Central bank body warns of Great Depression

(08/09)The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart…. more

By Danny Schechter.

Where Are Progressive Voices On The Economic Crisis Wrecking America?

Boston, MA: The media reform conference was just starting in Minneapolis
when word bounded in from New York that the market dropped 394 points as
oil prices rose and, to borrow an Iraq war word, unemployment “surged.”
The number of unemployed people grew by 861,000 in May — rising to 8.5
million, a major jump even as the stats don’t count people who have
given up looking for work.

We need a National Conference on Economic Reform, and fast.

At the rate the markets are melting, President Bush, who has sought to
compare himself to Churchill and Reagan (and occasionally to Harry
Truman) when he is not being a divine messenger, may leave office with
the legacy of Herbert Hoover, the president who failed to foresee, much
less stop, The Great Depression. His faith-based remedies have backfired.

For reasons I have been grappling with, the economic crisis is just not
that compelling or sexy to the many progressives who are stirred into
action by every ugly utterance by Bill O’Reilly, or any partisan burp in
the war of words between Hill, Bam and Mac, to put the political race in
the language of the writers of the headlines in NY tabloids.

Cheering on political personalities or mounting one more issue oriented
e-mail campaign is certainly easier than confronting the economic and
power imbalances caused by the structural conflicts in our economy.

Knock, knock, people, I am sorry to intrude.

As one of the early organizers of the media reform battle, I haven’t
lost any of my passion about the campaign to stop media concentration or
keep the Internet free and the net neutral.

At the same time, the deeper crisis we are facing goes beyond a
one-track issue-oriented focus.

It is astounding to me how few of us discuss the way economic and
business issues are discussed, or connect with the fight against
foreclosures and growing economic inequality.

Last week, it was reported that l out of every 10 homes are at risk,
while we heard reports, OMG, about celebrities being affected in the
Hamptons and Beverly Hills. Actually, the foreclosure rate is the
highest ever recorded! The percentage of equity Americans have in their
homes is now below 50 percent.

We cannot assume that the economic crisis is covered any better than the
war, or electoral issues. In fact, just as our media was accurately
accused, by no less a manipulator than Scott McClellan, of being
“deferential enablers” on the war on Iraq, it played a similar role in
covering-up the build up of the subprime/subcrime problem. Many outlets,
engorging on ads from lenders and credit card companies, looked the
other way along with non-regulating regulators.

My own recent attempt to put the issue of financial news on the agenda
at the Media Conference was met with indifference.

The Democratic primaries only barely touched on the financial crisis.
There was far more buzz about sex, race, and religion than class and the
colossal rip-off by Wall Street firms who “securitized” millions of
mortgages.

Late last week, there was little uproar when Attorney General Mukasey,
ruled out any major investigation into the scams that the bankers
profited from. Some of us were too busy denouncing that other evil M -
Rupert Murdoch.

Where are the whistle blowers to expose a new wave of insider trading or
to focus on the role of speculators in commodities that has led to a
global food crisis? This has been reported – NYT: “Oil futures surged to
$138, fueling suspicions of a commodities bubble”— but not really
investigated.

While economic bubbles pop and others are created, many of us seem to
live in a bubble of denial and detachment from the machinations of
corporate power and how it is destroying the lives of millions of
working families.

For weeks, I watched and read many economic reports on how the economy
is coming back, (i.e. ‘we are closer to the end than the beginning’) and
the crisis is over, until it became clear that it wasn’t.

Economist Nouriel Roubini reported at week’s end:

“The complacency that took hold of financial markets - after the bailout
of the Bear Stearns’ creditors and the extension of the lender of last
resort support of the Fed to systemically important broker dealers – is
rapidly fading away as financial markets and financial institutions are
again under severe stress.”

Add to this, reports of mounting inflation, or that credit cards may be
imploding next or that oil supplies are, in fact, peaking, and, then, we
get a glimpse of a deepening crisis and a tragically incompetent response.

Mish’s Global Economic Trend Analysis adds:

“Furthermore, banks are tightening credit because they have to. The FDIC
is expecting a wave of bank failures. And then there is this not so
trivial problem of $5 Trillion Hidden Off Bank Balance Sheets.

Those assets will come back on bank books, and when they do it is going
to cause more shareholder dilution, and there will also be less lending.
This was the biggest credit boom in history fueled by insane lending
practices. A 30 year boom is not corrected in 6 months of pain.”

