David Cameron, leader of Britain's opposition Conservative Party, pledged that he wants to introduce bankruptcy laws modeled after the U.S. system to give struggling businesses time to recover during the economic downturn.

“We will consult on taking the best aspects of the American Chapter 11 system and give good companies breathing space to allow them to rescue or restructure the business in the face of the credit crunch,'' Cameron said.

The Conservative Party claims that “current insolvency rules in the U.K. focus on closing down failing companies and paying off creditors.” Instead, Cameron wants “businesses to be able to freeze debt payments and to offer priority status to backers who are willing to extend more loans.”

In his speech on Tuesday, Cameron said, "We want to make sure sound companies don't go into liquidation unnecessarily. We all know what liquidation normally means - closure. That isn't good for the companies, many of which are actually fundamentally sound. This isn't good for the banks, who lend them money. And it's not good for employees, who face being laid off."

Here is a link to the article:
http://uk.news.yahoo.com/rtrs/20080715/tpl-uk-britain-bankruptcy-conservatives-20b2d2f.html

Additional link:
http://www.bloomberg.com/apps/news?pid=20601102&sid=a33A8nChNNZE

Yameena

The Federal Reserve's actions (exponentially increase the money supply) have reduced the value of the dollar. One of the unintended (but known) consequences of a devalued dollar is that foreigners, mainly foreign governments, will seek to reduce their exposure to the falling dollar by moving away from the US currency. This has already been quietly happening with some countries quietly seeking to be paid for oil, for example, in Euros rather than in dollars. These countries are under pressure to either not make these moves or to do so quietly so as to avoid a world wide "dump the dollar" campaign which would drive the value of the dollar down further. Here is a quote from an article on this subject from the online Financial Times:

Quote:
Some of the world’s largest sovereign wealth funds are seeking to scale back their exposure to the US dollar in a sign of global concern about the currency.

One big sovereign fund in the Gulf has cut its dollar-denominated holdings from more than 80 per cent a year ago to less than 60 per cent, while China’s State Administration of Foreign Exchange (SAFE) has been looking to strike deals with private equity firms in Europe as a part of a strategy to reduce its dollar holdings.
…
The shift at China’s SAFE is significant because it holds the majority of the country’s $1,600bn in foreign currency reserves in dollar instruments and has lagged behind other governments, such as Singapore, in diversifying its currency exposure. SAFE has been holding talks with Europe-based private equity firms about putting billions of dollars into their latest funds, precisely because these funds are not dollar-denominated, say people familiar with the matter.
By allocating money to Europe-based private equity firms, SAFE could diversify away from the dollar, at least at the margin, without spooking the currency markets and driving the dollar down in a disorderly manner.

In addition, SAFE is encouraging the private equity firms with which it has relationships to make investments in natural resources companies in markets outside the US – in part, to hedge its exposure to the dollar.
…
Kuwait last year ended its currency link to the dollar, raising questions about whether other oil-rich Gulf states with similar arrangements would follow.

The largest of the sovereign wealth funds, the Abu Dhabi Investment Authority, is still committed to the dollar. ADIA’s subsidiaries make their investments without taking into account currency risks. A separate ADIA division then decides whether to hedge or not.

As long as the United Arab Emirates – which includes Abu Dhabi – pegs its currency to the dollar, a major departure from the current investment policy is unlikely. Moreover, ADIA staff say they worry that the euro may be at a peak against the dollar.

Still, dissatisfaction with the dollar peg is growing at the Abu Dhabi fund. “We are suffering. We are importing inflation for no reason,” says one ADIA staffer.

Here is a link to the whole article:
http://www.ft.com/cms/s/0/fc250ac2-5361-11dd-8dd2-000077b07658.html?nclick_check=1

Michael

These two bond insurers have had a rough time and now are in the aftermath of being downgraded by the large credit agencies. Specifically, Moody's downgraded MBIA in mid June from AAA to A2. Other agencies had also taken similar action. However, what is interesting is that investors had already "voiced" their opinion by the time of the downgrade such that the company's share prices had fallen significantly prior to the downgrade. The company's stock has a 52 week high of $68.89 and it currently trades for $3.90!

The downgrade of these companies also causes a ripple effect on the debt insured by these companies. Certainly their failure would have an incalculable impact on the US company.

Michael

Fed Chairman Bernanke has announced plans to further ease the brokerage firms' money crises by extending the time in which they may borrow money from the Federal Reserve. Earlier this year, the "Fed window" was "opened" to brokerage firms and now those lending rights are being further expanded. Moreover, the Fed together with the Treasury Dept and others are working on plans to expand the power of the Federal Reserve. Finally, the Fed is proposing new rules to cover mortgage lenders.

Quote:
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act -- temporarily at least -- as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.

"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

Here is a link to the entire article:
http://biz.yahoo.com/ap/080708/fed_credit_crisis.html?.v=1

Michael

The latest in the trend for foreign governments to use their "sovereign funds" to buy stakes in US Banks is Kuwait which just invested 3 billion more in Citi Bank during January. Likewise, it invested 2 billion in Merrill Lynch.

Here is a link to one article on this subject:
http://biz.yahoo.com/ap/080624/kuwait_fund_us_banks.html?.v=1

Here is a favorable quote from a longer, more in depth article on the general subject of sovereign funds:

"One hyperventilating observer of these developments even bemoaned the onset of a “sharecropper economy” in the United States.

In truth, such funds are nothing for Americans or Europeans to fear. If anyone should worry about them, it’s the people whose governments are amassing them. That’s because governments tend to be terrible at managing money that is best left in the hands of private citizens. And locking away billions of dollars in wealth can have pernicious economic side effects. Maybe that’s why sovereign wealth funds are popular with dictators and semi-authoritarian regimes, which don’t have to answer for the consequences when they make poor economic gambles.

Sovereign wealth funds are nothing new, but they are growing larger. They emerged in the 1970s in oil-producing emirates, such as Kuwait and Abu Dhabi, as a way to accumulate current account and budget surpluses during the oil boom. Now, Abu Dhabi boasts the largest fund, sized at $600-700 billion, and other countries have followed its lead.

Norway established a fund for its excess oil incomes in 1990. Singapore has accumulated two large funds that, unusually, are not based on oil income. And more recently, China and Russia have instituted large sovereign wealth funds of their own. Today, such funds hold as much as $2.5 trillion in assets, according to Ted Truman, a senior fellow at the Peterson Institute for International Economics. Some economists forecast they will grow to $12 trillion by 2015, an amount that roughly corresponds to the size of the entire U.S. economy.

The motives of the funds vary, and they don’t always make sense. Consider Abu Dhabi and Kuwait, which wanted to save their oil endowment for future generations, an admirable goal. But today these two bureaucratized emirates look like poor cousins in comparison with freewheeling Dubai, which has much less oil. Because the rulers of Abu Dhabi and Kuwait centralized their nations’ wealth in the hands of the state, their state sectors stifled their economies. Abu Dhabi’s fund may be impressive, but the entrepreneurial emir of Dubai has done a far better job of putting sustainable wealth in the hands of his citizens."

And here is the link to that article:
http://www.foreignpolicy.com/story/cms.php?story_id=4056

Michael