All about financial crisis

Depression 2009: What would it look like?

- 1 hours and 50 minutes ago

Over the past few months, Americans have been hearing the word depression with unfamiliar and alarming regularity. The financial crisis tearing through Wall Street is routinely described as the worst since the Great Depression, and the recession into which we are sinking looks deep enough, financial commentators warn, that a few poor policy decisions could put us in a depression of our own. nbsp; nbsp; It's a frightening possibility, but also in many ways an abstraction. The country has gone so long without a depression that it's hard to know what it would be like to live through one. nbsp; nbsp; Most of us, of course, think we know what a depression looks like. Open a history book and the images will be familiar: mobs at banks and lines at soup kitchens, stockbrokers in suits selling apples on the street, families piled with all their belongings into jalopies. Families scrimp on coffee and flour and sugar, rinsing off tinfoil to reuse it and re-mending their pants and dresses. A desperate government mobilizes legions of the unemployed to build bridges and airports, to blaze trails in national forests, to put on traveling plays and paint social-realist murals. nbsp; nbsp; Today, however, whatever a depression would look like, that's not it. We are separated from the 1930s by decades of profound economic, technological, and political change, and a modern landscape of scarcity would reflect that. nbsp; nbsp; What, then, would we see instead? And how would we even know a depression had started? It's not a topic that professional observers of the economy study much. And there's no single answer, because there's no one way a depression might unfold. But it's nonetheless an important question to consider - there's no way to make informed decisions about the present without understanding, in some detail, the worst-case scenario about the future.

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From the Kremlin to Caracas, how oil collapse changes everything