Some bankers are petrified. Mitch Stapley, a Fifth Third Bank Executive,
called this “A CRISIS OF BIBLICAL PROPORTIONS.” He added, “I’m not
talking New Testament biblical, I’m talking Old Testament hellfire and
brimstone. This is the worst credit crisis we’ve ever seen.”

According to Gerald Calente of the Economic Trends Institute: “the panic
is on”:

“Chain stores are closing, credit keeps tightening and economic
conditions are worsening. The government is going broke, the people are
broke, the nation’s fighting two costly wars and losing both … and the
President warns there may be more.

Avoiding intelligent discussion of the dire implications of the oil
shock, the next credit crisis and President Bush’s warnings that Iran is
a potential military target, the nation’s news has been focused on the
elimination rounds of The Presidential Reality Show.”

The information about what is really going on is there, if you search
for it. What’s missing for many people is what it means—the context and
background that enables us to connect the dots and think about what to
do. There are scores of financial bloggers out there, but many political
activists don’t know who they are.

What’s also missing so far is any serious fight back by politicians,
candidates, unions and progressive groups. Economic justice is now just
one of a long laundry list of issues. Bernie Sanders is talking about
it; Barack Obama should tune in. He’s been documenting the collapse of
the middle class.

The failure of the Congress to enact any measure for relief on the
foreclosure front or the Senate to pass a global warming bill
underscores the paralysis in Washington. It’s a check/checkmate
situation, pathetic but real.

President Bush has already said he needs a “magic wand” (honest!) to
stem the economic erosion. His administration helped create the problem,
but has no clue on how to solve it.

Help me answer this question I received from an Indonesian friend
watching the American political spectacle on CNN: “If Obama will be the
US president - what will happen - will there be any significant change
especially in regards to the economic collapse?”

What do you think?

Clearly, we have to pay more attention and ask ourselves what can be
done, what should be done and what we can do. We have to press the
politicians we support to push for economic justice.

The economy we save may be our own.

– MediaChannel News Dissector Danny Schechter made the film IN DEBT WE
TRUST (InDebtWeTrust.org) to warn of the crisis. He has just written
PLUNDER, a book investigating the economic calamity we are in. Comments
to dissector@mediachannel.org

Debt is control only when it is collectible. If the debtor has the legal or other means to resist “repayment”, debt is meaningless.

I’ve been thinking of this story for quite some time. I wanted it to reflect on my stance and pursuit to help Humanity at my own level. Bad economics being a great source of divide, I suddenly recalled the story of two pals of mine, in their late 40s, who might be heading for a divorce as I type this. Three years ago, their goal was to pay back these (damn) credit cards and they fully succeeded. They are not financially secure according to the mainstream standards: they live from paycheck to paycheck, even though being practically debt-free, and have a 401k (which could evaporate at any moment in a stock market crash). However for now is not bad at all considering that 80% of Americans have debts up to their eyeballs — the U.S Treasury included.

So what happened? Well, at the beginning of the housing boom, they didn’t have enough for a down payment and the husband lamented, thinking that he was about to miss the American Dream. There was also lots of peer pressure since he works in an environment of highly paid executives representing the top 15% of the society and of which he doesn’t belong to. It soon became an obsession: home ownership would never be for him. He was born a failure. The despair surely got worse when in the midst of the boom-mania, he was strolling down the streets with his wife looking at the new condos being built. Mesmerized and with a sad smile he explained for how much money those apartments were sold or flipped, assessing restlessly the equity lost for not taking part in this mega-speculation that was supposed to be endless.

From the beginning, she didn’t buy the exuberance and it turns out that current events prove her right. Today the stories about the housing market are unraveling, although the media are still gravely underreporting the situation. So, every time her husband was hypnotizing himself with ever-increasing home prices, she made a duty to lecture him and email him as many enlightening pundit’s views as possible to make her point. Even GE’s Immelt declared Housing Great Depression a reality. In despair she then armed herself with the U.S Constitution, which prohibits central banking as drafted by the Framers… The attempts to make her husband come to his senses remained futile. Her ‘out of control greed’ theory was first ignored then mocked and badly trashed. Remembering dotcom bubble stories, she wondered if the housing-mania was not mind-controlling him in the same way.

