August 11, 2007 (LPAC)--Without a dramatic shift in government policies, there is no relief coming; the international banking crisis is heading towards a collapse. After two days of hundreds of billions of dollars worth of central-bank infusions of liquidity into U.S., European, and Asian banking systems, the global banking crisis continued to worsen through Friday, Aug. 10. In addition, a double threat to banks and hedge funds is looming around Wednesday, Aug. 15--the 36th anniversary of the abandonment of the Bretton Woods monetary system by the Nixon Administration under direction of Treasury Secretary George Shultz.
Even after international banks had absorbed about $325 billion in central-bank money-pumping, credit default "spreads" continued to widen on Aug. 11 in various securities markets; stocks of most major banks continued to fall; and the first reports of very large losses by very large hedge funds began to emerge.
On Aug. 15, according to senior banking sources in Europe, many major banks face a deadline for rolling over their Asset-Backed Commercial Paper (ABCP), the infamous debt "conduits" some of which caused the near-failure of the Germany-based Industrial Credit Bank on Aug. 2. This short-term paper, constituting more than a trillion dollars of corporate debt, mortgage and other asset-backed securities (ABS) which have suddenly become very hard to sell, was identified by one European banker as the core of the whole problem which seized up interbank credit worldwide overnight on Aug. 9-10.
But Aug. 15 is also a quarterly date for investors to withdraw their assets from hedge funds; in the deepening crisis, many hedge funds will act to block the withdrawals, worsening the lack of confidence in financial markets. In the first few days of August, the following losses have become known for some of the biggest hedge funds in the world: Goldman Sachs bank's Global Alpha Fund, "worth" $9 billion in late 2006, has lost 40% of its value; the huge $23 billion Renaissance Technologies LLC has lost 9% of its assets in the past week, and 14% for the year; the world's largest publicly quoted hedge fund group, the Man Group, has lost one-quarter of its market value in a month, according to a report in the London Independent; and Deutschebank's ABS Fund fell from $3 billion to $2.1 billion in value by investor withdrawals, according to the Financial Times.
