Why oil price is falling ?

After reaching a peak of $147.50 a barrel in July 2008, on wednesday the oil price fell under $70 a barrel . What are the reasons of this event which some economist already see like an opportunity to the relaunch of the economy ?

The main reason is as you can guess the current financial crisis which is leading the global economy to the recession. The US asked for a cut of the barrel's price to permit the economy to be relaunched. Effectively, a cut of this price would mean a decrease of the inflation directly impacted by the oil value. If the inflation decreases then it will be the interest rates which will be automatically lowered and it would thus encourage the borrowers to ask for loanable funds. The decrease of the price of oil appears like a smart solution to improve the economy.

Moreover, this decision seems to be forced now that the consumption of oil is decreasing too, to increase again the demand of it, lowering the price was unavoidable. This fall poses a threat to the suppliers because if the price reach $70 a barrel a lot of new projects will be cancelled or at least postponed!

What real impact will this decrease have? Will the expected effects result?

France's acquaintance with the financial crisis

(Main indexes of world financial market place on october 6th)

Until now the French financial market was not really feeling the impact of the financial crisis. Since October 6th, after a sharp drop of most of the US stock exchange indexes (Dow Jones closure under 10 000 points, FTSE 100, 4589.2) the french stock exchange index, CAC 40, fell to 3711.98 points wich represents a loss of 9.04% which is the biggest drop of its history since its creation in 1988.

For the first time since the begining of the current financial crisis, France is directly impacted. Indeed, the french magazine LePoint, give us some figures concerning the fall of the main companies shares value part of the CAC 40 on this, now famous, monday:

• Crédit Agricole : -10.04 %, 13.84 euros
  
• Société Générale : -11.83 % à 60.52 euros
  
• Natixis : -16.04 %, 2.25 euros
  
• Axa : -13.10 %, 20.07 euros
  
• BNP Paribas : -5.39 %, 67.50 euros

In september, the financial crisis was still mainly american and british, now the french people realise better that the national economy is also in trouble. Until now, even if the CAC 40 was decreasing each month, the french people were still optimistic and believed in a future recovery.

(CAC 40 from novembre 07 to now, source: lesechos.fr)

In answer to this drop the french government decided to create a structure, hold by the state, to back up the banks financially and without deadline. This is the first real measure taken by the french government to face the financial crisis. Will it be enough to save the french structures ? In creating this, they hope to recover the trust of the population in the banking system!

We don't need to argue anymore to constat that on this monday 6th October, France lost its optimism!

Financial crisis and the US election

In 40 days from now the US presidential election will take place, where the democratic canditate, Barack Obama, will face the republican canditate, John Mc Cain. How is the current financial crisis influencing this? How are the two candidates dealing with it. Are they using the financial crisis to promote themselves in the eyes of US population?

A few days ago, Barack Obama announced during a meeting "the crisis sweeping Lehman Brothers and others Wall Street firms posed a major threat to the US economy and underscored the need to modernize the financial system". The democratic canditate thinks himself to be the right person to take up the challenge concerning the issues of this important financial crisis. Following a poll made by CNN, 53% of americans think Obama being able to deal with the current crisis and 39% see Mc Cain in this role.

Indirectly, we can say that the financial crisis influence the US election indeed 47% of americans attribute the crisis to republicans. Mc Cain lays the responsability for this crisis at the finishing presidential's door. The two canditates know that the winner of this race to the white house will be the one able to convince the US population of his ability to solve it.

Thus, John Mc Cain, on wednesday decided to suspend his campaign to focus on the financial crisis! Barack Obama decided to continue his campaign and rejected to debate with the repubican accusing him to use the financial crisis as a politic issue!

I think that Obama as Mc Cain are aware of this opportunity which represents the financial crisis for winning the people trust and approval. However Obama seems to be advantaged due to the going out government juged responsible for the current situation!

AIG rescued ! Too big to fail !

Qualified like too big to fail, AIG (American International Group) has been rescued today by receiving $85 billion from the Federal Reserve in exchange of 79.9% of its capital.

Even if the name is american AIG is one of the biggest insurance company all over the world. It represents 100 000 employes and over $1 trillion in assets. AIG was assuring from bank to individuals and a bankrupt of the group would have been dramatic for the whole economy.

After the bankrupt of Lehman Brothers we can wonder why did the Federal Reserve decide to rescue AIG ? In an interview made by the french newspaper "l'expansion", Jean-Charles Rochet (economics and mathematics teacher in the Toulouse Sciences Economiques) explain that the two decisions were already taken when Lehman Brothers crashed on monday. The group was holding a too important place in the financials markets because of its credit insurances. When they announced to not help the first one they already knew than AIG will be rescued.

We knew that the credit crunch would affect directly the mortgage companies and the banks but we forgot that the insurance companies are also exposed. In the future what impact on the insurance field will have the credit crisis ?

Related links:

http://ir.aigcorporate.com/phoenix.zhtml?c=76115&p=irol-newsArticle&ID=1197918&highlight=

http://bloomberg.com/apps/news?pid=20601087&sid=amrQtoxTGmgU&refer=home

My New Financial Times...

Before beginning to run an other financial blog as you can find so many on Internet let me introduce myself.

My name is Marc, I am a French student who wants to understand better the financial world and what is happening nowadays. Through this blog I will try to give you my perception of the financial events which influence on our society and life style.

My opinion will maybe not be the better and I will maybe misunderstand some point therefore, with the aim to improve myself, I invite you to comment on my articles. You are free to give your point of view, correct a mistake or simply debate on a topic.

Welcome to my new financial times...