World Financial Elite Expect Global Recession

MeettheBoss.com, the recently launched "Facebook for Finance", released the survey results of 1,000 members to measure their mood regarding the current financial crisis.

Spencer Green, founder of MeettheBoss.com, says, "We believe that this survey provides a useful barometer of executive sentiment in the financial sector. Our exclusive membership means that MeettheBoss is uniquely positioned to gauge the opinions of this influential group and provide crucial information during the on-going crisis."

The survey found that the overwhelming majority of respondents believe we are entering a worldwide recession, while 53 per cent believe that governments were not decisive enough earlier in the crisis. Over two thirds of respondents were not convinced that the financial rescue packages would be sufficient to restore lasting confidence, with 20 per cent of respondents believing that these measures would not be enough.
However, most (85 per cent) felt that a concerted international approach would help restore confidence in the long term.

The survey consisted of 340 C-level executives, 480 directors and 180 in senior management exclusively from financial services businesses around the world.

"We were particularly interested in the fact that our members expressed confidence that a concerted international approach is the key to restoring recovery. We believe that by ascertaining the opinions of this global group, MeettheBoss.com is making a significant contribution to the dialogue on these crucial issues."

MeettheBoss.com currently has 25,000 members world-wide and is the first financial services networking tool to support this group of influential decision makers. While membership has been increasing at a rapid pace since the launch, membership will ultimately be capped at 50,000.

Firm sues B of A over bad advice

A Chicago company sued Bank of America Corp. in an attempt to recover nearly $23 million it says it lost due to misleading investment advice.
Independence Tube Corp., a manufacturer of structural steel tubing, claims that the bank falsely presented auction rate securities as “safe, liquid, short-term cash equivalents that were an attractive alternative to money market investments,” according to the suit filed Tuesday in U.S. District Court for the Northern District of Illinois.

A Bank of America spokeswoman declined to comment on the suit.

Auction rate securities are a long-term bond that acts like cash. The market for the investment vehicle collapsed in February; that prompted an investigation from federal regulators and the New York attorney general after allegations that B of A and other financial institutions misled investors about the risk of such securities.

Bank of America recently settled the charges by agreeing to pay a $50-million penalty, in addition to buying back $4.7 billion worth of auction rate securities. B of A did not admit to any wrongdoing as part of its settlement.

Independence Tube, however, was prohibited from recouping any part of its investment because the buyback program only extended to businesses that purchased up to $15 million in auction rate securities. The Chicago company had bought nearly $23 million in auction rate securities that were tied to student loans.

The company claimed in its suit that it attempted to recover its investment on the grounds that B of A violated Illinois and federal securities laws but that meetings with bank officials and letters demanding action have been denied and ignored.

Bankrate: Mortgage Rates Surge to 3-Month High

Mortgage rates bounded higher this week, with the average 30-year fixed mortgage rate soaring from 6.32 percent to 6.77 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.39 discount and origination points.

The average 15-year fixed rate mortgage jumped to 6.46 percent, while the average jumbo 30-year fixed rate climbed to 7.95 percent. Adjustable mortgage rates were mixed, with the average 1-year ARM dipping to 6.09 percent and the average 5/1 ARM increasing to 6.67 percent.

Mortgage rates have been jerking violently up and down in recent weeks, with fixed mortgage rates hitting the highest point since the week of July 23rd. This week's big increase came without corresponding volatility in benchmark Treasury yields. The catalyst for higher mortgage rates were the expansion of mortgage credit spreads - the difference in yields on mortgage- backed securities versus those of risk-free Treasury yields - to the highest level since 1986. The spreads, now hovering near 300 basis points, are up from the customary 180 basis point that were commonplace prior to the onset of the credit crunch in Aug. 2007. Higher funding costs for Fannie Mae and Freddie Mac, despite being under government conservatorship, have contributed to the expansion of mortgage credit spreads and the increase in mortgage rates.

The recent volatility in mortgage rates hits fence-sitting mortgage shoppers in the wallet. At last week's rate of 6.32 percent, a $200,000 loan carried a monthly payment of $1,240.55. This week, with the average rate at 6.77 percent, the monthly payment on a $200,000 loan is $1,299.86.

Bailout anger to generate wave of indictments

Public anger over the $700 billion "bailout" of US banks will likely lead to a "wave" of criminal prosecutions for white-collar crime, experts have said.

Analysts told news channel CNBC that outcry over the "vast" amount of taxpayers' funds being pumped into the financial system will generate demands that bankers involved in the crisis be held accountable for their actions, OpRisk & Compliance reported.

