KeNo's Housing and Economic Portal: Sunday October 9 Housing and Economic stories

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IMF may need billions in extra funding, says Lagarde - (www.telegraph.co.uk) Christine Lagarde said the money available to the organisation “pales in comparison to the potential financing needs of vulnerable countries”. In the wake of the global credit crisis, the funding of the IMF tripled and Britain’s exposure to it rose to £20 billion. This figure is poised to rise again if financial troubles engulf bigger economies such as Italy and Spain. Yesterday, Alistair Darling, the former Labour chancellor who was in office during the previous crisis in 2008, warned that the problems facing the global economy were worse than three years ago. “There are lessons to be learnt, and they are not being learnt by those responsible at the moment,” he said. “Lehmans [the investment bank that collapsed in September 2008] taught us one thing which is if you know there is a problem, take action, sort it out [in a way] that is more decisive than people expect if you are going to stop it.

Dimon in attack on Canada’s bank chief - (www.ft.com) Jamie Dimon of JPMorgan Chase launched a tirade at Mark Carney, Bank of Canada governor, in a closed-door meeting in front of more than two dozen bankers and finance officials, underscoring mounting tensions between bankers and officials over financial regulation. The JPMorgan chief executive’s remarks to Mr Carney, who is touted as a potential next head of the Financial Stability Forum, the international group of regulators, were focused on a capital surcharge for the largest banks, according to several people who attended the meeting of about 30 bank chiefs. The atmosphere was so bad after the meeting that Lloyd Blankfein, chief executive of Goldman Sachs and head of the Financial Services Forum bankers’ group which arranged the session, emailed the central banker to try to smooth relations, people familiar with the matter said.

Analysis: Banks prepare for Greek default, want EU help - (www.reuters.com) Bankers are bracing for a Greek default, and their best hope is that Europe can erect firewalls around the banking system strong enough and soon enough to prevent it from spreading to other euro-zone countries. So gloomy were bankers from major financial institutions, attending a conference on the sidelines of the International Monetary Fund/World Bank sessions, that they compared the risks of financial market contagion to the collapse of Lehman Brothers. "The direct financial exposure in the European banking system is extremely manageable. What's the indirect impact? You're going to have one massive demand shock," said Vikram Pandit, Citigroup's chief executive officer. "The fact is we should all expect some sort of a GDP impact if you have a demand shock that's going to be that significant and that's going to have an impact on business." The biggest fear is that Greece defaulting on its 340 billion euros in government debt would trigger widespread selling of euro-zone debt causing a much broader financial crisis. "It is very pessimistic," said another senior commercial banker at an international financial institution. "It (Greek default) is what we have to prepare for. I don't think it is the most likely scenario, but we have to be prepared."

‘Barrier’ Around Greece Needed: Merkel - (www.bloomberg.com) German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states that would risk breaking up the currency area. Expanding the powers of the region’s rescue fund, the European Financial Stability Facility, as agreed by European leaders in July is necessary to avoid Greece’s problems from spilling over to other countries, Merkel said late yesterday on ARD television. The fund’s permanent successor, due to take effect in mid-2013, is needed “so we can in fact let a state go insolvent” if it can’t pay its bills. “We have to be in a position to react,” Merkel said. “We have to be able to put up a barrier.” Even so, “I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks.” She made no mention of setting up the permanent fund before 2013.

Worried Greeks Fear Collapse of Middle-Class Welfare State - (www.bloomberg.com) Sitting in the modest living room of the home she shares with her parents, husband and two teenage children, Stella Firigou fretted about how the family would cope with the uncertainties of an economy crashing all around them. But she was adamant about one thing: she would not pay a new property tax that was the centerpiece of a new austerity package announced this month by the Greek government. “I’m not going to pay it,” Ms. Firigou, 50, said matter-of-factly, as she lighted a cigarette and checked her ringing cellphone to avoid calls from her bank about late payments on a loan. “I can’t afford to pay it. They can take me to jail.” While banks and European leaders hold abstract talks in foreign capitals about the impact of a potential Greek default on the euro and the world economy, something frighteningly concrete is under way in Greece: the dismantling of a middle-class welfare state in real time — with nothing to replace it. Since 2010, the government has raised taxes and slashed pensions and state salaries across the board, in an effort to rein in the bloated public sector that today employs one in five Greeks. Last week, the government announced it would put 30,000 workers on reduced pay as a precursor to possible termination and would cut pensions again for nearly half a million public-sector retirees. A clerk in her local town hall, Ms. Firigou, like all public-sector workers, took a precipitous pay cut last year — in her case to less than $1,300 a month from $2,000 a month — as the government slashed wages to meet the terms of its foreign lenders. Her husband, who sells used car parts, has seen his commissions drop. Her mother’s pension was cut to about $800 a month from around $920.