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1. Barack Obama wins Presidential Election and becomes the 44th President of the United States - Hope for a Change

130 Million Americans, more than in any other election since 1960, voted for a change and choose Obama, obtaining a historic victory to become the first black President of the United States, congratulating and celebrating world leaders, expressing hope, expectations and confidence in a fresh approach to the world’s challenges. Obama won the popular vote with 52% to 46% of McCain and the decisive electoral vote with 349 to 163 of McCain, requiring the Presidential election 270 electoral votes and the Democratic Party is strengthening its majorities in both Houses of Congress, in the House reaching 256 seats/up 21 seats remaining 177 seats for the Republican Party with races pending in Lousiana and Virginia and in the Senate reaching 58 seats/up 7 seats leaving 41 seats to the Republican Party with one race still pending in Minnesota, falling disapointed Democrats short to obtain a 60-vote majority in the Senate. Obama has to confront as he starts Presidency on January 20, 2009, inherited big problems like how to revive economy and the wars in Iraq and Afghanistan, and one has to accept that there are no quick and easy solutions and it will take time to solve them, nevetherless it seems to be important that he keeps promises made during his campaign and helps to overcome divides bringing the country together. The President-elect is already moving ahead to choose his team for the transition process, to take place in complete cooperation with the Bush administration, and to form his cabinet, nominating Timothy F. Geithner, president of the Federal Reserve Bank of New York, involved and experienced in handling the financial crisis, the most immediate problem facing Obama, as his future Treasury Secretary, also naming former Treasury Secretary Lawrence Summers to head his Economic Council and Peter R. Orszog as Director of the Office of Management and Budget to review and downsize Federal budget, appointing former Federal Reserve Chairman Paul Volcker as Chairman of the new White House Economic Recovery Advisory Board, Shaun Donovan to be his Secretary of Housing and Urban Development/HUD, where he worked already during the Clinton administration, an increasingly important role as the economic crisis began with the mortgage problems, Mary Schapiro, with more than two decades of experience as regulator, as chairman of the Securities and Exchange Commission/SEC, urging to reform financial regulations, and Gary Gensler, a former Tresury Department official, as chairman of the Commodity and Future Trading Commission/CFTC.  Obama and his economic team are cooperating as close as possible with President Bush to inject confidence into the market, coordinating the rescue plan for Citigroup and moving to stimulate consumer spending and housing. Obama confirmed Robert Gates, a moderate Republican, asking him to remain at least one more year as his Defence Secretary, naming his former rival Hillary Clinton as Secretary of State. The Democrats had shaped a party platform setting principles that commits the party, declaring itself united behind a commitment that every American man, woman and child be guaranteed to have affordable, comprehensive health care, the expectation to complete withdrawal of US combat troops from Iraq within 16 months, promises of energy rebates to struggling families, pension subsidies, higher taxes for families earning over $250.000, for others tax brakes, Billions for economic stimulus, direct high-level diplomacy, without preconditions, in the case of Iran, negotiations to amend the North American Free Trade Agreements/NAFTA with Canada and Mexico, and more. Obama talked also about a redistribution of the tax burden to reduce economic inequality, a real plan focusing on fairness and growth. Federal budget has increased to $3,1 Trillion from $1,8 Trillion; the gross national debt is actually more than $10,5 Trillion, more than the combined GDP of China, Japan and Canada, and adding Medicaid, Medicare and Social Security commitments, as a nation there is a $50 Trillion hole, an invisible mortgage of $450.000 for every American family. Energy independence, the war on terror and federal spending are all important issues to deal with immediately, surging the federal budget deficit to a near-record amount of $454,81 Billion for the fiscal year ending September 30/3,2% of GDP up from $161,53 Billion in 2007/1,2% of GDP and soaring the projected deficit for the coming year to  $438 Billion, which could increase another 83 Billion, to a record of $521 Billion, and up to $1 Trillion considering proposals for another round of economic stimulus measures, credits for automakers, running General Motors and Ford out of cash, as well as tax-cuts, made by Congressional leaders and urged by President-elect Obama, who said his economic team is working on an ambitious and significant economic recovery plan including permanent middle-class tax cuts and the creation or preservation of up to 3 Million jobs during the next two years, through large infrastructure investments, school and hospital modernisation and an energy savings program for public buildings, which could cost $675 Billion to $775 Billion or more, to enter into effect as soon as possible after his inauguration on January 20, 2009. The Treasury Department is asking Congress