Defaulting banks - where will it stop?

[Jan Klimkowski]

Riots & War?

Is the Spooky One finding interviewees who mention war?

http://www.telegraph.co.uk/finance/globa...warns.html

Help Ireland or it will exit euro, economist warns

A leading Irish economist has called on Dublin to threaten withdrawal from the euro unless Europe's big powers do more to rescue Ireland's economy.

By Ambrose Evans-Pritchard
Last Updated: 10:17PM GMT 18 Jan 2009

"This is war: countries have to defend themselves," said David McWilliams, a former official at the Irish central bank.

"It is essential that we go to Europe and say we have a serious problem. We say, either we default or we pull out of Europe," he told RTE radio.

"If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece," he said.

Mr McWilliams, a former UBS director and now prominent broadcaster, has broken the ultimate taboo by evoking threats to precipitate an EMU crisis, which would risk a chain reaction across the eurozone's southern belt, where yield spreads on state bonds are already flashing warning signals. The comments reflect growing bitterness in Dublin over the way the country has been treated after voting against the EU's Lisbon Treaty.

"If we have a single currency there are obligations and responsibilities on both sides. The idea that Germany and France can just hang us out to dry, as has been the talk in the last couple of days should not be taken lying down," he said.

Mr McWilliams cited the example of New York's threat to default in 1975. President Gerald Ford "blinked" at the 11th hour and backed a bail-out to prevent broader damage.

As yet, there is no public support for withdrawal from the euro. A Quantum poll published by the Irish Independent yesterday found that 97pc reject such a radical move. Three-quarters are in favour of a national government, an idea floated by Unilever's ex-chief Niall Fitzgerald.

"The economic disaster we are facing is unlike anything which has happened in my lifetime. It is a national crisis and needs a government of national unity," Mr Fitzgerald said.

Mr McWilliams said EMU was preventing Irish recovery. "The only way we can win this war is by becoming, once again, an export country. We can do what we are doing now, which is to reduce our wages, throw more people on the dole and suffer a long contraction. The other model is what the British are doing. Britain is letting sterling fall so that the problem becomes someone else's. But we, of course, have ruled this out by our euro membership.
"We are paying twice for the euro: once on the exchange rate and once more on the interest rate," he said.

"By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. Is this the sort of strategy to win wars? " he said.

No future? One of Johnny Rotten's favourite phrases, methinks.

http://www.reuters.com/article/latestCri...USLF215588

FEATURE-Riots expose roots of anger on EU's edges

Sun Jan 18, 2009 7:04pm EST

By Patrick Lannin

RIGA, Jan 19 (Reuters) - Standing in the X-ray room of the gleaming private clinic he opened last year, Leons Platacis is an incongruous champion for youths who rioted in Latvia last week, part of a wave of European protests.

The Latvian businessman, who set up the clinic with his doctor wife, said it is managing to grow despite increasingly cautious banks, whose refusal to lend created a cash squeeze that has forced him to lay off five of his 20 staff.

But he is frustrated. Not only with the bankers -- now mainly the offshoots of large Scandinavian parents -- but also the government of the Baltic state, forced last year to accept a 7.5 billion euro ($9.94 billion) IMF and EU rescue package.

Platacis and others like him in European Union countries from Greece to Bulgaria show how the economic crisis has dashed hopes for prosperity among the middle-classes and young people, compounding resentment of governments already exposed by perceived nepotism, arrogance and corruption.

"We now have a situation like at the end of the Soviet period," he told Reuters, gesticulating as nurses outside escorted visitors along the freshly decorated hallways.

"It is them and us. We are not a united society with a clear vision and leaders we can trust."

The Latvian capital was one of several where youths last week went on the rampage after a peaceful protest against the centre-right government, in power since the start of 2008.

Platacis said he disagreed with their actions but understood their motives.

Riots in the Bulgarian capital on Wednesday followed Latvia's on Tuesday, and on Friday police in Lithuania used tear gas as people threw stones and bottles at parliament to protest against higher taxes and lower spending.

As in Greece, where two weeks of protests in December forced a government reshuffle, the street demonstrations have been mainly driven by young people angered by entrenched systems which seem to deny them any prospect of progress.

"We protest because we do not like the life in the country, we do not like the government, the whole bureaucracy," said Oksana Cherkishyan, 20, a student in Bulgaria, the European Union's poorest member and according to Transparency International its most corrupt.

Others are still hoping migration will boost their chances of employment: "My job prospects here are not too good -- more likely abroad,"said psychology student Orsolya Voros, 20, in Hungary.

High youth unemployment was a main driver for unrest in Greece, initially sparked by the police shooting of a youth in a traditionally rowdy Athens suburb.

General unemployment runs just above the EU average at 7.4 percent in Greece, but the figure is 21.2 percent for the 15-24 age group and 10.5 percent for those aged 25-34.

"The explosion conceals a compressed desperation," wrote Greek psychology professor Fotini Tsalikoglou in left-leaning newspaper Ta Nea on Dec. 8. "Many young people live with the unbearable knowledge that there is no future."

[Jan Klimkowski]

Intriguing choice of language, with Obama about to take office, from Warren Buffet....

Buffett Says the U.S. Is in Midst of an ‘Economic Pearl Harbor’

By Frank Connelly

Jan. 19 (Bloomberg) -- The U.S. is facing an “economic Pearl Harbor” that has spread fear throughout the country, billionaire investor Warren Buffett told Tom Brokaw in an interview broadcast yesterday on Dateline NBC.

