal Reserve, the Treasury secretary did not have much political authority, and the president, Theodore Roosevelt, was off shooting game in Louisiana.

J. Pierpont Morgan, a 70-year-old private banker, quietly took charge of the situation.

Sounds interesting? Read the full story HERE

OK it took me a long time to compile and to properly present this data. The data shows all the countries holding the US treasury securities as of Jan 2009. Showing the data not in a meaningful way would have defeated the purpose. So I am showing on three parameters.

1. By dollar value
2. By % change from Jan 2008
3. By % of nominal GDP(2008)

The conclusions that I would draw from these three charts are

CHART1: The countries having largest foreign exchange reserves are buying the US treasury securities are the largest holders
CHART2: Countries whose economies are relatively smaller in GDP terms and are doing relatively OK in the current market don't mind holding more US treasury holders. China is an exception here.
CHART3: Countries that need more money at home are selling the US treasury securities and hence reduced their holdings since Jan 2008

Please do share what you conclude from the data and these charts.

Though I also looked at various government sources of many countries individually but this data has been complied primarily from www.ustreas.gov, wikipedia.org, www.cia.gov (the world factbook) and www.imf.org

Here is the mother of all rescue plans!!! As we all know (If you don't know please READ HERE) that among all the issues, issue of toxic assets in at the center of all the banks. This issue in turn is affecting the ability of banks to extend more loans and hence making things worse. As NY Times states, it is believed that there are around $2 trillion of troubled assets that are ruining the balance sheets of banks. In his effort to bring the market back to normal Mr. Obama is planning three pronged approach.

1. To facilitate the selling of banks' troubled assets, FDIC will set up special purpose investment partnerships and lend nearly 85% of money that the above said partnerships will be needing.
2. US treasury will hire few investment management firms and will match the private money on dollar-for-dollar basis.
3. US Treasury, in collaboration with US Federal Reserve, is planning to expand lending through Term-Asset Backed Security Loan Facility (TABSLF). This is more targetted towards the individuals and small businesses. To read more about TABSLF click here OR here.

Rather than just the government doing it alone, it want to encourage private investors (Such as Hedhe Funds, PE firms) whose sentiments are at the lowest and who have put their money under the mattress. To do that FDIC will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets. The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.

This sounds like a good plan but this plan alone (apart from other rescue packages) gonna cost US a whopping $1 Trillion and there are so many treacherous complexities that haven't been resolved since the bush government was in power.