World Economic News

International Markets Affected by Refco Crisis

The financial crisis of Refco, the largest independent futures brokerage firm in the United States, threatens to have major ramifications in the world financial markets. At risk are various hedge funds, the Chicago Mercantile Exchange, and recent major purchasers such as TIAA-CREF, a huge public employee pension fun, and General Motors Investment Management, which oversees employee benefit plans of GM and its subsidiaries.

As of Oct. 14, Refco had suspended trading, and was experiencing a massive bailout by investors from its bonds. Refco CEO Philip Bennett has been arrested, and faces charges of fraud.

Among those international markets affected are the debt bond markets of Ibero-America. It turns out that Refco served as a clearing house for buying and selling of Ibero-American debt bonds, particularly those of Brazil and Argentina. A full 60 percent of all New York transactions of those two countries' debt paper went through Refco.

While Refco's creditors were scrambling to figure out a strategy to deal with the blowup, it is clear that the Federal Reserve has begun behind-the-scenes action to try to contain the crisis. The Securities and Exchange Commission has also stepped in. But, given that the Refco problem, like many others, is the result of fraudulent activity going back to the 1998 crisis commonly associated with LTCM, and that it is occurring within the context of the bankruptcy crisis of the auto industry, there is no assurance that it will be able to be brought under control.

Western Push for Asians To Upvalue Currencies

"The U.S. Administration is pushing a new 'Plaza Accord' for Oct. 16-17 financial meetings in Beijing and Tokyo," a Korean official has told EIR, in which U.S. authorities may demand that not only China, but also Japan and South Korea, up-value their currencies by as much as 20%-40%. The Korean agreed when EIR said that this is lunacy, as it could spark an uncontrolled crash of the dollar.

"Karl Rove and Dick Cheney" he said, "are making these irrational political demands to operating officers at the U.S. Treasury, who must tell it to their Asian counterparts. Treasury professionals know that if you talk the Asian currencies up, the dollar could drop, but the political operators are walking all over them," he said, "to curry favor with their political base in the U.S.," like the National Association of Manufacturers, which is blaming Asia for America's economic ills and trade deficit.

Fed Chairman Alan Greenspan, Treasury Secretary John Snow, SEC head Chris Cox, and other luminaries are attending meetings in Beijing Oct. 16-17, and Greenspan is a private guest of the Bank of Japan in Tokyo Oct. 15-16. "Even Greenspan," said the Korean official, "knows it's dangerous to talk down the dollar. That's why he's raising interest rates — trying to hold the dollar up."

Outbreak of Hoof-and-mouth disease in Brazil causing alarm among country's neighbors

According to the Brazilian daily Valor, the outbreak is the direct result of IMF austerity which the Lula government has imposed on Brazil, reflected in the infinitesimal amount of money allocated in the budget for necessary sanitation and other measures required to guard against the disease. At least 100 animals are infected in Mato Grosso's El Dorado region.

The Paraguayan government is militarizing the border with Brazil to prevent the entry of any Brazilian cattle into the country. Agriculture Minister Gustavo Ruiz Diaz announced Oct. 10 that soldiers will shoot any cattle that elude border controls and that police and anti-drug personnel will be deployed as well to ensure that no Paraguayan cattle become infected. Having just regained several export markets for its beef, the revenue from which is crucial to this impoverished country, Paraguay is desperate not to lose them. Reflecting this, Ruiz Diaz noted hopefully that perhaps Paraguay could even take over some of Brazil's markets, should some of its trading partners refuse to buy its beef.

Uruguay and Argentina are also taking measures to protect their cattle herds as well.