- Deal Is Reached to Nationalize Belgian Bank

By LIZ ALDERMAN and JUDY DEMPSEY - PARIS — Europe’s debt crisis hit another milestone on Sunday when the French and Belgian governments agreed to nationalize Dexia, Belgium’s biggest bank, infusing it with billions in taxpayer money after it became the first casualty of the Greek sovereign debt crisis.
The move came as Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France acknowledged that Europe’s banks still needed billions of euros more to cushion against a possible Greek default. In meetings Sunday in Berlin, they announced that they would have a “comprehensive solution” by the time leaders of the G-20 group of nations meets in early November in Cannes, France.
“We are determined to do what is necessary to guarantee the recapitalization of our banks,” Mrs. Merkel said.
But they declined to provide any specifics on how it would work, or how much money they would commit, which could unnerve investors who hoped to see the governments take more decisive action.
In a sign of how heightened the concern over European banks has become, government officials raced to prop up Dexia before global financial markets opened Monday to prevent investors from worrying about other banks.
Dexia “is the biggest euro zone bank failure in quite some time,” said Peter Zeihan, vice president of analysis at Stratfor, a geopolitical risk analysis company based in Austin, Tex. “It will force investors and shareholders to take second look at what they thought was stable.”
Europe’s banks have become a flashpoint for governments as they try to rein in the region’s debt woes without worsening their own finances. Mrs. Merkel, Mr. Sarkozy and others have only recently conceded that European banks may not be as sheltered from the storm as first thought, especially if the Greek crisis spirals to larger countries.
If that were to happen, other banks in Europe and the United States — as well as the governments themselves — could come under further pressure.
But Europe’s leaders remain at odds on how to achieve their goals, including the best way to recapitalize European banks. In a bid to ensure that its credit rating remains intact, France wants to pump money from a developing bailout mechanism, the European Financial Stability Facility, into the banks’ capital, while Germany insists the fund should be used only as a last resort, if the banks are not able to raise more money on their own.
The International Monetary Fund has estimated that Europe’s banks may need up to 300 billion euros more capital if the debt crisis widens.
European leaders have not put forth their own figure. But Mrs. Merkel said Sunday that European leaders would do “everything necessary” during a series of upcoming meetings, including one involving the 27 Europe Union leaders this week, to reach a deal to ensure that Europe’s banks are adequately capitalized.
The bailout of Dexia comes as both are trying to pay down deficits and debts. In France, some officials have sounded the alarm that too big of a bailout for Dexia could menace the nation’s sovereign debt rating, a notion the finance minister, Francois Baroin, has been quick to dismiss.
Belgium is in a more difficult situation. Its debt is 97.2 percent of its gross domestic product, the third highest in the euro zone after Greece and Italy. Moody’s Investor Service on Friday warned it could downgrade Belgium’s rating if the support of Dexia lifts the nation’s debt and investors start raising borrowing costs for Belgium.
Officials say the bailout of 4 billion euros would not push its debt much higher.
It was the second bailout in three years for Dexia, a lender to European and American cities that got into trouble in 2008 after a huge portfolio of subprime loans it owned turned toxic. Dexia received money from France and Belgium back then, and was the biggest European recipient of loans from the Federal Reserve’s discount window at the time.
Dexia, which has global credit exposure of about $700 billion, will create a so-called bad bank to house its troubled assets, including billions of euros worth of Greek, Italian, Portugese and Italian debt. On Sunday night, the governments were still haggling over how to split the bill.



- Paris et Berlin s'accordent sur les modalités de recapitalisation des banques

La chancelière allemande Angela Merkel et le président français Nicolas Sarkozy, réunis à Berlin, ont annoncé qu'entre les deux pays, "l'accord était complet" pour "recapitaliser les banques afin d'assurer l'octroi de crédits à l'économie".

AFP - Le président français Nicolas Sarkozy et la chancelière allemande Angela Merkel ont promis une réponse à la crise de la dette dans la zone euro avant fin octobre, soulignant leur unité notamment sur le soutien aux banques, sans faire d'annonce concrète dimanche à Berlin.

M. Sarkozy a promis "des réponses durables, globales et rapides avant la fin du mois", pour que "l'Europe arrive au G20 unie et avec les problèmes résolus".
La France préside en 2011 le groupe du G20, qui rassemble les pays les plus riches et les principaux pays émergents du monde, qui se réuniront en sommet à Cannes (sud-est de la France) les 3 et 4 novembre.
A un moment où la crise de la dette, notamment grecque, menace de se transformer en crise bancaire, Angela Merkel a assuré que Paris et Berlin étaient "décidés à faire ce qui est nécessaire pour recapitaliser (les) banques afin d'assurer l'octroi de crédits à l'économie".
Nicolas Sarkozy a affirmé que "l'accord était complet" entre les deux pays à ce sujet, alors que des informations de presse ont fait état de divergences. "Il n'y a pas d'économie prospère, sans banques stables et fiables", a-t-il déclaré.
Selon le FMI, les besoins en capitaux des banques européennes pour supporter une forte décote de leurs créances grecques pourraient atteindre 200 milliards d'euros.
La France et l'Allemagne semblaient ces derniers jours avoir des avis différents sur les modalités d'un éventuel recours aux fonds publics pour aider les établissements les plus fragiles. Paris paraissait privilégier un recours au Fonds de secours européen (FESF), tandis que Berlin a plaidé pour des solutions d'abord nationales.
Soulignant à plusieurs reprises leur unité de vue sur les différents aspects de la crise financière, les deux dirigeants ont évité dimanche toute annonce concrète. Ils ont proposé des "modifications importantes" aux traités européens allant dans le sens d'une plus grande "intégration de la zone euro", sans plus de détails.
Mme Merkel a précisé que le but était d'avoir "une coopération plus étroite et contraignante des pays de la zone euro" pour éviter des dérapages budgétaires.
Concernant le FESF, qui doit venir en aide aux pays surendettés, le président français a indiqué que Paris et Berlin avaient "identifié des propositions techniques pour renforcer (son) efficacité".
A l'issue de leur conférence de presse commune, les deux dirigeants devaient se retrouver pour un "dîner de travail".




