Wednesday, October 29, 2008

CRASH TALK WEDNESDAY OCT 29

Financial Times - Public pension funds in US states are facing their worst year of losses in history, exacerbating existing funding shortfalls and putting pressure on state governments to shore them up. In the nine months to the end of September, the average state pension fund lost 14.8 per cent, according to Northern Trust, a fund company. The loss has grown since, as financial markets slumped further in October. The previous highest loss for state funds was 7.9 per cent for the full year in 2002. California's Calpers, the US's biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year. State and local pension funds comprise a patchwork of 2,700 funds that manage $1,400bn on behalf of 21m employees, including teachers, firefighters and other municipal workers. About 40 per cent are underfunded, meaning that they would not be able to pay the future pensions that employees have been promised. . .

Evening Standard, UK -
The depth of the recession was revealed as truck maker Volvo admitted demand across the continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months. That compares to orders totaling 41,970 in the third quarter of 2007. Global orders for Volvo slumped 55% in the last three months while Scania, of which Volvo has majority control, said its western Europe truck orders collapsed by 69%.

LA Times - As the economy worsens, Americans are eating out less, and more at home, to save money. With less foot traffic, businesses are seeing their sales and profits plummet -- and their expenses rise. . . Calabasas-based Cheesecake Factory Inc. on Thursday reported a 36% drop in third-quarter earnings, to $11.8 million from $18.5 million, because of higher costs and a 4.8% decline in sales at restaurants open at least a year. . . NPD Group, a market research company, said in its annual "Eating Patterns in America" report that restaurant meals now cost on average about three times what it takes to make a similar meal at home. When people do eat out, they are going to quick-serve and fast-food restaurants more often, according to the NPD report released last week.

Chris Carey, Bailout Sleuth - At least 27 banks have agreed to sell stakes in themselves to the Treasury Department under a federal plan to inject capital into the financial system. The newest list of recipients includes Capital One Financial Corp. a big credit-card issuer based in McLean, Va.; Washington Federal Savings, a thrift in Seattle that recently reported its first quarterly loss in history; and Saigon National Bank, a small bank in Southern California which targets that region's ethnic Vietnamese.

James McCusker, Everett Herald - In the coming months, the most likely cause of mortgage defaults will not be interest rates but job losses. The housing market today is more sensitive to economic fluctuations not only because of the subprime mortgages but also because of the dominance of the two-income homebuyer.

The use of two incomes to qualify for a mortgage allows buyers to scale up their home purchase. But because there are two individuals, it also raises the probability that one or the other will experience a job loss or reduction in hours and income when the economy turns down.

The net result of this is that despite the economic rescue actions taken thus far, the economic slowdown itself ensures that the housing sector will be under pressure for some time. Its problems are not going to go away because the Treasury Department's actions have brought interbank lending back to life.

Exactly what the federal government should do about the housing issue is a matter of considerable debate. We should remember that its goal in purchasing mortgage-backed debt was to put the banks back on their feet and free up the credit system. A homeowner who is encountering mortgage payment problems, though, doesn't need more credit, at least not in the usual sense.

Michel Chossudovsky, Global Research - Russia's foreign minister Sergei Lavrov has announced that Brazil, Russia, India and China will "coordinate efforts in overcoming the financial crisis". The statement suggests that the four countries will confront the dominant US-UK-EU alliance, which personifies Western banking interests, at the forthcoming Summit in Washington. . . Prime Minister Vladimir Putin said earlier this month the crisis had shown the BRIC nations would be "the locomotive of the world economy in coming years."

Telegraph, UK - Several Moscow city center restaurants are now refusing to accept cards in a move not seen since Russia's last financial crisis almost a decade ago. Some automated teller machines at Sberbank, the country's biggest state-owned bank, have also stopped accepting cards from other banks. Several electronics and mobile phone stores said they no longer accepted credit card purchases. Over the weekend, Aeroflot, the biggest Russian airline, announced it had stopped taking credit cards payments for flights except from a handful of banks.

Christina Rexrode, Charlotte Observer - As the economy slows and unemployment rises, consumers are defaulting on credit-card payments more often. . . U.S. banks charged off 5.47 percent of all credit card loans in the second quarter, according to the Federal Reserve, representing some $50 billion that they'll likely never collect. That's up from 3.85 percent the year before. . .


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