to change terms of a recently approved $25 Billion loan for the car industry into direct loans, arguing the $700 bailout fund is not applicable, but a final decision keeps pending as the three carmakers presented their survival plans and needs under the worst scenario persisting recession until 2010, requesting GM $18 Billion, Ford $9 Billion and Chrysler $7 Billion, exceeding the total amount of $34 Billion the $25 Billion originally discussed. The White House and Congressional Democrats were close to agree on a short term rescue plan of about $14 Billion giving the big three carmakers  GM, Ford and Chrysler conditioned direct emergency bridge loans, creating a new White House position with enormous power the so callel ‘car szar’ and planning the United Auto Workers Union/UAW to seek for a stake in GM including a seat on its board in exchange  for concessions by its members, but  the initiative failed after Republican Senators opposed deal. Changing his restrictive position President Bush said he would be open to use the $700 Billion bailout fund to help Detroit and announced a rescue package of $17,4 Billion, extending $13,4 Billion in emergency loans to General Motors and Chrysler in December and January with another $4 Billion eventually available in February, requiring that companies show they are financially viable by March 31, while Ford appears to be in a better financial position declining a short term assistance. It seems nearly unbelievable that President Bush apparently conditioned his support to some of the  important initiatives to help the contracting US economy to Democrats dropping their opposition to the free trade pact with Colombia. The President-elect is frustrated that the actual administration refuses to discuss a now needed second economic stimulus package  and worried as Bush issues a record of so-called ‘midnight regulations’, last minute regulations designed to reward supporters, enraging opponents and undermining his new administration, like coal waste dumping into valleys and streams  and easing the building of coal-fired power stations nearer to national parks, having  his transition team already a list of controversial measures that will take months to undo. Obama had joined earlier this year a congressional delegation visiting Afghanistan, Kuwait, Iraq, Jordan, Israel, Germany, France and Britain to prove his foreign policy experience, discussing in Baghdad the future strategy and a time horizon for a withdrawal of US combat forces from Iraq, suggested to take place by the end of 2010, or earlier. The objective of his trip was to listen to leaders he has been visiting to get a sense of what their interests and concerns are, giving a clear message that if elected to the White House, America will intend to continue to show leadership but with a style less unilateral and building partnerships around the world, defending a strong relationship between the US and Europe and engaging more actively with Asia, the Middle East, Latin America and Africa. What Obama wanted to communicate on both sides of the Atlantic, the US and Europe, is the enormous potential of us restoring a sense of coming together! Reacting on the invasion of South Ossetia by Georgian forces, Russia’s massive assault on Georgia, a defiant show of strenght, produced, as expected, a more measured response from Obama and a forcefully demand from President Bush, blaming Moscow for invading its neighbor and requesting to stop military operations immediately and reciprocate without delay a ceasefire offered by the Georgian government, accepting President Medvedev a tentative peace plan brokered by French President Sarkozy, who visited Moscow on behalf of the European Union and signing a revised framework for a deal to halt fighting, making it clear that Russian troops will remain as peacekeepers in Abkhazia and South Ossetia, the two breakaway regions of Georgia pretending to join the Russian Federation. As Russia is demonstrating to be the sole military power in the strategically vital Caucasus region, NATO foreign ministers urged Russian President Medvedev to keep his word and pull out Russian combat troops from Georgia, sending President Bush American troops to Georgia to oversee a humanitarian mission, monitor if Russia was honoring ceasefire and Russian troops are withdrawing from Georgia, a provocative move, deepening US commitment in this country, an important transit corridor for oil and gas from Central Asia and the Caspian region to the West. New US tensions with Moscow could produce a more hostile Russia disrupting international order and creating problems, although there is the desire of its economic elite, with close ties to Prime Minister Putin, to integrate with the rest of the world, being Russia also member of the Group of 8 major powers/G8 and existing the NATO-Russian permanent Joint Council. As both houses of Russia’s parliament voted to recognise the independence of the two separatist regions South Ossetia and Abkhazia, decree already signed by President Medvedev, the conflict will move from a military one to a political one, putting new pressure on Georgia and adding tensions with the US and the EU, taking Russia the risk to become more isolated. Since the conflict with Georgia, to become soon jointly with Ukraine member states of NATO, foreigners have very fast pulled out of assets and the stock markets in Russia, which came under unprecedented pressure and had to suspend