Barclays is expected to receive a $927 million capital investment from Japan's Sumitomo Mitsui Financial Group as part of a plan to restore depleted capital, Bloomberg News reported Friday.

Barclays (NYSE: BCS), the United Kingdom's fourth largest bank, has been hurt by write-downs stemming from the end of the U.S. housing boom and subsequent mortgage and related asset-backed bond defaults.

Barclays' shares fell $1.29 to $24.28 on the news in Friday morning trading.

London-based economist Mark Chandler told BloggingStocks there are three positives stemming from the announcement. First, banking regulators in the U.K. will view it as "a coming to terms, something markets around the globe will also appreciate." Second, it demonstrates that investors "are still willing to jump into the pool and commit capital for less than ideal ventures, so you can see how the markets will look favorably on that." Chandler added that he does not have a rating on nor own shares in Barclays.

Japan's banks: capital to deploy

Finally, Mitsui's commitment to a bank abroad indicates that Japanese banks have repaired the worst of their balance sheets. "A Japanese bank would not commit funds abroad if their balance sheet was not solid," Chandler said. "Japan's banks have rebuilt their businesses, and are in better shape than they were a decade ago. Unfortunately, I'm afraid it looks like the world's bank concerns have shifted to the U.S. and U.K. for this decade."

German Chancellor Angela Merkel said continental Europe should take the lead in financial market reform because the "Anglo-Saxon" model of regulation had failed, The Financial Times reported Wednesday.

Merkel, speaking before her meeting with U.S. President Bush and ahead of next month's G-8 leading industrialized nations economic summit, called for a European credit ratings agency to counter-balance Moody's and Standard & Poor's (NYSE: MHP), adding that despite the progress Europe has made with the euro, the financial regulatory framework is still "a strongly Anglo-Saxon dominated system."

Reforms sought by Berlin will include a ban on agency ratings for products they helped to create, new capital adequacy ratios for banks, and the prevention of bank sale of products they don't understand.

London-based economist Mark Chandler told BloggingStocks Wednesday he agrees with Merkel on the need for both financial market reform and a Europe-based counterweight to complement the largely U.S.-based regulatory framework, but is slightly surprised by Merkel's rhetoric.

The U.S. Federal Reserve Friday announced an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility (TAF) from $50 billion to $75 billion, starting with the auction on May 5.

The action brings the amounts outstanding under the TAF to $150 billion, the Fed said.

In addition, the Fed also authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank and the Swiss National Bank. The arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB, respectively, representing increases of $20 billion and $6 billion. The Federal Open Market Committee (FOMC) extended the term of these reciprocal currency arrangements through January 30, 2009.

Furthermore, the Fed also authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers can now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial mortgage backed securities and agency collateralized mortgage obligations, beginning with the TSLF auction on May 7, 2008.

The perceptive and common sense-rooted Ben Stein, in a business column in The New York Times, has weighed-in on the credit crisis, and for market absolutists, it's an argument they probably don't want to hear.

Stein, like many of us, has pondered how the massively well-paid men and women of Wall Street could create such a catastrophe. How did some of the smartest, talented executives, Stein ruminates, generate such immense losses that "they made banks clam up on lending -- at great risk to the economy?"

Compelling questions

Stein asks: Where were the fail-safe devices? The government watchdogs? The ratings agencies? A speech by Greenlight Capital hedge fund manager David Einhorn at a Grant's Interest Rate Observer event, provided the answers -- the unfortunate truths of the recent housing/credit boom -- which Stein summarized:

Royal Bank of Scotland said it will sell 12 billion pounds or $23.9 billion worth of new shares to boost capital, Bloomberg News reported Tuesday.

RBS (NYSE: RBS) has suffered from capital depletion following loan and related credit mark-downs, and as a result of its $114 billion purchase with Banco Santander (NYSE: SAN) and Fortis of ABN Amro.

Shares of RBS fell 30 cents to $7.19 on the news in Tuesday morning trading. Shares have declined more than 45% since October 2007.

RBS said it expects a large increase in the expected losses it faces on its portfolio of poorly performing loans and assets, including U.S. subprime mortgages and leveraged loans to private equity deals, The Financial Times reported Tuesday. The bank said these additional writedowns would reach about $11.8 billion -- three times the losses the bank has already recorded.