- Moody's abaisse les notes de 12 banques britanniques

Craignant que le Royaume-Uni ait plus de mal à se porter au secours des banques en cas d'aggravation de leurs problèmes, Moody's a abaissé les notes de 12 établissements britanniques, dont Lloyds Banking Group et la Royal Bank of Sctoland.
Par Dépêche (texte)
AFP - L'agence d'évaluation financière Moody's Investors Service a abaissé vendredi les notes de 12 banques britanniques, dont cinq grandes, en estimant que le gouvernement était moins enclin à leur apporter son soutien financier en cas de problème.
Parmi les grands établissements concernés figurent les deux mastodontes Lloyds Banking Group (LBG), qui descend d'un cran de "Aa3" à "A1", et Royal Bank of Scotland (RBS), qui descend de deux crans de "Aa3" à "A2".
Ces deux banques avaient été renflouées par l'Etat à hauteur de plusieurs dizaines de milliards de livres durant la crise financière de 2008/2009.
Trois autres établissements importants sont concernés: Santander UK (abaissé de "Aa3" à "A1"), Co-Opérative Bank ("A3" à "A2") et Nationwide Building Society ("Aa3" à "A2").
Trois banques majeures sont épargnées: Barclays, HSBC et Standard Chartered.
En revanche, les notes de sept établissements de moindre importance, notamment des sociétés spécialisées dans le crédit immobilier, ont été abaissées dans la foulée, de un à cinq crans.
"Moody's a pris en compte une diminution de la probabilité d'un soutien financier du gouvernement britannique en cas de besoin", a expliqué l'agence dans un communiqué.
Elle assure toutefois que sa décision "ne reflète pas une détérioration de la solidité financière du système bancaire" britannique.
Moody's avait fait savoir en mai qu'elle envisageait d'abaisser les notes des banques britanniques pour prendre en compte la nouvelle donne politique, le plan de rigueur budgétaire adopté par le gouvernement rendant moins acceptable un nouveau soutien des contribuables au secteur financier.
Les investisseurs ont immédiatement réagi à la décision, et les banques concernées étaient sanctionnées à la Bourse de Londres: vers 07H40 GMT, LBG perdait ainsi 2,41% à 35 pence et RBS 1,56% à 23,98 pence, dans un marché en hausse de 0,4%.



