Monday, October 6, 2008

When is a Holocaust Not a Holocaust? When the perpetrators call it a victory.

When is a Holocaust Not a Holocaust?

By William Blum

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When is a holocaust not a holocaust?

When the perpetrators call it a victory.

Although the "surge" has failed as policy, it appears to be succeeding as propaganda. It seems to be the only thing that supporters of the war have to point to, and so they point, and they point, and they point. Allow me to point out that while there has been a reduction in violence in Iraq -- now down to a level that virtually any other society in the world would find horrible and intolerable, including Iraqi society before the US invasion and occupation -- we must keep in mind that thanks to this lovely little war more than half the population of Iraq is either dead, crippled, traumatized, confined in overflowing American and Iraqi prisons, internally displaced, or in foreign exile.

Thus, the number of people available for being killers or victims is markedly reduced. Moreover, extensive ethnic cleansing has taken place in the country (another good indication of progress, n'est-ce pas?). Sunnis and Shiites are now living more in their own special enclaves than before, none of those stinking mixed communities with their unholy mixed marriages, so violence of the sectarian type has also gone down; and the powerful movement of Shiite leader Muqtada al-Sadr has had a cease-fire in effect for many months, unconnected to the surge. On top of all this, US soldiers, in the face of numerous "improvised explosive devices" on the roads, have been venturing out a lot less (for fear of things like ... well, dying), so the violence against our noble lads is also down. Remember that insurgent attacks on American forces is how the Iraqi violence all began in the first place.

Just imagine -- If the entire Iraqi population over the age of 10 is killed, disabled, imprisoned or forced into exile there will probably be no violence at all. Now that would really be victory.

No American should be allowed to forget that Iraqi society has been destroyed. The people of that unhappy land have lost everything -- their homes, their schools, their neighborhoods, their mosques, their jobs, their careers, their professionals, their health care, their legal system, their women's rights, their religious tolerance, their security, their past, their present, their future, their lives. But they do have their surge.

William Blum is the author of: Killing Hope: US Military and CIA Interventions Since World War 2. Rogue State: A Guide to the World's Only Superpower. West-Bloc Dissident: A Cold War Memoir. Freeing the World to Death: Essays on the American Empire. Portions of the books can be read, and signed copies purchased, at -

Haiti: In Solidarity with its Five Freedoms

Haiti: In Solidarity with its Five Freedoms

By James Petras

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Today the acid test for all democrats in North and South America is the issue of the military occupation of Haiti ,the economic pillage and denial of elementary political and human rights of the Haitian people.

In 2004 a US-led invasion force overthrew the democratically elected government of
Jean Bertrand Aristide and subsequently promoted and organized an occupation army. This colonial military force has repeatedly violently repressed popular demonstrations, violently raided the neighborhoods of the poor and killed, wounded and arrested Haitians who were affirming their rights of self-determination and an end to foreign occupation.

Since the United States bears major responsibility for the invasion, occupation and subsequent pillage and privatization of essential public services, we have a special responsibility to speak out clearly and forcefully to the United Nations (UN) in support of Haiti’s Five Freedoms:

1. The UN must end its military presence of Haiti through its occupation army (MINUSTAH), action contrary to the very founding principles of the organization. Haiti must recover the right of self-determination and the freedom to govern itself.

2. The Haitian people demand the end of the pillage of its national treasury by official and private banks extracting payments of $1 million USD a week for illegitimate debts contracted by past corrupt dictatorial regimes. Haitians demand freedom from illegitimate elite debts in order to finance basic life-sustaining programs for the 80% of the population living in extreme poverty.

3. Every country, which has suffered massive natural disasters, as the hurricanes that recently devastated Haiti, is entitled to large-scale, long-term humanitarian aid with no strings attached. Haitians demand the immediate fulfilling of aid pledged and its allocation according to needs without MINUSTAH manipulation to perpetuate its occupation.

4. The collapse of the free market model today highlights the disastrous consequences of the IMF-World Bank policies of privatization of public services in Haiti, where ‘private health and education’ effectively excludes the vast majority of Haitians. Haitians must regain the right to re-nationalize public services and all other strategic economic sectors necessary for their well-being.

5. Free elections means the return of deposed, exiled and persecuted political leaders and the end of foreign military occupation and repression of anti-colonial movements. Elections with occupation guns pointed at the heads of the electors and candidates have no legitimacy. We, the American people in North, South and Central America, have a responsibility to demand the end of MINUSTAH and the return national sovereignty to the Haitian people. No government no matter what its political claims and rhetoric can justify its democratic credentials when it acts as a colonial gendarme.

James Petras latest book , Zionism,Militarism and the Decline of U.S. Power - Clarity Press :Atlanta Ga.

Fed Doubles Cash Sales to $900 Billion, Plans More Steps to Unlock Markets

Fed Boosts Cash Auctions to $900 Billion, May Do More

By Scott Lanman and Craig Torres

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The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets as the credit crunch deepens.

‘‘The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions,'' the central bank said in a statement released in Washington today. Fed and Treasury officials are ‘‘consulting with market participants on ways to provide additional support for term unsecured funding markets,'' the statement said.

Today's steps follow a hoarding of cash by banks that sent the premium on the three-month London interbank offered rate over the Fed's benchmark interest rate to a record. Industrial companies are also finding it harder to raise cash after the market for commercial paper shrank to a three-year low as investors flee even borrowers with few links to mortgages.

‘‘It is pretty much all out war,'' said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., New York. ‘‘They are pulling out all the stops to try and get borrowers and lenders to meet and do transactions once again.''

Implementing part of last week's emergency legislation to shore up the financial industry, the Fed said today it will begin paying interest on the cash reserves banks hold at the central bank. The step should give Fed officials greater power to inject cash into banks without interfering with their benchmark interest rate, which stands at 2 percent.

Bernanke Speech

Fed Chairman Ben S. Bernanke's speech on the economic outlook tomorrow in Washington should give an indication of whether U.S. central bankers are prepared to cut the main rate before the next meeting Oct. 28-29, Rupkey said.

As part of today's steps, the Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each, the Fed said.

Money market rates are climbing worldwide on concern the deepening credit crisis will cause more financial firms to collapse. Three-month Libor climbed to 4.29 percent today, the biggest premium over the Fed's benchmark since the central bank began using a target for the overnight federal funds rate between banks as its main tool around 1990.

