From Volume 6, Issue 35 of EIR Online, Published August 28, 2007

World Economic News

Credit Markets Are Okay ... Sort of

Aug. 24 (EIRNS)—Adding to the bankers' "BS" Index, today came the news from London's Guardian: Apparently, there's no problem in the credit markets. After Rio Tinto raised $40 billion to buy Canada's Alcan, Rio Tinto's Tom Albanese said, "What we're seeing on the credit market is an appropriate repricing of risk." As a consequence, he said, "there was a flight to quality among investors." The Guardian added, "But as market turmoil increased, concerns over the deal rose. Some said that although the financing had already been underwritten, there was still a possibility that the banks would not be able to raise the money if market conditions worsened."

The Aug. 24 Swiss financial daily Neue Zuercher Zeitung had a reminder that since the beginning of September, globally, $329 billion worth of private equity loans for planned takeovers are in question. Note that more than half of that sum concerns five big banks alone: JP Morgan, $64.65 billion; Deutsche Bank, $32.11 billion; Citigroup, $25.44 billion; Bank of America, $24.25 billion; and Goldman Sachs, $19.57 billion. And, the following six banks are in the category of having $11.5-18 billion potentially on the ropes: Lehman Brothers, Credit Suisse, Royal Bank of Scotland, Morgan Stanley, Merrill Lynch, Barclays Capital.

Epidemic of Foreclosures Reported in the U.K.

Aug. 24 (EIRNS)—Writing from London, the International Herald Tribune reported today that, "As Americans tremble at fear of an epidemic of mortgage foreclosures, Britain is already living one. Foreclosures here are at an eight-year high. So far, lenders have repossessed a record of 14,000 properties this year, 30% more than a year earlier, according to the Council of Mortgage Lenders. And an additional 125,100 households are behind in their mortgage payments." Analysts say that, "Britain might face its own subprime mortgage crisis as consumers with tarnished with histories find that only subprime lenders are willing to work with them." To avoid being thrown out, people go for "sale and rent back." A private company buys the house for 75% of its value, with no guarantee that the former homeowner will be allowed to stay. With the money, the former homeowner pays both rent and mortgage. But only 5% of British homebuyers take out fixed-rate mortgages, and mortgage rates have skyrocketed as the BoE raised interest rates five times over the past 12 months.

The three largest mortgage lenders in Britain are HBOS, Abbey, and Nationwide.

Despite Governor's Call, Bank of Japan Nixes Interest Rate Hike

Aug. 23 (EIRNS)—The Bank of Japan did not raise interest rates at its meeting on Aug. 23, despite the fact that BoJ governor Toshihiko Fukui said it should. Fukui said, "Distortions and misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy." Fukui also warned that keeping interest rates too low may spur risky investment. Raising the rate from the current 0.5% would deal another blow to the already collapsing yen carry trade, which has been a major prop to the hyperinflationary policies internationally.

U.S. Hedge Fund Foiled in Takeover Attempt in Japan

Aug. 24 (EIRNS)—Steel Partners, run by bottom-feeder Warren Lichtenstein, has admitted defeat in its takeover bid to capture Japan's Bull Dog Sauce. Steel Partners only owns 4.44% of the company, but was using typical hedge fund methods to attempt to take over the firm and loot it. The Bull Dog company is the first Japanese company to take measures to thwart a hostile takeover from a foreign investor, with implicit support of the courts and the government.

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