According to economist Nouriel Roubini, the economy is already in a severe and protracted U-shaped recession and the risk is increasing that this crisis will turn into an uglier multi-year L-shaped Japanese style stag-deflation (a deadly combination of stagnation, recession and deflation).
He acknowledged that the U.S. has done much to combat the problems facing the economy with aggressive monetary and fiscal policies, but that two key elements are still missing if a near-depression is to be avoided; a clean-up of the banking system and an across-the-board reduction in the unsustainable debt burden of millions of insolvent households, which includes principal reductions on mortgages.
Nationalizations will be necessary for many banks, along with a triage of solvent and insolvent institutions, he said.
Bank of America Chairman and Chief Executive Kenneth Lewis was issued a subpoena by New York State Attorney General Andrew Cuomo, who is investigating whether the bank withheld information from investors in violation of state law, according to people familiar with the matter.
Mr. Lewis, who received the subpoena late last week, is the highest-profile subject of Mr. Cuomo's investigation into the Charlotte, N.C., bank's purchase of Merrill Lynch & Co. on Jan. 1. Mr. Cuomo's office is trying to determine if investors were misled about the depth of Merrill's losses in late 2008 and whether details of the bonuses to Merrill employees, contained in a nonpublic document, should have been disclosed to investors.
The XLF fell early and hard on Friday. By 10:00 EST, the ETF had declined by 4.64% and was far below its previous low set back on Jan. 20. Investors continued to punish the two banks many believe will ultimately be nationalized; Citigroup (C) fell below $2 per share (-20.02%) while Bank of America (BAC) fell below $3.25 (-17.30%). J.P. Morgan was lower by 6.26% and Wells Fargo was lower by 12.41%.
Hartford Financial Services Group Inc. and Principal Financial Group Inc. are the U.S. life insurers most vulnerable to losses on securities tied to commercial mortgages, an analyst at UBS AG said.
Insurers will need to write down the value of commercial mortgage-backed investments after Moody’s Investors Service downgraded more than 1,200 securities, UBS’s Andrew Kligerman said in a note to investors today. Hartford’s and Principal’s holdings are lower rated than the average for the U.S. life insurance industry, he said. Life insurers have lost two-thirds of their market value in the past year after posting more than $145 billion in losses and write downs tied to the collapse of the mortgage market.
China is once again on the hunt for global energy and resources to power its growing economy and this time, it's being welcomed to invest overseas. Beijing said on Friday that one of its big state-owned banks, the China Development Bank, agreed to lend Brazil’s oil giant Petrobras $10 billion in exchange for sending China a long term supply of oil. That investment came after similar deals were signed this week with Russia and Venezuela, bringing China’s total oil investments this month to $41 billion.
China’s biggest aluminum producer also agreed earlier this month to invest $19.5 billion in Australia’s Rio Tinto, one of the world’s biggest mining companies. And last Monday, the China Minmetals Corporation bid $1.7 billion to acquire Australia’s OZ Minerals, a huge zinc mining company.