In Europe, governments rushed to shore up their faltering banks as the credit crunch worsened there. BNP Paribas SA agreed to buy Fortis's units in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after a government rescue failed, while the German state and financial institutions put together a 50 billion euro rescue package for Hypo Real Estate Holding AG.

International Effort

President George W. Bush's working group on financial markets, a body that includes the Fed, Treasury, Securities and Exchange Commission and Commodity Futures Trading Commission, said today it's working with ‘‘market participants and regulators globally to address the current challenges to restore confidence and stability to financial markets.''

The working group statement comes four days before a gathering of central bankers and finance ministers from the Group of Seven major nations in Washington.

The Fed gained the authority to pay interest on commercial bank reserves under the $700 billion financial-rescue legislation approved last week. The Treasury will purchase distressed assets from financial companies under the plan.

To finance the Treasury's new plans, officials are considering changes to federal government debt sales, including a reintroduction of three-year notes. Any changes will be released at the Treasury's Nov. 5 quarterly announcement on sales of long-term debt.

Treasury Issuance

The Treasury also said that some of its cash-management bills may be ‘‘longer-dated.'' The expansion in issuance is needed to ‘‘allow Treasury to adequately respond to the near- term increase in borrowing requirements,'' the department said. Treasury officials last month also started a special program of bill auctions to help the Fed expand its balance sheet.

Fed payments on required reserves will be made at the average targeted federal funds rate established by the Federal Open Market Committee over each so-called reserve maintenance period less 10 basis points.

In addition to the cash banks must hold at the Fed, lenders also sometimes place excess reserves. The central bank said today it will pay interest on those funds at the lowest targeted federal funds rate for each period less 75 basis points. That will put a floor under the actual fed funds rate each day and let the Fed ‘expand its balance sheet as necessary to provide the liquidity necessary to support financial stability.''

Managing Rates

The Fed created the TAF auctions of cash to commercial banks in December, and has continually expanded the program since then. To prevent a surfeit of funds in the system from pushing the actual overnight interbank lending rate below the Fed's target, the central bank withdraws liquidity through repurchase operations.

As the Fed pumped cash through the TAF and other programs at record levels last month, the New York Fed had difficulty controlling the daily federal funds rate. While the target is 2 percent, the effective rate was below that level every day from Sept. 19 to Sept. 29.

Money-Market Rates Climb as Banks Hoard Cash, Crisis Deepens

Money-Market Rates Climb as Banks Hoard Cash, Crisis Deepens

By Gavin Finch and Lukanyo Mnyanda

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Money-market rates climbed worldwide as banks hoarded cash on speculation the seizure in credit markets is deepening and may prompt more financial institutions to collapse.

The London interbank offered rate, or Libor, that banks charge each other for overnight dollar loans rose 37 basis points to 2.37 percent today, the British Bankers' Association said. The three-month rate stayed near the highest level since January. Asian rates increased and the Libor-OIS spread, a gauge of cash scarcity among banks, held near a record.

''The situation remains very tight and we probably need more action from central banks,'' said Cyril Beuzit, head of interest- rate strategy in London at BNP Paribas SA. ''There's a strong will from governments to get on top of the situation, but for the moment it hasn't worked. We're still left in a risk-averse environment.''

Interbank rates have jumped as banks store cash to meet anticipated funding needs after governments in Europe and the U.S. acted to prevent the collapse of six financial institutions in the past two weeks. The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, rose to 298 basis points today, before retreating to 293 basis points. It was at 129 basis points two weeks ago and 81 basis points a month ago.

BNP Paribas, France's biggest bank, agreed to take control of Fortis in Belgium and Luxembourg, completing a breakup of the lender after a government rescue failed. UniCredit SpA Chief Executive Officer Alessandro Profumo said Italy's biggest bank underestimated the severity of the global financial crisis, forcing him to cut profit forecasts and propose raising capital.

U.S. Bailout

The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps, the central bank said today in a statement. The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each. The central bank will also begin paying interest on bank reserves.

President George W. Bush signed a $700 billion U.S. bailout bill into law last week to help stem the crisis, which has claimed financial companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc. The legislation enables the government to purchase tainted assets from institutions. European leaders meeting in Paris two days ago pledged to bail out their own nations' banks, while stopping short of a regional rescue effort.

Ted Spread

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg that date back to January 1996. That's the highest since Sept. 30, the day after the U.S. House of Representatives rejected an earlier version of the bank-rescue plan. Companies sell commercial paper, which matures in nine months or less, to help pay for day-to-day expenses such as payroll and rent.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened today to 393 basis points, the most since Bloomberg began compiling the data in 1984, before falling back to 389 after the Fed TAF statement. Writedowns and losses worldwide tied to the U.S. mortgage market have reached $586 billion since the start of last year, according to data compiled by Bloomberg.

Banks borrowed the most since February 2001 from the European Central Bank at its emergency rate as the credit crunch worsened. Financial institutions borrowed 24.6 billion euros ($33.4 billion) for overnight on Oct. 3 at the central bank's marginal lending rate of 5.25 percent, which is one percentage point above its benchmark rate. At the same time, banks deposited 38.9 billion euros with the ECB, the Frankfurt-based central bank said in a statement today. The deposit rate is 3.25 percent.

Conditions 'Very Tight'

''Money-market conditions will continue to be very tight and this will not improve in the short term,'' said Dwyfor Evans, a foreign-exchange strategist at State Street Global Markets in Hong Kong. ''There's an absence of trust.''

The increase in the overnight dollar Libor was the first in four days. The three-month rate was within 4 basis points of the highest since Jan. 10.

The euro interbank offered rate, or Euribor, for three-month euro loans advanced 1 basis point to 5.35 percent today, a seventh straight all-time high, European Banking Federation data showed. The Euribor for one-month loans in euros advanced 2 basis points to 5.15 percent today, reaching a record for a fifth day, according to the EBF.

Asia Rates

Government bonds around the world climbed as stocks slid, driving investors to the safest assets. U.S. Treasuries rose for a fourth day, sending two-year notes to their longest winning streak in six weeks, and gains for German two-year notes drove yields to their lowest levels since March. Japanese 10-year bonds advanced for a second day.

