From Volume 38, Issue 40 of EIR Online, Published October 14, 2011

Global Economic News

Switzerland Adopts Weak Too-Big-To-Fail Legislation

Oct. 3 (EIRNS)—On Sept. 30, the Swiss parliament adopted a new law supposedly to handle "too big to fail" banks such as UBS and Crédit Suisse without going for a full Glass-Steagall banking separation. Dick Marty (FDP, Liberal), in Switzerland's Council of States (Upper House), who heads the Economics Committee, some weeks ago argued against banking separation, but now says he's "not convinced that this text will be sufficient." Politicians, he says, are now convinced that regulators need more financial means and more manpower to do their job. "The importance of these two Swiss banks for our economy and our country is without comparison in the world. Crédit Suisse represents 100% of our GDP and UBS 280%."

The banks did some awful lobbying to castrate the bill. But, as Les Echos writes, the affair of the UBS rogue trader has reopened the debate on the high risk of investment banking and the need to protect traditional Swiss banking based on wealth management, not speculation. More action is likely to be on the agenda.

Largest Rice Exporters Lose Millions of Tons to Floods

Oct. 5 (EIRNS)—Thailand's Commerce Ministry indicates that at least 3.3 million acres of rice fields, which produce 4 to 5 million metric tons of paddy (unhusked rice), have already been destroyed by flooding, as this year's monsoon season has brought extensive, unusually heavy rains to much of the country. The originally forecast crop was 24-25 million tons. According to the Ministry's preliminary report, more than 2 million acres of other crops in 55 provinces have also been washed out.

The Philippines government held an emergency meeting on Oct. 3, to discuss the damage to its rice crop from two typhoons that hit largely the same area of the northern Philippines in less than a week. The damaged crop was estimated to be equivalent to about 291,505 tons of milled rice, and accounted for 6.9$ of forecast national output of 6.5 million tons the last quarter of 2011. A significant amount of the corn (maize) crop was also lost, along with much of the leafy green vegetable crop. Officials indicated that if the rice-fields can be plowed and planted as soon as the flood-waters recede, then a new crop can be harvested in 120 days, and, with the rice in storage, there will not be a shortage.

Indonesia, which in most years is self-sufficient, or almost so, in rice, is in the market to purchase as much as 1.5 million tons this year. A rice deal with Thailand fell through, but state logistics firm Perum Bulog says it has inked a new deal to import 700,000 tons of rice from Vietnam, bringing the total amount of rice it has agreed to import from the country this year to 1.2 million tons. Vietnam was offering 300,000 tons more rice, which could enter Indonesia between March and April of 2012.

Rains and flooding also have been very heavy in Vietnam and Cambodia (a minor rice exporter), but there are no current estimates on the extent of any crop damage.

Spain, Belgium, and Italy Downgraded

Oct. 8 (EIRNS)—It seems every euroland country is being downgraded by the rating agencies. Fitch has downgraded Spain two notches to double-A-minus, and Italy by one step to single-A-plus. Moody's Investors Service also placed Belgium's Aa1 rating under review for a possible downgrade, because of its high debt, which has been made worse after the government stepped in this week to guarantee the debts of Franco-Belgian bank Dexia SA.

This is all about the collapse of the Inter-Alpha banking system. It follows Moody's downgrading of a dozen British banks. Now, according to, in a report issued on Oct. 7, Moody's said European banks need to reduce their reliance on wholesale funding. Banks in the euro area depend on average for almost half of their funding from wholesale markets, whereas U.S. banks on average have close to 70% funding provided by more stable retail depositors. Most of this "wholesale funding" comes from the European Central Bank, or the U.S. Federal Reserve.

Eurozone Banking Collapse: Dexia Is Gone, Who's Next?

Oct. 7 (EIRNS)—To cover up the fact that the giant Belgo-French Dexia Bank went bankrupt on Oct. 5, it was decided to avoid the word "bankruptcy" and call it "organized break-up." On Oct. 6, when shares dropped dramatically by more than 17%, the Belgian government decided to suspend their quotation on the Brussels stock market until Monday.

What immediately triggered the collapse is the euro crisis. Dexia has EU3.4 billion exposure to Greek government bonds. Analysts estimate that it has a further EU17.5 billion exposure to sovereign debt issued by Italy, Spain, Portugal, and other troubled eurozone economies.

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