- Le Royaume-Uni pas épargné par les déboires de la zone euro

Le directeur de la Banque centrale anglaise, Mervyn King, redoute la pire crise de l'histoire britannique, tandis que l’agence de notation Moody’s s’en prend aux banques anglaises. Londres ne s’en sortirait-il pas mieux que les pays de la zone euro ?
Par Sébastian SEIBT (texte)
À l’ombre de la crise actuelle de la zone euro, la Grande-Bretagne a connu en moins de 24 heures une double secousse économique. D’abord, la Banque centrale (Bank of England) a décidé, jeudi, d’injecter 70 milliards de livres (80,8 milliards d’euros) dans le système pour soutenir l’économie. Une décision que le patron de l'institution, Mervyn King, a expliqué par la perspective de la “pire récession de l’histoire” risquant de s’abattre sur le pays. Vendredi matin, l’agence de notation Moody’s a remis de l’huile sur le feu en dégradant la note de douze établissements britanniques.
Londres en stagnation
Londres semble donc bel et bien aller à la dérive, de concert avec le reste du Vieux Continent. “Nous sommes dans une situation de stagnation économique sans perspective de reprise, à court ou moyen terme”, explique à France 24 Tim Leunig, économiste à la London School of Economics. Qui rappelle : “Au début de la crise de la zone euro, nous pensions avoir de meilleures perspectives de reprise.” L’inflation semblait alors sous contrôle et les Britanniques se réjouissaient d’avoir des livres sterling en poche, pas des euros. “Heureusement que la Grande-Bretagne n’est pas dans l’euro”,affirmait ainsi en novembre 2010 le Daily Telegraph, quotidien conservateur.
Près d’un an plus tard, ce même journal juge dorénavant que la “crise des dettes souveraines européennes est la plus grande menace pour l’économie britannique”. “La détérioration de la situation dans la zone euro risque d’handicaper nos exportations à un moment où la consommation interieure est moribonde”, remarque Tim Leunig. La Grande-Bretagne réalise, en effet, plus de 50% de ses exportations vers des pays de la zone euro et le travail de 3,5 millions de britanniques dépend du commerce avec le reste de l’Europe, selon un rapport de janvier du Département gouvernemental britannique du commerce et de l'innovation. Malgré la livre sterling, l’île n’est pas si isolée que cela.
Des crédits à gogo
Cependant, mettre la dégradation de la situation seulement sur le dos des Grecs, des Portugais et des Italiens est un peu court. “Blâmer les autres ne marche pas”, confirme au quotidien The Guardian Tim Morgan, responsable des études pour le cabinet de courtiers londonien Tullett Prebon. “La Grande-Bretagne a l’un des taux de croissance les plus faibles de l’OCDE [0,5% au deuxième trimestre 2011, ndlr] et des dysfonctionnements propres qui remontent à plus de dix ans”, poursuit-il.
En cause, selon Tim Morgan : la culture britannique de la consommation à crédit et une croissance dopée depuis la fin des années 1990 par les dépenses publiques. “Avec les politiques de rigueur qui rendent l’État moins dispendieux et les banques qui réduisent les mannes du crédit, les deux leviers de la croissance ont disparu”, conclut l'économiste.
D’où l’initiative de la Banque centrale britannique d’injecter 70 milliards de livres dans l’économie. Avec cet argent, la Bank of England va acheter des bons du Trésor essentiellement à des banques privées, lesquelles vont ainsi recevoir une manne de liquidités. Mervyn King espère ensuite que ces banques recommenceront à prêter aux particuliers et aux entreprises.
“C’est à l’heure actuelle la meilleure arme, voire la seule, de la Banque centrale pour tenter de redresser la barre”, estime Tim Leunig. Certes, ce flot d’argent frais risque d’accentuer l’inflation - de quelque 4% - “mais c’est un petit prix à payer pour éviter un retour à la récession”, tranche l'économiste.
Noir, c’est noir ?
Mais la dégradation par Moody's de la note des banques britanniques montre que le coeur du problème est financier. “Les banques sont le point faible de notre économie”, estime Tim Leunig. “Rien ne prouve qu’elles vont jouer le jeu voulu par la Banque centrale”, confirme au Guardian William Perraudin, économiste à l’Imperial College of London. “Elles sont affaiblies et vont probablement chercher à consolider leurs fonds propres avant tout et ensuite elles essaieront de faire fructifier cet argent en bourse”, poursuit-il.
Le tableau semble donc bien sombre pour l’économie britannique. “C’est sûr que comparé à des pays européens comme l’Allemagne, nous sommes en moins bonne santé, mais il ne faut pas croire que la Grande-Bretagne est dans la situation de l’Italie ou de l’Espagne”, nuance Tim Leunig. Il rappelle que depuis le début de la crise de la zone euro, moins d’un million d’emplois ont été détruits et que le niveau de vie a "peu baissé”.
En fait, le bouclier de la livre sterling n’a pas empêché la Grande-Bretagne “d’être dans le même état que la majorité des pays de la zone euro”, juge-t-il. Londres est donc condamné, comme les autres, à espérer que Berlin, Paris les autres capitales trouvent un moyen de calmer les marchés. Mais contrairement aux autres, la Grande-Bretagne, en tant que pays extérieure à la zone euro, n’a pas voix au chapitre.


- IMF mission chief says Greece is at crossroads


BERLIN - Greece is at a crossroads and will need to implement "much stricter structural reforms" than seen so far, IMF mission chief to Greece Poul Thomsen was quoted as saying by a German paper on Saturday.
The gloomy comments suggested the IMF was still unsure whether current talks on a vital aid tranche for Athens would conclude positively, given doubts over Greece's willingness to reform and the impact of Greek strikes and riots.
"Greece is at a crossroads," he was quoted as saying by Welt am Sonntag. "It is clear the programme will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far."
The IMF on Friday dismissed a statement by the Greek government that the deal on aid was already completed.
"It is going two steps forward, and one backwards," Thomsen said. "The Greek government understands that many of the most difficult changes lie ahead. At the same time, the political and social fatigue is growing."
Athens could run out of cash as soon as mid-November without the new eight billion euro aid installment, increasing the risk of a default that would drag the euro zone deeper into a debt crisis already shaking financial markets worldwide.
Inspectors from the IMF, the European Commission and the European Central Bank -- known as the troika -- resumed last week their review of Greece's progress under a multi-billion euro bailout, after leaving Athens four weeks before over disagreements on how to put its finances back on track.
"The Greeks believe it is enough to make laws," the EU Commission's Matthias Mors told the Welt am Sonntag. "But it takes time to implement. And often the right structures are lacking, for example in tax administration."
A senior troika official told Reuters on Wednesday that the inspectors were likely to give the green light to the aid but that it was not assured.
The EU and IMF first want to receive more details on the implementation and impact of plans announced last month to slash the public sector workforce and increase taxes to plug a bigger-than-targeted fiscal gap, the official said.
Talks between Greece and the troika will continue on Sunday, focusing on the country's deficit cut plan for 2013 and 2014, a finance ministry official said on condition of anonymity after a further, four-hour negotiating round between Finance Minister Evangelos Venizelos and the EU/IMF inspectors.
Athens shocked financial markets by announcing that it would miss 2011 deficit targets set as conditions of a bailout aimed at staving off bankruptcy, despite a series of tax hikes and spending cuts.
Thomsen said he had never seen riots against austerity measures as intense as in Greece.
"People express their frustration sometimes in very unpleasant ways," he said. "That is one of the ugly aspects of my work. And the intensity of it here is new for me."
EU leaders will meet in Brussels on October 17-18 to discuss revising a July 21 deal to provide Greece with a second rescue package. They may ask investors to accept losses on their holdings of Greek debt even larger than the 21 percent write-down set out in the July deal.
A leading member of German Chancellor Angela Merkel's conservatives told a paper on Saturday Greece was near bankruptcy and must give up part of its sovereignty to obtain the large debt forgiveness it needs to survive.
Michael Fuchs, a deputy parliamentary floor leader for Merkel's Christian Democrats (CDU), also told Greek newspaper "Real News" that the debt-laden country might be better off outside the euro zone.