Worst not behind banks?

Deutsche Bank and other investment banks are apparently working on plans to develop a clearing house for the credit derivatives markets, in an effort to allay rising regulatory concern and investor skittishness about counterparty risk, The Financial Times reported Friday.

Deutsche Bank (NYSE: DB) and other banks are apparently trying to develop a plan that would allow only institutions with strong capital bases and credible trading histories to clear trades in the credit default swap markets with a central counterparty, The FT reported.

The derivatives market has experienced explosive growth in the past decade, with the instruments' value totaling $350-$450 trillion, depending on the methodology used. At the same time, the credit default swaps market has grown to $45-50 trillion.

Global clearing house

Economist David H. Wang told BloggingStocks Friday that, ideally, a global derivatives clearing house should take the form of a public, international organization administered by member nation states. Failing that, he'd like to see a private international organization administered by the major investment banks.

Confidence in the global economy improved for the the first time in five months in April 2008, a Bloomberg News survey of news / analytics subscribers to Bloomberg on five continents indicated Wednesday.

The Bloomberg Professional Global Confidence Index, which surveys 5,905 Bloomberg subscribers, rose to 14.5 in April 2008 from 13.1 in March 2008. The measure increased to 18.5 from 17.6 in the U.S. and to 11 from 7.5 in Asia. It declined in Western Europe. A reading below 50 indicates negative sentiment.

Economist Peter Dawson, who was not a part of the survey, told BloggingStocks Wednesday the April 2008 uptick is welcome news, but investors/traders should not become prematurely optimistic.

"Overall sentiment remains cautious and downbeat," Dawson said. "We are close to a recession in the U.S., with little signs of life in the housing sector or from the consumer to inspire confidence that recovery is just ahead, so you've got to place the higher April data in the proper context."

U.K. consumer confidence fell to its lowest level in almost four years in March 2008, as the housing downturn continued to weigh on consumer sentiment, Bloomberg News reported Wednesday.

Britain's Nationwide Building Society's index of sentiment declined one point to 77, its lowest level since records started in May 2004. The result is based on a survey of 1,204 people conducted by Taylor Nelson Sofres from February 18 to March 20, 2008.

U.K. housing sector weighs

Economist Mark Chandler, based in London, told BloggingStocks Wednesday the fall in housing prices is beginning to weigh on U.K. consumer confidence. The average home price in the United Kingdom fell 2.5% in March 2008 to 191,566 pounds or $379,000, according to a survey by mortgage lender HBOS Plc., according to Bloomberg.

Billionaire investor George Soros believes the current financial crisis is the worst since the Great Depression, and said stocks have not bottomed yet, Bloomberg News reported Thursday.

Soros said the most recent market bottom "will probably not prove to be the final bottom," adding that the current stock rebound will last six weeks to three months as the United States moves closer to recession, Bloomberg News reported.

Further, Soros, in an op-editorial column in The Financial Times, argued that the cause of the market's current problems is a flawed premise: the belief that markets are self-correcting and tend toward equilibrium. They aren't and don't, Soros argues, and the laissez-faire policy creates bubbles, including the most-recent housing bubble, which, in turn, when it started to burst, led to the current credit crunch.

Soros cites deregulation

Soros added that the market's current troubles originated in 1980 when U.S. President Ronald Reagan and United Kingdom Prime Minister Margaret Thatcher led a laissez-faire movement that reduced/eliminated regulation of banks and financial markets, the FT reported.

The dollar fell to a yet another record-low against the euro Friday and plunged against the world's other major currencies, as investors shunned U.S. investments ahead of an almost-certain U.S. recession, with likely further interest rate reductions from the U.S. Federal Reserve.

Friday's trigger event for selling was The Bear Stearns Companies, Inc. (NYSE: BSC) stunning announcement that -- less than 10 days after senior management officials called liquidity-crunch rumors 'absolutely ridiculous' -- it had accepted a 28-day, emergency, secured loan from the U.S. Federal Reserve via JP Morgan Chase & Co. (NYSE: JPM).