The MSCI World Index, a global equity benchmark, dropped for a third consecutive day, falling to its lowest level since November 2004.

Hong Kong's three-month interbank offered rate, or Hibor, increased 4 basis points to 3.85 percent, the highest since Dec. 10. The corresponding rate in Tokyo held at a nine-month high.

Philippine money-market rates rose for a third day. The one- month interbank rate climbed to 5.125 percent, according to the Bankers Association of the Philippines.

''Philippine banks are liquid but they still want to borrow for safety so they'd have enough in case the crisis continues,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.

Borrowing costs between banks in Singapore fell today, with the benchmark three-month rate for dollar loans easing more than 3 basis points to 4.23 percent, according to the Association of Banks in Singapore.

''Euro and dollar funding has shot up due to the bank failures in those places,'' said Irene Cheung, a currency strategist at ABN Amro Bank NV in Singapore. ''Asia's situation is not so scary.''

The Bank of Japan added 1 trillion yen ($9.7 billion) to the financial system. Australia is closed for a public holiday.

Global Stocks Retreat, Led by Banks, as Credit Crisis Widens

Global Stocks Retreat, Led by Banks, as Credit Crisis Widens

By Adria Cimino and Chua Kong Ho

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Stocks tumbled around the world, the euro fell the most against the yen since its debut and oil dropped below $90 a barrel as the yearlong credit market seizure caused bank bailouts to spread through Europe. Government bonds rallied.

The Standard & Poor's 500 Index retreated 5.4 percent, extending the worst weekly slump since 2001, as concern slower global growth will curb demand for commodities sent Marathon Oil Corp. and Freeport-McMoRan Copper & Gold Inc. down more than 7 percent. The MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil were forced to halt trading. Europe's Dow Jones Stoxx 600 Index had its steepest intraday decline since 1987.

Today's plunge erased about $2.5 trillion from global equities after the German government was forced to bail out Hypo Real Estate Holding AG and investors disregarded the U.S. Treasury plan to revive credit markets. The euro weakened the most against the yen since 1999.

‘‘It's like a fire,'' said Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, which oversees the equivalent of $33 billion. ‘‘It's easier to extinguish five minutes after the start. Now we're about an hour into it. We have to act quickly to assure the continuity of the financial system to avoid an irreversible contamination of the entire economy.''

BHP Billiton Ltd. slid 7.8 percent and UBS AG lost 10 percent as commodities producers and banks dropped the most in the MSCI World Index.

Seeking Safety

Investors seeking the safety of government bonds pushed yields on two-year Treasury notes to 1.5 percent, 50 basis points below the Federal Reserve's main interest rate.

The MSCI World lost 6.4 percent to 1,065.61 at 3:58 p.m. in London as all 10 industry groups decreased. National markets in China, Germany, France, Japan, South Korea and the U.K. fell more than 4 percent.

The Dow Jones Industrial Average dropped 4.7 percent, falling below 10,000 for the first time since October 2004.

The Fed said today it ‘‘stands ready'' to foster ‘‘liquid money market conditions.''

Europe's Stoxx 600 sank 7.4 percent, the biggest intraday decline since Oct. 20, 1987. BNP Paribas SA said it will take control of Fortis in Belgium and Luxembourg. Only four stocks in the index rose. The MSCI Asia Pacific Index lost 4.4 percent.

‘‘We're seeing panic all over the markets right now,'' said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. ‘‘Governments are taking steps to try to reduce investors' fears but confidence is weak.''

National Markets

National benchmark indexes sank in all 18 western European markets. France's CAC 40 slumped 5.8 percent, and the U.K.'s FTSE 100 decreased 5.1 percent. Germany's DAX fell 5.3 percent.

In Asia, Japan's Topix index lost 4.7 percent, and South Korea's Kospi slipped 4.3 percent. China's CSI 300 Index fell 5.1 percent, as trading resumed after a one-week holiday.

Indonesian stocks plunged the most since the 2002 Bali bombings and the rupiah and bonds dropped as investors exited commodities and emerging markets to limit losses in a global rout.

The MSCI Emerging Markets Index dropped 8.2 percent. Turkey's ISE National 100 Index sank 7.1 percent, while Saudi Arabia's Tadawul All-Share Index tumbled 9.8 percent.

Accelerating bailouts of financial companies and bank credit losses and writedowns approaching $600 billion has spurred the rout in global equities. The MSCI World is valued at 13.2 times the earnings of its companies, the lowest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 trades at 10.4 times earnings, near the lowest since at least 2002, while the S&P 500 is valued at 20.9 times earnings.


UBS, the European bank worst hit by credit crisis, lost 10 percent to 21.58 francs. The bank's earnings power may be ‘‘challenged for some time,'' and UBS may write down $3.1 billion in the third quarter, Oppenheimer & Co. analyst Meredith Whitney wrote in a note to clients. The Swiss bank has posted $44 billion in losses, according to data compiled by Bloomberg.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, fell 9.2 percent to 806 yen. Mizuho Financial Group Inc. dropped 7.8 percent to 402,000 yen.

JPMorgan Chase & Co., the biggest U.S. bank by deposits, slid 5.7 percent to $43.29.

BNP Paribas dropped 2.6 percent to 69.495 euros. France's biggest bank agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after an earlier government rescue failed to ensure the company's stability.

Hypo Real Estate plunged 36 percent to 4.78 euros. The German government and the country's banks and insurers agreed on a 50 billion-euro rescue package for the commercial property lender after an earlier bailout faltered.

‘Whatever It Takes'

German Chancellor Angela Merkel said the government will guarantee savings of private account holders to prevent a rush of withdrawals from the nation's banking system.

U.K. Chancellor of the Exchequer Alistair Darling said Britain is ‘‘ready to do whatever it takes'' to help its banks, while Denmark said commercial lenders will provide as much as 35 billion kroner ($6.4 billion) over the next two years to a fund to insure depositors against losses.

U.S. President George W. Bush last week signed a $700 billion rescue package into law to stem a banking crisis that has claimed Bear Stearns Cos. and Lehman Brothers Holdings Inc.