- Fitch cuts Italy, Spain ratings; outlook negative
The Bank of Spain is seen behind a sign in Madrid March 10, 2011.

By Gavin Jones
(Reuters) - Fitch Ratings on Friday cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.
The cuts underline the growing vulnerability of the euro zone, which is already struggling to contain the turmoil in the far smaller Greek economy and which would be overwhelmed by a crisis of a similar scale in Italy.
Fitch cut Italy's rating to A+ from AA- and lowered Spain to AA- from AA+.
It kept both countries, respectively the third and fourth largest in the euro zone, on a negative outlook suggesting further downgrades could come in future.
Italy and Spain are embroiled in the region's debt crisis and are reliant on the European Central Bank to buy their government bonds to prevent yields rising to unsustainable levels.
"A credible and comprehensive solution to the (euro zone) crisis is politically and technically complex and will take time to put in place," the ratings agency said in separate statements explaining its downgrades of both countries.
Fitch's rating for Italy is now at the same level as it rates Malta and Slovakia.
After remaining on the fringes of the euro zone crisis until the summer, Italian benchmark 10-year bonds now yield around 5.5 percent, having overtaken Spain's yield of around 5 percent in a sign of markets' increasing unease about Italy.
ECB HELP
Both yields would be higher but for the ECB, which was cited by traders as supporting both countries' bonds in the market again on Friday.
Fitch, the third ratings agency to downgrade Italy in recent weeks following similar moves by Standard & Poor's and Moody's, said market confidence in Italy had been eroded by the government's initially hesitant response to the rise in yields.
The euro fell against the dollar and the yen following the downgrades and U.S. shares fell, but analysts said the move on Italy was largely discounted.
"Fitch's motivations do not differ much from what the other two agencies said. I don't foresee big moves in the markets as a reaction," said BNP Paribas strategist Alessandro Tentori.
ING analyst Paolo Pizzoli said the downgrade should be seen as further pressure on the government to adopt growth enhancing structural reforms which were lacking from a recently approved austerity plan aimed at balancing the budget in 2013.
"There has been a chorus of appeals from the ECB, the EU and the IMF. They have all asked for structural reforms for growth and this (Fitch) is another element in that direction."
Silvio Berlusconi's scandal hit government plans to present a package of measures to help growth later this month but his coalition is so weak and divided that few analysts have any confidence in its ability to adopt the deep reforms required.
Spain's Socialist government has slashed its budget deficit with a series of austerity reforms, although much of the country's debt lies in its autonomous regions which are still implementing cuts.
"LIKE A HERD"
"We respect the decision but we don't agree with it," said a spokesman at Spain's economyministry.
Italian officials sought to make light of the downgrade. Foreign Minister Franco Frattini said it was fully expected and added dismissively that "markets don't care much about the role of Fitch, Moody's and company."
Fabrizio Saccomanni, deputy governor of the Bank of Italy, said ratings agencies "move like a herd, they all go in the same direction and at the same time." Fitch's move "doesn't change the picture," he added.
Berlusconi flew to Russia on Friday to celebrate Prime Minister Vladimir Putin's birthday, but a statement from his office said Fitch's comments were more positive than the other agencies', and Italy's fiscal efforts were widely appreciated.
Fitch said both Spain and Italy were solvent but pointed to their weakening economic growth prospects and urged Italy, one of the world's most sluggish economies for over a decade, to make "a more radical and sustained economic reform effort."





- Exceptional uncertainty still rising and certainly bad for financial markets


What certainties can investors fasten upon at the moment except for the very certainty of uncertainty. The month that lies ahead before the G20 meeting of world leaders is going to be a very long one for financial markets.
There is already a very choppy pattern biased to the downside. Markets are sharply down one week and then recover on a few whispers of optimism from eurozone officials. Then they plummet as it is clear that nothing is very clear or decided or realise that if it was that might not help much either.
Bank recapitalization
Let us deal with the latter. What would it mean if the eurozone could decide to recapitalize its entire banking system, creating so much money that no bank could possibly fail? As we know from past government rescues of failing companies this does tend to only put off the evil day and supports the weak at the expense of the health of those that ought to survive on their own merit.
It is also a highly inflationary option. You cannot get away from the fact that such a massive boost to the monetary base of the eurozone would result in rampant inflation, not necessarily instantly but one, two, three years down the road.
Inflation is bad for economies. It distorts the allocation of capital and slows economic growth. It destroys savings and pensions and income for those living off capital. It encourages speculation and not investment in long-term business. However, this is thought preferable to the alternative of a banking collapse.
What really ought to happen is a controlled liquidation of the bad debts and bad banks, and a consolidation of the sector. This would involve pain for their shareholders and creditors but this is where the risk in bank lending should lie, not with the general public.
At the same time the eurozone crisis is only distracting from very serious debt crises emerging in the US, UK, China and Japan, even Australia has a housing debt bubble. This is truly a world crisis of epic proportions. The eurozone is less highly indebted than most other advanced economies.
The Governor of the Bank of England was not exaggerating last week when he described this as the worst economic environment since the 1930s and possibly ever. What on earth are investors supposed to do?
Staying liquid or more exactly in cash and short-term treasuries is the knee-jerk reaction to such a crisis if you have wealth that can be turned into dollars. Warren Buffett prefers stocks that he can buy at lower prices, although they may still go lower, and Middle Easterners arriving in Dubai prefer property.
Saving the world
There is logic in prefering real assets over money when the global banks are about to be ’saved’ by money printing on a scale never seen before in the modern world. You have to go back to ancient Rome to witness this scale of currency debasement.
Real assets are relatively fixed in supply and so do offer protection against the ravages of inflation. Gold and silver obviously fall into this category and there is a rush to buy these physical metals all over the world, although it is not yet a stampede.
You have to ask yourself who will do best in the medium term? Those buying assets in danger of falling a bit further in a global financial crisis or those staying in cash which is about to be printed to destruction? Those who have seen inflation destroy savings before are buying real assets without too paying too much attention to the immediate price outlook.
Really this is what the global leaders ought to be considering too. Undermining the global monetary system to prop up all of the banks could still ultimately be the wrong way to jump. Without a currency an economy cannot function.







