Expert Says Banking Problems Are Now Bigger Than Pre-Lehman

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

via Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman – Bloomberg.com.

Sen. Gregg says Obama Budget Will Bankrupt US

The top Republican on the Senate Budget Committee says the Obama administration is on the right course to save the nation’s financial system.

But Sen. Judd Gregg of New Hampshire also says President Barack Obama’s massive budget proposal will bankrupt the country.

Gregg says he has no regrets in withdrawing his nomination to become commerce secretary. He pulled out after deciding he could not fully back the administration’s economic policies.

The senator said Obama’s spending plan in the midst of a prolonged recession would leave the next generation with a country too expensive to live in.

Gregg appeared Sunday on CNN’s “State of the Union.”

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World Bank Offers Dire Forecast For World Economy

In a bleaker assessment than those of most private forecasters, the World Bank predicted Sunday that the global economy would shrink in 2009 for the first time since World War II.

The bank did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks.

Until now, even extremely pessimistic forecasters have predicted that the global economy would eke out a tiny expansion but had warned that even a growth rate of 5 percent in China would be a disastrous slowdown, given the enormous pressure there to create jobs for the country’s rural population.

The World Bank also warned that global trade would contract for the first time since 1982, and that the decline would be the biggest since the 1930s.

In a report prepared for a meeting next week of finance ministers from the 20 industrialized and large developing countries, the World Bank said the economic crisis that started with junk mortgages in the United States was causing havoc for poorer countries around the world, not only stifling their growth but also choking off their access to credit as well.

The bank said the financial disruptions were all but certain to overwhelm the ability of institutions like it and the International Monetary Fund to provide a buffer.

The bank, which provides low-cost lending for economic development projects in poorer countries, pleaded for wealthy governments to create a “vulnerability fund” and to set aside a fraction of what they spend on stimulating their own economies for assisting other countries.

“This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis,” said Robert Zoellick, the World Bank president. “We need investments in safety nets, infrastructure, and small and medium-size companies to create jobs and to avoid social and political unrest.”
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Global New Deal Proposed to Rescue World’s Economy

British Prime Minister Gordon Brown hopes to forge a “global new deal” with President Obama to rescue the world’s economy when he makes his first visit to the White House since Obama’s inauguration.

The Times of London reports Brown, who arrives Tuesday, will reportedly introduce a plan requiring massive spending on a worldwide scale.

The prime minister is expected to invoke the words of President Franklin D. Roosevelt, who proposed the government-financed New Deal to confront the Great Depression in the 1930s, the paper reports.

“There is no international partnership in recent history that has served the world better than the special relationship between Britain and the United States,” Brown writes in an opinion piece published Sunday in the Times of London.

Brown’s 21st century deal calls for “universal action to prevent the crisis spreading” and “action to kick-start lending so that families and businesses can borrow again.” It also requires “reform of international regulation to close regulatory gaps” and “the creation of an international early warning system.”

Brown, who has hinted at increasing Britain’s tax cuts to boost that nation’s economy, is expected to present his proposal during a joint session of Congress on Wednesday.

via Source

Bloody Monday: U.S. Cut 50,000 Jobs In One Day

From drugs to computer chips, top companies announced Monday that they are laying off nearly 50,000 employees as a reeling economy took a heavy toll on the already strained job market.

Monday’s efforts to downsize companies included layoffs and buyouts across the economic spectrum, and top economists predict that the job picture will worsen as the year goes on. The departures also come as negotiations continue in Washington, D.C., on the size and shape of an economic stimulus package — a priority for President Barack Obama, in office for barely a week.

Caterpillar, the world’s largest manufacturer of construction equipment, announced that its fourth-quarter profit dropped 32 percent, a symptom of the worldwide economic slowdown. Because of the drop, the company will eliminate 20,000 jobs, about 18 percent of its work force, through layoffs and buyouts, Caterpillar announced.

Drugmaker Pfizer, which announced it will acquire rival Wyeth for $68 billion, said it will cut about 8,000 jobs from its current work force. Once the companies are merged, another 15 percent of the work force, nearly 19,000 jobs, could be eliminated, Pfizer spokesman Ray Kerins said in a telephone interview.

Home Depot, the nation’s largest home-improvement retailer, announced it will cut about 2 percent of its work force, or 7,000 jobs. It said it will eliminate about four dozen stores, including all of its specialty Expo Design Center stores.

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US Rescue Averted Financial Collapse – Treasury

The question is, “averted for how long?”

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Massive rescue efforts by the US government and central bank in recent months helped avert a “financial collapse” and are working to stabilize the economy, a Treasury report said Wednesday.

The Treasury report to a congressional panel overseeing the 700-billion-dollar rescue plan passed in early October said the extraordinary actions probably averted deeper problems.

“Treasury, working with the Federal Reserve, the FDIC (Federal Deposit Insurance Corp.) and other regulators, has taken the necessary steps to prevent a financial collapse,” the report said.

“The most important evidence that our strategy is working is that Treasury’s actions, in combination with other actions, stemmed a series of financial institution failures. The financial system is fundamentally more stable than it was when Congress passed the legislation.”

The report said there are signs of an easing of the credit crisis since the legislation was enacted, including a lowering of the key LIBOR, or London interbank rate used for loans between banks.

But the report said a broader economic recovery will take time, but that the program including vast capital injections into commercial banks will help.

“It is important to note that nearly half the money allocated to the Capital Purchase Program has yet to be received by the banks,” the report said.

“Clearly this capital needs to get into the system before it can have the desired effect. In addition, we are still at a point of low confidence — both due to the financial crisis and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans.”

On December 10, Congress published an extremely critical report of the Treasury Department’s handling of the financial industry bailout to stabilize the US economy.

The 30-page report by the Congressional Oversight Panel — a commission specially created to monitor the bailout — raises several areas of concern over the government’s execution of the Troubled Asset Relief Program (TARP) that Congress passed on October 3.

The commission called for a clear line of action from the Treasury, after accusing the department of changing its action plan several times.

via US rescue averted ‘financial collapse’: Treasury.

President Bush Speech On America’s Economy

THE PRESIDENT:  Good evening.  This is an extraordinary period for America’s economy.  Over the past few weeks, many Americans have felt anxiety about their finances and their future.  I understand their worry and their frustration.  We’ve seen triple-digit swings in the stock market.  Major financial institutions have teetered on the edge of collapse, and some have failed.  As uncertainty has grown, many banks have restricted lending.  Credit markets have frozen.  And families and businesses have found it harder to borrow money. Read more

Tent Cities Rising Across the Country As Hard Times Hit

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