The euro earlier reached $1.3540. It fell to 141.97 yen, the weakest since May 18, 2006, as investors cut holdings of higher-yielding currencies funded in the Japanese currency.

‘‘The euro zone is the second domino of the globe to be falling over after the U.S.,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland.

Money Market

The cost of borrowing in dollars overnight jumped, the British Bankers' Association said. Asian money-market rates stayed at the highest in more than nine months.

BHP Billiton, the world's largest mining company, sank 7.8 percent to 1,095 pence. Rio Tinto Group, the third-biggest, slipped 10 percent to 3,060 pence.

Freeport-McMoRan, world's largest publicly traded copper producer, lost $3.19 to $41.67.

Marathon Oil, the largest refiner in the U.S. Midwest, sank $3.83 to $31.75.

Royal Dutch Shell Plc, Europe's biggest oil company, dropped 5.4 percent to 1,540 pence. PT Bumi Resources, Indonesia's biggest power-station coal producer, tumbled 32 percent to 2,175 rupiah, extending a six-day, 19 percent slide.

Crude oil fell for a fourth day in New York, dropping as much as 5.3 percent to $88.89 a barrel. Power station coal prices at Australia's Newcastle port dropped 6.1 percent last week, a seventh decline. Copper declined 6.5 percent to $5,620 a metric ton on the London Metal Exchange.

UBS's Hong Kong-based economist Duncan Wooldridge reduced his growth forecast in Asia excluding Japan next year to 6.1 percent from 6.9 percent, saying the region will face ‘‘recession-like conditions.''

Bank on this: bank failures will rise in next year

Bank on this: bank failures will rise in next year


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Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion plan to restore order to the financial industry.

The biggest question is how many will perish and how they will be put out of their misery — in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.

Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.

The government's commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.

"It will help, but it's not going to be the saving grace" because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?

"It sounds like a joke," said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. "But it sounds safer than the turmoil out there right now."

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.

But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

"I don't see why things will be that much different this time," said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University. "We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No."

With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp., the government agency that insures bank and S&L deposits. The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.

Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks that fail during the current crisis at $1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.

The FDIC's fund currently has about $45 billion — a five-year low — but the agency can make up for any shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls.

Through the first nine months of the year, 13 banks and S&Ls have been taken over by the FDIC — more than the previous five years combined.

The FDIC may be underestimating, or least not publicly acknowledging, the trouble ahead. As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list. That represented about 1 percent of the nearly 8,500 institutions insured as of June 30. Entering 1991, about 10 percent of the industry — 1,496 institutions — was on the FDIC's endangered list.

Although the FDIC doesn't name the institutions it classifies as problems, this year's June 30 list didn't include two huge headaches — Washington Mutual Bank and Wachovia. Combined, WaMu and Wachovia had more than $1 trillion in assets; the assets of the 117 institutions on the FDIC's watch list totaled $78 billion.

Late last month, WaMu became the largest bank failure in U.S. history, with $307 billion in assets, nearly five times more, on an inflation-adjusted basis, than the previous record collapse of Continental Illinois National Bank in 1984. The FDIC doesn't expect WaMu's demise to drain its fund because JP Morgan Chase & Co. agreed to buy the bank's deposits and most of the assets for $1.9 billion.

Regulators dodged another potential bullet by helping to negotiate the sale of Wachovia's banking operations to Citigroup Inc. in a complex deal that could still end up costing the FDIC, depending on the severity of future loan losses. On Friday, a battle of banking giants erupted when Wachovia struck a new deal with Wells Fargo & Co. without government help, and Citigroup demanded that it be called off.

The banking outlook looks even gloomier through the prism of Bauer Financial Inc., which has been relying on data filed with the FDIC to assess the health of federally insured institutions for the past 25 years.

Based on its analysis of the June 30 numbers, Bauer Financial concluded that 426 federally insured institutions are grappling with major problems — about 5 percent of all banks and S&Ls.

About 15 percent of the banks on Bauer's cautionary list have more than $1 billion in assets. Not surprisingly, the troubles are concentrated among banks that were the most active in markets where free-flowing mortgages contributed to the rapid run-up in home prices that set the stage for the jarring comedown. By Bauer's reckoning, the largest numbers of troubled banks are in California, Florida, Georgia, Illinois and Minnesota.

"It's important for people to remember that not all these banks are going to fail, just because they are on this list," said Karen Dorway, Bauer Financial's president. "Many of them will recover."

James Barth, who was chief economist of the regulatory agency that oversaw the S&L industry in the 1980s, doubts things will get as bad as they did then.

"It's scary right now, but it's not as scary as a lot of people are making it out to be," said Barth, now a senior fellow at the Milken Institute, a think tank.

Mani Behimehr, a home designer living in Tustin, Calif., isn't feeling reassured after what happened to WaMu and Wachovia. After he heard the news that WaMu had been seized and sold to JP Morgan, he rushed out to withdraw about $150,000 in savings and opened a new account at Wachovia only to learn about its sale to Citigroup two days later.

"I thought this is the strongest economy in the world; nothing like that happens in this country," said Behimehr, 46, who is originally from Iran.

The tumult is creating expansion opportunities for healthy banks. Industry heavyweights like JP Morgan, Citigroup and Bank of America Corp. have already rolled the dice on major acquisitions of financially battered institutions in hopes of becoming more powerful than ever.

Smaller players like Clifton Savings Bank in New Jersey are bragging about their relatively clean balance sheets to lure depositors away from rivals that are wrestling with huge loan losses. The bank, with about $900 million in total assets, says just one of its 2,300 home loans is in foreclosure.

"There is going to be a flight to quality," predicted John Celentano Jr., Clifton Savings' chief executive. "People are going to start putting their money in places that were being run the way things are supposed to be run: the old-fashioned way."


AP Business Writer Dave Carpenter in Chicago and Associated Writers Rasha Madkour in Miami and Amy Taxin in Orange County, Calif. contributed to this story.


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The Problem Is Still Falling House Prices The bailout bill doesn't get at the root of the credit crunch.

The Problem Is Still Falling House Prices

The bailout bill doesn't get at the root of the credit crunch.

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A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.

The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of other banks.

Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house. Residential mortgages are generally "no recourse" loans, meaning that if the homeowner stops making payments, the creditor can take the property but cannot take other assets or attach income. Individuals with loan-to-value ratios greater than 100% therefore have an incentive to default even if they can afford their monthly payments, and to rent an apartment or other house until house prices stop declining. When individuals default and creditors foreclose, the property is added to the stock of unsold homes. That depresses prices further, increasing the number and magnitude of negative equity houses.

The prospect of a downward spiral of house prices depresses the value of mortgage-backed securities and therefore the capital and liquidity of financial institutions. Experts say that an additional 10% to 15% decline in house prices is needed to get back to the prebubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults.

The process of default and foreclosure leading to price declines and further defaults could take house prices far below the long-term sustainable level. But even when prices seem low, prospective buyers will delay buying as long as they expect prices will continue to fall.

The financial rescue plan would bring back the confidence needed to revive the financial system only if the Treasury's asset purchases could eliminate the current impaired securities now held by the financial institutions, and if the remaining securities could be counted on to remain healthy. The legislation will do neither.

More than $700 billion is needed to buy all of the impaired securities. The impaired mortgage-backed securities reflect not only the negative-equity mortgages but also positive-equity mortgages with very high interest rates, adjustable rates, or negative amortization. Even if the government could purchase every troubled mortgage, the prospect of future price declines would contaminate the mortgage portfolios. As house prices fall, the value of mortgage-backed securities would fall further.

The impaired assets are not just mortgages but the complex derivatives based on those mortgages: the collateralized debt obligations, the various risk slices of those CDOs that, even if rated AAA, often have market prices close to 50% of their notional value. In addition, hundreds of billions of dollars of credit default swaps "guarantee" the value of mortgage-backed securities.

There are also important technical problems in using the $700 billion fund to buy impaired securities. The Treasury's preliminary idea was to use a "reverse auction," a method that works well when used to buy a single homogeneous security (like a firm buying back its own shares). But that is not feasible for buying the impaired securities, because of the enormous variety of underlying mortgages and of the almost limitless number of different derivatives based on those mortgages. The buyback will therefore involve a large number of arbitrary valuation decisions by the Treasury staff and their investment-banker advisers.

Because of the arbitrary pricing, many banks will choose not to sell some of their assets. Mark-to-market rules may force banks to write down the value of their remaining securities, further reducing their capital and subjecting them to margin calls that reduce their liquidity. Institutions that avoid marking their assets to market will simply cause a cloud of uncertainty about the value of their portfolio.

The features that Congress added to the initial Treasury plan do nothing to achieve sustained confidence in the financial institutions. They provide Congressional oversight, delay the use of funds, create partial government equity ownership in some firms and do other things to protect taxpayers. But they do not address falling home prices.

We need a firewall to break the downward spiral of house prices. Here's how it might work. The federal government would offer any homeowner with a mortgage an opportunity to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. This would be available to new buyers as well as those with mortgages. The interest on that loan would reflect the government's cost of funds and could be as low as 2%. The loan would not be secured by the house but would be a loan with full recourse, allowing the government to take other property or income in the unlikely event that the individual does not pay. It would by law be senior to other unsecured debt and not eligible for relief in bankruptcy.

The individual could repay the loan at any time or could refinance the remaining loan on more favorable terms as long as the principal did not increase. A 30-year amortization of the government loan would make the payments low, and a life-insurance policy would protect taxpayers if the borrower dies before the loan is repaid. If the homeowner chooses to accept the loan, creditors would have to accept the 20% mortgage repayment, reducing the monthly payments of principal and interest by 20%.

Consider a homeowner who has a mortgage equal to 90% of the value of his home. The 15% decline in the value of his house that may be needed to bring it back to its prebubble level would shift that homeowner into negative equity. Further price declines would make default attractive. But the 20% mortgage replacement loan would take the loan-to-value ratio to 72% from 90%, making it unlikely that prices would fall far enough to push him into negative equity. An interest saving that could be as large as $3,000 a year would provide a strong incentive to accept the mortgage-replacement loan, even if the individual thinks that he might temporarily have a moderate level of negative equity.

Although the total size of the mortgage-loan program might be as much as $1 trillion, this would not be comparable to other government spending or to a swap of government bonds for impaired assets. The government would instead have a fully offsetting claim on individuals who could be counted on to repay their low-interest government loans. The cash that the banks and other creditors would receive from the government to replace the existing mortgages would be available to finance new loans.

Mortgage-replacement loans cannot solve all the problems of the housing sector. Unlike the recent Frank-Dodd legislation, it does not provide help to those who now face foreclosure. Homeowners without mortgages would benefit only indirectly from the program because it would stop the decline in the value of their homes. But everyone would benefit from the overall economic effect of reviving the financial sector and the credit flows.

The recent financial recovery plan that Congress enacted will not rebuild lending and credit flows. That requires a program to stop a downward overshooting of house prices and the resulting mortgage defaults. The mortgage-replacement loan program may be the best way to achieve that.

Banks are hoarding cash, raising borrowing costs and slowing economies

Libor Mystifies Americans as Mayor Reads ‘Doomsday'

By Peter Robison

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Anisha Gupta, returning clothes to a Hugo Boss store on Rodeo Drive in Beverly Hills, shrugged when asked about Libor. She had heard the term. She wasn't sure she could define it.

‘‘I thought it was a pill,'' said Gupta, an unemployed 27- year-old who lives in downtown Los Angeles.

Americans are getting a crash course as a once obscure acronym weighs on the economy. In interviews across the country, oil workers, ministers, bank managers and politicians said they were baffled by the London interbank offered rate or fearful of its surge this week. They agreed Libor was important, even if they couldn't put their finger on why.

‘‘Without getting real specific, I think I'm probably not competent to be talking about what is happening overseas,'' said Senator Jon Kyl, an Arizona Republican who helped shepherd passage of a $700 billion bank bailout as his party's No. 2 official. ‘‘It's all happening very rapidly.''

Libor, set every morning in London, is what banks pay to borrow money from each other. That in turn determines prices for financial contracts valued at $393 trillion as of Dec. 31, 2007, or $60,000 for every person in the world, and helps set consumer interest rates on everything from home loans to credit cards.