- Consumer credit falls $9.5 billion in August


(Reuters) - U.S. consumer credit posted its largest decline in more than a year in August, according to a Federal Reserve report on Friday that suggested consumers were reluctant to hold more debt amid a shaky economic recovery.
Consumer credit fell a surprising $9.50 billion in August after rising $11.92 billion in July, the report said. That was well below economists' expectations of a $7.75 billion increase.
"Consumers are extraordinarily sensitive to economic conditions and as things started to look a bit more sour, they stopped using their credit card," said Steve Blitz, a senior economist with ITG Investment Research in New York.
The U.S. credit rating downgrade and Europe's debt problems triggered wild swings in global equity markets in August. That combined with higher unemployment to hold consumers back, economists suggested.
Revolving credit, which mostly measures credit card use, dropped $2.27 billion in August after falling $3.56 billion in July.
Non-revolving credit, which includes mostly auto loans, fell $7.23 billion, the largest decline since August 2008, after rising $15.48 billion in July.




- Occupy Wall Street



By David Cay Johnston - The views expressed are his own.
Pay close attention to the Occupy Wall Street demonstrations in New York and around the United States, especially if the protests endure through the cold months into the election year spring or if the New York police are ordered to violently end the demonstrations, which would ensure they spread.
The protests show signs of sparking a major change in U.S. politics by creating common ground among people with wildly divergent views. The key to their significance will be whether they foster a wholesale change in political leadership in 2013 or whether Americans return a vast majority of incumbents in both parties at all levels of government.
Occupy Wall Street differs fundamentally from the many demonstrations I have covered over more than four decades. Instead of people with similar specific interests — anti-war, anti-rape, Tea Partiers — these demonstrators come with widely varying views, experiences and backgrounds, yet unite around a common theme: bankers are ripping off America.
Two secondary themes also emerge in talking to some of the hundreds of people occupying Zuccotti Park. One is that the super rich own the politicians. The other is that the news media, almost across the board, view events through the eyes of the rich.
The protests have grown from a few hundred people to the thousands who marched on Wednesday evening.
WASHINGTON BLAMED
Even Ben Bernanke, the Federal Reserve chairman, sympathizes with the protesters. He told the Joint Economic Committee of Congress on Wednesday:
“Very generally, I think people are quite unhappy with the state of the economy and what’s happening. They blame, with some justification, the problems in the financial sector for getting us into this mess, and they’re dissatisfied with the policy response here
in Washington. And at some level, I can’t blame them. Certainly 9 percent unemployment and very slow growth is not a good situation.”
In a television interview Warren Buffett sided with them. While many of the demonstrators seemed ill-informed, he said, the “feeling is real and there is enough basis in that feeling that we want to get rid of that basis,” which he described as unfair taxes and lack of jobs.
Listen to the people packing Zuccotti Park, a privately owned urban space just off Wall Street, and you will hear common themes from libertarians and liberals, truck drivers and college professors, atheists and believers.
Some are articulate, others inchoate. But there is absolute agreement that the super rich, especially the financiers, are sophisticated thieves who steal not with guns, but something called derivatives.
Dan Halloran, a New York City councilman from Queens with an affinity for libertarians like Republican U.S. Congressman Ron Paul, waded into the crowd and kept people interested in his views on the economy’s failings and the need for markets.
“From what I saw on TV I would have thought that everyone here would be a communist, under 30, never held a job,” he said, describing that media image as cartoonish. He said people with whom he had spoken, including those with whom he disagreed fundamentally, were both eager to work and afraid, not knowing what happened exactly, but insistent that they needed work and that their elected leaders seemed not to care.
NO ‘FAIR SHAKE’
Brendan Burke, a truck driver and punk rock musician who studied philosophy in college, said since the protests began almost three weeks ago, “I have heard a thousand different things people are concerned about — inadequate teacher pay, no jobs, the rich not paying their fair share of taxes and all of it was about how we working people are not getting a fair shake.”
Burke said he expected the protests to gather strength because “this oppressiveness has been going on for years; its quiet, the way the bankers constructed this mess — and nothing is being done to them.”
When I went down there on Tuesday, some asked me why no bankers had been indicted. Excellent question with no answer unless you believe the financier class exercises control over the government, enabling financial crimes through incomprehensible rules.
Each person I asked, including some in suits who came by for a gander, said they expected the mayor eventually to order the park cleared, possibly on the pretext of public sanitation. Never mind that the Constitution safeguards the right to assemble peaceably and to petition the government for a redress of grievances without a time limit.
New York’s billionaire mayor found time and money to have police barricade the Wall Street bull, that bronze symbol of faith in growing stock prices. But Michael Bloomberg has spent not even a dollar on portable restrooms to help citizens exercise their constitutional rights while maintaining sanitary conditions in his fair city.
Aristotle taught, “Democracy is when the indigent, and not the men of property, are the rulers.” That ancient insight may be unknown to many of the demonstrators, but the concept imbues Occupy Wall Street, which has the potential to change America from what Aristotle would describe as an oligarchy back into a representative democracy.