Guardian Unlimited

- 1 days ago

divimg alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/85170?ns=guardianpageName=Business%3A+From+the+Kremlin+to+Caracas%2C+how+oil+collapse+changes+everythingch=Businessc3=The+Guardianc4=Oil+and+gas+companies+%28Business%29%2CGlobal+economy+%28Business%29%2CRussia+%28News%29%2CSaudi+Arabia+%28News%29%2CIran+%28News%29%2CBusiness%2CVenezuela+%28News%29%2CCredit+crunch+%28Business%29%2CEnergy+%28Environment%29%2CEnvironment%2CWorld+news%2CMiddle+East+%28News%29%2CSaudi+Arabia+%28Football+club%29c5=Football+World+Cup%2CCredit+Crunch%2CNot+commercially+useful%2CBusiness+Markets%2CEnergy%2CEthical+Livingc6=Luke+Harding%2CIan+Black%2CRory+Carrollc7=2008_11_21c8=1121611c9=articlec10=GUc11=Businessc12=Oil+and+gas+companiesc13=c14=h2=GU%2FBusiness%2FOil+and+gas+companies" width="1" height="1" //divh2Russia/h2pRussia is lurching towards a major economic crisis, experts predicted yesterday, following news that the price of oil had slumped to under $50 (pound;33.72) a barrel. The collapse was likely to have catastrophic consequences including a possible devaluation of the rouble and a severe drop in living standards next year, they said. /ppWith oil prices tumbling and his credibility at stake, Russia's prime minister, Vladimir Putin, yesterday insisted that the economy was still robust. The country would survive the global financial turmoil - which he blamed on the US - he told delegates from his United Russia party./ppBut the Kremlin is aware that any loss of confidence in the Russian economy could lead to a loss of confidence in Putin and his ally Dmitry Medvedev, who took over from Putin as president in May. /ppPutin said his administration would do everything it could to prevent a recurrence of the last oil-related crash in 1998, which saw the savings of many ordinary Russians wiped out. But the plummeting oil price leaves him little room for manoeuvre. Experts suggest Russia's economy is facing profound difficulties, despite two huge stabilisation funds accumulated during the booming oil years. /ppThe fall in oil prices from $147 this July has blown a hole in the government's budget calculations. It is now facing a $150bn shortfall in its spending plans and will have to slash expenditure in 2009. Putin sought to assure hard-up Russians that their social benefits would not be affected. "We will do everything in our power ... so that the collapses of the past years should never be repeated," he said./ppThe oil slump, however, exacerbates Russia's already severe problems. Since May Russian markets have lost 70% of their value. Russia's central bank has spent $57.5bn trying to prop up the ailing currency. "If the trend continues, with the government supporting the rouble, oil prices falling and a slowing economy, we are going to have a major crisis," said Chris Weafer, of the Moscow brokerage Uralsib.br /strongLuke Harding in Moscow/strong/ph2Iran/h2pIran is the second largest Opec oil producer and already feeling the pain of declining prices more than any other in the Middle East. Its "rainy day" oil stabilisation fund, used to release profits when revenues decline, is reportedly badly depleted as a result of mismanagement by Mahmoud Ahmadinejad's government. The precise figure is a state secret, but a member of parliament revealed recently it was $7bn - just enough to cover one year of imported petrol./ppAhmadinejad has seen two central bank governors resign and faces daily criticism of his policies. A strike by the powerful "bazaari" class over a new VAT tax - which would have aggravated inflation already at nearly 30% - was seen as a warning. Iran is especially vulnerable because 80% of its revenue comes from oil. The IMF calculated recently that for Iran to balance its budget, the price of crude oil must not fall below $95 a barrel. With prices now below $50 the shortfall could be staggering./ppThe effect of declining oil prices will be felt both domestically and internationally. Ahmadinejad is expected to stand for a second presidential term next June but the lack of cash will restrict his plans to replace subsidies with direct cash payments - widely seen as a vote-buying tactic. US and UN sanctions imposed over the nuclear issue are already limiting Iran's ability to issue letters of credit and thus increasing its cost of trade./ppSaudi Arabia has been happy to use high Opec production levels and low prices to contain Tehran's plans for regional hegemony. US experts and lobbyists now talk openly of exploiting the drop in oil prices to make the sanctions more effective.br /strongIan Black, Middle East editor/strong/ph2Saudi Arabia/h2pSaudi Arabia, the world's leading oil producer and exporter, is expected to cut back on current spending and also adjust ambitious long-term development plans in the light of the slump in prices./ppBut cautious fiscal policies will place the kingdom in a relatively strong position, with the current budget based on a price of around $45-50 a barrel. Expansion next year will require around $55-62./ppThe worry must be that in a country with no elections, parliament, political parties or taxes, the combination of slowing development projects and a widening gap between the wealthy elite and ordinary people could be destabilising./ppPublicly, the message from the top has been that there is no need to panic, even as falling prices of crude oil and the global financial crisis were becoming inextricably linked and starting to wreak havoc in the Gulf economies./ppBy mid-November, the stock exchanges of Dubai, Saudi Arabia and Kuwait had declined by 62.5%, 50.4% and 29.5% respectively. Kuwait, which sits on 9% of world oil reserves, is expected to see its first budget deficit in 10 years if prices continue to fall. That will mean a long-term incentive to diversify away from oil./ppIn Kuwait, Qatar, and the United Arab Emirates, government-run investment funds have also suffered from heavy exposure to US and European stocks. But the UAE's Abu Dhabi Investment Authority has assets of $500bn to $1tn./ppDubai, the glitziest part of the UAE, which has seen an oil-fuelled boom in property but has little oil of its own, is starting to see a slowdown. But some welcome that as a way of reducing the number of foreign expatriates and re-establishing a disappearing sense of national identity.br /strongIan Black, Middle East editor/strong/ph2Venezuela/h2pHugo Chávez has reduced Venezuela's support for foreign allies and is poised to make deeper cuts at home and abroad as plunging oil revenues hit his socialist revolution. The government has warned of austerity measures after years of high spending on social programmes, nationalisations, arms and diplomacy. South America's energy giant relies on oil for half its exports and 95% of government revenue, leaving the president's ambitions vulnerable to a crunch./pp"Oil revenues are the weapons he has been using to fight this war. He is going to have to make big changes," said Pietro Pitts, of Latin Petroleum magazine. "He will have to cut spending, or devalue the bolivar, or both."/ppChávez recently said Venezuela would ride out any financial storm and that oil prices of $80 or $90 a barrel would be sufficient. This now looks optimistic. With next year's budget in tatters, and foreign investment slowing, the government made cuts even before the latest price fall. Last month it postponed construction of a $4bn refinery in Nicaragua, a key ally, and announced tougher terms for subsidising oil exports to some Caribbean countries./ppThe state oil company slashed spending on the social programmes which have underpinned Chávez's popularity. Aid to Bolivia and Ecuador, and subsidised oil to Cuba, may be hit next. The finance minister, Alí Rodríguez, said the 2009 budget "will have significant restrictions" compared with this year's $63.9bn and officials would have to cut back on luxuries./ppSome analysts think Venezuela can weather the crisis with the help of rumoured $40bn reserves. But Venezuela is racked by 36% inflation, and previous governments crashed when oil crashed.br /strongRory Carroll in Caracas/strong/pdiv style="float: left; margin-right: 10px; margin-bottom: 10px;"ullia href="http://www.guardian.co.uk/business/oilandgascompanies"Oil and gas companies/a/lilia href="http://www.guardian.co.uk/business/globaleconomy"Global economy/a/lilia href="http://www.guardian.co.uk/world/russia"Russia/a/lilia href="http://www.guardian.co.uk/world/saudiarabia"Saudi Arabia/a/lilia href="http://www.guardian.co.uk/world/iran"Iran/a/lilia href="http://www.guardian.co.uk/world/venezuela"Venezuela/a/lilia href="http://www.guardian.co.uk/business/creditcrunch"Credit crunch/a/lilia href="http://www.guardian.co.uk/environment/energy"Energy/a/lilia href="http://www.guardian.co.uk/world/middleeast"Middle East/a/lilia href="http://www.guardian.co.uk/football/saudiarabia"Saudi Arabia/a/li/ul/divdiv class="guRssAdvert"a href="http://ads.guardian.co.uk/click.ng/richmedia=yessite=Businesscountry=(none)spacedesc=rsssystem=rsstransactionID=1227227727753112100421654622"img src="http://ads.guardian.co.uk/image.ng/richmedia=yessite=Businesscountry=(none)spacedesc=rsssystem=rsstransactionID=1227227727753112100421654622" border="0" //a/diva href="http://www.guardian.co.uk"guardian.co.uk/a copy; Guardian News Media Limited 2008 | Use of this content is subject to our a href="http://users.guardian.co.uk/help/article/0,,933909,00.html"Terms Conditions/a | a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html"More Feeds/a

