The Death Knell for Reckless Speculation? Has the Financial Industry's Heyday Come and Gone?

CallMeASeeker: " The finance industry is just begin to sober up after a Caligulasque orgy of speculation on everything from gold, mortages and food. The euphoria was at its peak in 2007 and then like all orgies it had to end. The ensuing chaos skewed the real world economy with massive price inflation driven by speculation on oil, wheat, corn, rice and metal futures. Speculation and hoarding always tend to shadow each other and are further incensed by market forces and psychology. Cost Cutting, profit motive, price gouging and cartelization drive up prices even without any change in the supply-demand fundamentals of commodities." Update April 29, 08 : FT.COM - Fed considers Regulation of Credit and Asset Markets - Is this officially the beginning of the end of wild fluctuation in the global economy.?..maybe not but its a damn good start for a otherwise typically reticent Federal Reserve.
From: TheWallStreetJournal April 28, 2008: by Justin Lahart
"The role of finance in the economy is going to come down significantly in the coming years," says Carlos Asilis, chief investment officer at Glovista Investments, a New Jersey money manager. "From a societal standpoint, we got carried away with finance." Finance was lifted by deregulation, globalization and technological innovation. Combined, these forces allowed capital to flow far more freely around the globe, brought flexibility to the economy and made finance lucrative.
The creation of securities backed by mortgages and other loans and other innovations made it easier for financial firms to spread risk, and thus they became more willing to lend to households to fuel spending.
In the 2000s, finance went into overdrive, creating an alphabet soup of derivatives that, it turned out, didn't have the risk-reducing properties they were supposed to have. Mr. Philippon compares some to "sheep with fifth legs -- something you would see in a zoo and wonder what Nature was thinking."

Currency Devalution and Price Inflation - The New Economics of Hunger

The New Economics of Hunger -By Anthony Faiola April 27, 2008: "The globe's worst food crisis in a generation emerged as a blip on the big boards and computer screens of America's great grain exchanges. At first, it seemed like little more than a bout of bad weather."
"But within a few weeks, the traders discerned an ominous snowball effect -- one that would eventually bring down a prime minister in Haiti, make more children in Mauritania go to bed hungry, even cause American executives at Sam's Club to restrict sales of large bags of rice."
"As prices rose, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase."
"Investors fleeing Wall Street's mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. Foreign buyers, who typically seek to purchase one or two months' supply of wheat at a time, suddenly began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide

The Fed's Golden Opportunity to Reduce Commodity Price Inflation

Fortune (via CNN Money) by Colin Barr: April 23, 2008 - "NEW YORK (Fortune) -- The soaring price of crude oil isn't good for most people, but it could spell opportunity for Ben Bernanke. The Fed chief's inflation-fighting credentials have been in doubt since he said in a 2002 speech that central banks could prevent deflation by dropping money out of a helicopter.
Since then, Bernanke's critics have only been emboldened by the Fed's aggressive response to the current credit crunch. While six rate cuts since last summer and expanded lending plans have helped forestall a broader financial crisis, they haven't quieted skeptics who fear a sharp rise in inflation. Some think the Fed is partly to blame for the spike in commodity prices since rate cuts have helped to weaken the dollar. Despite this, investors are betting the Fed will cut rates when it meets again next Tuesday and Wednesday.
But one economist believes Bernanke could reap huge benefits simply by standing pat. By holding the line on rates, the thinking goes, the central bank's policy-making committee could send the prices of oil, gold and other goods tumbling - while serving a timely reminder that the Fed isn't letting inflation out of its sights

Predators And Prey Of The Banking Sector

Investopedia Community April 22, 2008 By Wayne Pinsent: Winners and losers in the banking sector from an stock-market investors point of view.
Also see - Analyzing A Bank's Financial Statements by Hans Wagner on Investopedia