trading, declining Russian foreign currency reserves, the world’s third largest, to $542 Billion. After the Russian Government pledged to boost liquidity by more than $100 Billion, the ruble denominated MICEX and the dollar denominated RTS both resuming trading surged sharply. Russia also announced it will cut the duty on oil exports helping its oil companies to save a total of $5,5 Billion. But the country is not immune to global credit crisis, falling its reserves further to $484 Billion, as authorities were spending about $125 Billion to support the devaluated ruble, the stock markets and the banking system to avoid a collapse of its economy, also hurt increasingly by dropping oil prices, which could produce a budget deficit, remaining volatility and sistemic risks in Russia’s financial markets, lowering Standard and Poor’s the country’s foreign currency credit rating, contracting Russi’a economy facing recession. After the NATO-Russian Council failed to discuss crisis in Georgia, suspending NATO the Russian Council, the European Union, conscious of its reliance on Russian energy supplies and a growing economic interdependence, is prepared to resume a constructive dialogue with Russia through French President Sarkozy, current President of the Council of the European Union, saying after an emergency Georgia summit it would postpone talks on a real new EU-Russia partnership and cooperation accord unless Moscow withdrew its troops to pre-conflict/August 7-positions in Georgia, but did not threaten to impose sanctions considering French-German unified political position opposing such measures! President Sarkozy and President Medevedew agreed on a complete pull out of Russian troops from Georgia by the second week of October and after the deployment of at least 200 EU-observers up to the beginning of October, retreating to the two enclaves of Abkhazia and South Ossetia, having Russia established diplomatic relations with both. Rumors are currently circulating that US-VP Cheney may have sparked the crisis in Georgia as a favor to the Republican candidate, confirming eventually Prime Minister Putin’s suspicion, and there is a lot of evidence to support such a theory, as one of Cheney’s most experienced advisors, Joseph R. Wood, was in Tbilisi shortly before the Georgian army launched its military operation. McCain, who lost the Presidential election, is also a close friend of Georgian President Saakashvili, who apparently lied 100% to the world, and ordered the assault on South Ossetia before the Russian tanks entered the province, not respecting the cease-fire, attacking the civilian population while they were asleep in their beds, according to OSCE reports. Cheney confirmed during a visit to the Georgian capital that the US are donating $1 Billion to rebuild the country after Russian’s invasion! US-Russian relations are fragile and lack the necessary mutual trust, entering into a ‘ping-pong-ping’ diplomacy, hoping President Medvedev, who has launched a constitutional amendment to extend the presidential term from actually 4 to 6 years, on the arrival of the Obama Administration to restore relationship. Meanwhile President Bush concentrating on the weakening US economy, addressed the nation to convince a skeptical public to support a $700 Billion rescue initiative for the financial sector. The new legislation creating the Troubled Asset Relief Program/TARP includes basic principles, such as protection of taxpayers obtaining warrants on equity from participating companies regardsless of whether the Government is purchasing mortgage related and other troubled assets directly or buying them through an auction process, helping to ensure that taxpayers benefit in the future if share prices of the firms increase; the US Treasury Department is required to establish a mandatory financial industry-funded program to guarantee the distressed assets it acquires through the recue plan; the US President five years from now will have to ensure taxpayers are reimbursed fully for expenditures under the bailout, having the financial institutions to pay for any shortfall; participating firms can chose to unload bad assets via US-Government acquisition or by participating in a financial industry-funded insurance program, paying participating firms in that fund premiums to insure those assets; a so-called Financial Stability Oversight Board has to be established; there will be help for homeowners facing foreclosure and limits on the compensation of executives whose firms take bailout money; the amount of $700 Billion is going to be splitted in three parts, starting with $250 Billion following another $100 Billion if needed, giving the Congress 15 days to object the final $350 Billion to be disbursed. After the first draft of the bailout package was rejected by the House, the Senate approved strongly on Wednesday evening 10/01/08 voting a new version of the financial rescue plan, including a proposal from both presidential candidates to raise the federal insurance limit for consumers’ bank deposits from actually $100.000 to $250.000 to restore public confidence, allowing the bill the Federal Deposit Insurance Corporation to borrow unlimited amounts of money from the US Treasury Department in connection with this larger coverage that would extend until the end of next year, backing also up the decision of the Securities and Exchange Commission to loosen rules to figure out the value of assets for which there are