Global Economic News

Chinese Steel Industry Warns Brazil Mining Company on Pricing

Sept. 29 (EIRNS)—The China Iron and Steel Association (CISA) announced Sept. 25 that all its members would use domestically produced iron ore and stop importing it from the huge Brazilian mining firm Vale, saying that Vale had breached an earlier agreement by raising prices for the second time this year.

The announcement came two days after the CISA called an urgent meeting to discuss a response to Vale's price hike. At the meeting, Chinese steelmakers signed supply contracts with domestic mining companies in a bid to replace Brazilian iron ore with "made-in-China" ore.

Earlier this month, Vale raised the price issue for major Chinese iron ore buyers, including Baosteel and Wuhan Iron & Steel, claiming that Chinese steel producers paid about 11% less than their European counterparts. Vale said then it was talking with Asian buyers about an 11 to 11.5% price hike. Vale had already imposed a 65% price increase this February.

Luo Binsheng, CISA vice chairman, said Vale picked the wrong time to raise prices. "Vale should be aware that China doesn't need that much iron ore now. Demand for import iron ore is becoming weak since domestic output of iron ore has significantly increased," Luo said. In addition, imported iron ore stockpiles at Chinese ports had reached more than 80 million tons so far, according to Luo.

As the world's largest iron-ore producer and exporter, the Rio de Janeiro-based company took up 80% of Brazil's iron ore production. Chinese iron and steel enterprises imported 270 million tons of iron ore in the first eight months this year, of which 22% came from Brazil.

European Banking System Collapsing

Sept. 30 (EIRNS)—Europe's Anglo-Dutch Liberal banking system is collapsing at breakneck speed.

The Franco-Belgian Dexia bank, France's and Belgium's main lender to local, regional, and state governments, was given a Eu6.4 billion ($9.2 billion) capital injection this morning. up. Dexia is facing serious losses from FSA, its U.S.-based monoliner, which lost 20% in trading on Sept. 29. Of the FSA's total exposure of $17.3 billion, $7.6 billion is in subprime-based unsellable mortgage-backed securities. The bailout came from the Belgian, Luxembourg and French governments. France ponied up nearly half, Eu3 billion, including Eu1 billion from the French government and Eu2 billion from the French co-owner of the bank, the public Caisse des Dépôts et des Consignations (CDC).

The Irish banking system, which has served as a City of London offshore banking center, is also on the verge of imploding, with bank shares collapsing on Sept. 29 an average of 26%. The Anglo-Irish Bank, the country's third largest, led the way with a 44% drop. The Irish government announced that it will guarantee Irish bank deposits and debts for two years. This will cover the country's major banks, including Allied Irish Bank, Bank of Ireland, Anglo-Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society, and Educational Building Society.

It should be noted that the Eu26.5 billion (about $40 billion) bailout of Hypo Real Estate by the German government will not be going to that bank's Munich headquarters, but to DEPFA, its Dublin-based subsidiary, where most of its toxic waste is dumped. This is headline news in German dailies, which report that the government bailout accounts for no less than 10% of the FY 2008 budget. Berlin banking sources told EIR that the Hypo default is just the beginning of a wave of bankruptcies in the German private banking sector that is expected shortly.

As of Sept. 28, the British government was expected to announce the nationalization of mortgage bank Bradford and Bingley. B&B will be the second British bank, following the collapse of Northern Rock late last year, to be nationalized. The decision follows the collapse of talks involving Banco Santander, HSBC, and possibly Barclays, to buy the troubled bank. It appears that none of the suitors were interested in taking in the entire mess, but the Treasury is still hoping to sell it to any of, or some combination of, Britain's big commercial banks.

The largest part of B&B's business, and apparently what brought it down, was mortgages to the "buy-to-let" sector, that is, real estate speculators who bought houses as rental properties. The bank got into trouble as more and more of these loans went into arrears over the past year, and the trouble deepened as lending rates between banks soared.

B&B holds £22.2 billion in deposits and has mortgage holdings of £41.3 billion. The mortgages will be taken over by the government and, hence, the British taxpayer.

Meanwhile, Fortis, the Dutch-Belgian financial services company, is seeking a big cash infusion after it was forced to pour $35 billion into its ABN Amro assets last year, as the U.S. subprime mortgage bubble started to tank. Fortis's shares plunged 35% in trading in Brussels last week.

Former Swedish Finance Minister Pushes Bailout

Oct. 2 (EIRNS)—Former Swedish Finance Minister Bo Lundgren, now head of Sweden's national debt office, has been touring the United States telling policymakers "how to mount a successful banking bailout without hurting taxpayers." This "Swedish model" is pushed, even though it created an economic catastrophe from which Sweden still has not recovered.

The 1990 real estate crisis in Sweden led to the acute 1991 banking crisis, the 1992 currency crisis, and three consecutive years of negative growth. In the bank reconstruction, Sweden forever lost 200,000 industrial jobs. Sixty thousand small and middle-sized businesses were forced into bankruptcy, a rate ten times that of Germany. The state debt increased by 1 trillion crowns—five times—which still today is forcing cutbacks and sale of state-owned patrimony to pay debt service. Only last year did Sweden recover to the previous employment figures, through the government program expanding service and sales sectors with 100,000 new jobs.

The so-called success story, which now Wall Street analysts are promoting, relates to the Swedish government decision in 1993 to set up a "bad bank" called Securum, that took on all the non-performing loans of the two worst banks and gave it the mission to recoup taxpayers' money. With these non-performing loans followed the real estate that had been taken over by the banks. These low-valued properties were sold by Securum for a later, higher market price. The bankrupted customers did not get any of that profit. Together with the income from the part sale of the state bank, Nordbanken, the government is said to have recovered most of the 65-billion-crown rescue package for the Swedish banks, and Securum was dismantled 1997. The injection of the 65 billion represented 4% of the country's GDP, equivalent to $850 billion in the U.S. today, which is even more than nominally called for by the Paulson bailout plan.