[Marxism] 'This sucker COULD go down'

[bauerly@xxxxxxxx]

International Trade Seizing Up Due to Banking Crisis (Updated)

http://www.nakedcapitalism.com/2008/10/international-trade-seizing-up-due-to.html

I have been more than a tad concerned about near-paralysis in the money markets
and imploding equity prices. But this e-mail, from a well connected
international investor not prone to alarm or (normally) the use of capital
letters says that the banking crisis is staring to bring international shipping
to a halt.

By way of background, letters of credit of various sorts are essential for
trade. For instance, imagine the difficulty if you are, say, a Chinese
manufacturer who wants to sell his wares to buyers overseas. How can he be sure
the goods he ships will ever be paid for? Imagine the considerable difficulty
and cost of chasing a deadbeat in a foreign country. Letters of credit. issued
by banks, assure payment. They can also serve to finance the shipment (ie, fund
the inventory while it is in transit).

Not only are banks now leery of lending to each other for much longer than
overnight, they are also starting to refuse to honor letters of credit from
other banks. From the above-mentioned reader:

At the end of the day, if every counterparty is bad then you don't have a market
and you don't have an economy. I spoke to another friend of mine this afternoon,
whose father has been in the shipping business forever. Pristine credit rating,
rock solid balance sheet. He says if he takes his BNP Paribas letter of credit
to Citi today for short term funding for his vessels, they won't give it to
him. That means he can't ship goods, which means that within the next 2 weeks,
physical shortages of commodities begins to show up. THE CENTRAL BANKS CAN'T
LET THAT HAPPEN OR WE HAVE NO ECONOMY, LET ALONE A CREDIT SYSTEM.

We spoke later in the evening and said he had heard of another instance of a
trade transaction failing, different parties entirely, this a shipment of coal,
again due to the unwillingness of the seller's bank to accept an LC from the
buyer.

Update 12:10 AM: Confirmation comes from the Financial Post, "Grain piles up in
ports" (hat tip reader Vox Sanus): 
http://www.financialpost.com/story.html?id=866522

The credit crisis is spilling over into the grain industry as international
buyers find themselves unable to come up with payment, forcing sellers to
shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they
are good for the money. But more deals are falling through as sellers decide
they don't trust the financial institution named in the buyer's letter of
credit, analysts said.

"There's all kinds of stuff stacked up on docks right now that can't be shipped
because people can't get letters of credit," said Bill Gary, president of
Commodity Information Systems in Oklahoma City. "The problem is not demand, and
it's not supply because we have plenty of supply. It's finding anyone who can
come up with the credit to buy."

So far the problem is mostly being felt in U. S. and South American ports, but
observers say it is only a matter of time before it hits Canada.

"We've got a nightmare in front of us and a lot of people are concerned it's
going to get a lot worse," said Anthony Temple, a grain marketing expert based
in Vancouver....

Access to credit is key to the survival of maritime trade and insiders now say
the supply is being severely restricted. More than 90% of the world's trade by
volume goes by ship...

"The credit crisis has made banks nervous and the last thing on their minds is
making fresh loans," Omar Nokta, an analyst at investment bank Dahlman Rose,
said in an interview with Reuters.

While shipping has always been a cyclical industry whose fortunes rise and fall
with the global economy, analysts said the current crisis over the drying up of
credit is something they have never seen before.

Jason Myers, head of the Canadian Manufacturers and Exporters, said exporters
across Canada are getting caught up in the turmoil as customers delay payments,
forcing them to shoulder the cost.

"What some companies are saying is we can't pay you until our customer pays us,
so it becomes a question of who bears the financial risk and the cost," Mr.
Myers said. "We're hearing about it more and more."

What that means is that manufacturers are getting hit as revenue slows and
longtime customers disappear from the order book altogether. As profits
decline, investment in product development starts to fall, too, he said.

The Canadian Wheat Board, one of the world's biggest grain marketers, has yet to
refuse a customer because of poor credit, according to a spokeswoman. "As of
this moment we haven't run into that problem," said Maureen Fitzhenry,


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