ECB President Jean-Claude Trichet's decision to pump billions of euros into Europe's money markets in recent weeks may have helped prevent the world from suffering a financial meltdown.

The president of the European Central Bank has singled out credit rating agencies for criticism over the current turmoil on global financial markets.
In an interview with the BBC, Jean-Claude Trichet also insisted there was no reason to doubt the underlying health of the European economy.
He was in Brussels to explain to members of the European Parliament what had forced the Bank to lend billions of euros to financial institutions. The credit crunch was prompted by fears that banks worldwide had lost billions of dollars on investments linked to risky home loans in the US.
Trichet’s arrival in the European Parliament’s committee room was marked by a media scrum of flashbulbs and TV news cameras more usually associated with film stars.
He is, after all, the man who ultimately controls the destiny of the only currency that can truly claim to rival the US dollar.

No R Word
His decision to pump billions of euros into Europe’s money markets in recent weeks may have helped prevent the world from suffering a financial meltdown.
But he clearly believes the economic situation is very different in Europe from that on the other side of the Atlantic.
While the former Federal Reserve chairman Alan Greenspan has warned of a real risk of a recession in the US, Trichet says Europe’s economy is fundamentally sound.
“Nobody has spoken of a recession in Europe, to my knowledge. I want to be cautious and it’s true that uncertainties exist. But the word recession is not appropriate at all for us.“
At the root of the recent turbulence on financial markets is the so-called “sub-prime“ mortgage crisis in the United States.
In recent weeks it has emerged that American financial institutions have funded home loans to individuals with poor credit histories by selling investments to banks around the world.
These bonds were frequently given coveted AAA ratings by the three credit rating agencies usually a sign that an investment is safe. But with defaults now rising, and US house prices falling, there is growing evidence that the holders of those bonds will lose hundreds of billions of dollars.

Ratings Lessons
Trichet says lessons need to be learned from the fact that the fees of the credit rating agencies are paid by the very financial institutions whose bonds they are assessing.
“The fact that conflict of interest might appear is something we must reflect upon, as is the fact that we have very few credit rating agencies at a global level. The fact that rating agencies, in a number of cases, were rating investments without the ultimate investors knowing what was behind the bonds is a problem.
“The credit rating agencies knew, but it was considered confidential information.“
There also appears to be a great deal of co-ordination between the men at the top of the world’s banking systems, especially in times of turbulence.
“I was talking with Ben Bernanke (of the US Federal Reserve) and Mervyn King (the Governor of the Bank of England) during this period,“ Trichet adds. “This goes without saying. We are in a very intimate relationship.“

Staunch Independence
He also defended the ECB against any suggestion that the recent turmoil strengthened the case of Nicolas Sarkozy, the French President.
He has frequently questioned the Bank’s single objective of controlling inflation in the countries that use the Euro, even at the expense of economic growth.
“The financial crisis has proved how important it is that we improve confidence in being a solid anchor of stability. Everybody knows that our credibility is essential to the prosperity of Europe, to growth, and to job creation. And our independence, which is enshrined in the treaty, is absolutely essential to this credibility.“
Any hopes that the current troubles may end any time soon though don’t appear to be shared by the ECB president. He says although the markets may be calmer for the moment, things could easily get worse.
“We have seen a distinct possibility that the ongoing deterioration of credit worthiness of borrowers in the US sub prime mortgage market could be a trigger for a more broad-based market correction.“

