Thursday, April 16, 2009

Hot news round up....

The FT has a treasure trove of news today....some of which, may have one a little confusing.

They are all not equally worth any analysis, but for the college students that visit this site--which appears to be allot of them--this may help you to get some wind of the information that's out there and how to put it all together!

JP Morgan reports a $2.1bn dollar profit in the first quarter. They, Goldman Sach's and Wells Fargo, all made substantial profits. Better than expected.

On the other side of the equation, UBS, a Swiss bank, lost $1.75bn in their first quarter and about to cut 11% of its global work force.

I guess you can say the US bank bail out, bolstered by their support for the economy, has worked to keep the big banks in the US solvent and profitable. On the other end, you can say that the Swiss UBS--which was on the ball at the beginning of the bail out-- has not yet seen itself out of the red.

Could it be an issue of regional government support? Weaker EU economy? The UBS investment banking arm has been their bane. Their unwinding of their positions, has probably done nothing to help them if the government did not oversee it.

The US not only put a halt on investment's in illiquid assets for companies on the TARP, but they also put a halt to certain derivatives trades and futures swaps. While on the other hand, the EU and the Swiss, have not. This has led to the pervasive nature of the exposure, which apparently has not abated.

The EC may have to step in for UBS. Sad, but true! Re-tooling the UBS business model, may not be out of the question as well.

And, speaking of Europe, UK borrowing is set to rise by 175 bn pounds (about $260 bn). Don't worry about the deficits, worry about inflation is the call. I agree.

While Brown has not been stellar, his leadership through the crisis has been fantastic.

I have to tip my hat to he and Darling. The level of government intrusion, is greater than that of the US and perhaps, this was why he was successful!?!

He not only saved Northern Rock, but averted an all out systemic collapse in the entire UK banking sector.

The reports on bank failures has not been as pronounced as that of the USA, but they do have a smaller and more concentrated market.

The situation with UBS, begs the question about why haven't the Swiss and EU government, done more?

But, government borrowing is government borrowing. The fact that the IMF would get a hefty dollop to lend to developed countries in the near and foreseeable future, would also lend to the premise of there being greater UK public debt.

This is on the heels of my earlier report by Willem Buiter of the LSE on his FT blog about this coordinated swap arrangement between the EU, UK, USA, Japan and the Swiss, has also raised concerns, to me, about government borrowing in the UK growing. (link to Buiter's FT blog in my own link).

His article is about the issues with the arrangement and why all of the redundant terms, but I saw that and something more!

Not only is the new arrangement a currency swap, but if not premised on future adjustments to inflation, government borrowing of the stronger currency to bolster the weaker one--which ends up in a cyclical dynamic of the stronger one, becoming stronger and as the interest rates rise-- makes debt more expensive to pay.

Not quite a round up, because I did not mention China and Japan. But, to nutshell it--production is at its lowest in Japan and China is experiencing lower employment with their loss of exports.

That's all for now...more to come later on!

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