LONDON, England – The economies of the Middle East are growing nicely, regionally about 7 percent this year. Oil revenues, with prices at around $85 a barrel, are still strong by historical standards.
So why are the major markets of the region drowning in a sea of red?
The simple answer is that these economies cannot stand alone in isolation with all the chaos around them. Markets in Saudi Arabia, Dubai and Cairo are now down more than 50 percent from their peaks in 2008. These heady markets have surged anywhere between 200 and 300 percent during the last five years.
They surged in part because investors were enthusiastic about the future. The other volatile part of this equation is that a great deal of hot hedge-fund money came into the region in search of growth. But it left faster than many anticipated.
There was a double-whammy, if you will. Many of the Western funds put money in thinking that the Gulf economies would soon abandon their pegs to the dollar after falling some 30 percent during the past few years. When leaders in the Gulf decided not to scrap that dollar peg, foreign investors looked for the exit.
This major market correction, if we want to limit the description to that, is a big test for the central bankers of the Middle East. They have been working to expand their tool kit to control money supplies, battle record inflation and keep a lid on borrowing for all those real estate projects which sprout up like mushrooms in the desert.
At Cityscape, a major property show held in Dubai this week, Middle Eastern developers showed off their latest wares at stands costing up to $8 million dollars each. One new planned development outside of Dubai called Jumeria Gardens has a price tag of some $95 billion.
Think about it. That is more than the $87 billion bailout the British government used to bail out the UK banking system today.
All told there are an estimated $1 trillion of development projects throughout the region. Sovereign funds in the Middle East have a reported $1.5 trillion under management. That is a lot of liquidity.
While some of that money was used this week to inject capital into local markets and banks, it could also serve as a great source of funds for Wall Street and for European markets.
But there is a problem in the Middle East that is similar to the challenge throughout the West - a lack of confidence.
The sovereign funds came on strong at the end of last year with some high-profile investments into the major money center banks.
After falls of 50 percent or more, they too are in no rush to jump back into this market.
LONDON, England – The global economy is like a patient that has gone in for cancer surgery. The cancer is in the organ known as the financial world. It is a deep cancer ... of sub-prime dodgy lending debts.So the markets are now cutting away, through the fat, through the muscle, through the organs to get to this cancer, yes, causing damage on the way.
And they keep finding more of the cancer, so the markets keep cutting.
Once the tumor has been removed, the patient is stitched up again (in this case using bank bailouts and interest rates as sutures) but it will take some time before the patient is fully recovered.
There may be collateral infection, they may have to do other surgery. Certainly more medicines will have to be taken.
And that is why it will take many months, if not years before the global economy will be back to health. You cannot have this level of surgery into the financial world without some longer term effect.
OK – before someone asks me "what happens if the patient dies?" They don't!
LONDON, England - I am in despair! My colleagues all expect financial markets to react with a degree of certainty. Why do they not see this for what it is? We are in the midst of the excavation down to the bedrock. The sludge, dirt and sewage is being oiked out of the ground as we find the bottom. It is nasty and messy. And we are in the middle of it. There is no one moment when suddenly the ground opens up clear and it's all clean beneath.
What is happening at the moment is entirely to be expected. It's a process. It will take weeks if not months to bear fruit. And just like we never know we are officially in recession until months after it's started (sometimes after it's over) we can't point with any certainty to the moment when this thing will turn round – at least not until we see evidence of it. Those who believe that there is a single "eureka" moment are naïve.
So the markets keep falling as they excavate deeper and deeper ... looking for the bedrock. It will be found, of that I have no doubt, the only question is how much collateral damage to jobs, incomes, homes and wealth is caused on the way.
And of course the further we dig down, the harder and longer it takes to build back up again.
Now if my colleagues would only realize this...
TOKYO, Japan - A businessman on his way home from work stopped dead in his tracks, staring in stunned silence at the closing number on the Nikkei.
The Nikkei Index suffered a horrid day.
It closed down more than nine percent, a percentage loss not seen since the days after Black Monday in 1987.
"It was just like somebody dropping dead and then everything just collapsed," said economist Jesper Koll of Tantallon Research Japan.
But what caught my eye is not just the investor and analyst reaction to the bleak day in Tokyo, but the kind of person stopping to gape at the closing numbers. It wasn't just the investor rubbernecking at the board; it was the small business owner and non-investor.
The global credit crunch has some confusing and unfamiliar words to the Japanese worker: AIG, Lehman, $700 billion bailout... just to name a few.
But what is known across the board is how important the US consumer is to Japan's top tier businesses. Japan is an export-driven economy and the US consumer is its number one customer. If Main Street USA doesn't buy the latest Wii or get a loan for the 2009 Camry, that affects the Japanese worker's job at Nintendo and Toyota.
Analysts over the past week have been saying the Nikkei is reacting now to the global slowdown, not just the action by the US Congress or Federal Reserve. It cares more about the real economy, not just the financial crisis. And that is a much bigger concern and a palpable concern for Japan's bottom line, and why it's no longer just the heavy investor stopping to watch the market drop.
REYKJAVIK, Iceland - Shock has been replaced with anger. That is what one man here in Reykjavik told me this morning as he came out of the Landsbanki.
He went to check his savings and was told it was safe. He does not believe it.
An 18 year old student told me she has decided to take out her savings and pay off her mother's mortgage. That way she says she can't lose her savings, her mother can't lose her apartment, and they have a tangible asset. Smart.
They both told me they are embarrassed that the world is watching for all the wrong reasons.
LONDON, England - With banks failing across the world, where do you go for a loan? If you're lucky enough to have money, where do you park your hard earned cash? A bank? Maybe. But there are alternatives online.