no buyers, adding also $100 Billion in tax breaks for households as well as business and individual tax reductions, and an extension of unemployment pay, winning as expected the revised measure Friday 10/03/08 by a comfortable margin the approval also of the House. President Bush signed this same afternoon the bill, one of the largest-ever government intervention in the economy, formally known as the Emergency Economic Stabilization Act, into law, expecting to prevent a crisis on Wall Street becoming a crisis in communities across the country. Working the US Treasury Department already to put the rescue plan into effect, it has the responsability to design an effective program to achieve its objectives, acting soon and properly and fairly price the assets it will buy, implementing total transparency around pricing to allow market accurately value its assets, probably outsourcing the work to run auctions and manage the assets to professionals. There is some hope the new legislation will help to deal with the worthening credit crisis, restoring a more freely flow of money through the global financial system and of credit to the economy to limit extent of recession! In a coordinated emergency move with the world’s most important central banks the Federal Reserve led official rate cuts by a half point, trying to stop further global economic damage, probably a first step to lower interest rates around the world. Creating the Money Market Investor Funding Facility/MMIFF to stimulate further credit markets the Federal Reserve will lend up to $540 Billion to a group of five specially created funds administered by J.P.Morgan Chase, that will buy up to $600 Billion of three-months unsecured and asset-backed commercial paper to provide liquidity to the money market mutual funds, taking the first 10% of losses, supplementing an earlier program under which the Federal Reserve planned to by commercial paper directly from issuers. The Bush Administration, naming the Bank of New York Mellon under a contract lasting three years as master custodian firm overseeing the $700 Billion bailout fund, changed primary focus of its rescue package and is prepared, as a short time Government intervention, to spend up to the amount of the first installment of $250 Billion buying preferred equity stakes in major US banks, saying the fresh capital is not to hoard it but to deploy it, having lost valuable time to act on the worsening credit crisis, which translated into the actual international crisis after US-authorities decided not to save Lehman Brothers! Federal regulators announced they will guarantee for a fee new bank debt up to three years and extend insurance for non-interest-bearing accounts through 2009. Banks invited to join the US Treasury Department´s capital purchase program with the respective amounts proposed, encouraged to expand and look for mergers taking over competitors, are: $10 Billion each Goldman Sachs and Morgan Stanley, $25 Billion each Bank of America (including the soon to be acquired Merrill Lynch) and Citigroup, $20 Billion to $25 Billion Wells Fargo, $3 Billion Bank of New York Mellon, $2 Billion State Street Corp, another $125 Billion for smaller banks. The Federal Reserve, planning the way to use part of the $700 Billion rescue fund to buy and renegotiate mortgages, as to address the underlying fundamentals of the crisis, is working closely with the Federal Deposit Insurance Corporation/FDIC which released a new plan to refinance mortgage loans of 1,6 Million households costing the Government an estimated $24,4 Billion. Also considers widening financial rescue to insurance companies buying equity stakes to improve their balance sheets and to help troubled US car sector through their financing arm. GMAC, the financial arm of General Motors, applied to become a bank holding company to get access to capital from the $700 Billion bailout fund and to the Federal Reserve’s low interest short term emergency loans. Putting the original plan to buy troubled mortgage assets on hold, facing fresh criticism from Congressional leaders over its handling of the bailout package, and giving priority to reactivate credit markets helping consumers, not accomplished with the capital injections into banks, as consumer spending is dropping causing recession, the Treasury Department said it will focuse on banks, non-bank financial institutions and consumer lenders, eventually requesting to raise private capital to qualify, to increase availability of credit to people and stimulate consumer purchase, reducing foreclosures and providing credit card loans, student loans and car loans. The idea is committing up to $800 Billion starting February 2009 to unfreeze the consumer debt market helping households and small businesses to borrow money, providing the Federal Reserve under a new Term Asset Backed-Securities Loan Facility/TALF up to $200 Billion in nonrecourse loans to holders of asset-backed securities supporting consumer and small business loans, including hedge funds, funding the Treasury Department through the Troubled Asset Relief Program/TARP $20 Billion to absorbe losses under the new program up to this amount. In addition the Federal Reserve plans to buy up to $100 Billion in mortgages held by Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks in an effort to improve their cash-flow and lower interest rates, purchasing another $500 Billion in mortgage-backed securities issued by these agencies.