Jacob Zamansky, a securities lawyer who is representing investors in a Bear Stearns hedge fund case, told the broadcaster that calls for "culprits and scapegoats" would see indictments handed down.

"I think it's coming," he said.

However, despite rumours that the FBI is already examining the roles played by a number of multinational institutions in the crisis, the need to stabilize the system and the upcoming presidential election means no prosecutions are likely until next year, the site said.

Nevertheless, the government recently subpoenaed 12 executives of Lehman Brothers in connection to three grand jury criminal investigations into whether the firm's leaders deliberately misled analysts and investors.

Volkswagen becomes the World’s Biggest Company

Volkswagen became the world’s biggest company by market value after Porsche announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.

Volkswagen rose as much as 485.01 euros, or 93 percent, to 1,005.01 euros and was up 55 percent as of 11:10 a.m. in Frankfurt trading. The Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at 296 billion euros, or $370 billion, more than Exxon Mobil’s $343 billion market value at Monday’s closing price in New York, according to data compiled by Bloomberg.

Below is the 6-month chart of VOLKSWAGEN AG (VLKAF) on the Pink OTC Markets.

Volkswagen shares are difficult for short-sellers to cover because it has free float estimated to be as low as 5%, with Porsche and the Lower State of Saxony holding much of the company.

At its high on Tuesday, VW was worth 295 billion euros, or $367 billion, making it more valuable than Toyota Motor (TM), Honda Motor(HMC), Nissan Motors(NSANY), Daimler(DAI),  Renault (FR:013190) , Peugeot (FR:012150) , General Motors (GM) and Ford Motor Co. (F) combined -- not to mention the paltry 4.8 billion euro market cap of Porsche. 

Iceland hikes lending rate to 18%

The central bank's governor, David Oddsson, told reporters at a Reykjavik news conference that the rise was part of a deal with the International Monetary Fund, under which the beleaguered nation will receive a $2 billion standby facility, Reuters reported.

The action marks a massive turn in policy. The central bank had cuts its interest rate by three full percentage points to 12% earlier this month.

Iceland's currency collapsed after the government was forced to take control of the country's largest banks after the institutions were unable to obtain short-term funding. The nation's economy is expected to contract sharply as it deals with the aftermath of the crisis.

The conditions of the IMF package "presumably included decisive action to support the currency, reduce the economy's previously excessive reliance on overseas finance and control inflation, which is currently at 14%," wrote Ben May, European economist at Capital Economics.
"Today's move clearly goes a step in that direction, but may not enough on its own," May said. "Accordingly we certainly would not rule out further sharp hikes in Icelandic interest rates over the coming weeks and months. Needless to say, all of this bodes ill for the outlook for the economy."

Meanwhile, the European Commission is reportedly preparing a financial package to help support Hungary, according to news reports. A spokeswoman said the package is being discussed with European Union member states, Dow Jones Newswires reported.
The IMF agreed Sunday to provide Hungary with "substantial" financing as Budapest and other Central and Eastern European governments wrestle with outflows of capital amid global risk aversion and worries about vulnerable emerging economies' external financing needs.

The Hungarian forint was 3.4% higher against the single currency, trading at 263.49 per euro in recent action, according to FactSet.
Hungary's Bux stock index was 8% higher Tuesday amid broad European equity gains.

Regulators look for signs of manipulation near market close

U.S. securities regulators are trying to find out whether firms using the "marking the close" technique are contributing to explosive volatility on stock markets near the close of trading. The Financial Industry Regulatory Authority said it was taking "an extra close look" at the situation.

more at http://www.reuters.com/article/ousiv/idUSTRE49M8WC20081023

Rating agencies scrutinized by House panel

Source: CNBCRaymond McDaniel, CEO of Moody's, told Congress that in the run-up to the financial crisis, the three major credit-rating agencies -- Moody's, Standard & Poor's and Fitch Ratings -- were trapped in a race to the bottom, forced to lower standards to maintain market share. Rep. Henry Waxman, D-Calif., chairman of the House Committee on Oversight and Government Reform, said that race was lucrative for the rating agencies in the short run but disastrous for the global economy in the long run.

more at http://www.marketwatch.com/news/story/Ratings-agencies-put-system-risk/story.aspx

More countries apply for IMF aid

The financial crisis in the banking sector grew to engulf entire nations over the weekend as Hungary and Ukraine followed Iceland in applying for emergency loans from the International Monetary Fund (IMF).