Sub Prime Crisis in TechniColor - NY Times

NY Times: April 06 2008 - Sub-prime mortages and foreclosure statistics for the major real estate markets in the US - by Hannah Fairfield in the NY times
Watch this space for more updates on the lending practices and the speculation on real estate based debt instruments that got us here !
Sub Prime Crisis 101 -
Part 1 From- Wikipedia - Structure of Securization process that allowed real-estate lenders to sell mortgage backed debt as SIVs, CDOs etc

Speculation gone Wild - Food Price Inflation and Shortages hit Japan

The Age (Australia): April 21, 2008: "While soaring food prices have triggered rioting among the starving millions of the third world, in wealthy Japan they have forced a pampered population to contemplate the shocking possibility of a long-term — perhaps permanent — reduction in the quality and quantity of its food.
A 130% rise in the global cost of wheat in the past year, caused partly by surging demand from China and India and a huge injection of speculative funds into wheat futures, has forced the Government to hit flour millers with three rounds of stiff mark-ups. The latest — a 30% increase this month — has given rise to speculation that Japan, which relies on imports for 90% of its annual wheat consumption, is no longer on the brink of a food crisis, but has fallen off the cliff."
"Last week, as the prices of wheat and barley continued their relentless climb, the Japanese Government discovered it had exhausted its ¥230 billion ($A2.37 billion) budget for the grains with two months remaining. It was forced to call on an emergency ¥55 billion reserve to ensure it could continue feeding the nation. This was the first time the Government has had to take such drastic action since the war," said Akio Shibata, an expert on food imports,...."
"In view of recent predictions by Goldman Sachs analysts that commodities could experience "explosive rallies" in the next two years, many are wondering if Japan could become an example to other rich nations that have relied too much on foreign supplies to put food on their tables."

G7 takes a stand on sharp fluctuations in major currencies

The Telegraph UK April 19 2008: "Jean-Claude Juncker, the EU's 'Mr Euro', has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds. Momentum traders have blithely ignored last week's accord by the G7 powers, which described "sharp fluctuations in major currencies" as a threat to economic and financial stability. The euro has surged to fresh records this week, touching $1.5982 against the dollar and £0.8098 against sterling yesterday."
"European industry has managed to live with the high euro so far, but the damage of major currency shifts can take years to surface. "The moment will come where the exchange rate level will start to cause serious harm to the European economy," said Mr Juncker."
"Louis Gallois, head of the Airbus group EADS, said his company is already taking dramatic steps to shift plant to the dollar-zone. "The euro at its current level is asphyxiating a large part of European industry by shaving export margins," he said. The European Central Bank revealed in its monthly report that foreign direct investment (FDI) into the euro zone has contracted by €269bn over the last two years. Foreigners are gradually winding down operations. This will have powerful long-term effects."

Bank of England - £50bn bailout plan funded by British Taxpayers!!

Update: April 21, 2008 Link to AP-Yahoo Finance : The Bailout doubles to £100bn!!
BBC News April 20 2008 : "The BBC understands that the Bank will announce the plans to swap about £50bn worth of government bonds for British banks' mortgages. Business editor Robert Peston said it would be the biggest ever special initiative by the British monetary authorities to supply liquidity to the British banking system."
"The move would help ease the funding problems which many banks face, opening up the mortgage market to benefit householders and would-be buyers, Mr Darling said. (Alistair Darling is the Chancellor of the Exchequer - British Cabinet member in charge of all economic and financial affairs - appointed in June 2007 by British PM Gordon Brown ).
Also see the Norther Rock rescue - the first major British bank collapse precipitated by the US sub-prime mortgage crisis .
From Wikipedia Profile of Alistair Darling : "In September 2007, for the first time since 1860, there was a run on a British bank, Northern Rock. "
" The 2007 subprime mortgage financial crisis had caused a liquidity crisis in the UK banking industry, and Northern Rock was unable to borrow as required by its business model. Darling authorised the Bank of England to lend Northern Rock funds (£20bn) to cover its liabilities and provided an unqualified taxpayers’ guarantee of the deposits of savers in Northern Rock in an attempt to stop the run. "