http://www.BarackObama.com/

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2. Economic Outlook - Excesses & Consequences = Insolvency & Lack of Trust & Recession

The US economic growth fell sharply in the last three months of 2007, as the credit crunch took effect, slowdown triggered by a slump in building activity by 16,9%, the biggest fall in 25 years, collapsing housing prices, producing severe US financial market problems and progressively a global financial crisis causing recession. The prestigious independent National Bureau of Economic Research declared that the Nation has been in recession since December 2007, producing a significant decline of stocks, confirming negative economic projections, falling constructing spending 1,2% in October and manufacturing activity to the lowest level since 1982. President Bush has signed a two year bipartisan $168 Billion US economic stimulus plan with tax rebates for consumers and tax relief for business to calm financial markets and help desesperate homeowners and the Federal Reserve has put into force liquidity measures with repeated interest rate cuts, taking into account the worthening financial crisis, high volatility of stocks and the deepening recession, cutting its key interest rate to a historic low, dropping target range for federal funds rate to between zero and 0,25% and lowering the federal discount rate to 0,5%,  coordinating emergency measures with the world’s most important central banks also reducing main and direct lending  rates. The US economy is weakening fast, falling consumer spending in October for the fourth consecutive month, which accounts for about 70% of the US gross domestic product, at an annualized rate of 3,7% in the third quarter and 1% in October, reporting most of the big retailers double-digit declines in October and November, expecting the weakest Christmas shopping season in decades, dropping consumer confidence 23,4 points to an all time low of 38 the same month, and there is growing evidence that people begin struggling to meet their payments, declining housing prices and business investment, along with spreading unemployment reaching 5,7% in July, increasing to 6,1% in August, remaining steady at 6,1% in September, reaching 6,5% in October and jumping the jobless rate to a 15-year high of 6,7% in November loosing American economy another 533.000 jobs, climbing claims for unemployment benefits to the highest level in 26 years. Because of the financial crisis nearly 1 in 5 American households feel pressure because of tight cash and 1 in every 475 US households received a foreclosure filing in September. The US consumer price index fell 1% in October from the previous month, the biggest drop in 61 years, showing a new record decline of 1,7% in November, but remaining prices excluding food and energy unchanged. Eroding consumer spending power and an eventual continued price decline, turning inflation negative, could produce a deflationary spiral. The IMF warned financial markets are fragile and there is still no end in sight to financial crisis, increasing its previous estimation on overall losses originated by the subprime mortgage crisis from $945 Billion to $1,4 Trillion, including loans and securities related to commercial real estate, the consumer credit market and corporations potential losses, requiring the global financial system in the coming 5 years fresh capital of about $675 Billion to mantain an at least modest credit growth. US global car sales fell more than 40% in November in comparision with one year earlier, increasing concerns about the prospects for survival of General Motors, Ford and Chrysler requesting urgently federal financial aid, dropping retail sales 2,8% in October, falling compared with one year earlier 4,1%. GDP grew 0,9% in the first quarter of this year, a seasonally adjusted healthy 2,8% in the second quarter, as exports were even stronger, far above expectations a few months ago, but economy contracted 0,3% in the third quarter and is expected to slow down also in the fourth quarter of this year as well as at least the first quarter of 2009. The IMF sees a weak 0,5% US growth for 2008 lowering its estimate for world growth from 4,1% to 3,7% or less in 2008, down from 5% in 2007, revising also global growth outlook for 2009 again downwards to 2,2% or less due to the severe global financial crisis with falling confidence of consumers and companies, afraid of a fast dropping demand. The US one year inflation increased to 5,60% in July (including food and energy), but declined to 4,94% in September, 3,66% in October and 1,07% in November. The economic growth forecast 2008 for the 27-nation European Union is being revised downwards to 1,4% declining in 2009 to 0,2% and for the 15-nation Eurozone to 1,2% in 2008 dropping to 0,1% in 2009, while inflation rate outlook this year for EU is 3,9% and for the Eurozone 3,2%, but reached 3,7% in October in the EU and hit 3,6% in the Eurozone in September falling to 2,1% in November, where it is expected to average 2,2% in 2009. The European Central Bank/ECB had raised its main interest rate from 4% to 4,25%, alarmed about inflation trends combined with lower growth increasing stagflation fears in the Eurozone, holding the rate steady at 4,25% in September as inflation risks have fallen but not disappeared, insisting that it is crucial to bring Eurozone inflation back within the target of an annual rate of 2%, but in a joint emergency decision with the world’s most important central banks