In a statement, the organization - known as the lender of last resort - confirmed it has reached a "tentative agreement" with the Ukrainian government to lend the country $16.5 billion in order to tackle a "series of economic problems tied to the international financial turmoil".

These include a collapse in steel prices that had left the former Soviet republic in danger of being unable to refinance its debt.

In addition, the IMF said it has reached broad consensus with Hungary on a set of policies designed to increase the nation's near-term economic stability. Details of a funding package are set to be revealed within days, it added.

Both deals come after the IMF reached an outline deal with Iceland for a loan of $2.1 billion to support an economy recovery program brought in after the country's banking system went into near-meltdown.

The IMF comprises 185 member countries with a combined lending capacity of around $200 billion.

Goldman approached Citi over merger in September

Goldman Sachs Group approached Citigroup Inc. over the possibility of merging the firms in September, according to a report in The Wall Street Journal. The call was made by Goldman CEO Lloyd Blankfein to Citi's Vikram Pandit not long after Lehman Brothers filed for bankruptcy protection on Sept. 15, the newspaper said. The call didn't lead to further talks, but the fact it occurred at all underscores the severity of the crisis, the newspaper reported.

Bush to host global economic summit Nov. 15

President George W. Bush agreed to hold an international summit for world leaders to discuss the financial crisis and economy. After some debate among the leaders, the meeting was set for Nov. 15 in Washington. Bush invited leaders from the Group of 20, which includes China, India, Britain, Saudi Arabia, Russia, Japan, Brazil, South Africa and several European countries, as well as officials from the International Monetary Fund, United Nations and World Bank.

more at http://www.iht.com/articles/2008/10/22/business/summit.php

Banks must overhaul risk management, says Fed governor

Many banks and financial institutions need to undertake a "fundamental review" of their strategic risk management to ensure that the system not only recovers from the current banking crisis but also that it maintains its stability in the future, a Federal Reserve governor has said.

Addressing the annual conference of the Risk Management Association in Baltimore, Maryland, Dr Randall Kroszner noted that a number of banks had learnt the hard way that ignoring any aspect of financial risk management usually had negative consequences later on.

In the wake of the financial crisis that claimed a number of banks including Lehman Brothers and Merrill Lynch, he called on risk management to be "interwoven into all aspects" of business planning through a "strategic risk management framework".

He added that too many firms were currently undertaking the first part of a corporate strategy - defining what activities a business will participate in - only to neglect the second half of such a strategy, namely assessing the risks attached to those activities.

"Strategic decisions about what activities to undertake should not be made unless senior management understands the risks involved," Dr Kroszner said.

Wall Street job losses could top 200,000

Wall Street has already laid off 110,000 people in 2008 as a result of the financial crisis, and some experts see that number reaching 200,000 by the end of the year. Goldman Sachs Group said Thursday it would cut 3,200 jobs, or 10% of its work force. "Wall Street the way we know it is, frankly, gone," said Michael Williams, dean of the graduate school of business at Touro College in New York.

more at http://www.latimes.com/business/la-fi-streetjobs24-2008oct24,0,6539860.story?track=rss

UK Treasury backs warning of "serious threats" to international finance

The UK's Treasury has backed warnings from the Financial Action Task Force (FATF) that the international financial system could face "serious threats" from deficiencies in the anti-money laundering (AML) and counter-terrorist financing (CTF) systems of countries including Iran and Pakistan.

Uzbekistan and Turkmenistan were also flagged up by the FATF as countries that face AML and CTF deficiencies, along with the island of Sao Tome off the coast of west Africa and the northern part of Cyprus.

As a result of the warnings, the Treasury has advised all UK businesses covered by the Money Laundering Regulations 2007 to treat transactions from Iran and Uzbekistan as "situations that by their nature can present a higher risk of money laundering or terrorist financing" and therefore require increased scrutiny.

People operating under the authorisation of the Financial Services Authority should also consider the advice when developing their counter-financial crime systems in order to minimise risk, it added.

The FATF is an inter-governmental body that seeks to develop nationally and internationally adopted anti-money laundering and counter-terrorist financing policies.

As markets slide, Greenspan admits "flaw" in philosophy

Former Federal Reserve chairman Alan Greenspan said he was "partially" wrong to advocate deregulation of the banking system after admitting to Congress that the severity of the current crisis had left him in a state of "shocked disbelief".

Speaking before a Congressional committee, the man hailed as an economic sage over the years warned that the system faces a "once-in-a-century credit tsunami".

