Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.
The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.
Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.
Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.
The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.
But market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.
It said: “In connection with the fact that a series of our clients did not meet their obligations to our bank, we have not met our obligations to our counterparties.
We heard, after the Russian invasion of Georgia, that investment in Russia began to dry up. That's caused credit to dry up and loans are only being offered to "first-tier" companies and brokers if at all. Consequently, much like the liquidity crisis the US is now suffering due to the housing crisis, the combination of lower oil prices and investor skiddishness about the direction Russia is taking is combining to do in Russia what the housing crisis is doing in the US. Call it the revenge of capitalism, which may move a little more slowly than some may like, but in the end, makes a very real impact which is very difficult to ignore.
“It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”
The "mistrust" isn't just a product of unstable financial markets but instead a result of Russia's actions against its neighbors finally coming home to effect them. This, of course, wasn't anything former KGB officer Putin had to concern himself with in the old USSR. But in this brave new world, as interconnected as it is, aggressive moves have financial results. My guess is this wasn't factored into their latest action in Georgia.
House Democrats plan to aggressively look at the administration’s role in the meltdown over the weekend and to explore further regulation and government structures that would be taken up under the new president.
Republican aides accused Democrats of trying to shift blame with a series of “show trials,” but acknowledged that key officials will wind up cooperating.
The hearings will take place over the next few weeks, the officials said. Treasury Secretary Henry Paulson, who regularly appears on Capitol Hill, will be called to testify as part of the investigation.
"House Democrats" will do what ? Coverup ? Misdirect ?
Unfortunately, this wasn’t the case for the 1,406 people who lost much of their life savings when Superior Bank of Chicago went belly up in 2001 with over $1 billion in insured and uninsured deposits. This collapse came amid harsh criticism of how Superior’s owners promoted sub-prime home mortgages. As part of a settlement, the owners paid $100 million and agreed to pay another $335 million over 15 years at no interest.
The uninsured depositors were dealt another blow recently when the U.S. Supreme Court let stand a lower court decision to put any recovered money toward the debt that the bank owners owe the federal government before the depositors get anything.
But this seven-year-old bank failure has relevance in another way today, since the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.