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In this issue:
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When fully functional, the facility will save India an annual foreign exchange outflow of US$ 20 bn. RIL is expected to invest US$ 5.2 bn to develop the KG basin. This development is a major milestone for the Indian oil and gas upstream space, raising hopes for the country’s energy security. However, it also indicates that it is high time India moved ahead in terms of enabling infrastructure and market driven prices for oil and gas.
The Fed believes that this move will not only make these banks more financially sound but will also significantly limit their profits (due to the provisioning requirements). More importantly, both Morgan Stanley and Goldman Sachs will have greater access to the discount window of the Federal Reserve, which banks can use to borrow money from the central bank. Also read – Once in a century crisis
The plan calls for the government to but billions of dollars worth of illiquid mortgage assets held by banks, investment banks and other financial institutions. While this plan will help banks shore up their balance sheets and make them more willing to lend, the problem is that it will not make them automatically profitable. The plan’s announcement seems to have gone down well with equity markets as seen from their Friday’s and today’s performance. However there are many who believe that the action is a wrong way to deal with the wrong doers. "We’re playing a game of casino capitalism, interfering the way the market is working,” says Mr. John Bogle, the man who propounded index funds way back in 1976. "The government seems punch drunk. It doesn’t seem systematic. Believe me, the value of American business doesn't change that much in a day," he goes on to say. Mr. Bogle sums up the entire situation very well – “We're in the most speculative market I've seen. We seem to be in the depths of despair one moment and the heights of optimism the next.” While experts seem cautiously optimistic that this large government bailout of the US financial sector will solve the credit crisis, questions remain whether it will prevent more failures of banks and Wall Street firms. Also the fact that the plan does not in any way mend the real root cause of this crisis – the battered housing market – leaves many a doubts.
Also read – You can’t cure an addiction
Over the years, with banks spreading their tentacles across markets, the distinction especially between the US and European banks has blurred. And it is precisely this fact that led many European banks with considerable operations in the US to seek bailouts from the US akin to their US counterparts. While the original plan was to provide access to the tune of US$ 700 bn bailout for any financial institution based in the US, frantic lobbying over the weekend by foreign banks tilted the decision in their favour with the US agreeing to extend these funds to the foreign banks as well. For instance, some of the foreign banks which hold toxic mortgage related assets in the US include Barclays and UBS. At the same time, the US government has urged foreign governments too to provide bailout programmes for banks in their respective countries. However, this development has raised a raging debate. While one point that has been raised is that foreign governments should be responsible for bailing out banks in their respective countries, others have contended that not bailing out foreign banks with significant operations in the US would lead to the US’ financial system losing credibility and would deter foreign banks to set shop in the country in the future. Just goes to show that the US is and will have to pay a heavy price for the bad investments made by the financial sector. Amidst this mess, and despite whatever attempts the US government has been making to salvage the same, what cannot be disputed is the fact that the US financial system certainly lost credibility when the subprime crisis itself was unraveled!
Gold is trading marginally up in today’s trades. The yellow metal is currently at US$ 872.1 an ounce against its last Friday close of US$ 871 an ounce. Oil prices are also on the up today. As reported on Yahoo Finance, light, sweet crude for October delivery in electronic trading on the New York Mercantile Exchange is up US$ 1.3 to US $105.9 a barrel. And by the way, Lehman Brothers may have filed for bankruptcy but is still calling people to join its ranks. The beleaguered investment bank has posted job requirements for the positions of Investor Accounting Specialist, Foreclosure Specialist and Default Supervisor, among others on its website! Anyone interested?
Some economic experts have even opinionated that the pressure on the greenback from the deteriorating balance sheet of the US government will ‘dwarf the short-term gains from solving the banking crisis’. Another issue that shall continue to haunt the dollar will be the lower interest rates in the US vis-à-vis its peers in the industrialised nations’ group (except Japan), especially the European Union.
We are referring to a study conducted by a not-for-profit firm, Centre for Media Studies (CMS) and published in the business daily - Mint, which states that in the last decade, at least 20% of the country’s electorate was paid cash for their votes! If this isn’t one of the biggest blot on our democracy than what is? Little do these people realise that by accepting cash, they end up paying more in the form of bribe over the next five years to avail something that actually belongs to them. And it is no surprising that this trend is more commonplace in rural India, where quite a few people wake up every morning worrying about the source of their daily bread. Political parties on their part maintain that while this practice is more widespread in elections, where a few votes could change the final result, this cannot be feasible in large elections such as the parliamentary or state assembly elections. We can do nothing but hope that this is indeed true.
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The delay in gas production is being attributed to tough weather conditions, but the main concern remains the legal dispute over pricing. The oil produced is of the ‘sweet’ variety, which means most Indian refineries will be able to process it. The company believes the D6 block has a potential of 2.5 billion barrels of oil equivalent (boe) and aims to produce 550,000 boe in the next eighteen months, thereby contributing 40% of India’s domestic oil and gas production.
The Federal Reserve board has approved the applications of both firms to become bank holding companies. As reported on Bloomberg, this move will allow the two institutions (both will now be regulated by the Fed) to build their deposit base., which will allow them to rely on deposits from retail customers instead of using borrowed money, the leverage that led to the undoing of Bear Stearns and Lehman.