The Fed said in a statement that it will ``continue to provide liquidity as necessary to promote the orderly functioning of the financial system,'' repeating reassurances Federal Reserve Chairman Ben Bernanke has made often since credit problems first surfaced in August 2007. The Fed did not state how large their loan is to Bear Stearns.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The compelling question following the Fed's action, in conjunction with the world's other, major central banks, is whether it will work. Will it be enough to get the U.S. economy moving again?

And as is so often the case in economics, the answer depends on three unknown factors, a pair of economists told BloggingStocks Tuesday. (In an initial review, the market appeared to signal its approval of the Fed's action, with investors sending the Dow 300 points higher to 12,156 in late Tuesday afternoon trading. )

New Fed tool: TSLF

First, the Fed's new Term Securities Lending Facility should convince bank dealers that liquidity should not be an issue, economist David H. Wang said Tuesday. "No bank or bond dealer should fear that they won't be able to find financing. That should improve bond market liquidity," Wang said. In addition, the Fed's willingness to swap U.S. Treasuries for mortgage-backed securities (MBS) should restore some trust -- but by no means total trust -- to the MBS market and help market participants price these securities, he said. The Fed's accepting private mortgage debt collateral speaks directly to where the market is stressed the most, Wang said. However, if MBS's are not pricing and trading, that would indicate continued concerns about liquidity, he said.

Banks are demanding more capital from hedge funds to support outstanding loans resulting in the dissolution of some funds forced to liquidate assets, Bloomberg News reported Monday.

``If you have leverage, you're stuffed,'' Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients, told Bloomberg News. Allen said the crisis is like a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back. He added there are likely to be more collateral /margin-related liquidations of hedge funds in the weeks ahead.

The $2 trillion hedge fund industry is in the throes of its worst capital crunch since the Federal Reserve successfully encouraged the securities industry to provide $3.6 billion to bail-out Long Term Capital Management L.P. in 1998. Amplified by leverage and aided by innovative investment formulas, many hedge funds generated outstanding returns for much of this decade, often aided by high-performing asset-backed securities. However, as the housing market slowed and mortgage-backed securities began to fail, hedge funds started to experience the down side of their deployed leverage: banks and other counterparties who lent money for these investments had the right to and initiated requests that hedge funds put up more capital. Hedge funds that could not meet the capital requirement have been liquidated.

The U.S. Federal Reserve announced Tuesday an expansion of its securities lending program.

The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.

The Fed added that "since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again." The Fed added that central banks "will all continue to work together and will take appropriate steps to address those liquidity pressures."

"To that end," the Fed said, "today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are also announcing specific measures."

Fed Analysis: Without question, the Fed is attempting to head-off any building, short-term liquidity crunch banks may face in the weeks and months ahead. This latest increase in the Term Auction Facility, the coordination with the other major central banks indicates monetary, and lengthening of the primary dealers' term to 28 days from overnight will help the Fed and the other central banks achieve that liquidity goal.

The dollar plunged to a new record-low of $1.5463 versus the euro Friday, in a global-wide greenback sell-off, before recovering at mid-day after the U.S. Federal Reserve took two actions to pump more money into the beleaguered U.S. banking system.

After the Fed's announcement, the dollar recovered slightly against the euro to $1.5343, but remained down about one-half cent against the British pound at $2.0144 and down about one-tenth yen to 102.60 yen against the Japanese yen.

U.S. jobs data sparks selling

Prior to the Fed's liquidity-enhancing actions, the currency markets drove the dollar down on speculation that the Fed would again lower benchmark, short-term interest rates by 75 basis points at its policy meeting on March 18 in an attempt to stimulate a U.S. economy that shows increasing signs of contraction. Those recession fears grew in the currency market and in the stock market after the U.S. Labor Department announced Friday that the U.S. economy lost 63,000 jobs in February 2008 -- the nation's largest drop in payrolls since March 2003.

However, the dollar recovered somewhat after the Fed, in a surprise move, took two actions to boost banking system liquidity. The Fed increased by $20 billion total the size of its next two Term Auction Facility auctions, known as TAF, to $100 billion, or $50 billion for each auction, to be held on March 10 and March 24.

Second, in an even-more surprising move, the Fed announced the start of new "28-day repurchase transactions" totaling another $100 billion. Further, the Fed said for the new 28-day loans, banks will be able to post as collateral U.S. Treasuries, agency debt, or agency mortgage-backed securities -- which are eligible as collateral in conventional open market operations.