The justified gloom and doom data forwarded to him daily got on his nerves. He became irate, accused her of being obsessed with ‘an economic end of days’. He used guilt in turn, adding that if they couldn’t afford to buy a home, it was because of a lack of income whatsoever. The blame went on and on: instead of studying newspapers data, she should use her energy to come up with real solutions to earn more instead. Feeling rejected and misunderstood, bitterness fed her motivation to make her husband comprehend the dangers of denial.

His obsessions versus hers quickly became a philosophical issue; and this is precisely why they see a counselor today. It is very likely that the housing mania was a mere catalyst after all. Of course, they could have had enough for a down payment if not having maxed out their credit cards in the first place… but it recently surfaced that predatory practices are too pervasive in the ‘plastic industry’. Likewise, your life can easily become hell if you are not fully informed. They simply racked up so much credit card debt because companies had raised their debt ceiling systematically over a 5 year-period. To be fair, she remained more or less 3 years without a steady income, but nonetheless this didn’t prevent them from changing their spending habits. Until reality hit her like a freight train 5 years ago, they had copycatted the widespread mantra of ’shopping til you drop’.

“When you’re in a hole, stop digging.” David Walker, former U.S. Comptroller General and star of the documentary ,I.O.U.S.A

written by SB Kayser

Oh what a tangled web of deception… This time, you will not believe what you read - alas it is all true!
Bernanke lunched with Wall Street before Bear rescue, a Bloomberg.com headline says.

… The luncheon at the New York Fed gave Bernanke a chance to hear from chiefs of some of the biggest U.S. financial companies and hedge funds in the middle of his most tumultuous month as central bank chief. The meeting came hours after he announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities….

another reads: Volcker Says Fed Interventions Risk Political Battles

May 14 (Bloomberg) … Fed gets political with market interventions, Volcker warns… The Fed has created three new instruments since December to alleviate credit strains, including direct loans to nonbanks for the first time since the Great Depression. Chairman Ben S. Bernanke and his colleagues also aided the takeover of Bear Stearns Cos. by JPMorgan Chase & Co. and took on mortgage and other securities as collateral from securities firms….

But wait, its gets a lot worse:

May 12 (Bloomberg) — U.S. and European banks and financial institutions have “enormous losses'’ from bad loans they haven’t yet recognized… “Based on information I see,'’ it will take at least a year before all losses are realized, and some financial institutions may fail, Rubenstein said at a breakfast meeting of the Institute for Education Public Policy Roundtable in Washington. He didn’t name any companies….

HSBS leading the pack?

May 13 (Times.uk) Knight Vinke, the activist investor, launched a fresh attack on HSBC yesterday, accusing Europe’s biggest bank of flattering its US sub-prime losses by failing to write down $30 billion (£15 billion) worth of mortgage assets….

So, we understand the following move…

May 13 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed. While markets have improved, they remain “far from normal,'’ Bernanke said today in a speech to an Atlanta Fed conference at Sea Island, Georgia. “We stand ready to increase the size of the auctions if further warranted by financial developments.'’ …

Paul Volkers knows what comes next:

Former Chairman of the Federal Reserve Warns yesterday that the United States could face a 1970s-style period of skyrocketing inflation if investors lose confidence in the buying power of the U.S. dollar. “We are back in the 70s or worse if confidence in the Federal Reserve is lost. . . . If there is a real loss of confidence in the dollar, then I think we are in trouble. That is something that has to be watched,” Volcker told the congressional Joint Economic Committee… (May 15 2008)

Who is going to stop them?

(May. 12 - MSNBC) You probably thought nothing-down mortgage loans disappeared in the wake of the American subprime lending crisis, which has ensnarled much of the world in a credit crunch. They didn’t. Even more surprising, many Americans can still buy homes with nothing down thanks in large part to the federal government and a legal loophole that lets builders and bankers ensure a steady stream of asset-challenged borrowers for taxpayer-insured loans.

With quietly expanded powers, the Federal Housing Administration is already offering the next-best thing to nothing down on a house: a payment of just 3.0 percent will get practically any American with a pulse and a job a mortgage of up to $729,000, at least until the end of this year…. more

Let’s keep in mind the Maestro’s latest assessment…

(May 14 - MarketWatch) — U.S. home prices will likely bottom out in early 2009 after the market absorbs excess inventories, former U.S. Federal Reserve Chairman Alan Greenspan told audiences in Asia Wednesday, according to news reports. Greenspan, who spoke by video link to audiences in Hong Kong and Singapore, said the current pace of liquidation will accelerate, but excess supply won’t be eliminated until early 2009, according to Dow Jones Newswires.