In the past week, as governments in Europe rescued five banks and the U.S. debated a bailout, the cost of one-month bank loans in euros and overnight dollar loans soared to records. In practice, that means banks are hoarding cash, raising borrowing costs and slowing economies worldwide. Today's three-month Libor for loans in dollars jumped to 4.33 percent.

Still, explaining Libor can be a challenge.

‘Very Destructive'

‘‘What you have been seeing in the destruction of Libor in the last months, I cannot really point to that point and say this has impact on car sales,'' said Fritz Henderson, the chief operating officer of General Motors Corp., in a TV interview. ‘‘But certainly it is very destructive.''

The complexities showed during the bailout debate in Congress.

‘‘Very few Americans have ever heard of something called the Libor,'' said Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, on Oct. 1. He defined the term, then said, ‘‘Libor jumped over 400 percent in just one day.''

Actually, overnight dollar loans rose 168 percent on Sept. 30, to a record 6.8 percent from 2.6 percent. Dodd was probably referring to the increase in basis points, or hundredths of a percent, which was 431. A spokesman at Dodd's office in Washington who didn't identify himself said when asked about that: ‘‘I'm sorry. Libor?''

Christ Church Pastor

In New York, parishioners at Christ Church on Park Avenue are on a ‘‘fast learning curve'' about Libor and the economy, said Stephen Bauman, 56, the senior minister.

‘‘I think many people have never questioned certain fundamental aspects of our institutional existence,'' he said.

Hits on the Internet search engine Google show interest is increasing. In 2007, the U.S. wasn't in the top 10 countries where people searched for the term. Over the past 7 days, the U.S. has surged to No. 2, behind the Czech Republic, where Libor is a common first name. Worldwide, the number of hits rose tenfold from Sept. 7 to Sept. 30. Google Inc., based in Mountain View, California, won't disclose the total.

White House spokesman Tony Fratto said at a press briefing this week that officials closely watch Libor, then paused.

‘‘Raise your hand if you're familiar with the Libor rate,'' he said to two dozen reporters. Only one did, drawing nervous chuckles.

Seattle Bank Branch

Asked about Libor in Houston, Mike Heider, a 28-year-old drilling engineer, took a long drag on his cigarette, closed his eyes and after 10 seconds said he wasn't exactly sure. As for Libor's effect on the economy, he said, ‘‘Couldn't tell you right now.''

An assistant bank branch manager in Seattle was equally mystified.

‘‘I won't know the answer directly to that,'' said Clayton Larsen, 30, in a Wells Fargo & Co. branch.

Libor is actually a set of rates, calculated for several currencies on periods ranging from overnight to 12 months. The British Bankers' Association compiles the dollar rate every day from data submitted by 16 banks, including Deutsche Bank AG and Royal Bank of Scotland Group Plc. There are also rates for the euro, Japanese yen, British pound, Swiss franc, and Australian and Canadian dollars.

Michigan Mayor

‘‘I confess I've never heard banks charge interest to each other,'' said James Fouts, the mayor of Warren, Michigan, a Detroit suburb of 130,000 that is home to several General Motors Corp. and Chrysler LLC plants. ‘‘I'm frightened by the financial situation. Wall Street is exacerbating and accelerating a doomsday scenario.''

Corporate bank loans are often linked to three-month Libor rates. Libor also affects interest costs on credit cards, student loans and adjustable-rate mortgages. From 2004 to 2006, more than half of the U.S. subprime mortgages at the root of the financial crisis, or those issued to the least creditworthy borrowers, had adjustable rates linked to Libor, said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Maryland.

Americans' lack of financial sophistication is a cause, not just a symptom, of the credit crunch, said James Bowers, managing director of the Center for Economic and Entrepreneurial Literacy, a nonprofit group in Washington. It may be a reason people are willing to take out loans for homes they can't afford or add to credit card debt at adjustable rates.

‘‘When we go to a mechanic, we trust them to fix our problems,'' he said. ‘‘But right now, the mechanics on Wall Street can't get their own cars to start.''

Iceland is on the brink of collapse

The party's over for Iceland, the island that tried to buy the world

Almost overnight, its population became the wealthiest on Earth. Tracy McVeigh in Reykjavik finds that the credit crunch is making the cash disappear

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Blue Lagoon

Lie back and think of an economic upturn...bathers take to the Blue Lagoon, near Reykjavik. Photograph: Bruno Morandi/Getty

The snow has arrived early in Reykjavik after an unusually long and warm summer. The freeze has brought out the ghostly green haze of the aurora borealis - the Northern Lights - the shape of which shifts dramatically across the tiny city's black skies.

The bars and restaurants of Iceland's capital are packed, the Range Rovers and BMWs are parked nose to tail all along the streets of the central 101 district, and music is pumping from a black stretch Hummer limousine cruising by.

'What can we do? Its difficult times but we've spent all day talking about it, watching the news getting worse and worse. We had to go out and be with friends. Maybe it's like the party at the end of the world,' says Egill Tomasson, 32, sitting in the Kaffeebarinn bar.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 - the size of Coventry's - is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN's 2007 'best country to live in' poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party.

The nation's celebrated rags-to-riches story began in the Nineties when free market reforms, fish quota cash and a stock market based on stable pension funds allowed Icelandic entrepreneurs to go out and sweep up international credit. Britain and Denmark were favourite shopping haunts, and in 2004 alone Icelanders spent £894m on shares in British companies. In just five years, the average Icelandic family saw its wealth increase by 45 per cent.

But, as a result of the international banking crisis, the billionaires who own everything from West Ham United football club to the Somerfield supermarket chain, Hamleys toy shops and the House of Fraser, are in trouble and the country is drowning in debt.

Iceland's cheap labour force, the Poles and Lithuanians, have left already - there's little point in sending home such a worthless currency, and the tourist season is over. Iceland is on its own.

In the Kaffeebarinn, Egill Tomasson isn't drinking because he has a music festival to organise. Iceland Airwaves takes place in a fortnight, when more than 100 Icelandic bands and 50 foreign ones will play in venues around the city over four days. Most of the tickets have been sold in krona, but the international acts need to be paid in euros, which is going to cost the organisers dearly.

'People here are going to need this festival,' says Tomasson. 'This crisis has been a heavy blow. And many people should have a bad conscience for what has happened. Someone should be prosecuted, they have sucked Iceland dry, taken the money and ran, and left us totally in the shit. People I know who have gone to the UK or the US to study have found their grants worthless, they are stranded.'

