Unprecedented push by central banks to flood the financial system with dollars

It certainly didn't appear with the Bloomberg article!

For Halloween, I'd planned to disguise myself as a member of the Federal Reserve, but wasn't sure if pirate or vampire was the look to go with. Now I know!

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"It is difficult to get the news from poems yet men die miserably every day for lack of what is found there."

--William Carlos Williams (from the poem 'From')

By CNBC.com | 14 Oct 2008 | 06:58 AM ET

Commodities will benefit the most from the coordinated bailouts because the plans are sowing the seeds of future poverty, fuelling an already raging inflationary fire, analyst Puru Saxena, CEO at Puru Saxena told CNBC on Tuesday.

"All this money-printing which is going on all over the world" will bring "tradable rallies" until the first, second quarter of next year, but afterwards economic woes will intensify, Saxena said.

In a research note, he compared the bailouts with shots of heroin to fix the problem of an addict and said they were poison for the long term.

"It's very good to prop up the asset markets … but many, many other countries have tried to print themselves out of trouble and the end result has been a total collapse of the economy as well as the currency," Saxena warned.

"What this is going to cause is sky-high commodity prices in the next few years and a general deterioration of the standard of living and sharply rising consumer prices and a huge contraction in the purchasing power of money," he added.

Demand for oil is still rising despite the threat of global recession, while supply is tight and US gasoline stocks are at the lowest levels since 1969. The last big discovery of oil was in 2000 in the Caspian Sea but "even now there isn't a drop of oil from this field on the market," Saxena said.

Grain inventories are at their lowest level in past 30 to 35 years, and metal stockpiles are also low, he added. Gold is being snapped up as fears of inflation are rising.

"Already we are seeing shortages of physical gold bullion and hoarding of gold going on all over the world," Saxena said.

"A billion here, a billion there, and pretty soon you're talking real money."
~~ attributed to Senator Everett Dirksen

Your mission, should you choose to accept, is to abstain from being party to transactions involving these nine institutions in every possible way. Further consolidation mergers and absorption of smaller institutions will make this more difficult.

If you currently have accounts with these nine criminal enterprises, I suggest finding a small, local bank with which to do business. Keep a very small amount of FRN credits on deposit in the event your new bank goes belly up. Try to conduct everything possible with physical FRNs.

U.S. Treasury Said to Invest in Nine Major U.S. Banks

bloomberg
By Robert Schmidt and Peter Cook

Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said.

The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment.

The injections represent a new approach for Treasury Secretary Henry Paulson's attempts to prevent a financial market meltdown from sending the U.S. economy into a prolonged recession. He's following similar interventions by European leaders and using broad powers Congress gave him earlier this month to save the country's banking system.

``They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.

None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person.

The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.

Allocating Money

The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.

Financial institutions are struggling to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Falling share prices have made it harder to raise equity while surging borrowing costs have made debt refinancing harder.

Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled at 8:30 a.m. press conference tomorrow in Washington. Paulson's initiative follows an announcement in Europe that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

The press conference at Treasury will address ``a series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets,'' the department said in a e-mailed statement.

Chief executive officers of major U.S. banks met with Paulson to discuss the options for helping markets. Stocks in the U.S. earlier today rallied the most in seven decades, pushing the Standard & Poor's 500 Index up 11.6 percent.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

"A billion here, a billion there, and pretty soon you're talking real money."
~~ attributed to Senator Everett Dirksen

Europe stuns with €1.5 trillion bank rescue, as France plays role of saviour

Germany, France, Italy, Spain, Holland and Austria have joined forces to launch the greatest bank bail-out in history, offering over €1.5 trillion in guarantees and fresh capital in a "shock and awe" blitz to halt the credit panic.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/319145...

By Ambrose Evans-Pritchard
Last Updated: 10:22AM BST 14 Oct 2008

The move – unveiled simultaneously in the six states to maximise the show of unity – throws the full weight of the eurozone behind global efforts to stem the crisis.

The move gave a tremendous boost to bourses across Europe, lifting the Euro Stoxx index by 9.53pc in the biggest one-day rally ever.

The pan-European plan – totalling over $2 trillion, or £1.17 trillion – completes the third leg of a dramatic restructuring of finance across the Western world. Sovereign states have now absorbed the brunt of the credit risk in half the global economy.

"The greatest risk is inertia," said French President Nicolas Sarkozy, now basking in glory as the man who refused to give up after the first emergency summit of EU leaders ended in discord.

"The French state will not let a single bank fail. We have to unblock the interbank market because money has stopped circulating, but it is a reasonable bet that by offering this guarantee, it won't actually be needed," he said, unveiling a French package worth €320bn in guarantees for fresh interbank loans and a €40bn bank rescue fund.

Sarkozy has emerged as the statesman of the hour, shaping events as others dithered. He appears to have understood intuitively that credit paralysis would set off a dangerous downward spiral.

Germany's rescue package totals €500bn, far bigger in per capita terms than America's scheme. The bulk is to guarantee interbank lending, while €100bn is for a stabilisation fund to recapitalise banks and cover losses – with strict pay limits for executives.

"We have placed the first foundation stone of a new financial order," said chancellor Angela Merkel, underlining that nothing would ever be the same again in banking.

She also warned that the US government's "massive support" for the Detroit car industry would create a major headache for Germany's producers, who are already struggling. BMW said yesterday that it would idle plants in Leipzig, Regensburg and Munich as demand fell.

Italy's finance minister Giulio Tremonti said Rome would provide as much money "as necessary" to stabilise credit markets. Italy's plan includes the injection of up to €40bn in fresh capital into the banks on a "case by case" basis, through preference shares.

The Netherlands is offering a €200bn guarantee; Austria is putting up €100bn, as is Spain – as a "preventive measure". Debts issued before the end of next year will be guaranteed for five years under all the national plans.

Diplomats say the world owes a great deal to France's finance minister, Christine Lagarde. A former chair of the US law firm Baker McKenzie and a friend of US Treasury Secretary Hank Paulson, she has been a bridge between the EU and Washington, helping to end the transatlantic sniping that has damaged market confidence over the past year. The close co-operation is in stark contrast to the catastrophic rift in October 1931, when France set off a wave of US bank defaults by pulling its gold out of New York.

The Sarkozy accord was not enough to shield Société Générale yesterday, as reports circulated that it might be the first to tap into the French bank rescue fund, perhaps needing as much as €10bn. The share price collapsed 17pc at one point on fears of losses in its structured credit unit. Investors are concerned that it may suffer from exposure to Eastern Europe, where it has played a role in providing foreign currency mortgages. The shares ended down 2pc in Paris.

This week's dramatic action by the eurozone states has gone a long way to reassure investors that EMU can weather a severe crisis, even though it lacks an EU treasury or fully fledged lender-of-last resort. The EU Stability Pact rules on budget deficits have been shunted aside by invoking the "special circumstances" clause of the Maastricht treaty, opening the way for fiscal stimulus. The Dutch-Belgian rescue of Fortis and the French-Belgian rescue of Dexia were not without friction, but at the end of the day the system was able to come up with creative solutions.

IMF chair Dominique Strauss-Kahn said the monetary union had faced its "ordeal by fire" this week. With French leadership, it survived.