KeNo's Housing and Economic Portal: Friday October 7 Housing and Economic stories

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El-Erian Says World Is on Eve of Next Financial Crisis - (www.bloomberg.com) The world is on the eve of the next financial crisis, with sovereign debt its epicenter, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which runs the biggest bond fund. The European Central Bank hasn’t put in place a “circuit breaker” to contain the region’s debt crisis, El-Erian, who is also Pimco’s co-chief investment officer, said at an event in Washington today. Finance ministers and central bankers from the Group of 20 are meeting in Washington this weekend as markets tumble on concern the world economy is slowing and Europe’s sovereign debt crisis threatens to spread beyond Greece. The Stoxx Europe 600 Index sank 4.6 percent to 214.89 at the 4:30 p.m. close in London, the lowest since July 2009. “There has been a significant increase in the financial requirements of international intervention,” El-Erian said. “You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”

Warnings mount on euro crisis, credit crunch - (www.reuters.com) The euro currency project is in danger due to member states' runaway spending and the resulting sovereign debt crisis, a European Central Bank study warned on Thursday amid mounting global calls on Europe to take more decisive action. The study, perhaps the most strongly-worded warning about the future of the euro by a central banker, was a parting shot from ECB chief economist Juergen Stark, who resigned this month after opposing the bank's policy of buying troubled countries' bonds. "Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU (Economic and Monetary Union) itself," the research paper said. The report, published by the ECB but not officially endorsed by it, called for compulsory fines on states that run deficits above 3 percent of GDP and "financial receivership where adjustment programs do not remain on track."

Sovereign-Debt Risks Surge to Records in Europe on Fed’s Economic Forecast - (www.bloomberg.com) The cost of insuring sovereign bonds jumped across Europe with credit-default swaps on France and Germany surging to records as the global economy slows. Contracts on Germany rose 13 basis points to 109, swaps on France jumped 16 to 205 basis points and Belgium, Italy and Spain also reached records, according to CMA prices at 5 p.m. in London. The Markit iTraxx SovX Western Europe Index of debt swaps on 15 governments climbed eight basis points to an all- time high of 362 based on closing prices. Federal Reserve policy makers talked down the prospects for economic growth yesterday as they sought to revive the faltering recovery in a move known as “Operation Twist.” In Europe, manufacturing output contracted for the first time in more than two years, according to data from London-based Markit Economics, adding to concerns the economy could slide back into recession. “The market decided to react to a worsening economic climate instead of the announcement of Twist itself,” said Jeroen Van Den Broek, a strategist at ING Groep NV in London. “The whole sovereign crisis has a huge effect and is starting to take wider scope.”

Greeks strike amid pain and anger over austerity - (www.bloomberg.com) Greek workers staged a 24-hour strike on Thursday bringing the transport system to a standstill in protest against the government's decision to intensify its austerity drive to secure more aid and save the debt-laden country from bankruptcy. Tens of thousands of angry union members prepared to march later on Thursday to parliament in Athens as part of the first big nationwide protests since late June when daily demonstrations culminated in bloody clashes with police. Striking taxi drivers and bus, metro and rail workers forced commuters to use their own cars, triggering kilometres-long traffic jams and stranding tourists at hotels in Athens' ancient city centre. "The situation is dramatic, all major streets are jammed," said one traffic police official, who declined to be named. A stoppage by air traffic controllers delayed 100 flights by up to four hours and dozens more in an out of Greece were cancelled.

Moody’s Bank Downgrades Assailed as ‘Too-Big-to-Fail’ Persists - (www.bloomberg.com) Moody’s Investors Service, the ratings firm that downgraded the credit of Bank of America Corp. and Wells Fargo & Co., said future U.S. bailouts of financial firms are less likely. Some analysts and investors disagree. “We have not gotten beyond too-big-to-fail,” said Jason Brady, a managing director at Santa Fe, New Mexico-based Thornburg Investment Management Inc., who helps oversee about $76 billion. “We had an experiment where we let one go and it didn’t work out so hot. Now they are going to be more likely to let somebody go? I don’t think so.” Brady was referring to Lehman Brothers Holdings Inc., which collapsed in 2008 and presaged a taxpayer rescue of the biggest banks to keep the financial system from collapsing. Lawmakers have since pushed through regulations including the Dodd-Frank Act aimed at cutting the interconnectedness of financial firms and establishing plans to wind down troubled companies to avoid future bailouts.