Flash back…

“We’re not about to go into a situation where (real estate) prices will go down. There is no evidence home prices are going to collapse.”~~Alan Greenspan, May 21, 2006

So you will now know what to expect when you hear the word “economy”, won’t you? - Please dear readers, remember that when you’ll be voting… Is Who Becomes the Next President All That Matters? D. Schechter asks

By Danny Schechter:

The Question: As The Feds Broaden A Mortgage Fraud Probe, Will The White Collar Perps Of Subprime Crime Ever Do Time?

New York, May 6: There is a time in the life of every writer when you find yourself fearing that you have become a robo call phone machine—repeating the same message over and over with diminishing results.

That’s how I felt after eight months of silence after labeling the credit crisis a “subcrime” scandal, lashing out at the fraudulent activity at its core and calling for the investigation and prosecution of wrong doers. Almost no media outlets accepted this way of framing the problem, although, as usual, the British press was ahead of its American cousins in putting the blame on the bankers, not the borrowers.

more: http://www.mediachannel.org/

While there plenty of bad news gathering momentum out there, the most frightening picture is without a doubt The Ticking Credit Card Time Bomb:

For those holding out hope that the American economy can miraculously avoid a long and deep recession consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such, this week’s report showing $15 billion growth in consumer credit was widely heralded as proof of America’s economic strength and resilience. However, we are now suffering the after effects of too much debt, and our salvation cannot be found in more of the same.

Credit card debt, which now stands at whopping $957 billion nationally (approximately $3,000 for every citizen) has, in recent years taken on a different role in American life. While in the past cards were used primarily to purchase big ticket items, spreading out costs over many months, they are now increasingly used to bridge the gap between cost of living and the diminishing purchasing power of Americans who have been taxed mercilessly by inflation. By buying with available credit instead of unavailable cash, consumers are not simply postponing the pain of higher prices, but compounding it by adding interest to the cost of everyday purchases. In addition, as home equity credit is now unavailable to fund large purchases, many consumers are turning to non-deductible, higher cost credit card debt as the last remaining life line. As such, credit card debt compounds steadily, and for many borrowers, becomes increasingly impossible to pay down…

It is not just us at In Debt We Trust who are getting creepy feelings. Last week on CNN.com there was this article revealing the appalling state of the middle class.

Barely surviving on credit cards. No longer able to turn their homes for cash, Americans are increasingly using plastic to meet their basic living expenses. But many can’t afford to pay the bills… “Other sources of money for a lot of Americans are drying up,” said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. “Consumers just don’t have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt.”…
For many people, racking up credit card debt is not a choice they want to make, experts say. Not too long ago, they could have tapped into the equity in their homes through loans or lines of credit or refinancing. But this debt, which usually carries lower interest rates, is no longer as widely available with the collapse of the housing market. So, faced with soaring costs for food and fuel, people find they must charge more to make ends meet…. more

Keeping an eye on the big picture: The global slump of 2008-09 has begun as poison spreads

Diane Vazza, S&P’s credit chief, says defaults are rising at almost twice the rate of past downturns. “Companies are heading into this recession with a much more toxic mix. Their margin for error is razor-thin,” she said. Two-thirds have a “speculative” rating, compared to 50pc before the dotcom bust, and 40pc in the early 1990s. The culprit is debt. “They ramped it up in the last 18 months of the credit boom. A lot of deals were funded that should not have been funded,” she said. Some 174 US companies are trading at “distress levels”…..

“My guess is that many Americans continue to run up massive credit card debt because they have little intention of paying it off,” said Peter Schiff at Euro Pacific Capital. Quite. Thankfully, the Fed’s monetary blitz has averted a depression. Emergency lending under the “unusual and exigent circumstances” clause of the Fed Act - the nuclear Article 13 (3), unused since the 1930s - has put a floor under the banking system.

There will be no “reset Armaggedon” as rates vault on honey-trap mortgages. Drastic Fed cuts - to 2pc from 5.25pc in September - have conjured away that disaster, at least. One dreads to think what would have happened if Fed liquidationists (Plosser, Hoenig, Fisher) had prevailed, as they did in 1930 - and still do in Euroland, where Germany’s Axel Weber holds sway, and nobody of sense dares lead a mutiny…. more

By Danny Schechter

The official headline for U.S. Q1 GDP growth says a
positive 0.6% growth but the details are ugly and
confirm that we are in a recession.

