Holy cow batman.
A string of cascading failures in US Financial institutions appears to be having a chilling effect on the leaders of the worlds largest developing nation.
This week, casualties in the form of Merril Lynch, Lehman Brothers, and now AIG are lighting off alarms across the globe, with fears that the US Financial Maelstrom could lead to global problems far greater than what is happening now.
The most recent alarm, caused by the cascading failures of some of the worlds oldest financial titans, is rung with a final clarion call of AIG, a $1,000 Billion dollar insurer of the US Commodities markets is facing bankruptcy, to be bailed out by the Fed.
From the Telegraph.co.uk:
Federal Reserve bails out AIG with $85bn loan
By James Quinn, Wall Street Correspondent
Last Updated: 1:38am BST 17/09/2008
The future of American International Group appears to have been guaranteed after high-level talks resulted in the Federal Reserve being on the verge of agreeing to extend an $85bn bridging loan to the troubled insurance giant.
The talks, being led by the Federal Reserve Bank of New York, but involving bankers from Goldman Sachs, JP Morgan Chase and Morgan Stanley as well as the company itself, appeared to have concluded that the Fed would offer the money to the company in return for the company pledging all of its assets.
In addition, the Fed will receive warrants which will give it an ownership stake of almost 80pc.
Shares in AIG slumped by 50pc in extended trading last night on that suggestion – having earlier closed down 21pc on the day.
Earlier in the day former AIG chairman Hank Greenberg said he was looking at ways of taking AIG private in a bid to save the company he ran for 37 years in which he controls a 12pc stake.
It seems we are witnessing nothing less than a meltdown of the core US Financial System.
The repercussions of AIG’s wounds are being felt in the commodities markets:
AIG fears cause securities trading to halt
By Rosie Murray-West
Last Updated: 9:16pm BST 16/09/2008
Shareholders were left unable to trade popular commodity securities yesterday, due to fears over the future of their backer, AIG.
Banks and brokerages stopped making markets in the Exchange Traded Commodities (ETCs) backed by the troubled insurer and sold by ETF Securities (ETFS). The price of the stocks also plummeted due to the worries over AIG.
ETFS said it was working on providing its customers with liquidity, and added that its other products, which are physically backed rather than backed by futures contracts, were unaffected. These include Metal Securities and Gold Bullion Securities. Shell-backed Oil Securities, is also unaffected by AIG’s problems, with ETFS reporting active markets in all of these products.
“The ETFS group is actively working on possible ways of providing investors with liquidity, including arranging suitable collateral for market-makers,” the company said in a statement. “However, we can give no assurance as to whether these or other alternatives can be implemented at this stage.”
Finally, China steps in with an opinion, Reuters:
BEIJING (Reuters) – Threatened by a “financial tsunami,” the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
The commentary in the overseas edition of the People’s Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P: Quote, Profile, Research, Stock Buzz) “may augur an even larger impending global ‘financial tsunami’.”
The People’s Daily is the official newspaper of China’s ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.
Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai’s Tongji University suggested considerable official alarm at the strains buckling world financial markets.
China’s central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.
“The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States’ financial oversight and supervision,” writes the commentator, Shi Jianxun.
“The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States.”
But Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.
“The Chinese government is well aware of the fact that the United States, which is the world’s largest developed country, and China, which is the world’s largest developing country, should have constructive and cooperative economic and trade relations,” he said.
China is a major buyer of U.S. Treasury bonds, and through its sovereign wealth fund it has taken stakes in two large U.S. financial institutions.
In July 2005, China revalued the yuan and freed it from a dollar peg to float within managed bands. But the yuan and China’s trade remains tightly linked to the fortunes of the dollar.
The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.
“Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy,” the front-page comment stated.
There is nothing “business as usual” about the unfolding events.
This is serious stuff people.
Take a serious look at what has been and will always be the rock solid foundation of every economy for the last 5000 years of human history: Gold.
We are about to witness a massive transfer of wealth as fiat systems come crashing down around us.
I have said before that China could lead a push to switch to a new currency. I have also said it will likely be a currency backed by gold and or silver.
As Robert Kyosaki would say, “Cash is Trash”.