Translated material
There is no quick solution
US financial authorities are puzzling over the problem of the credit crisis
The problems of American mortgages and the liquidity crisis they provoked in global financial markets are increasingly attracting the attention of politicians. Yesterday, Russian President Vladimir Putin spoke on this topic for the first time. In his opinion, these events will not become critical for Russia. For the United States, the crisis has become a serious threat to the economy. Yesterday, the heads of the Federal Reserve System, the Treasury Department and the Senate Banking Committee held a joint meeting, discussing what measures need to be taken to improve the situation. In the meantime, American banks are suffering significant losses, and the central banks of England and Japan are providing cash injections to stabilize the markets.Treasury Secretary Henry Paulson, even before the start of yesterday's meeting, said that the Fed was addressing the liquidity problem, but the crisis would not end quickly. This message did not reassure investors too much, and quotes of American securities went down again. “Currently there is a revaluation of loans in the capital markets,” the minister said in an interview with CNBC. According to him, the Fed is addressing the liquidity problem, which makes it easier for markets to reassess pricing risks. "The crisis will pass over time and liquidity will normalize as markets and investors begin to better understand the relationship between risk and return," Mr. Paulson said.
Russian President Vladimir Putin also believes that the crisis will pass. He saw “positive signals” in the West and agreed with the forecasts of the Ministry of Economic Development and Trade that by the end of the year the stock market will be restored to the level from which the downward movement began. “For us, this was not a critical drop; rather, we can call it an adjustment, bearing in mind the previous unprecedented growth.” According to the head of the Ministry of Economic Development and Trade, German Gref, “the measures taken by the US Federal Reserve System, the European Central Bank and our bank” will help turn the situation around.
However, the previous actions of the Fed, in particular the reduction of the discount rate last week, did not bring much relief to the market. As Christopher Dodd, head of the US Senate Banking Committee, said yesterday after the meeting, Fed chief Ben Bernanke was slightly disappointed that this did not have the desired impact on the markets. According to the senator, the regulator is ready to use all its tools to overcome the crisis. As you know, the Senate proposes to lift restrictions on investments in the mortgage sector for state-owned companies - Fannie Mae and Freddie Mac. Mr. Dodd said allowing Fannie and Freddie to expand their mortgage portfolios could stabilize the housing market. “The effect will be positive, comparable to a rate cut,” he said. The Ministry of Finance, however, considers it unlikely that such a measure will be taken.
While Washington is deciding what to do, regulators in other countries are urgently issuing loans to their banks that lack liquidity. The Bank of England's emergency lending arm has issued £314 million of emergency funding at 6.75% interest. Let us remind you that the base rate in the UK is now 5.75%. Representatives of the central bank refuse to name the recipient of this loan, but once again report that emergency lending is available at any time. According to information on the Bank of England website, this type of lending was used twice in July: on July 17, 109 million pounds were borrowed, and on July 2, 1.93 billion pounds.
The Bank of Japan yesterday injected 800 billion yen, or about $7 billion, into the country's financial system. At the same time, Japanese Finance Minister Koji Omi said that financial markets had calmed down. Analysts expect that at the meeting on August 22-23, the Bank of Japan will keep the base interest rate at 0.5% per annum. This is the fourth such operation by the Japanese Central Bank since August 9, when the European Central Bank added 94.8 billion euros to the eurozone banking system to stabilize the situation in credit markets.
Despite the actions of regulators around the world, the crisis is still developing. The ninth largest US bank by market capitalization is Capital One Financial Corp. announced that it would close the mortgage division, purchased less than a year ago for $13.2 billion. The company intends to cut 1,900 employees and incur expenses of $860 million.
Mortgage foreclosures in the U.S. nearly doubled in July from last July to 179,599, according to data analytics firm RealtyTrac Inc. “In our opinion, the number of cases of mortgaged real estate being transferred to the ownership of banks this year will reach 2 million,” predicts RealtyTrac executive vice president Rick Sharga.
Meanwhile, in the context of the credit crisis, which has crippled many companies, great investment opportunities are opening up for large players. According to The Wall Street Journal, billionaire Warren Buffett, who heads the investment company Berkshire Hathaway, may acquire part of the securities of the largest American mortgage company, Countrywide Financial Corp. The firm suffered significant losses due to the subprime mortgage default crisis. The debt servicing division, the mortgage portfolio, and mortgage-backed securities may be of interest to Mr. Buffett, the newspaper reports.