First of all, if you exclude the increase of inventory
of unsold goods (that moved positive after a negative
figure in Q4) the Final Sales of Domestic Product were
a negative 0.2%. In other terms, inventories of unsold
goods added an artificial 0.8% to Q1 growth boosting
it from a negative 0.2% to a positive 0.6%. So actual
aggregate demand (Final Sales of Domestic Product) –
the actual measure of growth of true demand - fell in
Q1. And this build-up of inventories in Q1 means that
the fall in GDP in Q2 will be larger than otherwise as
firms will have to reduce that large inventory of
unsold goods via a further reduction in production and
employment.

Second, residential investment is in total free fall,
collapsing at an accelerating annual rate of 26.7%.
But GDP figures underestimate the true fall in
aggregate demand as they do not separate residential
investment into true final sales of new homes and into
the unsold inventory of new homes that are produced
and not sold. Thus, all production of new homes is
assumed to be sold in the national income accounts
data. But we know that home sales are falling more
than production of new homes, that cancellation rates
(running at a rate of 20-30%) are not included in the
new home sales figures and that the inventory of
unsold new homes is actually rising. Thus, if the BEA
had correctly measured final sales of domestic
product, by having a separate line for the change in
the inventories of new unsold homes (the equivalent of
the change in business inventories), the figure for
final sales of domestic product would have been even
more negative than the already negative 0.2%, probably
a negative 1.0%. So the national accounts make a
methodological mistake in measuring final sales of
domestic product by assuming that the change in
inventories of unsold housing is always zero,
something that is obviously wrong especially during a
severe housing recession.

Third, now all components of fixed investment
(residential investment, non-residential investment in
structures and capex spending by the corporate sector
(i.e. non residential investment in software and
equipment) are now in negative growth territory. This
is a major difference relative to 2007 when structures
investment and capex spending were significantly
positive. The investment recession is now clearly
spreading from housing to non residential commercial
real estate and to real capital spending by the
corporate sector.

Fourth, since the quarterly GDP figure compare the
average GDP in the first three months of 2008 to the
average GDP in the last month of 2007 even a flat or
slightly falling GDP in some months of Q1 is
consistent with the average being positive relative to
the previous quarter (that is the average of three
growing months). And data on monthly GDP (say from
Macro Advisers) show that GDP started to fall in
February of 2008. This is the typical inertia in
growth figures that comes from looking at quarterly,
rather than monthly, figure. Thus, the Q2 GDP
contraction will be larger than otherwise.

Fifth, both durables goods consumption and non durable
goods consumption grew at a negative rate in Q1. What
boosted an anemic 1% growth in Q1 consumption was a
still positive growth in services consumption. Durable
consumption spending is clearly collapsing (-6.1%) But
the fact that spending on non durable goods is falling
– something that has not happened in decades – is an
ominous sign.

Sixth, the only good news on growth came from net
exports. But with sharply rising oil prices in the
last few months you are going to see a sharp rise in
imports of oil and energy goods in Q2 that will
further depress Q2 growth.

Finally, the NBER does not use the mechanical rule of
two consecutive quarters of negative GDP growth in
determining whether we had a recession or not. The
NBER looks at a variety of economic indicators and
puts more emphasis – among other variables – on
employment and labor market conditions. We do know
that employment in the private sector has now fallen
for four months in a row and that overall non-farm
employment (including the government employment) has
fallen for three months in a row. So I do expect,
leaving aside possible future downward revisions in
the Q1 figures, that the NBER will eventually date the
beginning of the 2008 recession to the first quarter
of 2008.

Yes, you read well… and if we’re lucky “deep recession” is a mild terminology. The worse case scenario is the “D” word - like depression.

Whie this is true that we do not have to become paranoid every time somebody is ‘crying wolf’, this time we’d take it very seriously because the fundamentals say so.

Let’s take a look at them:

04/04/08 - Reuters: U.S. government bonds are the most overvalued assets in the world and it is tough to justify them as an investment given the level of inflation expectations, the manager of the world’s biggest bond fund said on Friday…

04/11/08 - NYTimes: Mr. Soros has always been a controversial figure. But he is becoming more so with a new, dire forecast for the world economy. Last week he rushed out a book, his 10th, warning that the financial pain has only just begun. “I consider this the biggest financial crisis of my lifetime,” Mr. Soros said during an interview Monday in his office overlooking Central Park. A “superbubble” that has been swelling for a quarter of a century is finally bursting, he said.