Like many his age, Tomasson has only a vague memory of harder times, before the boom that brought Iceland the highest per capita wealth in the world. Older islanders call them the 'Krutt-kynslotin' - the cuddly generation. Eco-aware, earnest but pampered, they drift from organic café to bar, listening to the music of Björk and Sigur Rós, islanders who have made it big abroad. 'They will have to get their hands dirty now,' says chef Siggi Hall, Iceland's answer to Gordon Ramsay, with an effusive vocabulary to match.

'That's good though, they are the I-generation; iPods, iPhones, everything starts with I. Well, we will have to go back to the basics now. Icelanders are risk-takers, but hard working, they will have to downsize. We will have to eat haddock and Icelandic lamb and forget these imports of goose livers and Japanese soy sauce. When everyone was extremely rich in Iceland - you know, last month, it was with money that they never have earned. Now those who were extremely rich are just normally rich, but they think they are poor. They were spoilt, spending billions.'

Hall is due to open his new restaurant on 17 October, but insists the crisis is not worrying him. 'I had been losing customers because people were flying off to Copenhagen and London and New York for the weekend, to eat out. Now they will stay in Iceland, but they will still eat out. People need to eat.'

Outside the city's Hofdahollin car showroom, looking a little rumpled for men trying to sell new and used cars for £35,000 and up, owner Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today. 'A few years ago we couldn't get enough top-end cars and we started importing them. We were selling 120, 140, a month. But it turned around so fast,' says Olafsson. 'It's so dramatic, just in one month. We have already seen two dealers go down.

'Customers would come in and we would apply for credit online for them, a 100 per cent loan, and they can drive away in their new Range Rover. It took ten minutes, it was very easy. But 60 to 70 per cent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 per cent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?'

Foreign currency loans are a problem for homeowners, too. 'Loans have been very cheap, house prices rose and there was a lot of good-quality housebuilding. But the building has halted, nothing is being finished, nothing is selling. The interest rates are staggering. What people are doing now is swapping houses if they want to go bigger or smaller. That is what is keeping us afloat,' says estate agent Ingolfur Gissurarson. His mobile goes off - the ringtone is A Hard Day's Night by the Beatles. 'I changed it to suit the times,' he smiles.

Blame it on the Vikings. Icelanders like to hark back to their ancestors, the rebel Vikings who, as the nation's most revered daughter Björk once explained, 'couldn't deal with authority in Norway. So they flew off in this mad ocean in a wooden boat which is pretty hardcore, North Atlantic in the year 800. And they found this island full of snow ... yeeeah!'

'The Icelandic psyche is an important part of all of this,' says Hellgrimur Helgason, who writes an outspoken newspaper column which exposes feuds between Iceland's ruling class and its entrepreneurs. He is also the author of 101 Reykjavik, a popular novel populated by 'Krutt-kynslotin' characters.

'Before the market reforms the country had stagnated, no one thought Icelanders could be businessmen. We were poor fishermen or farmers, so it had an incredible effect on confidence when we saw these young men out buying up British and Danish companies. Everyone grabbed at the new opportunities like children. Really, it was no surprise that Hamleys toy shop was one of the first purchases.'

Gunnghilder Sveinbjarna and her friend, Anna Lara Magnusdottir, are ordering their second bottle of red wine in the Philippe Starck-designed interior of Reykjavik's Bar 5. Tonight the young women are feeling no pain.

'We come out at the weekend to forget our children and our problems, and this time we will drink extra hard to make sure we forget the economic crisis too,' says Gunnghilder, raising a glass. 'Tomorrow the sore head.'

The door to Hell

• Iceland is known as the Land of the Midnight Sun because in summer there are almost 24 hours of daylight.

• There are 15 active volcanoes in Iceland, including Mount Hekla, long believed to be the entrance to Hell.

• More books are published per capita in Iceland than in any other country.

• Many Icelanders still practise the old Viking religion of Norse mythology.

• Icelanders drink more Coca-Cola than anyone else in the world.

The British connection

• Iceland's biggest bank, Kaupthing, has investments in Costcutter, Somerfield, Jane Norman and the Laurel Pub Company which manages the Slug & Lettuce chain. It jointly owns Kaupthing Edge, an internet savings bank with 150,000 British savers.

• Baugur, an Icelandic international investment company, has significant stakes in Iceland supermarkets, Moss Bros, French Connection, Woolworths, Saks, Whittard of Chelsea, Goldsmiths, House of Fraser, Whistles and Oasis.

Former IMF economist warns of global recession

Former IMF economist warns of global recession

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Simon Johnson, the former chief economist of the International Monetary Fund, warned of a global recession as a result of the devastating financial crisis that has struck the United States and Europe.

Johnson said the $700-billion rescue package passed by the US Congress and signed by President George W. Bush Friday was only a "stop-gap measure" that would not prevent a serious contraction of the world's largest economy.

"The US is clearly heading into, at best, a fairly severe recession," said Johnson, who left the IMF earlier this year and is now a senior fellow at the Peterson Institute for International Economics, a Washington-based think tank.

Johnson said he expected "a recession, not a depression" at the global level, adding that international action was "tremendously important" to restore confidence in credit markets. Banks have severely cut lending to each other and to consumers out of fear for
their own capital positions.

"At this moment, it is absolutely about a crisis of confidence. But the good news is you can end a crisis of confidence quite quickly," Johnson said.

He said the international community could start with a strong statement during meetings next week of the Group of Seven (G7) industrial nations and IMF members in Washington, and criticized some of the "finger-pointing" by European nations over a mess created by Wall Street.

"There's plenty of time for recrimination later, but right now we have to act quickly," said Johnson.

The US rescue package, which allows the government to buy up to $700 billion in damaged mortgage assets that have decimated the balance sheets of financial institutions, was a "positive step" in stabilizing the banking system.

"They really understand that the situation in the US today is serious and needs to be addressed," he said.

But Johnson said much more had to be done in the coming weeks and months to address the housing crisis at the centre of the turmoil, as well as to recapitalize banks in both the US and Europe.

"For $700 billion you get a band-aid but you don't get a solution," Johnson said. "Congress is way behind the curve. They need to have hearings, they need to have alternatives."