- Banks downgraded as EU squabbles over next bailout



By Andrei Khalip and Steve Slater

(Reuters) - Debt rating agencies had the knives out for some of Europe's weakened banks on Friday, highlighting the pressure for decisive government action in support for the industry.
Moody's Investors Service downgraded its ratings on nine Portuguese banks, citing the increased asset risk linked to their holdings of Portuguese government debt and the sovereign downgrade of Portugal in July.
The same agency also cut the ratings of two top British banks, citing a likelihood of less state support in a future crisis as Britain sought to reassure investors the sector was well capitalized.
Meanwhile Standard and Poor's downgraded the core banks of Franco-Belgian financial group Dexia -- the bank which has come to epitomize the European debt crisis through its unusually large exposure to the debts of the euro zone's weakest country, Greece.
Rival Fitch placed Dexia bank entities on rating watch negative.
The downgrades come ahead of crucial summit talks on Sunday between German Chancellor Angela Merkel and French President Nicolas Sarkozy and as diplomats detected a split between them over how any strengthening of banks should take place.
Portugal's top listed bank Millennium bcp fell 2.8 percent on the downgrade news.
Moody's said it expected a further deterioration of Portuguese banks' domestic asset quality due to a weak economic growth outlook and government austerity measures, as well as liquidity strains due to a lack of access to wholesale funding.
Debt-laden Portugal is enacting painful tax hikes and spending cuts under a 78 billion euro EU/IMF bailout designed to shore up its public finances and restore investor confidence.
Banks have to boost their capital ratios under the bailout terms after becoming overly dependent on ECB funding. Moody's cut its credit rating on Portugal by four notches to Ba2 in July.
"The key driver for the downgrades of most banks' debt and deposit ratings is Moody's assessment of the deterioration of their unsupported financial strength," the ratings agency said.
The six banks whose standalone ratings and debt and deposit ratings were cut are the state-controlled Caixa Geral de Depositos, top listed bank Millennium bcp, Banco Espirito Santo, Banco BPI, Banco Santander Totta and Caixa Economica Montepio Geral.
Among the top listed banks, Moody's cut Millennium bcp's standalone rating by two notches to B1 -- which is four notches below investment grade -- citing concerns over its high reliance on wholesale funds, its exposure to Greece via its Greek subsidiary and weak profitability.
Britain, with its own currency, sits aloof from the euro zone sovereign debt crisis itself, but banks had been on review for possible downgrade as part of a trend where state support for lenders dates back to the 2008 crisis.
Concern is also growing that its banks may need more capital as part of a wider European move to shore up the industry.
Ratings agency Moody's cut its rating on Royal Bank of Scotland by two notches, downgraded Lloyds by one notch, and cut its ratings on Santander UK, the UK arm of Spain's Santander, the Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies.
UK finance minister George Osborne said Britain's banks remained well-capitalized and in better shape than many of their European rivals, who face bigger losses on holdings of peripheral euro zone debt.
"I am confident that British banks are well capitalized, they are liquid, they aren't experiencing the kind of problems that some of the banks in the euro zone are experiencing at the moment," Osborne said in an interview with BBC radio.
Standard and Poor's downgrade of Dexia by one notch cited difficulties in securing wholesale funding and the need for increased collateral.
It comes at the end of a torrid week for the bank's shares and ahead of a board meeting this coming weekend to hammer out a rescue plan that will break up the bank.
Bank recapitalization needs are at the heart of the issue that has led to downgrades across the sector in Europe in recent weeks and months, even though the sector was widely refinanced after the 2008 crisis.
UK banks have raised over $120 billion in the last three years, forced by the government to raise low capital levels. Over the same period German banks have raised about $40 billion, Italian banks have raised $29 billion and French banks -- seen as most in need of fresh funds -- have raised $22 billion, according to Reuters data.



