Central Banks Try Different Strategies to Stabilize Financial Crisis

Just don’t call it “nationalization.” The Bush administration is reported to be considering taking equity stakes in some high-profile U.S. banks as its next measure to contain the global credit crisis. The decision, which is still up in the air, would not require new legislation, but would instead derive from powers already granted by the Emergency Economic Stabilization Act of 2008. Nationalization in fact is rearing its head overseas. Earlier today, facing what its prime minister called the prospect of “national bankruptcy,” Iceland suspended trading on its stock exchange for two days, and the island nation’s Financial Services Authority took control of the third of the country’s leading banks, Kaupthing, the largest. Under emergency powers granted by Iceland’s parliament earlier this week, the government will also create a new bank to hold most of the domestic assets of Landsbanki, one of the three banks in receivership. In an unexpected ripple from the situation, the United Kingdom used anti-terrorism laws to freeze some of Landsbanki’s assets. About 300,000 Britons hold accounts with Landsbanki’s online arm, and the U.K. has threatened to sue Iceland to recover any lost deposits. The two countries are financially tied in other ways also. Fueled by the boom of the ’90s, Iceland’s financial sector grew enormously, to where it now has assets estimated at nine times the nation’s $19 billion GDP. Kaupthing alone contributed more than $5.25 billion to financing deals in the U.K. over that past five years. The news in at least one other country was substantially better. In Italy, Finance Minister Giulio Tremonti told the parliament today that the country’s banks are sound and that the national government will step in as needed to prevent any of them are seriously struggling. Following three days of declines, shares in UniCredit SpA, Italy’s biggest bank by assets, climbed more than 9 percent from an 11-year low. Yesterday, Italian Prime Minister Silvio Berlusconi pledged that “No Italian bank will fail.” Even as everyone eyes the financial crisis’ overseas ripples, more attention is being paid to a report released at the end of September by the non-profit Center on Budget and Policy Priorities that ranked the states that are facing the worst budget shortfalls. The most vulnerable 10 states (for once, the Rust Belt gets off relatively lightly): 1) California: 22 percent of its total budget, or $22.2 billion 2) Arizona: 19.9 percent of its total budget, or $2 billion 3) Florida: 19.9 percent of its total budget, or $5.1 billion 4) Nevada: 16 percent of its total budget, or $1.2 billion 5) Rhode Island: 13.1 percent of its total budget, or $430 million 6) New York: 9.8 percent of its total budget, or $5.5 billion 7) Alabama: 9.5 percent of its total budget, or $784 million 8) Georgia: 8.7 percent of its total budget, or $1.8 billion 9) New Jersey: 7.7 percent of its total budget, or $2.5 billion 10) Maryland: 7.2 percent of its total budget, or $1.1 billion Finally, as the world’s finance ministers and its titans of commerce are racing the clock to rescue the global financial system from a 1929-style mess, a different clock is already outdated and struggling to keep up. The National Debt Clock in New York’s Times Square ran out of digits, and its operator, the Durst Organization, has temporarily dropped the dollar sign to make room for a U.S. national debt that, thanks to federal bailouts in connection with the financial crisis, now exceeds $10 trillion. The Durst Organization, perhaps best known as the developers of the Bank of America Tower now under construction at One Bryant Park in Manhattan, will reportedly replace the current clock some time next year with one that will accommodate figures up to $1 quadrillion. Let’s hope we don’t need it.