lowered its key rate to 3,75%, also reducing direct lending rates. The financial crisis has changed economic outlook slowing growth worldwide, falling the Eurozone into a worsening recession after contracting their gross domestic product for the second time by 0,2% in the three months to September, suggesting projections that the economic decline will reach 0,5% in the final three months of the year, lowering the European Central Bank its key rate by another half percentage point to 3,25% and with inflation falling and Europe already in recession decided a new interest rate cut by 0,75% to 2,5%. EU leaders reached agreement on an €200 Billion economic stimulus package, the equivalent of about 1,5% of the EU’s gross domestic product, coming €30 Billion from the European Investment Bank to increase lending to small businesses and for projects supporting renewable energy and cleaner transport, including €4 Billion in soft loans for the car industry, to strengthen recovery, avoiding a deeper and longer recession in Europe. Economies of the 30 member countries of the OECD are contracting, entering Germany and Japan into a recession, and the forecast for the entire group is that their gross domestic product will drop 0,3% in 2009, falling the US economy 0,9%, Japan 0,1% and Europe 0,5%. Developing countries will not be immune from a general slowdown of economic growth and recession among wealthier nations and withdrawals of money by worried investors reducing their exposure in more risky markets are going to push some local currencies to new lows weakening their economies, recommending the IMF to make the fight against inflation to one of their top priorities! Brazil and Russia, commodity producers and beneficiaries of higher commodity prices, will have with 4,8% and 7% respectively lower growth rates in 2008, while the somewhat frenetic growth in China and India, both commodity consumers, could slow down temporarely but will continue with estimated 9,9% and 8,5% respectively in 2008. A fast weakening global economic growth is producing a decreasing demand of commodities and lower commodity prices, easing pressure on inflation, and as the interest differential between the Euro and the Dollar remains in favor of the US currency the Dollar is getting stronger and gaining grounds against the Euro, at least temporary. The Federal Reserve and the world’s most important central banks acted repeatedly to inject cash and securities into the money markets to reduce persistent liquidity pressures, increasing also size of its cash auctions and currency swaps with the European Central Bank and the Swiss National Bank in nearly 50% to provide more Dollars to their banks, which are also holders of Dollar loans in the mortgage sector needing Dollars to meet their obligations. Due to continued fragile circumstances in financial markets the Federal Reserve extended emergency lendings for banks, introduced in March, until the end of January 2009 of next year and in a coordinated action the European Central Bank and the Swiss National Bank are also extending their operations to include auctions of 84-days funds. Since the subprime mortgage crisis cash rich Sovereign Wealth Funds (SWF) injected more than $80 Billion to recapitalize and rescue some of the world’s biggest financial institutions - Citigroup, Merrill Lynch, UBS, Morgan Stanley, Barclays, Standard Chartered, HSBC). In an emergency deal authorized by the Treasury Department and the Fed, JPMorgan Chase bought the troubled fifth largest US investment bank Bear Stearns reaching worth of revised deal about $1,2 Billion. JP Morgan Chase first-quarter earnings dropped 50%, Merrill Lynch reported worse than expected earnings for the first-quarter and Citibank lost $5,1 Billion in the same period, Wells Fargo’s profit fell 11% and Bank of America’s earnings 77% to $1,21 Billion, Goldman Sachs and Lehman Brothers confirmed both smaller than expected first-quarter profit declines of 53% and 57%. However Lehman Brothers announced a  net loss of $2,87 Billion for the second quarter ending on May 31, expecting a new record loss of $3,9 Billion for the third quarter after writedowns of $5,6 Billion, and after failing to reach an agreement with foreign investors and unable to complete a rescue plan is facing liquidation after filing for Chapter 11 bankruptcy protection, owing more than $613 Billion to creditors in the US, Europe and Asia. Barclays Bank, which walked away from a possible rescue of the investment bank because it did not obtain government guarantees, bought Lehman’s core US-broker-dealer-operations in a $1,75 Billion deal, turning itself into a universal bank, as Japan’s largest brokerage Nomura acquired Lehman’s flagship operations in Asia and its equities operations and investment banking in Europe and the Middle East. While the Federal Reserve, the European Central Bank and the Bank of England have taken steps to avoid potential risks and market disruptions, 10 of the world’s biggest private banks agreed to pool $70 Billion into a liquidity fund to support liquidity and reduce financial market volatility. The S.E.C. took emergency actions to stop abusive short-selling of stocks in financial institutions in difficulties and banned temporary short-selling of 799 financial stocks and jointly with the Financial Accounting Standads Board decided to loose fair value accounting standards, without changing underlying principles of the accounting measure, giving financial companies room to employ estimates and their own