Stocks Soar 11 Percent on Aid to Banks

The Dow Jones industrial average gained 936 points on Monday, the biggest gain in the American stock market since the 1930s, as Wall Street continued to careen through the worst crisis in decades.

The surge came as governments and central banks took aggressive steps to unlock the flow of credit, ushering in a drastic reshaping of the banking industry even as doubts lingered about its long-term effects.

The 11.6 percent gain in the broad Standard & Poor’s 500 index was the best single-day gain since 1939. It came after stocks suffered through their worst week since 1933. The Dow, which closed at 9,387.61, is now back to its levels from Thursday.

The rally stretched around the globe. In Paris and Frankfurt, stocks had their biggest one-day gains ever, rising more than 11 percent.

Over the weekend, central banks flooded the financial system with billions of dollars in liquidity, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again.

European countries — including Britain, France, Germany and Spain — announced aggressive plans to guarantee loans, take ownership stakes in banks or prop up ailing companies with billions in taxpayer funds. In Washington, Henry M. Paulson Jr., the Treasury secretary, planned to meet Monday afternoon with Wall Street chiefs to hash out the terms of a new round of government intervention.

Monday morning also brought word that a financing deal for Morgan Stanley, the embattled investment bank, had finally gone through, a closely watched engagement that had become a gauge of confidence in the markets. Shares of Morgan Stanley rose 87 percent.

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meanwhile the line is drawn in the sand...

Nationalization Has Happened Before in U.S.

The government’s plan to take ownership stakes in American banks is an exceptional step, but not an unprecedented one.

The United States has a culture that celebrates laissez-faire capitalism as the economic ideal, yet the practice strays at times. Over the last century, the federal government has occasionally nationalized railways, coal mines and steel mills, and has even taken a controlling interest in banks when it was deemed to be in the national interest.

The corporate wards of the state typically have been returned to private hands after short, sometimes fleeting, stretches under federal stewardship.

Finance experts say that having Washington take stakes in United States banks now — like government interventions in the past — would be a promising move to address an economic emergency. The plan by the Treasury Department, they say, could supply staggering banks with sorely needed capital and help restore confidence in financial markets.

The United States is in step with Europe. Britain took the lead last week, declaring its intention to take equity stakes in banks to steady them. In the last two days, France, Germany, Italy and Spain have announced rescue packages for their banks that include state shareholdings.

Elsewhere, government bank-investment programs are routinely called nationalization programs. But that is not likely in America, where nationalization is a word to avoid, given the aversion to anything that hints of socialism.

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Gus: even a whiff of "the word" and the crosses are pointed in the direction of this vampire... bring on the garlic and the wooden stake. But to make really sure the socialism beast is dead, transfer oodles of public cash into private hands... see toon at top...

And please note that the article where Warren Buffett warned of the time-bombs dates back to 2003...

By Anthony Faiola and Karen DeYoung
Washington Post Staff Writers
Thursday, October 16, 2008; A01

Pakistan has reached a critical new phase in its long-deteriorating financial situation, as investor flight and bleeding of national reserves force the country to scramble for international funds to shore up its economy. With the global financial crisis draining coffers in the United States and Europe, the key U.S. ally in the war on terrorism is seeking help from an old friend newly flush with cash: China.

President Asif Ali Zardari arrived in Beijing on Tuesday for a four-day state visit as concern has surged over a possible debt default by Pakistan that could cripple its economy and spark more civil unrest. While the amount of money Pakistan needs in the short term is relatively small -- $4 billion to $6 billion -- analysts say the climate of crisis and public anger over domestic bailouts in the United States and Western Europe have made even a modest infusion from its Western allies politically difficult.

Pakistan's bid for Chinese cash underscores the potential of Beijing's $1.9 trillion in foreign reserves, the largest in the world, to boost its global influence. The government is now seeking as much as $3 billion in emergency assistance from China, as well as assistance from oil-rich Gulf countries including Saudi Arabia and the United Arab Emirates, according to a senior Pakistani official. Pakistan's central bank governor, Shashad Akhtar, is in Washington this week to review a draft plan for overhauling the country's finances with the International Monetary Fund, potentially paving the way for future aid.

U.S. military and intelligence officials fear that Pakistan's increasingly precarious economy will compound an already unstable political situation and undermine military cooperation. Both al-Qaeda and the Taliban leadership are located in the rugged, economically depressed region along Pakistan's western border with Afghanistan. The Bush administration and Congress have been shaping a long-term economic and military assistance package for Pakistan, but there is no indication the United States is able to step in with a short-term financial lifeline.

Pakistan is going to the Chinese now "because you go to the guys with the money," a senior International Monetary Fund official said. "And right now, the Chinese are the ones with the money."

The man who has lost £3bn in the recession admits: 'I did some dumb things in 2008'

• Richard Wachman
• The Observer, Sunday 1 March 2009

Warren Buffett, one of America's richest men, has lost £3bn in the recession, it emerged last night.

Buffett, who started his working life selling fizzy drinks door-to-door, is nicknamed the Sage of Omaha for his legendary financial acumen, but even he cannot escape the carnage.

His investment company Berkshire Hathaway yesterday reported that profits fell 62% last year, reducing its value by £8bn and making it the worst year for Buffett since he took control 44 years ago.

Buffett's losses flow from his 40% stake in Berkshire, which invests in property and insurance companies, but also has holdings in household names such as Coca Cola, American Express and the Washington Post

In his annual letter to shareholders Buffett says investors finished 2008 "bloodied and confused" because of the dysfunctional credit market and other financial turmoil. Berkshire was particularly damaged by losses from derivatives, investments tied to the stock market, which Buffett once described as "weapons of mass financial destruction".

He says the recent credit boom made many people adopt a creed he used to see on restaurant walls years ago. It read: "In God we trust, all others pay cash." Now, Buffett is certain that "the nation's economy will be in a shambles throughout 2009, and for that matter, probably well beyond".

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read more at The Observer, take the small change, but see toon at top...