Times Online – Hedge funds were accused by MPs yesterday of gambling against the taxpayer when they bet that the share prices of British banks would fall.

Appearing before the Treasury Select Committee, four leading hedge fund managers were told by John McFall, the committee’s chairman: “You’re snubbing the public; not only that, but you’re making shedloads of money.”

The hedge fund heavyweights — Paul Marshall, of Marshall Wace, Douglas Shaw, of BlackRock, Chris Hohn, of TCI, and Stephen Zimmerman, of NewSmith Capital Partners — came under particular attack over the practice of short-selling, only a day after it emerged that Paulson & Co, a renowned American hedge fund, had made an estimated £270 million in profits from betting against Royal Bank of Scotland (RBS) , which is majority-owned by the State.

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CNNMoney.com – On a gloomy morning in early August, more than a month before Wall Street and the world’s financial system seized up, a senior aide to Iceland’s Prime Minister paid a visit to the Russian embassy in Reykjavík to make a controversial request: Bail us out.

Iceland had one of the richest economies in Europe, but it had a problem. Its three main private sector banks had become so large that their assets amounted to more than ten times the gross domestic product of the country – and there were signs that they might run into trouble.

Iceland had asked its traditional allies for help, but to its consternation, its pleas to the U.S. Federal Reserve, the Bank of England, and the European Central Bank went unheeded. Instead, the answer was always, "Ask the International Monetary Fund" – a drastic step Iceland didn’t want to take.

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Tags: 1-million, allocations, asian-countries, bear-trap, british-banks, business-activity, journalism, losses, luqman-arnold

West Palm Beach (HedgeCo.net) – The leaders of the world’s 20 biggest economies will hold an historic meeting Saturday in a bid to head off the threat of a protracted global recession and forge a new world financial order. Called together less than two months ago by US President George W Bush, the emergency summit of the Group of 20 (G20) leaders at the Washington National Building Museum comes in the wake of the biggest crisis to engulf the world economy since the Great Depression.

Unleashed by the US mortgage meltdown, the upheaval in the world financial system that emerged in recent months has sent stock exchanges into a tailspin, undercut credit markets and prompted a drive for tighter worldwide regulation of the financial industry.

As the crisis spread from the United States to the wider world, the International Monetary Fund (IMF) last week forecast global growth would slow to 2.2 per cent in 2009, considered a global recession by the organization. Most advanced economies will contract over the same period.

Billed as a Bretton Woods-style gathering, after the 1944 meeting that established the post-Second World War financial system, this week’s summit marks the launch of a process world leaders hope will lead to an overhaul of the rule book for the global financial industry.

While a revision of the capitalist model itself may not be on the horizon, even financial institutions have recognized that more transparency and scrutiny of their business practices is now inevitable.

"We do believe that coming out of all this will be some rather fundamental reforms in the global financial architecture," said Charles Dallara, managing director of the Institute of International Finance (IIF), the world’s top banking lobby.

The IIF has even called for a new global body that could coordinate such reforms, but Dallara added: "I think it would be the height of misguidedness if we concluded that capitalism is dead. I think we do need to fix the things that went wrong."

But many governments have sought to lower expectations for the summit, while others have pushed for a broader agenda that could include climate change and trade policy.

"The summit has not been well prepared," said Heribert Dieter, senior fellow with the German Institute for International and Security Affairs in Berlin. "It is not clear what those attending the summit really want to talk about."

Indeed, a major risk facing the summit is that it could expose deep divisions between the US and other key G20 states, with the Europeans expected to try press for more regulation than the US believes is necessary.

At the same time, major emerging economies such as China, Russia and Brazil are likely to demand a key role in drawing up the blueprint for the new financial system.

Responding to the slew of proposals for the Washington summit, the White House has said world leaders will agree on a set of "principles" for a regulatory overhaul and leave the specifics to a later date.

Those principles could include raising the low capital requirements that precipitated the current credit crisis by allowing banks to take excessive risks and amass mountains of debt. International credit-rating agencies could also face tougher scrutiny, and the summit will likely set in motion moves towards closer co-operation between national bank supervisory bodies.