judgement to value complex mortgage related assets, but need to disclose their methods to investors. Goldman Sachs earnings dropped for the second quarter by 11%  to $2,09 Billion and for the third quarter in a troubled most challenging environment to $845 Million, down 70% from a year ago and announced a fourth quarter loss of $2,12 Billion, the first losing quarter since the company went public in 1999. Morgan Stanley reported a second quarter net income of $1,026 Billion, down from $2,363 Billion/57% a year ago, a third quarter net income of $1,43 Billion, 7% less than a year earlier and after three quarters of profitable results suffered a $2,3 Billion fourth quarter loss due to the difficult market conditions which impacted profoundly. The shares of this two last remaining US investment banks facing a crisis of confidence came under pressure and both Goldman Sachs and Morgan Stanley changed their investment banking model transforming themselves, with the approval of the Federal Reserve, into traditional bank holding companies, getting under stricter regulations as commercial banks protected by the federal safety net, requiring them to hold more capital in relation to their portfolio of investments. Morgan Stanley is negotiating to receive a capital injection from the Mitsubishi UFJ Financial Group, the largest Japanese Bank, suspending merger talks with Wachovia and discussions about increasing the participation of the China Investment Corp/CIC, already a shareholder with a 9,9% stake. As also Japanese markets begin to feel the financial crisis, announcing the Government it will supply public funds to the country’s lenders, Mitsubishi UFJ plans to raise up to Y990 Billion/$10,5 Billion in fresh capital to improve its balance sheet, after paying $9 Billion for a 21% stake in Morgan Stanley  and $3,5 Billion to take over 100% of the Union Bank of California. In an admirable demonstration of much needed confidence Billionaire Warren Buffett/Berkshire Hathaway plans to invest $5Billion in form of perpetual preferred shares in Goldman Sachs and will have warrants to buy another $5 Billion in common stock. Goldman Sachs is going to raise at least additional $2,5 Billion in common equity in a public offer. Citigroup posted a $2,5 Billion second quarter loss, reporting mortgage and credit related costs of $11,7 Billion, having lost more than $17 Billion in the last three quarters and taken about $55 Billion in writedowns and increased credit costs since mid-2007. The firm revealed a $2,8 Billion net loss for the third quarter, the fourth consecutive period, reflecting $4,9 Billion in credit losses and an increase of $3,9 Billion in provisions for loan losses. As Citi shares have fallen more than 60% in one week finishing Friday at $3,77, showing shares as stock market tumbles its lowest level in nearly 6 years with more losses feared, the bank’s largest individual shareholder Saudi billionaire Prince Al-Waleed Bin Talal announced he will increase his stake from actually 4,3% to 5%, considering the shares actually dramatically undervalued. According to a rescue plan, negotiated by worried regulators, the Government will grant loan guarantees of up to $306 Billion, backed by residential and commercial real estate, agreeing to cover up to 90% of the losses on those securities in exchange for $7 Billion worth of preferred stock earning a dividend of 8%, also  providing another $20 Billion against preferred shares, in addition to the $25 Billion already injected out of the $700 Billion bailout fund. Tightening Government control of Citigroup the company will have to absorbe $8 Billion already reserved to cover assets and $29 Billion of the first losses as well as 10% of the remaining amount of potential losses. After the rescue announcement Citi shares went up 66% to $6,26 on Monday. In another deal pushed by the Federal Government Citigroup had accepted to buy banking operations of the regional bank giant, mortgage troubled Wachovia with assets of $812 Billion for $2,1 Billion in stock, assuming $53 Billion in debt, agreeing the Government to share part of future losses that might be generated by Wachovia’s failing mortgage portfolio, however Wells Fargo announced it closed a $15,8 Billion stock deal, approved by directors of each company, to buy all of Wachovia, keeping the bank intact preserving the value of an integrated company without government support, providing a superior value for its shareholders to the transaction with Citigroup. Wachovia revealed a record third quarter loss of $23,9 Billion. Merrill Lynch reported for the second quarter a $4,65 Billion loss, taking $9,4 Billion in additional writedowns of troubled assets, posting losses of about $19 Billion for the past four quarters, having taken a total of $52 Billion in writedowns since the beginning of the crisis, and is planning to raise capital selling its 20% Bloomberg stake worth about $4,43 Billion, its controlling interest in Financial Data Services with an enterprise value of about $3,5 Billion and receiving $8,5 Billion in fresh capital from shareholders, including $3,4 Billion from Sovereign Wealth Funds Singapore’s Temasek Holdings, with an 8,85% stake its largest shareholder as of June 30, and the Kuwait Investment Authority/KIA. The company reported a third quarter loss of $5,2 Billion, against a loss of $2,24 Billion for the same period a year earlier. As difficulties continued requiring Merrill Lynch to raise even more capital the company encouraged by the Federal Reserve, which