From Volume 7, Issue 46 of EIR Online, Published Nov. 11, 2008

Global Economic News

Berlin Chamber Calls for Ban on Derivatives

Nov. 6 (EIRNS)—At a press conference today, Eric Schweitzer, president of the Berlin Chamber of Industry and Commerce (IHK Berlin), said that he has been forced by the dramatic developments of the past few weeks to change his report, whose original outline was done in September. The effects of the crisis on the real economy are immense, he said, in the automobile sector and the export industries, and the downturn in construction has been exacerbated. There is urgent need for state intervention, and especially for tighter regulation of the financial sphere; and regulation of speculative activity would not be enough, but a total ban of these kinds of dealings, which are destructive from the standpoint of industrial firms, is necessary. Schweitzer also called for banning short-selling, adding that controls over the banking sector need a real overhaul, apparently because the existing supervisory and control instruments have not functioned.

In terms of making loans available to the Mittelstand (medium-sized and small firms—of which Berlin has many), he said, the state should intervene through the Berlin Investment Bank, because the private banks are shutting off credit to the smaller firms, and are asking them to reduce their existing debt because of the "risks." Schweitzer said that the IHK is not at all confident that the present crisis is over, especially in respect to the real economy. Because of the profound crisis, the public sector should advance all infrastructure projects that are on the timetable for the next decade, in order to give an incentive to the construction sector now.

Korean Economist Warns Against Derivatives

Nov. 5 (EIRNS)—The rabid free traders in the government of South Korean President Lee Myung-bak are hell-bent on turning Seoul into another London or New York. They intend to use the newly passed Capital Market Integration Act, which takes effect in next February, to drastically deregulate South Korea's investment firms and banks.

At a time when exactly that model of financial speculation is crashing and burning around the world, some Koreans don't think that's a good idea.

Lee Dong-gull, president of the Korea Institute of Finance, warned yesterday against excessive deregulation of the capital market, warning that the Financial Services Commission's plan of easing regulations on financial firms is too risky, taking the U.S. Securities Exchange Commission's lax regulation on mortgage brokerage firms in 2003 and 2004 as an example.

"The U.S. investment banking model, which is based on leveraging practices, is losing ground now. If the purpose of the Capital Market Integration Act is to [encourage firms to] seek a Korean version of Goldman Sachs, it should be reconsidered." Korea is already being burned by currency hedging derivatives sold to businesses when the won was rising, which are bankrupting many firms today because of the collapse of the won.

Brutish Imperialism: Iceland Facing Reparations Worse than Versailles

Nov. 2 (EIRNS)—Iceland, having worn out its usefulness as a playground for the hedge funds and other speculators, is now being destroyed. First the British government—using its "anti-terror" laws!—seized the British-based assets of Icelandic banks, and now is demanding that the tiny nation reimburse British accounts for their losses. Under European regulations, the New York Times reported today, Iceland is obligated to pay $25,000 to each individual account-holder in Icesave, for a total of some $5 billion. As Iceland Foreign Minister Ingibjorg Solrun Gisladottir points out, that amount is the equivalent of 60% of Iceland's GDP.

"The compensation that we would give would be twice as much per head as the reparations Germany faced in the Treaty of Versailles after the First World War. That is something we cannot afford," she said.

The reparations imposed upon Germany after World War I drove Germany into a ruinous hyperinflation and paved the way for Nazism, as was intended by the British. The use of anti-terror statutes by the Brits was especially nasty, as by officially declaring Iceland to be a terrorist entity, the Brits effectively cut the nation off from the global financial system. "A lot of Icelanders are asking, 'Excuse me: who's the terrorist here?'" said Andres Magnusson of the Icelandic Financial News.

Britain's decision has set Iceland back a generation or more, back to the time when it was a poor, isolated country dependent upon fishing. "This is a major crisis," she said. "We haven't been in this situation for, probably, ever. We cannot solve it alone. We need solidarity from partners, from friendly countries, and we thought the U.K. was one of them."

China Reported To Freeze Overseas Mining Investments

Nov. 7 (EIRNS)—China has issued a directive to the government mining and mineral processing companies to freeze all overseas investments, according to the British intelligence network, Asia Sentinel. China has extensive mining investments across Asia, as well as in Africa, Australia, and Russia.

Quoting sources in Beijing, the Asia Sentinel writes that companies which have expanded overseas investments rapidly over the past years are now contracting, despite the falling costs of the potential investments due to the global collapse of prices.

Equity values in mining interests have fallen sharply, especially in lesser-known metals like molybdenum, wolfram, and antimony, says the report. Hunan Non-Ferrous Metals stock fell by 90%, while Xinxin Mining, a nickel producer, and Minmetals Resources, both fell by 75%.

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