His comments came as markets in Asia and Europe suffered sharp declines as investors fled over increasing fears of a global recession.

In Japan, the Nikkei fell 9.6 per cent to close at its lowest level in five-and-a-half years.

European exchanges fared little better in early trading with figures from the BBC showing London's FTSE 100 down by over six percent, the Cac 40 in Paris down by 7.06 percent and the DAX in Frankfurt down 7.14 percent.

Back on the Hill, Mr Greenspan commented that despite the system working "exceptionally well" for 40 years: "I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms."

This Day in Wall Street History 1929: Another "black" day

Less than a week before the crash of 1929, Wall Street suffered through "Black Thursday." During a day of frantic action, stock prices plummeted and investors on the New York Stock Exchange dumped 13 million shares. Despite the best efforts of J.P. Morgan and other wealthy investors, Black Thursday proved to be but a preview of the even more difficult times ahead for Wall Street.
- source: www.history.com

Greenspan says crisis "found a flaw" in his thinking

Alan Greenspan, former chairman of the Federal Reserve, told a congressional committee that he made "a mistake" in thinking that self-interest would force banks and other financial institutions to protect shareholders. He said he wrongly assumed that lenders would carry out proper surveillance of their counterparties. On the other hand, Greenspan said the kind of heavy regulation that could have prevented the economic crisis would also have damaged growth in the U.S.

more at http://www.ft.com/cms/s/0/aee9e3a2-a11f-11dd-82fd-000077b07658.html

This Day in Wall Street History - 1869: NYSE seats up for sale

On this day, the New York Stock Exchange put memberships up for sale for the first time in its seventy-seven-year history.

- source: www.history.com

Phishing 'explosion' sparked by banking chaos

Turmoil in the banking sector sparked an explosion in phishing attacks last month, as fraudsters attempted to take advantage of the uncertainty to target banks and investors on both sides of the Atlantic.

New statistics from MessageLabs show that between September and October when the credit crisis took hold, there was a 106 per cent rise in phishing attacks.

These scams use emails from apparently credible sources such as banks to try to obtain clients' bank or credit card details.

As last month's crash hit, phishers were using the confusion to target institutions involved in high-profile mergers, bailouts or collapses, the company said.

They included Bank of America, Wachovia and Manhattan Chase in the US, alongside Lloyds TSB and the Royal Bank of Scotland in the UK.

In order to mitigate the risk of fraud through phishing, banks should stress to their customers that they will never ask for personal or account details via email, MessageLabs said.

The firm's chief security analyst, Mark Sunner, commented: "It's crucial that everyone is aware of potential threats and is educated on how to avoid falling victim to them."

SAS ranks first in two categories of Chartis RiskTech 100 report

SAS, the leader in business intelligence (BI) and analytics, was ranked first in the core risk technology category for a third straight year and first in operational risk and governance, risk and compliance GRC in Chartis Research’s RiskTech 100 report. The report, an overall market assessment of the top risk technology vendors, examined each vendor’s functionality, core technology, organizational strength, customer satisfaction, market presence and innovation.

“SAS has differentiated itself from other Tier 1 business intelligence and enterprise software players by developing deep, functionally rich risk applications for the financial services industry,” said Helen Townsley, Director of Research at Chartis Research. “SAS offers the best in core risk technology – a cornerstone that is critical to the success of any risk technology project. In addition, both the SAS credit risk and operational risk management applications are ranked as market leaders.”

Chartis estimates the global market for risk technology to be worth US$5.95 billion (external expenditure only) in 2009 and forecasts a compound annual growth rate of 8 percent.

The Chartis report explained that “successful risk technology implementation partners are those that have the right balance of business and technology expertise.” The report continued saying “with reference to technology, they need to have skills in key market leading technologies for data integration, data warehousing, business intelligence and analytics such as … SAS.”

As the category winner for operational risk and GRC, Chartis commented that “the current SAS offering is unique is bringing together best-in-class qualitative and quantitative risk assessment and reporting … unlike competitors [who] are strong only in one of those dimensions.” The research report further noted that “in latest product releases SAS has enhanced the workflow, issues & actions planning and loss data reporting modules.” Key differentiators were pinpointed as “its database of externally reported losses and its strategic involvement in the insurance industry loss data consortium.”

The RiskTech 100 core technology category examined each vendor’s capabilities in data management, risk analytics and reporting. Chartis explained that due to “the data intensive nature of risk management, and the requirements for complex statistical calculations ... SAS has had a competitive advantage over some of the generic enterprise technology and specialist firms.” SAS was highlighted as “very strong in the areas of data integration, data storage for analytics and data quality management.”