now officially approved the acquisition, advanced its merger talks with Bank of America and agreed to be bought in a rescue take over for about $50 Billion, making BofA the second largest bank in the world. Bank of America, which also purchased the troubled mortgage giant Countrywide earlier this year, reported a second quarter net income of $3,41 Billion, down 41% from a year ago, tripling credit loss provisions to $5,83 Billion up from $1,81 Billion last year, and a third quarter net income of $1,2 Billion, a third of the level of a year ago, planning to sell $10 Billion in stock to raise capital and half its dividend in an effort to overcome credit crisis. Wells Fargo, the biggest bank of the West Coast, announced that second quarter profit dropped 23% to $1,75 Billion, reporting stronger than expected third quarter earnings of $1,64 Billion, while J.P.Morgan Chase posted for the same period a $2 Billion net income, down 54% from a year earlier, saying it will take total charges and other related expenses of about $10,5 Billion to clean up the balance sheet of Bear Stearns, the troubled investment bank bought earlier this year, revealing net earnings of $527 Million for the third quarter, declining 84% from a year earlier, with $3,6 Billion in mortgage related writedowns and increasing provision to $6,7 Billion to cover rising losses, after the bank bought in another emergency deal brokered by the Government, for $1,9 Billion almost all of Washington Mutual/WAMU, with $307 Billion in assets the nation’s largest savings and loan and among the worst hit by the housing crisis. WAMU account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100.000 and additional deposits will be backed by JPMorgan Chase, having to absorb at least $31 Billion in losses from this take over, creating a nationwide retail franchise rivalled only by Bank of America. The Bank of New York Mellon reported a 53% drop in third quarter earnings of $303 Million, down from $640 Million a year earlier. Important rating agencies, like Standard & Poor’s, blamed for awarding high ratings to subprime mortgage securities agree to reform some of their core business practices according to regulatory suggestions from the Securities and Exchange Commission/SEC. Confidence in banking sector sank, downgrading Standard and Poor’s 11 important banks, including Bank of America, Citibank, Goldman Sachs, Morgan Stanley, J.P.Morgan Chase, Wells Fargo, Barclays PLC, UBS, Credit Suisse, and Deutsche Bank.  The magnitude of credit related losses in the financial sector and continued concerns about major banks and insurance companies, in addition to growing speculations about deep troubles at major hedge funds and increasing doubts in relation with the unregulated credit default swap/CDS $54,6 Trillion market, are prolonging and deepening its negative impact on the stock markets and on the economy, taking financial stocks their worst losses in a generation. Investors withdraw at least $43 Billon in September from US hedge funds, which lost already more than $200 Billion in value this year, borrowing also heavily money, and as hedge fund outflows increase they will have to sell assets, estimating analists that the hedge fund industry, which managed at its peak beginning 2007 about $2.200 Billion in assets, is going to shrink according to estimates by more or less 45%/$1.000 Billion due to withdrawals and investment losses. Also smaller regional lenders are becoming increasingly vulnerable, practicing American banks a new found caution reducing even business loans! The credit crisis has conduced also to a tightening in lending terms of credit card issuers with consumers to lower risk profile, owing US households about $971 Billion ($8.299,- per household) in credit card debts, increasing charge-offs to 6,82% in August in comparison with 4,61% a year earlier, writing lenders off an estimated $21 Billion in bad credit card loans in the first half of 2008, showing 4,6% of credit card owners defaults in payment of 30 days and more in August. The Federal Reserve approved the transformation of American Express, the nation’s last big independent credit card company, into a bank company, getting greater access to the bailout package for banks, requesting about $3,5 Billion in assistance out of this fund. US banking regulators and the Federal Reserve, worried about financial markets, are working  on stricter rules for credit card issuers prohibiting unfair practices and calling on the industry to be more user-friendly, considering borrowers troubles to make their payments in the midst of a deep recession. AIG/American International Group, the world’s largest insurance company with an overexposure in real estate and in the credit default swap market, two problem segments suffering an overall decline in asset prices, was seeking $40 Billion in emergency loans, request initially rebuffed by the Federal Reserve, but to avoid that after Lehman Brothers also AIG was forced to file for bankruptcy protection, producing unpredictable consecuences for the world financial system, the Federal Reserve agreed on an emergency support taking a 79,9% equity stake and an effective control of the troubled insurance company, replacing its chief executive, granting a $85 Billion two-year bridge loan, to be repaid with proceeds of the sale of AIG’s assets, downsizing the firm, serving all of AIG’s assests as collateral. But that rescue, without clear rescue rules layed out by the Federal Reserve, after not helping to rescue Lehman Br