It’s simple and transparent, says Giles Andrews.
Internet sites like Zopa.com in the UK skip the bank entirely and put lenders directly in touch with borrowers.
Here's how it works: Lenders decide how much they want to put in and at what rate. The web company then screens potential borrowers to make sure they have good credit and are not asking for more then they can afford. Once approved, borrowers are matched to lenders. It's up to them to strike a deal. The website makes money by charging a fee to both.
“It’s simple and transparent,” says Giles Andrews, Managing Director of Zopa.com. “People see where there money is. That will show there is more security that goes beyond the 4 brick walls of a bank.”
Part of the appeal is the personal connection. You get to know who is borrowing your money and why.
On Zopa.com, for example, borrowers write up a personal profile explaining why they need the loan and how they will pay it back. Lenders can also log in online and ask the borrower more questions before offering them a loan.
Zopa says its lenders get a 10 percent return on average. The default rate: less than .05 percent. The company says stringent credit checks are the key to its success.
It also tries to minimize risk by distributing loans into small chunks and spreading your money across a variety of borrowers.
If a borrow defaults, then Zopa steps in to take control with a collections agency, much in the same way a Bank operates.
"They enjoy the personal contact. People say I'd rather get interest and invest in a real person than a bank,” says Andrews. "But while Zopa is a friendly alternative to banks. It's not a soft-touch to people that default."
Analysts say this kind of lending is a viable alternative to banks – but don't expect any great deals.
"The best rates will only be available to people with incredibly good credit ratings," says David Black, Principal Consultant at Defaqto Financial Research. “It's all done over the internet. So, you don't have to suffer the ignominy of being told no face to face. Which you might do if you went into a bank."
Zopa.com says the company has facilitated loans of more than 45 million dollars since 2005. Registration for the service jumped 40 percent this year and it has sites in the UK, US, Italy and soon Japan.
What do you think of new Internet sites like Zopa? Would you consider approaching them for a loan? Do you think they can provide a viable alternative to traditional banks?
LONDON, England - If, like me, you are one of the 350,000 British or Dutch nationals who have savings accounts with Internet bank Icesave, you're probably pretty angry right now.
Iceland's second-largest bank, Landsbanki, the parent company of Icesave, says that it has gone into receivership and that the Icelandic Financial Services Authority has appointed a receivership committee. The Icelandic government stepped in to take control of the bank on Tuesday to keep it afloat, just days after Icesave was posting messages on its Web site reassuring savers that the bank was solvent and immune to the worst effects of the credit crisis because it didn't have exposure to the toxic U.S. sub-prime mortgage market.
Today, Icesave's customers were greeted by a message informing them that the bank was unable to process deposits or withdrawal requests. If the company is liquidated thousands of customers like me, with deposits under £50,000, are likely to face a long and stressful wait to retrieve their money.
Lured by attractive Icelandic interest rates I had just under £10,000 of savings deposited with Icesave. We'd worked hard to put it by and intended to use the money for non- budgeted items like home maintenance and improvements, family holidays and car repairs. It's money that I don't need in the short term, unlike other Icesave customers who had pension funds and home purchase deposits invested there.
For many of the bank's customers today will have been their first taste of the effects of the global financial crisis. Let's hope we won't have to experience many more.
If you've been affected by the collapse of Icesave, I can't help you get your money back but I can offer you the opportunity to share your experience with us and vent your frustration. Were we foolish to be lured by the kind of interest rates that simply aren't on offer in the UK or the Netherlands? Who do you think is to blame? Hit the comment button below and tell me your story. Getting it out there just might help you feel a little less sore.
REYKJAVIK, Iceland - I arrived in Iceland a few hours ago to find a country in shock. Two of its big banks are in state control, its currency has collapsed, and it is asking Russia for more then $5 billion to prop up the island's financial sector. Its prime minister was the first leader of any country to confess that the global credit crisis could bankrupt the country.
As happens in any country when you parachute in, the driver who took me to my hotel was all too happy to fill me in on where it all went wrong.
Iceland went on a lending binge - sound familiar? Cheap credit, rising house prices and bank shares soaring. Iceland's population of less than 300,000 never had it so good. Until now.
Why should the rest of the world care?
First, Iceland could be a sign of things to come. When the first bank to collapse, Glitnir, was taken over by the government, banks outside Iceland cut back on loaning to the country's other banks. The credit crunch became a credit freeze.
The prime minister admitted on national television Monday night that the banks had grown to about 10 times the country's GNP. There is no way the country can bail them out. What if that happens elsewhere? Governments will surely see how Iceland's economy reacts.
Second, Iceland's super-wealthy families went on a buying spree. From Debenhams to House of Fraser to Hamleys to the West Ham Football Club, the wealth of this once fish-exporting nation was invested in Britain. Thousands of employees and hundreds of shops across Britain are tied into Iceland's economy. Bank lending or strong bank shares were behind it all.
Third, Iceland's banks had higher than normal interest rates, which attracted thousands in Britain to stick their money in places such as Icesave, an Internet bank. As of Monday night, their accounts were frozen.
We will spend the next few days talking to people here. At first blush, the blame is being put on those who spent the past few years building up portfolios on the back of rising property prices, driving around in super luxury cars (something apparently unheard of even five years ago in this very Nordic nation which prides itself on egalitarian principles) and taking money off shore.
With the currency so weak, and with so many mortgages taken out in foreign currencies, the fall in house prices has really hit hard.
Some people are at least hoping that the weak kronur will bring in more tourists. Maybe consumers from the Nordic and Scandinavian countries that used to benefit from Icelandic shoppers with a strong currency will instead come this way for and help out this nation.
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