In risk analytics, Chartis called SAS an “industry leader in performing complex analysis of large amounts of data” with SAS® software’s “optimisation routines and data handling capabilities … [providing] superior performance (time and cost) over most of its competitors.”

For reporting technology, Chartis again recognized that “SAS’ business intelligence (BI) capabilities provide a flexible environment for customers to define and generate risk measurement and monitoring information” that “facilitate a two-way interaction between users and systems allowing for risk diagnostics, scenario analysis and key risk indicator monitoring.”

"This being the third year that SAS has placed first in core risk technology is truly an accomplishment and testament to our effective foundation in enterprise risk management," said David Rogers, SAS’ Global Product Marketing Manager for Risk. “In addition, SAS receiving the top honor in the operational risk and governance, risk, and compliance category is evidence that our operational risk management solutions are addressing our customers’ GRC needs. We are pleased that SAS risk management solutions have seen several top rankings in 2008.”

Recently, SAS was placed in the Leaders quadrant of the Magic Quadrant for Operational Risk Management Software for Financial Services by Gartner Inc. SAS repeated its lead position in Chartis Research’s report Credit Risk Management Systems 2008 for retail banking. The momentum for SAS in the operational risk management space and GRC was also evidenced by doubling revenue growth in operational risk sales for 2007, increasing sales of SAS for anti-money laundering and securing the leadership position in Chartis’ Operational Risk Management Systems 2008 for the fourth straight year.

Chicago’s best MBA programs

Northwestern University’s Kellogg School of Management ranked No. 1 for the third straight year on Crain’s ranking of MBA programs, beating out the University of Chicago’s Graduate School of Business as the best MBA program in Chicago. The Kellstadt Graduate School of Business at DePaul University finished third.

Crain’s ranking is based on surveys of alumni from area schools and the corporate recruiters who hire them. Seven MBA programs, accredited by the Assn. to Advance Collegiate Schools of Business, are included in the ranking, as well as six executive MBA programs.

In the overall ranking, the University of Illinois at Chicago Liautaud Graduate School of Business moved up two spots from last year to finish fourth. Loyola University’s Graduate School of Business, Northern Illinois University’s College of Business and the Stuart School of Business at the Illinois Institute of Technology round out the list.

Alumni and recruiters took part in a wide-ranging survey about the MBA hiring climate and how students choose their programs. Some key findings:

22% of recruiters saw an increased need to hire MBAs in the coming year

59% of alumni said their degree helped them get a raise

43% saw raises of 25% or more

58% earn more than $100,000 annually

53% of alumni said their degree helped them get a promotion

48% of alumni said the degree helped them change jobs

On the list of executive MBA programs, Kellogg and the U of C topped the ranking, followed by the Chicago campuses of the University of Illinois at Urbana-Champaign and the University of Notre Dame. Loyola and NIU round out that list.

This Day in Wall Street History - 1914: Nation's first income tax

The passage of the anti-protectionist Underwood-Simmons Act took a bite out of the nation's pocketbook. To compensate for the lost income, Congress passed the Revenue Act on October 22, 1914, mandating the first tax on incomes over $3,000.

- source: www.history.com

CBOE develops new electronic exchange

The Chicago Board Options Exchange, the largest U.S. options market, said on Tuesday that it is developing a separate all-electronic options market to boost its competitive position.
The exchange, referred to as "C2," will compliment CBOE's hybrid market as the exchange expands its customer base. The new exchange is expected to be launched in 2009, pending U.S. regulatory approval, CBOE said in its quarterly earnings statement.

The capital investment for C2 is anticipated to be about $25 million, with the majority of the systems development and capital outlay occurring in 2008.

The exchange will operate under a separate license with a separate access structure and fee schedule. It will have its own board of directors, rules, connectivity and systems architecture.

CBOE announced the alternative exchange initiative to its members on the CBOE Web site.

Once complete, C2 would be a subsidiary of CBOE and would become a subsidiary of CBOE Holdings Inc, in the event of CBOE's demutualization to become a shareholder-owned company.

The CBOE said its third-quarter profit after taxes rose 56 percent, helped by a rise in trading volume and expanded product offerings.