- U.S. Bank Exposure to Europe Could Be $640 Billion, Per Congressional Paper


By Ian Talley - U.S. bank exposure to the European debt crisis is estimated at $640 billion, nearly 5% of total U.S. banking assets, according to recent research papers written for Congress.
While U.S. Treasury Secretary Timothy Geithner says the U.S. banking sector’s vulnerability to the euro zone problems is “very limited,” the Congressional Research Service estimate is one of the first public assessments provided by the U.S. government that quantifies the potential risks.
According to two different reports provided to federal lawmakers last month, the debt problems of Greece, Ireland, Portugal, Italy, and Spain constitute a ”serious risk” to the European banking system, particularly German, French, and U.K. banks, which have close ties to U.S. banks. Markets believe there’s a very high likelihood Greece will default in the coming weeks. That could cause a cascade of other crises throughout Europe.
Fearing the worst, the International Monetary Fund is urging European authorities to immediately add another EUR100 billion to EUR200 billion in new capital buffers to protect against euro zone defaults.
Officials there are now scrambling to bulk up their banking system as a default could freeze lending throughout Europe, forcing the collapse of some banks.
“Given that U.S. banks have an estimated loan exposure to German and French banks in excess of $1.2 trillion and direct exposure to the PIIGS valued at $641 billion, a collapse of a major European bank could produce similar problems in U.S. institutions,” the research service warned lawmakers. The PIIGS–Portugal, Ireland, Italy, Greece and Spain–have come under increasing attack by markets fearing unsustainable government debts and weak financial sectors.
U.S. lawmakers are apprehensive.
Senator Mark Kirk, (R., Ill.) asked Treasury Secretary Timothy Geithner at a Senate Banking, Housing and Urban Affairs Committee hearing Thursday if the U.S. is about to experience another “Lehman Brothers situation” because of euro-zone contagion.
Geithner said “absolutely not.”
“The direct exposure of the U.S. financial system to the countries under the most pressure in Europe is very modest…very limited,” the Treasury Secretary told the committee. Besides, Geithner added, U.S. banks have much stronger capital positions than in 2008, when Lehman Brothers collapsed.
The CRS figure is based on data provided by a Federal Reserve unit, the Federal Financial Institutions Examination Council, to the Bank of International Settlements.
The research service papers note their figure is only a rough guess. It includes two types of assets, direct holdings such as loans, and “other potential exposures” such as derivative contracts, guarantees and credit commitments. Analysts say the estimate could be much higher or lower because it’s hard to quantify exactly “other potential exposures.” For example, a bank could hold two different derivative contracts that effectively cancel each other out.
The CRS says, however, there are two other factors that could cause a dramatic reassessment.
“Depending on the exposure of non-bank financial institutions and exposure through secondary channels, U.S. exposure to Greece and other euro-zone countries could be considerably higher,” the CRS said.
The estimate doesn’t include U.S. bank exposure to European bank portfolios that include assets in the weak member countries. Also, it doesn’t account for euro-zone assets held by money market, pension, and insurance funds.




- The Depression: If Only Things Were That Good


By DAVID LEONHARDT - The New York Times Washington bureau chief.
UNDERNEATH the misery of the Great Depression, the United States economy was quietly making enormous strides during the 1930s. Television and nylon stockings were invented. Refrigerators and washing machines turned into mass-market products. Railroads became faster and roads smoother and wider. As the economic historian Alexander J. Field has said, the 1930s constituted “the most technologically progressive decade of the century.”
Economists often distinguish between cyclical trends and secular trends — which is to say, between short-term fluctuations and long-term changes in the basic structure of the economy. No decade points to the difference quite like the 1930s: cyclically, the worst decade of the 20th century, and yet, secularly, one of the best.
It would clearly be nice if we could take some comfort from this bit of history. If anything, though, the lesson of the 1930s may be the opposite one. The most worrisome aspect about our current slump is that it combines obvious short-term problems — from the financial crisis — with less obvious long-term problems. Those long-term problems include a decade-long slowdown in new-business formation, the stagnation of educational gains and the rapid growth of industries with mixed blessings, including finance and health care.
Together, these problems raise the possibility that the United States is not merely suffering through a normal, if severe, downturn. Instead, it may have entered a phase in which high unemployment is the norm.
On Friday, the Labor Department reported that job growth was mediocre in September and that unemployment remained at 9.1 percent. In a recent survey by the Federal Reserve Bank of Philadelphia, forecasters said the rate was not likely to fall below 7 percent until at least 2015. After that, they predicted, it would rarely fall below 6 percent, even in good times.
Not so long ago, 6 percent was considered a disappointingly high unemployment rate. >From 1995 to 2007, the jobless rate exceeded 6 percent for only a single five-month period in 2003 — and it never topped 7 percent.
“We’ve got a double-whammy effect,” says John C. Haltiwanger, an economics professor at the University of Maryland. The cyclical crisis has come on top of the secular one, and the two are now feeding off each other.
In the most likely case, the United States has fallen into a period somewhat similar to the one that Europe has endured for parts of the last generation; it is rich but struggling. A high unemployment rate will feed fears of national decline. The political scene may be tumultuous, as it already is. Many people will find themselves shut out of the work force.
Almost 6.5 million people have been officially unemployed for at least six months, and another few million have dropped out of the labor force — that is, they are no longer looking for work — since 2008. These hard-core unemployed highlight the nexus between long-term and short-term economic problems. Most lost their jobs because of therecession. But many will remain without work long after the economy begins growing again.
Indeed, they will themselves become a force weighing on the economy. Fairly or not, employers will be reluctant to hire them. Many with borderline health problems will end up in the federal disability program, which has become a shadow welfare program that most beneficiaries never leave.
For now, the main cause of the economic funk remains the financial crisis. The bursting of a generation-long, debt-enabled consumer bubble has left households rebuilding their balance sheets and businesses wary of hiring until they are confident that consumer spending will pick up. Even now, sales of many big-ticket items — houses, cars, appliances, many services — remain far below their pre-crisis peaks.
Although the details of every financial crisis differ, the broad patterns are similar. The typical crisis leads to almost a decade of elevated unemployment, according to oft-cited academic research by Carmen M. Reinhart and Kenneth S. Rogoff. Ms. Reinhart and Mr. Rogoff date the recent crisis from the summer of 2007, which would mean our economy was not even halfway through its decade of high unemployment.
Of course, making dark forecasts about the American economy, especially after a recession, can be dangerous. In just the last 50 years, doomsayers claimed that the United States was falling behind the Soviet Union, Japan and Germany, only to be proved wrong each time.
This country continues to have advantages that no other country, including China, does: the world’s best venture-capital network, a well-established rule of law, a culture that celebrates risk taking, an unmatched appeal to immigrants. These strengths often give rise to the next great industry, even when the strengths are less salient than the country’s problems.
THAT’S part of what happened in the 1930s. It’s also happened in the 1990s, when many people were worrying about a jobless recovery and economic decline. At a 1992 conference Bill Clinton convened shortly after his election to talk about the economy, participants recall, no one mentioned the Internet.
Still, the reasons for concern today are serious. Even before the financial crisis began, the American economy was not healthy. Job growth was so weak during the economic expansion from 2001 to 2007 that employment failed to keep pace with the growing population, and the share of working adults declined. For the average person with a job, income growth barely exceeded inflation.







