大象传媒

Crunch: A new phase

• Robert Peston
• 13 Nov 08, 09:00 AM

So it's RIP to the First Septic Bank: the US Treasury will not, after all, be buying toxic assets from battered US banks and insurers.

Apparently there was simply too much residual poisonous poo in the system for the US Treasury Secretary, Hank Paulson, to mop up.

The proposal to buy all those collateralized debt obligations and other distressed securities would "take time to implement and would not be sufficient given the severity of the problem."

Little wonder Wall Street had the blues again last night - and, after the recent bounce, US shares are once again very close to hitting five-year lows. The downward trend extended to Asia in the ensuing gloomy hours.

So what's going to happen to the $700bn that Congress very reluctantly gave Paulson a few weeks ago? Well - as you'll recall - $290bn has already been allocated to strengthening balance sheets of leading banks and AIG, by injecting capital into them, as part of the global bailout of the banking system.

As for the rest, well more capital will be made available to financial firms, there will be attempts to stem the rising tide of foreclosures or repossessions of homes, and - which is the latest horrible phase of the credit crunch - Paulson will try to stem a threatened collapse in the provision of funds for car loans, credit cards and student loans.

The foreclosure numbers are horrible. In October alone, 280,000 US properties received a default notice, were warned of a pending auction, or were repossessed, according to RealtyTrac, which gathers such data. That's a rise of 25% year-on-year, and 5% worse than in September.

But as troubling for the US government is the drying up of consumer credit. In what we now have to refer to as the AL Era (that's the world after "After Lehman", or after Paulson allowed the Wall Street firm to collapse, thus shattering the confidence of lenders everywhere), the valve has been turned down on the provision of finance for credit cards, loans to buy a car and student loans.

What's happened is that the market for securitised credit-card receivables, car loans and students loans - those forms of debt packaged up into bonds or securities - seized up in October. Which is depriving the institutions that provide these loans of around 40% of their funding.

Which in turn means that US consumers are suddenly finding it pretty hard to get a loan of almost any sort.

So Paulson and the brainboxes at the US Treasury are working on a scheme that would involve taxpayers' money somehow supporting the provision of finance for consumer loans.

What appears to be under consideration is that the taxpayer would in effect guarantee to take the first five per cent of losses on securitised car loans, or student loans or credit-card loans - in the hope this would give investors the confidence to lend to financially-stretched US consumers.

We'll see.

In the meantime, the merciless onward march of the global economic downturn continues.

Germany is now officially in recession.

Chinese industrial output in October rose at its slowest rate for seven years - and the China has cut taxes on more than a quarter of exports, to stimulate trade.

Intel, the world's biggest chipmaker, says sales in the last three months of the year will be up to 15% lower than it expected (that's more than $1bn of lost revenue).

BT is slashing 10,000 jobs, principally among sub-contractors and agency workers (there may be slightly less to this than meets the eye, since apparently 4,000 have already gone).

GM is still teetering on the brink of collapse (see yesterday's note "Forced Convergence of China and US").

And so it goes on.

As I've remarked before, what's come to pass is what governments, central banks and regulators most feared: economies are shrinking while banks and financial institutions fear that their stinking Augean stables may never be clean.

UPDATE, 12:57 PM: I am indebted to "Queens-Subject", comment number seven, for pointing out a typographical howler that's now been amended. The amount already injected by Paulson into banks is of course $290bn, not $290m. Only wrong by a factor of a thousand.

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