ING gets $13 billion injection from Netherlands

The Dutch government, through its $13 billion capital injection in ING, will acquire a class of securities that do not include voting rights and are not dilutive for shareholders but do count toward the banking and insurance group's Tier 1 capital level. The move was made as ING's share price tumbled and news spread that the company would suffer its first quarterly loss. ING's executive board will not receive bonuses this year, and the group will scrap its dividend for the final quarter of the year.

more at http://www.ft.com/cms/s/0/710829ea-9e40-11dd-bdde-000077b07658.html

China, Persian Gulf nations jump back into Western investing

After a brief hiatus prompted by the ongoing global financial crisis, governments in the Persian Gulf as well as China have started investing once again in Western financial institutions. On Thursday, the Qatar Investment Authority led a capital infusion of about $8.8 billion into Credit Suisse Group. Meanwhile, a trio of Libyan government institutions acquired a stake in UniCredit. They also announced that they will support the Italian bank's capital increase. Also, the Chinese government is planning to boost its stake in Blackstone Group.

Buffett: Why I'm buying American stocks

Warren Buffett explains in a New York Times commentary why he has been buying American stocks lately. Buffett said his non-Berkshire Hathaway net worth may soon be 100% invested in U.S. equities. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," he writes.

more at http://www.nytimes.com/2008/10/17/opinion/17buffett.html

Bush set to meet with EU leaders over the weekend

A previously scheduled meeting this weekend at Camp David between President George W. Bush and leading European Union officials will be used to discuss the possibility of a summit on international financial rules. European leaders want to see how receptive U.S. officials are to ideas such as an international institution to oversee the largest banks in the world. French President Nicolas Sarkozy and British Prime Minister Gordon Brown have each put forth plans regarding how the world should tackle the financial crisis.

more at http://www.timesonline.co.uk/tol/news/politics/article4951852.ece

1973: Oil exports cut

In a move that would affect the economy throughout the decade, on this day various Arab nations decided to reduce oil exports to Western countries and Japan. A few days later, the Arab oil producers escalated the cutbacks into an outright embargo that stretched on for over a year. - source: www.history.com

EU leaders to propose global body for financial supervision

At a summit in Brussels, Belgium, EU leaders prepared to call for the establishment of an international body to oversee the top financial institutions in the world. EU officials said regulatory officials from large countries and financial hubs would make up the entity, with the goal of improving communication and preventing future crises. Getting the U.S. and other countries to agree to the plan may be challenging. While British Prime Minister Gordon Brown proposed an "early-warning system" to detect future financial crises, the Group of Eight agreed to hold a summit in the coming weeks with other nations to discuss global financial reform.

more at http://www.ft.com/cms/s/0/b2d37338-9aae-11dd-bfd8-000077b07658,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html

Options Clearing Corp. to compete with CME

Chicago-based Options Clearing Corp. said it will begin competing directly with CME Group Inc. for the first time, after agreeing to guarantee contracts traded at a new futures exchange run by the New York Stock Exchange’s parent.
NYSE Liffe LLC will switch clearing of its precious metals futures contracts to Options Clearing Corp. from CME at the end of the first quarter, NYSE said in a statement Tuesday. The New York exchange bought the suite of metals contracts — originally offered at the Chicago Board of Trade — from CME earlier this year.

CME has its own set of identical metals contracts, acquired when it purchased the New York Mercantile Exchange in August. CME’s contracts currently dominate the market, but OCC and NYSE Liffe plan to give the larger futures exchange a run for its money.

“We are neighbors here, and yet we are going head to head,” says Michael E. Cahill, OCC’s president and chief operating officer, whose offices are across the street from CME’s on Wacker Drive. “This will be a very interesting situation.”

NYSE Euronext, which owns NYSE, already competes with CME through its London-based futures exchange, known as Liffe. It got regulatory approval to operate a U.S. futures exchange this past summer.

NYSE Euronext owns 40% of OCC, which handles all U.S. stock options trading and is the world’s largest derivatives clearinghouse. CME is the world’s largest clearinghouse for futures contracts.

45% of Hedge Fund Management Fees Spent on Middle and Back Office

PCE Investors, the hedge fund operations outsourcing platform, announced the results of a survey conducted by KPMG into the costs incurred by hedge fund managers when running their fund. The survey found that:

- Managers on average spend 45% of their management fees on middle and back office
- Eight out of ten managers polled considered that investors are placing more emphasis on the back and middle office
- Where over 70% of a manager's clients are institutional, the proportion spent on corporate control increases significantly.

George Cadbury, President, PCE Investors said, "The landscape of managing a hedge fund business has become more complex. Investors are now driving the need for pertinent risk controls, efficient operational systems and studious compliance in a way that has not before been witnessed. Managing the associated costs, however, are as important as managing the portfolio. PCE simplifies the complexities of running a fund business, enabling managers to focus solely on alpha generation."