- [Here we go again
The Europeans are pushing the->http://www.economist.com/node/21531467] global banking system to the edge

http://www.economist.com/node/21531467
YOU know something bad is going to happen in a horror film when someone decides to take a late-night stroll in a forest. The equivalent in finance is a bank boss insisting that his institution is completely solid.
European bankers have been saying things are fine for weeks now, even as their exposure to indebted euro-zone countries strangles their access to funding. The amount of money parked at the European Central Bank (ECB) has risen to 15-month highs as banks hold back from lending to each other. Fears of contagion from Europe have now infected America (see article). Banks there led the S&P500 into official bear-market territory this week, as the index briefly dipped more than 20% below a high set in April. The chief executive of one embattled institution, Morgan Stanley, sent a memo to employees reassuring them that the bank’s balance-sheet was dramatically stronger than it was in 2008, when Lehman Brothers collapsed.
Europe is not the only problem facing Western banks, of course. A long list of woes also includes anaemic economic growth, piles of new regulation and waves of litigation related to America’s housing bust. An ill-conceived congressional bill to punish China for manipulating its currency is yet another sign that America has little to be proud of in terms of economic policy. But the central reason to worry is the euro zone: a series of defaults there would unleash devastation, sparking big losses on European banks’ government-bond holdings, and in turn threatening anyone exposed to those banks.
Earlier this year, the prospect of another Lehman moment seemed remote. Thanks to the abject failure of Europe’s leaders since then, the similarities with 2008 are disturbingly real. Governments are once again having to step in to support their banks. France and Belgium this week said that they would guarantee the debts of Dexia, a lender that was bailed out three years ago but which is weighed down by lots of peripheral euro-zone debt. In another throwback, plans are afoot to create a “bad bank” for Dexia’s worst assets. The cost of buying insurance against bank defaults has surged: credit-default-swap spreads for Morgan Stanley and Goldman Sachs hit their highest levels since October 2008 this week. Rumours are rife: that banks cannot pledge collateral at central banks, that hedge funds are pulling their money from prime brokers.
Name the year
Will the fearfulness of 2011 turn into another panic like 2008? In any sensible world, it should not. Policymakers will surely not repeat the mistake they made then, of letting a big bank go under. The asset class at the heart of this phase of the financial crisis—sovereign debt—is far easier to value than the securitised subprime mortgages that caused the trouble last time. There is much greater clarity about where exposures to dodgy government bonds lie, although American banks need to become more transparent about their ties to Europe.
What’s more, the components of a solution to the immediate euro-zone crisis, long proposed by this newspaper, are fairly well understood. First, create a firewall around other euro-zone members like Italy and Spain that are solvent but need help financing their debts; second, recapitalise the European banking system, which has done far less since 2008 to fortify its defences than America’s; and third, allow Greece, self-evidently insolvent, to default in an orderly fashion.
The problem with this solution for the rest of the world is that it depends on the Europeans to carry it out. The debt crisis has been running for 18 months now, and the only way that euro-zone leaders have dazzled is through sheer incompetence. It continued this week, with some politicians admitting that a hard restructuring of Greek debt was on the table, whilst others ruled out a default. The result is the worst of all worlds: more uncertainty for banks that hold Greek debt, more pointless austerity for the battered Greek economy (see article).
A clear plan for a forced bank recapitalisation in the euro zone is badly needed, too. The mere rumours of it happening sparked a late market rally on October 4th. There are all sorts of reasons to deplore the fact that banks would once again be propped up by public money. It would have been far better if over the past three years more had been done to boost banks’ capital and liquidity, and to create the mechanisms that would force bank losses onto creditors, not taxpayers. Every euro-zone finance minister should be forced to explain the whitewash “stress tests” that gave even Dexia a clean bill of health earlier this year. But for now the priority is to prevent a systemic meltdown, not to accelerate it for the sake of principle.
A fragmented, nation-by-nation approach to recapitalisation will not work this time, however. France and Belgium may be able to stand behind Dexia but supporting entire banking systems is beyond the capacity of many sovereigns. The European Financial Stability Facility (EFSF), the euro zone’s bail-out fund, must carry out simultaneous injections of capital into the region’s banks as soon as it can. Central banks must get into full fire-fighting mode, too. In particular, that means offers of unlimited two-year liquidity from the ECB, which was due to meet after The Economist went to press.
Herding Eurocrats
Above all, no amount of recapitalisation would be enough to protect banks from a cascade of euro-zone defaults. Nothing matters more than putting a firewall around the likes of Italy and Spain. Here, the news is bleak. Jean-Claude Trichet, the outgoing president of the ECB, describes this as the worst crisis Europe has faced since the second world war; but the institution he runs is unwilling to respond in kind. It is reluctant to keep buying government bonds itself, and is unimpressed by suggestions that it should boost the EFSF’s firepower by lending to it. Politicians are contorting themselves to try to strengthen the EFSF without relying on the ECB (see article).
In 2008 governments were credible backstops for their banks and the Fed, the central bank at the heart of the crisis, was willing to do everything it could to create confidence. Now the sovereigns are the problem and the ECB’s help is limited and conditional. That is the real horror film.