KeNo's Housing and Economic Portal: Saturday September 3 Housing and Economic stories

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TOP STORIES:

Fears mount of cuts in EU bank lending - (www.ft.com) Rising funding costs for European banks are stoking fears that they could be forced to cut back lending and drag down the already struggling world economy. The spreads for credit default swaps – essentially the price to insure five-year bonds – have hit all-time highs in the past two weeks for the big French and Italian banks, as well as Spain’s Banco Santander. The index of five-year bank CDS’s is now trading wider than during 2008, when the collapse of Lehman Brothers froze interbank lending and sparked a credit crunch. Three-month interbank lending rates for euros are at their highest levels since 2009, and Italian use of the European Central Bank funding facilities doubled in July to €80bn, the highest level in at least four years. “At the centre of the problems in the market is the growing probability being [factored] into the market of a global banking crisis,” said Jeffrey Gundlach, chief executive at Doubleline, a money manager.

This time, the economic crisis is no one’s fault but the government’s - (www.washingtonpost.com) What the hell is going on? We thought the worst was behind us, but it wasn’t, thanks largely to fallout from the Standard & Poor’s downgrade of U.S. credit brought on us by the incompetence of our alleged national leaders. Only three short years ago, the world financial system was on the brink of disaster after Lehman Brothers went broke in September 2008. Those scary times seemed to have disappeared in the spring of 2009. But now, things are even scarier. Our current mess is different from the Lehman-related horror because it stems primarily from politics, not economics. The previous fear-fest came about because Lehman’s bankruptcy disrupted financial markets in unanticipated ways. Today’s crisis was completely avoidable. You can blame it directly on the fools who brought our country to the brink of defaulting on its debts in the name of saving us from . . . I’m not sure what.

EU Won’t Let Finnish Collateral Demands Derail Greek Rescue, Salgado Says - (www.bloomberg.com) Euro-region governments can’t let Finnish demands for collateral derail a second rescue package for Greece, Spanish Finance Minister Elena Salgado said, as she predicted nations will approve the rescue in September. Spain doesn’t deem collateral “necessary,” and won’t seek it, Salgado said in an interview last night in Madrid. It’s not “reasonable” that a collateral agreement in return for 109 billion euros ($157 billion) in new loans to Greece would be offered to just one euro-region country, she said. A voluntary formula, not necessarily based on the Finnish plan, could be adopted for countries that want extra protection. “This is an open discussion,” Salgado, 62, said. “We should all bear in mind that it mustn’t stand in the way of a solution for Greece, and if we all aim for that, I’m sure we will reach a solution.” Finland demanded collateral as part of a July 21 agreement by euro-area leaders to provide the new aid package to Greece and grant broader powers to the region’s rescue fund.

Banks brace for more troubles - (www.latimes.com) Bank of America Corp. disclosed another round of layoffs, but federal regulators and industry analysts believe the bank and the financial industry in general are healthy. It's the European banks they're worried about. Just as the collapse of the U.S. housing market three years ago and Wall Street's subsequent credit crunch sent shock waves around the world, federal officials fear the European debt crisis could hurt big banks there and trigger major problems here, perhaps dragging the U.S. into another recession. "Like Europe was vulnerable in the crisis of '08, the U.S. is vulnerable now," said Nicolas Veron, a senior fellow at the Bruegel think tank in Brussels. "At this point, there are big risks in Europe, but the situation has not exploded." Federal regulators are closely monitoring events in Europe. Many banks there are saddled with large holdings of bonds from troubled nations such as Greece, Italy and Spain, but regulators in the decentralized European Union have less power to stem a crisis should it arise.

Banks, entwined in government debt, contribute to Europe’s dimming outlook - (www.washingtonpost.com) As investors dumped stocks Friday on both sides of the Atlantic, a growing suspicion that Europe’s banks are on shaky ground offered more evidence that the struggling global economic recovery is in trouble. The increasing mistrust of Europe’s banks is threatening to drag down the continent’s already sluggish economy and prompting new worries for American financial firms that do business with their European counterparts. The concerns about the health of Europe’s financial firms are making it harder for them to raise money. In turn, they are under pressure to charge more for loans they offer to businesses and consumers on the continent. The resulting credit crunch, though not nearly as severe, has echoes of three years ago when Wall Street’s meltdown prompted fearful banks and businesses in the United States and elsewhere to stop lending each other money, choking off the economy’s lifeblood.