Andrew North, Principal Advisor, Investment Management, KPMG LLP commented, "Managers are increasingly looking to move to a more variable cost model, geared to activity or performance. Outsourcing can achieve this and give managers the freedom to 'stick to their knitting' and concentrate on performance." North continued, "The portfolio of services managers are comfortable outsourcing is expanding; moving from traditional fund administration and IT, into the middle and back office as well as business support functions such as compliance."

The survey was commissioned from KPMG by PCE Investors and each participating manager took part in a face-to-face interview and completed a questionnaire. The participants were based in London and have a combined AUM of $13bn with a significant proportion under $1bn. The survey looked at the structure of the cost base of small-to-medium sized hedge funds in the current market, and explores their appetite for outsourcing and also where costs are expected to change in the future.

CME, Citadel to create new exchange

CME Group Inc. and Citadel Investment Group LLC said Tuesday they are creating a market to clear and trade credit-default swaps, the arcane insurance-like contracts that are at the heart of the global credit freeze.
The joint venture, planned to be up and running in 30 days, comes as regulators call for more oversight of the $55-trillion industry amid growing fears that defaults by trading partners to the contracts could cripple the financial system. Concern about the global ramifications of such failures was one reason the Federal Reserve decided to step in with an $85-billion loan to prevent the collapse of American Insurance Group Inc.

CME has tried before and failed to break into the lucrative credit-default swaps market, controlled by many of the largest investment and commercial banks. Those banks are backing a competing clearinghouse, Chicago-based Clearing Corp., which plans to apply for a New York banking license and be up and running by the end of the year. IntercontinentalExchange Inc., an Atlanta-based futures market, also plans its own clearinghouse. Representatives of all firms were in New York on Tuesday pitching their plans to federal regulators.

CME CEO Craig Donohue says that recent bank failures and other disruptions to the financial system will force players to the table who previously refused to deal in CME products.

“You have dramatically different market circumstances now,” Mr. Donohue says. “The system begins to grind to a halt. More than in any other asset class at any other time I can remember, there’s a very significant need to solve these problems.”

Mr. Donohue said his venture has been working on the plan with four regulators — the Treasury, the Fed, the Commodity Futures Trading Commission and the Securities and Exchange Commission — but that the venture’s ultimate regulator has not yet been determined.

Lehman chief blames "financial tsunami" for firm's collapse

Richard Fuld, CEO of bankrupt Lehman Bros., told a congressional oversight committee that he did everything he could to save the company, but was overwhelmed by a "financial tsunami much bigger than any one firm or industry." He told legislators that he accepts full responsibility for his actions, but said that "no one realized" the enormous size of the problems facing Wall Street. Even as Lehman slid toward collapse, Fuld said, he kept federal regulators informed of what was happening behind closed doors.

more at http://www.ft.com/cms/s/0/1bd9d442-9408-11dd-b277-0000779fd18c.html

Buffett's moves mirror those of J.P. Morgan in 1907

Warren Buffett's actions during the current financial crisis resemble those undertaken by J. Pierpont Morgan in the Panic of 1907. "It's what you might call profitable patriotism," said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. Buffett has invested $8 billion in General Electric and Goldman Sachs in the past two weeks.

more at http://www.nytimes.com/2008/10/06/business/06buffett.html

TED Spread

The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt ("T-bills").

TED spread is an indicator of perceived credit risk in the general economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on inter-bank loans (also known as counterparty risk) is increasing. Inter-bank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of default is considered to be decreasing, the TED spread decreases.

Below we show the history of the TED Spread dating back to 1986, along with how the market performed following similar spikes to the current one. As the results illustrate, the S&P 500's performance following extreme readings are mixed. In three out of four of the period where the TED spread spiked, the market was higher three months later. However, the one time it had a negative return was in 1987 when the market crashed.

Warren Buffett comments on economic fear

The credit crunch is "sucking blood" from the economy, legendary investor Warren Buffett has claimed.

According to the Sage of Omaha, the recent market turmoil and wave of bank bailouts has left the American financial system "flat on the floor".

The seizing-up of the credit markets has left many firms vulnerable to being either taken over or going bankrupt.

Mr Buffett, 77, has made high-profile investments in Goldman Sachs and General Electric recently, which many have interpreted as a powerful vote of confidence in the US economy.

