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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.
Times Online UK – Litigation departments at the City’s leading law firms have grown significantly busier in recent weeks as investors turn to legal action to recover losses suffered as a result of the financial crisis.
Although lawyers have been predicting an upturn in litigation since the credit crunch began last summer, that has yet to emerge as investors were reluctant to admit to holding negative positions.
But Jonathan Kelly, a partner at Simmons & Simmons, the international law firm, said that financial institutions, hedge funds, municipalities and other investors had begun considering legal action as the market showed signs of settling.
Mr Kelly said that there had been a significant increase in instructions and conflict referrals in recent weeks — an observation confirmed by lawyers at other City firms.
North County Times – The stock market is retreating, credit markets are squeezed and many corporate earnings are diving. But one piece of the mangled U.S. economy is making an improbable comeback: the dollar.
As the financial meltdown clobbers world economies from South America to Asia, investors desperate for safe assets are plowing money into the battered buck —- helping it snap a six-year slide and reclaim its long-held status as a stable asset during rough times.
"The dollar has become the safe-haven play," said Kathy Lien, director of currency research at Global Forex Trading in New York. "It’s a pretty monumental move we’re seeing" and" reflects a "crisis of confidence."
While the U.S. economy by no means is showing signs of a recovery, Lien said other countries are "just beginning to feel the magnitude of the global slowdown, whereas the U.S. is maybe three-quarters of the way through. "What everyone is beginning to realize is that, yes, the U.S. is in trouble. But it’s also much further along (in the crisis) and probably closer to stabilizing than Europe and other regions," Lien said.
Los Angeles Times – In a typical recession, stocks start recovering about six months before the economy does. The crisis we’re in right now, however, is anything but typical: Lending is frozen, hedge-fund selling is happening on a massive scale, and economic troubles have spread all over the globe.
As a result, it’s possible the economy will need to show signs of strength before the stock market stabilizes and regains steam. So with readings getting darker by the day, expect more of the same this week: extreme volatility.
Reuters UK – Hedge funds are likely to increase short exposure to retail stocks following a ban on short selling financial shares imposed by UK and U.S. regulators, industry insiders said on Friday.
Equity long/short and market neutral hedge funds will be among those most affected by the ban as short selling — betting the price of a share will fall — is a key component of their investment strategies.
Shorting financial stocks has been a popular trade among hedge funds this year, but now they will be forced to switch their attention to other sectors.
John Godden, of hedge fund consultant IGS Group, said: "Commodity and infrastructure providers are continuing to be strong and showing signs of growth going forward. Some service industries are likely to be pretty heavily hit by a slowdown so from a market neutral perspective, there’s your long and short sectors."