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RBS bosses apologise to shareholders

Guardian Unlimited

- 1 days ago

divimg alt="" src="http://hits.guardian.co.uk/b/ss/guardiangu-feeds/1/H.15.1/88242?ns=guardianpageName=Business%3A+RBS+bosses+apologise+to+shareholdersch=Businessc3=The+Guardianc4=Royal+Bank+of+Scotland+%28Business%29%2CBanking+sector+%28Business%29%2CBusinessc5=Investments%2CBusiness+Marketsc6=Jill+Treanorc7=2008_11_21c8=1121573c9=articlec10=GUc11=Businessc12=Royal+Bank+of+Scotlandc13=c14=h2=GU%2FBusiness%2FRoyal+Bank+of+Scotland" width="1" height="1" //divpThe bosses of Royal Bank of Scotland yesterday told shareholders for the first time that they were "sorry" for the plight of the Edinburgh-based bank which is likely to be 60%-owned by the government after a pound;20bn bail-out was endorsed by investors./ppAddressing shareholders at a hastily convened meeting in Edinburgh, out-going chairman Sir Tom McKillop took personal responsibility as he said he was "profoundly sorry" for the situation that had forced the bank to accept the government rescue package./ppIn a candid address, McKillop, who will leave at next year's annual meeting, made it clear that the "buck stops with me as chairman". /ppUntil yesterday Sir Fred Goodwin, the chief executive, had refused to utter the word sorry. On his last day in the job which will be taken over today by Stephen Hester, Goodwin responded to a question from a former employee who is also a shareholder by saying that he was "extremely sorry"./pp"Accountability has been allocated and fully accepted," said McKillop./ppShareholders overwhelmingly backed the fund-raising package under which the government will underwrite a pound;15bn share issue at 65p a share and buy pound;5bn of preference shares. The shares closed yesterday at 46p, up 3.7p indicating that the government could end up with a 58% stake in the bank unless the share price rises through 65p which might encourage existing investors to participate in the cash call./ppIn his address to investors, McKillop refused to admit that the acquisition of parts of Dutch bank ABN Amro at the height the credit crunch last year had caused the bank's problems. But he admitted that the deal - the biggest financial services takeover of all time - had "added to our difficulties"./pp"In retrospect that higher exposure to assets, which later became very difficult to trade ... increased the short-term vulnerability of the group to the financial crisis as it intensified this year," McKillop said./ppHe also admitted that the bank had been run on too low a capital base - what he called an "efficient balance sheet" - for too long. "Had we known the severe market dislocation and economic deterioration we would face, we would, of course, have built up larger capital reserves earlier," said McKillop./ppThis was a point picked up by shareholder Alan Jack who said a prudent bank should have build up a "buffer of capital". He accused the bank of adopting a "gung-ho attitude"./ppThe bank had been forced into a record-breaking pound;12bn rights issue in April to shore up its balance sheet, but the deterioration in markets after that forced the government to devise its bank bail-out plan which will now involve a further pound;20bn being raised. The bank's shares have collapsed. Worth pound;60bn at its peak, RBS is now valued at a tenth of that./ppMcKillop was at pains to apologise to employees and customers. "I am sorry about the very real financial and therefore human cost that those who have invested in us now feel and recognise how seriously this has impacted shareholder confidence in RBS," he said. /ppA former chief executive of AstraZeneca, McKillop said: "In over 40 years of my working life I have had many difficult working experiences but none like this./pp"The challenges we must now address as an institution, as a country and indeed as part of the world's financial system, are unprecedented," said McKillop./pdiv style="float: left; margin-right: 10px; margin-bottom: 10px;"ullia href="http://www.guardian.co.uk/business/royalbankofscotlandgroup"Royal Bank of Scotland/a/lilia href="http://www.guardian.co.uk/business/banking"UK banking sector/a/li/ul/divdiv class="guRssAdvert"a href="http://ads.guardian.co.uk/click.ng/richmedia=yessite=Businesscountry=(none)spacedesc=rsssystem=rsstransactionID=1227227727899112100421654622"img src="http://ads.guardian.co.uk/image.ng/richmedia=yessite=Businesscountry=(none)spacedesc=rsssystem=rsstransactionID=1227227727899112100421654622" border="0" //a/diva href="http://www.guardian.co.uk"guardian.co.uk/a copy; Guardian News Media Limited 2008 | Use of this content is subject to our a href="http://users.guardian.co.uk/help/article/0,,933909,00.html"Terms Conditions/a | a href="http://www.guardian.co.uk/webfeeds/1,,1309488,00.html"More Feeds/a

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