For starters, the US had to begin helping homeowners restructure their mortgages "much more aggressively" in order to arrest a "death spiral" of plunging home prices and record foreclosures in the housing market.

Johnson also called for a second fiscal stimulus package in the US to boost spending and help ease the economic downturn. A first set of tax rebates was handed out by the government in the first half of the year.

For Europe, where some countries are already facing a contraction of their economies, Johnson called on the European Central Bank to sharply reduce interest rates in order to improve lending conditions in their economies.

He also pushed for the European Union to harmonize its level of guarantees for bank deposits. The US rescue package boosted bank savings guarantees from $100,000 to $250,000.

Britain and Greece also raised their deposit guarantees Friday, while Ireland this week offered blanket coverage for all savings held in the country's six main banks - a move the European Commission said distorted competition.

"Within the European Union, there's clearly a need for more coordination," Johnson said.

Europe calls for global summit on bank crisis

Europe calls for global summit on bank crisis

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Gordon Brown and other European Union leaders called last night for a global economic summit to 'rebuild the world's financial system' as they held emergency talks on how to prevent a repeat of the current international credit crisis.

At a hastily convened meeting in Paris, French President Nicolas Sarkozy said the heads of the EU's four biggest economies - Germany, France, the UK and Italy - were united on the need to call all leading economic nations together to create 'a new financial world just as Bretton Woods did 60 years ago'.

The summit, planned for next month, is expected to include the G8 leading industrial nations, as well as India, China, South Africa, Brazil and Mexico. Sarkozy, who called last night's meeting in his role as EU President, said it was time for governments to clamp down on speculators and restore a moral element to the heart of a regime that had failed.

'We need to literally rebuild the international financial system. We want to lay the foundations of entrepreneurial capitalism, not speculative capitalism,' he said.

As part of a rolling programme of announcements, the EU's 'big four' agreed to release £12bn of emergency aid to ailing small businesses across the EU immediately, and a further £12bn as soon as possible after that. The European Investment Bank had said the money would be released gradually over the next four years.

Calling for a more co-ordinated response to the credit crisis, Brown said international co-operation on regulation was needed. 'We are seeing, in addition to the national action we are taking, that these global problems about oil, about the credit crunch, need global solutions,' he said. 'I think in the next few weeks we have got to show how we can do more in Britain and across Europe to help small businesses, as well as households, through what is a difficult economic time but where I believe Britain can lead the way out of the difficulties.'

Action was needed, and would be taken, to protect all solvent banks in the EU. 'I want the message to go out from this meeting today that no sound solvent bank should be allowed to fail for lack of liquidity,' Brown added. The meeting's main pledges on restoring sound financial systems will be looked at next week by finance ministers from all 27 EU states during talks in Luxembourg.

Germany repeated its opposition to the use of taxpayers' funds to help ailing banks after calls from France for a European equivalent of the $700bn US bail-out agreed on Friday night. Germany's Economy Minister, Michael Glos, said such a €300bn rescue fund was a non-starter. 'I do not think it can be justified in this situation to ask the state to restore trust that has been gambled away with large-scale debt relief plans financed by tax money,' he said.

Food Stamp Participation Increases as Economy Lags

Food Stamp Participation Increases as Economy Lags

By Michael E. Ruane

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Almost a million more people participated in the federal government's food stamp program for the needy between April and July, according to the U.S. Department of Agriculture, which oversees the program.

The latest federal statistics indicate that nationally, participation in the low-income nutrition supplement program rose from 28.08 million in April to 29.05 million in July, the last month for which the figures are available, a department spokeswoman said.

The July figure is the highest since the all-time peak of 29.8 million in November 2005, in the wake of Hurricanes Katrina and Rita, spokeswoman Jean Daniel said.

She said the current national numbers probably reflect economic troubles, such as the spring flooding in the Midwest, that were at work in the early summer and spring. There often is a delay of a few months after a crisis before people sign up for the program.

"From a historical perspective, it's usually a lag time of two to three months," she said.

Experts said yesterday that the figures also reflect the broader national economic distress.

"The economic downturn is the obvious reason that most people are turning to the food stamps program at this point," said Colleen M. Heflin, an assistant professor at the Truman School of Public Affairs at the University of Missouri. "I think it's a much better barometer of the pain on Main Street than the larger economic barometers."

James P. Ziliak, a visiting fellow at the Brookings Institution and director of the Center for Poverty Research at the University of Kentucky, said low-income families are "turning to the food stamp program for assistance because they're having difficulty making ends meet" as a result of stagnant wages and rising prices for gas and other essentials.

"The food stamps program is quite sensitive to changes in the overall macroeconomy," he said.

In the Washington area, food stamp use has risen sharply over the past year.

The District had a 9.2 percent jump, from 83,000 in July 2007 to almost 91,000 in July this year.

In Maryland, participation went up 14.9 percent over the same period, from 324,000 in July 2007 to almost 373,000 this past July.

And the number of Virginia residents in the program rose 7.5 percent, from 517,000 in July 2007 to 556,000 in July this year.

Nationally, the numbers have been rising steadily for several years, despite periodic dips. There were 25.5 million participants in July 2005; almost 26 million in July 2006; and 26.6 million in July 2007.

Food stamp use also spiked after the national economic recession of 1990-91, rising from an average of about 20 million people a month in fiscal 1990 to an average of 27 million a month in 1994 and then falling to 17 million in 2000, according to the statistics. The yearly numbers started heading up again with the recession of 2001.

The USDA's Daniel said the economic upheavals of the past few weeks, such as the 159,000 jobs the economy lost last month, probably will not be reflected until the November numbers become available in late fall.

She attributed the increases in foot stamp use to rising economic troubles, improved program outreach, and more people who are eligible deciding to participate. Only about 67 percent of those eligible take advantage of the program, she said.

She said a certain public stigma remains regarding food stamps, even though a debit card has replaced the old stamps and, as of Wednesday, the program has a new name: the Supplemental Nutrition Assistance Program (SNAP).

The program, which dates to 1964, is the largest federal nutrition initiative for low-income households, according to the USDA. It is available to people with low incomes and limited resources. Almost half of the participants are children.

More information can be obtained at or by calling 1-800-221-5689.