Where there is crisis, there is opportunity. That is something politicians surveying the wreckage of the subprime-mortgage crash know only too well. With America’s Congress now back from its summer break, Democrats are scrambling to do something, anything, about the mess.
According to Economist.com, ideas are already piling up on the doormat like so many bailiff’s letters: a rescue fund for borrowers, fines for unscrupulous lenders, federal regulation for state-supervised mortgage brokers and greater liability for buyers of mortgage-backed bonds.
Nobody doubts things are bad out there in the US. More than 2 million homeowners face higher interest charges thanks to resets on adjustable-rate mortgages. Perhaps a quarter of them could lose their homes. Mortgage delinquencies have shaken global credit markets because yield-hungry investors piled into illiquid paper backed by risky loans. Banks far and wide are showing enduring signs of distress.
So it is easy to see why the call for more regulation is tempting. But it is also easy to descend into caricature, portraying borrowers as victims of villainous banks, brokers, rating agencies and hedge funds.
By one estimate, half of all subprime borrowers lied about their income. Many chose to ignore the risk that house prices might fall. Heaping all the blame on Wall Street and its clients ignores the role of broader forces. Ultra-low interest rates and Asia’s savings glut provided much of the liquidity that inflated the bubble.
Of course, nobody could suppose that today’s regulation is fine just as it is. The failures in mortgages and the credit markets have revealed flaws. But two thoughts should stay the hands of over-eager reformers. Across the markets, self-correction is under way. Shares of the most egregious mortgage lenders have plunged and dozens have gone bust. Loan-underwriting standards are tighter. The riskiest subprime securities have almost no takers. These spasms are how the market cleans up its mistakes and learns not to repeat them. That sounds cold-hearted, but pain is a necessary part of this correction.
When politicians seek to deaden that pain and supplant those lessons with hasty fixes of their own, they almost always blunder. Look at the Sarbanes-Oxley act, pushed through Congress in the turbulent aftermath of Enron’s collapse. Although it was not all bad, the law placed a straitjacket on companies and their auditors which was so tight that it has since had to be loosened. And consider the proposal today, backed by Senator Charles Schumer, that a “suitability“ standard be applied when a subprime loan is made. This may cut the risk of default, but it would also make it difficult for anyone with a blemish on his record to get a mortgage. Surely the legislators do not mean to heap still more pain on to the poor?
Rather than rushing into a bail-out of housing, politicians should give the financial authorities time to lean on the market. The government has a lousy record of doling out money in crises (think of the mess it has made in New Orleans).
State-led rescues are fraught with moral hazard: what investor wouldn’t take on that “liar loan“, knowing that the taxpayer is ready to jump in and help when it all goes wrong? Money should go first, and perhaps only, to those who can show they were defrauded or deceived.
Encouragingly, American banking regulators issued guidance that should coax lenders to restructure bad debts, in part by offering to take a sympathetic view of the accounting hits that follow. Time, too, is the essential ingredient in reforming the capital markets, especially the conduct of the rating agencies, the whipping boys of the crisis right now.
Above all, if legislators want to avoid unintended consequences, they should prefer information to regulation. Brokers who are getting three times the normal commission rate for selling an exotic subprime product should have to disclose that. They should also be made to spell out the terms of interest-rate resets more clearly to borrowers. And other financial markets might be less prone to catching mortgage flu if the off-balance-sheet “conduits“ that buy wads of asset-backed securities had to reveal more about their exposures.

Tokyo-based Daiwa Asset Management will create an exchange-traded fund based on the newly formed FTSE Shariah Japan 100 index.
The ETF, which will be listed on the Singapore Exchange in the next few months, will provide Islamic investors with expanded access to the Japanese stock market. Singapore is competing with Malaysia to be the most important center of Islamic finance in Southeast Asia.
As reported by Gfmag.com, the new index contains the 100 largest Japanese companies by market capitalization from the FTSE Japan universe screened by UK-based research firm Yasaar for compliance with Islamic Shariah laws. The stocks are also screened for liquidity to ensure that the index is tradable.
The index has a strong weighting in automobiles. The top five components are Toyota Motor, Canon, Matsushita Electric Industrial, Takeda Pharmaceutical and Nippon Steel. The index is the first of a family of Shariah-compliant FTSE indexes that will encompass 23 countries as well as regional indexes.
Last year, FTSE Group, the Singapore Exchange and Yasaar launched Asia’s first Shariah-compliant market index, the FTSE SGX Asia Shariah 100. The Asia Shariah index is composed of 100 compliant stocks from companies based in Japan, Singapore, Taiwan, South Korea and Hong Kong.
Companies involved in alcoholic beverages, tobacco, weapons, entertainment, pork and non-halal food, conventional finance and insurance are excluded from Shariah-compliant indexes. Companies included must meet financial standards regarding debt, interest, non-compliant income, cash and accounts receivable.

Brazil’s strong capital markets recovery and IPO blitz has prompted international investment banks to put the country back on their radars.
Lehman Brothers, which exited Brazil in 2003 amid a near market collapse, has reopened its Sao Paulo office and acquired the investment banking unit of Rio Bravo, a local firm.
Others, including Citi and UBS, have boosted their local investment banking teams through new hires. Falling interest rates have fueled the recovery by fostering new corporate investments and boosting consumer spending. The central bank cut the benchmark Selic rate to a record low 11.5 percent in July.
According to AP, commercial banks are also benefiting from lower interest rates, with increased lending leading to strong second-quarter earnings. Banco Itaœ and Banco Bradesco, the country’s two largest private sector banks, reported a 30 percent and 44 percent rise in quarterly earnings, respectively.
New foreign players are looking to take a piece of the action. Banco Azteca, a Mexican bank owned by retailer Elektra and which focuses on lower-income clients, has received regulatory approval to establish retail operations in Brazil.
The Brazilian economy is on track to grow by at least 5 percent in 2007, according to finance minister Guido Mantega, who attributes the improved outlook to increased infrastructure outlays.
The government had predicted a 4.5 percent expansion for this year, following 3.7 percent GDP growth last year. Supporting growth is also the 6.6 percent year-on-year industrial production expansion registered in June.
Foreign investment is on the rise, too. According to the central bank, Brazil scored a record $10.3 billion in FDI in June, nearly 50 percent of which involved the repurchase of shares in Arcelor Brasil by India’s Arcelor Mittal.
June’s figure brought FDI in first-half 2007 to $20.9 billion, compared with only $7.6 billion during the same period in 2006.
Future prospects will be bolstered by the fact that in July Brazil’s environmental protection agency granted preliminary approval to a controversial hydroelectric project on an Amazon tributary that could bring in as much as $15 billion in investments over five years.