In addition, there are plans for a crackdown on tax havens as well as financial sectors that have so far managed to evade regulation, such as hedge funds.

One of the more concrete measures likely to result from the G20 meeting is an expansion of the role played by the IMF, a global lender of last resort that has also traditionally been charged with maintaining economic stability.

Governments, central banks and legislatures around the world have already taken a series of unprecedented measures in an effort to stabilize the financial system, including coordinated interest-rate cuts and billion-dollar rescue packages for struggling banks.

Yet governments attending Saturday’s meeting are likely to face calls for the implementation of generous national economic stimulus plans to help the world economy limp through the current uncertainty.

Morris Goldstein of the Peterson Institute for International Economics said investments of 1-2 per cent of gross domestic product should be offered by every G20 member government that can afford it.

In addition to the world’s leading industrialized countries such as the US, Germany, Japan, Canada, Italy, Britain and France, the G20 also includes key emerging economies such as China, India, Russia and Brazil, which have been a major source of global economic growth in recent years.

Coming less than two weeks after Barack Obama’s election and within a few months of Bush’s departure from the White House, the process will ultimately give the new president the chance to help reshape the global financial structure.

Obama will not attend the summit, stressing last week that the US only has "one president at a time," but the White House has said his team of economic advisors will be regularly informed on its progress.

Indeed, the scale of the changes that are to be considered are expected to take several months to implement and consequently form a key part of Obama’s early period in office.

Editing by Alex Akesson

Tags: boston, british-banks, closed-end-fund, dealer-operations, due-diligence-service, emerging-europe, global-asset-allocation, institutional-marketing, producer-prices, roel-campos, savings-and-loan-crisis, u-s-treasury

Bloomberg – It used to be that we searched for economic icebergs in Asia. Now we are on the lookout for Icelands.

Last week, Iceland became the first developed economy to seek aid from the International Monetary Fund since 1976. It needed a $2.1 billion bailout after investors realized it wasn’t running an economy, but a hedge fund.

While Ukraine, Belarus, Hungary and Pakistan are also lined up at the IMF’s door, Iceland’s woes are getting special attention. The thought that even a western European economy that once had an AA rating could implode are bringing back uncomfortable memories about Asia’s crisis a decade ago.

The question zooming around markets is this: If the worst- case scenario plays out and the crisis continues, could Asia experience another 1997? Equally important, will investors know it when they see it?

Watch the banks, say analysts such as Mark Matthews of Merrill Lynch & Co. in Hong Kong. “Bank shares are the canary in the coalmine,” he says.

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Tags: 100-million, british-banks, cash-flow, dexia, financial-institutions, insurgency, ncb-stockbrokers, newcastle, pergam-finance, quarter-results, uk-markets

WBT – U.S. stocks appeared headed for a rebound Tuesday as investors awaited the start of a two-day meeting of the Federal Reserve that is widely expected to bring another reduction in interest rates.

The sharp rise in stock market futures contracts Tuesday was to be expected given the extreme volatility that has been the hallmark of Wall Street’s behavior for more than a month. At the same time, the sometimes light volume of futures trading can make it difficult to determine the market’s overall mood. In recent weeks, stock futures have moved solidly in one direction, while actual trading was more moderate after the opening bell.

A higher open would come as casualties from the global crisis piled up Tuesday: Whirlpool Corp. said it will cut about 5,000 jobs by the end of 2009, Iceland said it needs $6 billion and Germany said Pakistan must secure a loan from the International Monetary Fund within a week.

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Reuters- The credit crisis is not over, and losses in the financial sector are set to be around $1.3 trillion, according to star hedge fund manager John Paulson, who says he remains short credit.

In its twice-yearly report in April, the International Monetary Fund had said total potential losses on both subprime and other loans as a result of the credit crisis could reach $945 billion. Paulson, who earned $3.7 billion in 2007 according to Alpha Magazine by going short the subprime sector during the U.S. mortgage meltdown, also said a deterioration in consumer spending was set to drive the U.S. economy into recession this year.

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