However, he has told shareholders that his investment strategy is to be "greedy when others are fearful" - and has negotiated attractive terms from both deals, including a guaranteed ten per cent dividend.

Speaking to Charlie Rose on PBS, Mr Buffett commented: "In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now.

"The economy is going to be getting worse for a while."

Russia hit hard by global credit crisis

The recent extreme volatility on the global markets - and the bank bailouts in the US and western Europe - have had a profound effect on the Russian economy.

According to two mining firms, the crisis is leading commodities firms to sell some of the assets which have powered growth over recent years.

Both Polymetal and Polyus Gold are reporting the sell-offs, Reuters reports.

Polyus chief executive Yevgeny Ivanov said: "The tendency is clear: we are witnessing a revision of all prospects.

"Many gold projects, which earlier planned an initial public offering of their shares or a sale to a strategic investors, are in deadlock for lack of funding."

Vitaly Nesis, chief executive of Polymetal, added: "In the conditions of the crisis, the owners of the assets are less optimistic about the prospect of a public offering on an exchange.

"The long-awaited process of owners revising down their asset value has already started."

Moscow's two main stock exchanges, the Micex and the RTS, were also closed earlier this week due to the near-panic of US investors following congress' rejection of the government's rescue plan.

THE AUSTRIAN SCHOOL AND THE MELTDOWN - by Dr. Ron Paul

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

[On September 25] the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency.

Dr. Paul is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives. He never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the “one exception to the Gang of 535” on Capitol Hill.

To learn more about Dr. Paul, see here:
Congressman Ron Paul

Wells Fargo agrees to buy Wachovia for $15.1 billion

Wells Fargo agreed to acquire Wachovia Corp. for about $15.1 billion in an all-stock purchase. The purchase requires no assistance from the Federal Deposit Insurance Corp. or any other government agency, the companies said, and it ends Wachovia's talks with Citigroup about a possible merger. The deal values Wachovia shares at about $7.

more at http://www.thestreet.com/story/10440560/1/wells-fargo-to-buy-wachovia-for-15-billion.html

Markey calls on SEC to reinstate collar rule

Rep. Edward Markey, D-Mass., urged the Securities and Exchange Commission to reinstate the so-called "collar rule." The arbitrage rule has the downtick-uptick test and is designed to halt market volatility. "The SEC has the authority and responsibility to ensure that this volatility is not exacerbated dangerously by internal market mechanisms such as program trading which could push this situation into a free fall," said Markey, who was chairman of the House subcommittee on telecommunications and finance in the late 1980s, another period of market volatility.

more at http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080930/REG/809309979/1036

Buffett to provide $3 billion of GE's $15 billion fundraising

Reeling from the loss of more than 40% of its market value during the past year, General Electric is kicking its capital-raising plan into high gear. GE will sell at least $12 billion in common shares in a public offering, plus $3 billion in preferred shares to Warren Buffett's Berkshire Hathaway. The preferred shares going to Berkshire carry a bundle of sweeteners, including a 10% guaranteed dividend and warrants to buy $3 billion of common stock with a strike price of $22.25 a share for five years.

more at http://www.boston.com/business/markets/articles/2008/10/02/ge_to_raise_15b_on_stock_sale_buffett_buy/#commentAnchor

Lack of confidence sends Libor to record level

While stock markets around the world suffer steep declines, the overnight dollar Libor surged to 6.88%, an indication that lenders are concerned that money they lend to other financial institutions may never be seen again. "The reason Libor is so elevated is a lack of confidence between counterparties in the financial sector," said Charlie Diebel of Nomura. The situation forced central banks to inject billions into the system.

more at http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3112354/Financial-crisis-Libor-hits-record-level-as-confidence-evaporates.html

1907: Morgan lends a hand

The United States boom, busted its way through the 1800s and the growing pains continued into the new century. On October 1, the nation was plunged into the Panic of 1907. The previous spring, a currency drain, caused mainly by the overzealous funding of new businesses, sent the markets tumbling and strongly hinted of a coming depression. By the fall, the public felt the fiscal pinch and made a mad grab to pull their money out of banks. A run on the Knickerbocker Trust in New York, which lacked the resources to pay out to the demanding public, ultimately toppled the economy. Sensing that the nation needed an infusion of cash, President Roosevelt enlisted the aid of his one-time enemy, financier J.P. Morgan. Morgan capitalized on his considerable reputation to borrow $1 million in gold from European countries. Even with Morgan's help, the depression lasted until the fall of 1908.
- source: www.history.com