From Volume 6, Issue 19 of EIR Online, Published May 8, 2007

World Economic News

Huge MBS Losses Force UBS To Collapse Hedge Fund

May 3 (EIRNS)—Some $125 million in mortgage-backed securities (MBS) losses by its hedge fund in the first quarter of 2007, forced UBS bank to close the $1.8 billion Dillon Read Capital Management (DRCM) hedge fund, according to the London Guardian today. Closing the hedge fund, formed two years ago, "is a major embarrassment to UBS," the bank is quoted as saying. The losses came from investments in securities in the subprime mortgage bubble in the United States, the first—but not the last—of the huge international real estate bubbles of the 21st Century to collapse.

IMF Chief Joins Chorus: Financial System Is Finished!

May 2 (EIRNS)—The International Monetary Fund (IMF) joined the Bank of England and the Federal Reserve in warning that the global financial system is a goner. The risks of "disruption in the financial markets" are serious, and, if there were a "sharp depreciation of the U.S. dollar" followed by increases in U.S. interest rates, things could get very serious, IMF Managing Director Rodrigo de Rato told the Council of Americas annual meeting today. Rato identified three areas which could blow:

* the U.S. mortgage market, whose problems are still playing out;

* the "increase in large private equity buyouts financed by a rising proportion of debt, as well as the deteriorating credit quality of leveraged loans." If some of these deals were to turn sour, he said, credit for corporate borrowers could go, too;

* Hedge funds, 30% of whose investment today comes from pension funds.

Rato, a Spanish banker with fascist ties, whose name means what it sounds like, made a comment in his dry manner on this stunning statistic, which ought to get the attention of anyone serious in the U.S. Congress: "A situation where almost one-third of the capital for institutions on the cutting edge of financial risk comes from institutions whose first priority is safe investments certainly bears watching."

Commenting on the same statistic, Lyndon LaRouche termed this process a quasi-genocidal intention to loot the pensions of the world. The people responsible for this want to kill off old people as soon as possible.

Venezuela: 'We Can Do It Without the IMF and World Bank'

May 4 (EIRNS)—In his response to U.S. State Department spokesman Sean McCormack's complaint about the Venezuelan government's decision to formally cut off relations with the IMF and World Bank, as announced by President Hugo Chavez at an event May 1, Venezuela's Finance Minister, Rodrigo Cabezas, defended the policy. Cabezas stated that Venezuela is not becoming "isolated," as McCormack charged, but is instead emphasizing economic relations with China, India, Russia, and Iran, which "amplify and diversify the external front of our national economy and foreign policy."

Cabezas pointed out that the decision is based on economic and national sovereignty. Speaking on Union Radio May 2, Cabezas explained that, now, without the IMF and the World Bank, Venezuela will expand its role in the concert of nations, with greater freedom. In this respect, he announced that he would join the next day in a meeting in Quito, Ecuador, with the finance ministers of Argentina, Brazil, Bolivia, and Ecuador. "The theme to discuss is the financial architecture of South America.... We can do it without the tutelage of the IMF and the World Bank," he declared.

Germany Resists Locust Funds, Strikes a Raw Nerve

May 4 (EIRNS)—The economic-financial press of Europe, led by the London Financial Times, predicted today that no concrete steps toward transparency or regulation of hedge funds will result from the upcoming May 8 meeting of the 27 European Union finance ministers. However, Germany, which may be followed by other EU member-states, is taking steps, and cautious as they may still be, the fact that the same press has sounded the alarm over the German government's actions, indicates that its steps are striking a raw nerve.

Concretely, the German finance ministry wants to upgrade the powers of the financial watchdog agency BAFIN, to enable it to monitor regularly up to 400 banks and funds, the functioning of which is seen as crucial for the German financial sector. The new powers for BAFIN are at the expense of the monetarist-dominated German Central Bank, and although the ministry rushed to play down the issue, fears have been voiced in the economic media over the past days, that a clandestine re-regulation is taking place.

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