04/09/08 - Businessweek.com: Forecasting the stock market is a fool’s game—but there are grounds to believe there’s another drop in the market yet to come. The reason: a broad decline in consumer spending, which so far has been masked by a quirk in the government’s statistics. Combine that with a rapidly unraveling job market, high energy prices, and the continuing credit crunch, and you have the recipe for a drop in consumer stocks. A big decline there could take the rest of the market down with it..

04/08/08 - Reuters: The Group of Seven warned Friday the global economic outlook was weakening and said banks should adopt steps to ‘fully and promptly’ reveal their risk exposure due to the current financial market turmoil within 100 days.

On the top of that, today, the US banks Citigroup and Merrill Lynch revealed fresh $15bn loss… how many more Titanics out there?

It doesn’t bode well, does it? You are free to believe what you wish but to us the prospects of a 25 year depression, is absolutely meaningful.

Speaking at the Reuters Hedge Fund & Private Equity Summit in London, Hugh Hendry, Chief Investment Officer of Eclectica Asset Management, said financial stocks were set to fall further after the credit crisis burst a 16 year bubble in their prices last year…. When a bubble is created in a sector’s stocks, which sees their weighting dominate the index, it typically takes a generation, or around quarter of the century for them to recover to their pre-bubble levels, he said… (Reuters - 04/09/08)

send us your comment to: indebtwetrust(at)gmail.com

Major headlines today and simply shocking.

Some US banks face failure as credit problems mount-RBC
Mon Apr 7, 2008 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said. “We anticipate upwards to 150 banks will fail over the next two years. Banks that deplete their capital through rising credit losses are most vulnerable to failure,” Gerard Cassidy said.

He said credit problems at U.S. banks are expected to worsen throughout the year from existing levels and are unlikely to peak until sometime next year, also noting that widespread housing deflation will put further pressure on the economy. “As we move deeper into 2008, we expect to see economic growth grind to a halt with recessionary pressures mounting as the year progresses,” Cassidy said, recommending investors “underweight” the bank sector.

Let’s take a deep breath in now…

Fitch: Bank systemic risk still rising; global credit growth falling
April 8, 2008 - Fitch Ratings, in its latest semi-annual “Bank Systemic Risk report” issued recently, says that banks worldwide face an increasingly challenging operating environment. Bank systemic risk continues to rise, the US and Swiss banking systems have weakened due to the US subprime crisis, and a sharp fall in global credit growth is underway. “Large, global banks in several major developed countries have been hardest hit by the US subprime crisis, marking this crisis out from more familiar, country-specific banking crises,” says Richard Fox, Senior Director in Fitch’s sovereign team. “The US and Swiss banking systems have been toppled from their top, ‘very strong’ ranking based on Fitch’s Banking System Indicator. But this still leaves them on a par with most developed country banking systems which remain ’strong’. In the US, losses and writedowns to date, while still mounting, fall well short of aggregate system capital - a conventional measure of the severity of a banking crisis. But global real credit growth is forecast to slow sharply to 9% this year, from over 14% last year, and leading indicators of potential stress are flashing in more emerging market regions.”

The fall in the US Banking System Indicator (BSI) to ‘B’ from ‘A’ reflects Individual rating downgrades for over 30 banks and bank groups since October. “Fitch expects ratings pressure to remain for the remainder of 2008, but a further decline in the BSI is not envisioned,” says James Moss, Managing Director of Fitch’s North American Financial Institutions team. “The largest US banks have raised in excess of USD60bn in new capital to date, often in amounts representing 10% or more of a firm’s capital base.”

We can indeed understand why the Federal Reserve is getting nervous…

Fed Officials Worried About Recession - april 8, 2008 WASHINGTON (AP) — Worries about a deep recession drove Fed policymakers to slash a key interest rate last month, minutes of their closed-door meeting show. Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of “prolonged and severe” business downturn. It was in that environment that they vote — with some dissent — to cut this important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century. Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and “ongoing weakness in the housing market,” according to the meeting minutes that were made public Tuesday…

Bear in mind…
US Subprime Crisis to Claim 200,000 Bank Jobs

Distinguished law scholar Elizabeth Warren teaches contract law,
bankruptcy, and commercial law at Harvard Law School. She is an outspoken critic of America’s credit economy, which she has linked to the continuing rise in bankruptcy among the middle-class.
http://www.youtube.com/watch?v=akVL7QY0S8A&eurl