BBC reports that the IMF is reactivating some of the emergency mechanisms used during the 1997 Asian crisis to help support countries suffering from capital flight. The story is a bit thin on particulars; we’ll provide an update should they surface later today.
From the BBC (hat tip reader Saboor):
The International Monetary Fund (IMF) has activated an emergency finance mechanism to help countries hit by the financial crisis.
IMF chief Dominique Strauss-Khan said the lending procedure would allow the IMF to react quickly to support countries facing funding problems.
The scheme, which was used during the Asian financial crisis in 1997, will help speed up approval of loans….
Speaking ahead of meetings of the IMF and World Bank, Mr Strauss-Khan urged countries to act “quickly, forcefully, and co-operatively” to solve the global economic problems…But he issued a stark warning against countries acting unilaterally to fight the crisis, referring to recent isolated moves by certain European Union member countries.
“There is no domestic solution to a crisis like this one.”
Mr Strauss-Khan said the events of the past few weeks were beginning to take their toll on emerging economies as credit lines were cut and as trade was being hit by slowing demand in Western economies.
He said the IMF was ready to assist any country in need of funding through its emergency aid mechanism, set up in 1995 to help Mexico stabilise its financial system after a crisis of confidence that led to sharp declines in the country’s currency.
The Philippines, Thailand, Korea and Indonesia also drew on the mechanism to access billions of dollars of loans after the eruption of the Asian financial crisis in 1997..
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Dutch banks getting 20B Euro as well
TERRIFYING THOUGHT OF THE DAY:
Take a look at the price action on GM today as a result of the S&P ratings action.
Imagine the storm that would be unleashed by a CDS trigger on GM.
CDS notional on GM is huge, massive, much more than all the recent triggers we've seen on LEH, FNM, FMC, Fortis, Icelandic banks etc put together.
@andyg,
Hmm… I don’t have the numbers in front of me, but supposedly even as far back as Aug 1st, GM CDS premiums were at 40%+.
In other words, isn’t a default basically “expected” at this point?
Similar pondering about Ford default + CDS aftermath:
http://www.economist.com/blogs/freeexchange/2008/10/boom_goes_the_cds.cfm
Correct, but it’s one thing to expect a default and for one to actually happen.
A GM CDS trigger could expose a lot of players. Having said that if we get past the LEH CDS event without any major waves then perhaps the whole CDS thing could turn out to be a storm in a teacup.
My immediate response to this is “When does the IMF go bankrupt?”
There is much talk about the Scandanavian model for dealing with a banking crisis.
And, perhaps it is not just talk. It may be true.
But, the problem now is that we have a Shadow Banking crisis.
Scandanavia did not have to deal with a Shadow Banking system.
The Scandanavian model will not work here.
It will only work after every relevant Government in the world agree that all derivatives are VOID.
The Shadow Banking system must DIE.
All else if futile.
Just a thought.
October 9, 2008
To: AndyG:
I applaud you for maintaining a small modicum of optimism, but would ask you what hasn’t “defaulted” in the last 10 days / 7 months? It seems to me that every financial instrument has become grist for the “default mill”. I think your “if” is more like “when”, and that your “storm in a teacup” is more like a worldwide Cat 6 Typhoon. Wish it weren’t so.
Earl
As Yves correctly points out, these IMF loans come with conditions that many nations refuse to accept, including Iceland. Clearly the so-called “Washington Consensus” is dead.
The peer-reviewed medical literature has now conclusively established that IMF loan conditionalities cause large amounts of premature deaths around the world.
Should anyone doubt this, I refer them, for starters, to the comprehensive study earlier this year published in The Lancet, the most respected medical journal in the world, that conclusively proves this assertion.
Matt Dubuque
mdubuque@yahoo.coms
Anon – my optimism is a half-hearted attempt at even-handedness.
I think we all know where this ends, and it isn’t going to be pretty.
May God have mercy upon us.
When we have the honesty we will come to realize this is really quite a simple problem.
a. acknowledge that there are huge losses- mortgages, car loans etc.
b. require that these losses be recognized by the lenders.
c. decide how far up the debt ladder the losses go e.g. are depositors at banks going to be forced to take hit, policy holders at insurance companies.
d. Nationalize the banks and make all deposits essentially government guaranteed.
e. go back to business.
The problem here is ideological not economic. The right hates the idea of government involvement, the left is too scared to challenge them and everybody wants to protect the fats cats rather than the average joe.
Yes, it’s all scary. Everything is going to zero. Deflation. Deflation. Deflation. Well, except when the people get really scared and basically tell the U.S. government to inflate all debts away. Inflation is, of course, only solution to widespread insolvency. It will wipe out the savings on those who lent long, but there is no other solution at this point than to add one extra zero to the price of everything. So borrow whatever you can, buy hard assets, and do not lend to anyone.
IMF needs to step in and take control of wall street rouge trading, which is far worse than any terrorism. This is out of control now.