“We have a negative feedback cycle going on right now,” Buffett said, according to a transcript of the interview on CNBC’s Web site. “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”

Buffett, the chairman of Berkshire Hathaway Inc., said Barack Obama is “the absolute right commander in chief” to guide the country through the financial crisis. Obama, 47, will be sworn in as the 44th U.S. president tomorrow in Washington.

He can “convey to the American people what needs to be done, not to expect miracles, that it’s going to take time,” Buffett, 78, said in the interview.

Buffett declined to predict how long the economy will remain under duress, except to say that he doesn’t expect a recovery to take five years. He contrasted the current economic crisis with the period “three or four years ago,” when “everybody lent you more and more on a house that kept going up, and you could keep spending money you didn’t have.”

Buffett said the economic slump is the worst since World War II, though not as severe as the Great Depression. He said “it’s never paid to bet against America,” and that the country would come through the crisis. “But it’s not always a smooth ride.”

http://www.bloomberg.com/apps/news?pid=n...lI4cKxPngg

[Peter Lemkin]

...interesting analogy, now that we know Pearl Harbor was not a surprise attack, but one known and 'approved' by both sides......for their own 'purposes'.

[Jan Klimkowski]

...interesting analogy, now that we know Pearl Harbor was not a surprise attack, but one known and 'approved' by both sides......for their own 'purposes'.

The Project for a New American Century goons lurve a bit of "new Pearl Harbor" too.

Oh wait... PNAC's "new Pearl Harbor" already happened. :hmmmm2:

[Jan Klimkowski]

Bear Stearns and Lehmann had AAA credit ratings shortly before they went :puke:

Standard & Poor's has stripped Spain of its coveted AAA status in the first such move against a top-rated country since the global crisis began, reflecting the deep damage suffered by Spanish public finances as the debt bubble bursts.

The credit-rating agency's downgrade comes at a delicate moment for Euroland's weaker bloc. Several states already face difficulties raising money on the bond markets. The yield spreads on Spanish debt rose yesterday to a post-EMU high of 122 basis points above German Bunds, though still below levels for Italy, Ireland and Greece.

Explaining the downgrade, S&P cited the "structural weaknesses in the Spanish economy" and predicted a long recession that will raise public debt by 18pc of GDP and may entail a huge bank bail-out.

Brussels predicted that unemployment in Spain would reach 19pc by next year, pushing the jobless total to near 4.5m. Opposition leader Mariano Rajoy called on finance minister Pedro Solbes to step down as a "patriotic duty". "This is a man who has thrown in the towel. He's given up, he's got no ideas left and no clue what to do next," he said.

Myriam Fernández, S&P's lead analyst, said Spain's euro membership provided stability but also tied Madrid's hands as it tries to respond to the crisis. "It doesn't have control over monetary policy and lacks the flexibility to correct its current account by devaluation," she said.

Alberto Mattelan, an economist at Inverseguros, said the key risk over the next two years is Spanish companies' debt load. "They are very dependent on external credit. At 10pc of GDP, it's the highest in Europe. There won't be a real recovery until 2011," he said.

Spanish politics may not wait that long. Some 35,000 trade unionists marched through Zaragoza, in the county's north-east, on Sunday to demand "job protection" after a clutch of factory closures in Aragon's industrial hub. It was the first big labour protest against the Socialist government of Jose Luis Zapatero. "We're paying the bill for this crisis and we are not going to pay the bill any longer," said union leader Julian Buey.

http://www.telegraph.co.uk/finance/finan...ating.html

[Jan Klimkowski]

The Torygraph doesn't have the right to ridicule or lecture anyone.

That said, they've now called time on Gordon Brown:

http://www.telegraph.co.uk/comment/colum...uptcy.html


Gordon Brown brings Britain to the edge of bankruptcy
Iain Martin says the Prime Minister hasn't 'saved the world' and now faces disgrace in the history books


By Iain Martin
Last Updated: 8:36AM GMT 20 Jan 2009

They don't know what they're doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.

Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their "financial innovation".

Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.

We're some way from a similar event. But do not underestimate the gravity of the emergency and potential for disgrace.

The Government's bail-out of the banks in October with £37 billion of taxpayers' money was supposed to have "saved the world", according to the PM, but now it is clear that it has not even saved the banks. Our money kept the show on the road for only three months.

As the Liberal Democrats' Treasury spokesman Vince Cable asks: where has the £37 billion gone? The answer, as Cable knows, is that it has disappeared down the plug hole.

It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those
liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of £1.8 trillion, three times annual UK government spending, against assets of £1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse.

Meanwhile, the assets are falling in value. This matters, because post-nationalisation these liabilities are now yours and
mine.

And they come piled on top of the rocketing national debt, charitably put at £630 billion, or 43 per cent of GDP. The true figure is much higher because the Government has used off-balance sheet accounting to hide commitments such as PFI projects.

Add to that record consumer indebtedness and Britain becomes extremely vulnerable. The markets have worked this out ahead of the politicians, as usual, and are wondering what to do next. If they decide our nation is a basket case, they will make it so.

The PM and the Chancellor , both looking a year older every day, tell us that for their next trick they will buy more bank shares, create a giant insurance scheme for bad debt, pledge to honour liabilities without limit, cross their fingers and hope it all works. The phrase "bottomless pit" springs to mind for a reason: that is what they have designed.

In this gloom, the Prime Minister has but one slender hope: that somehow, by force of personality, the new President Obama engineers a rapid American recovery restoring global confidence, energising the markets and making us all forget this bad dream.

Obama is talented but he is not a magician. Instead, Gordon Brown's nightmare, in which we are all trapped, is going to get much worse.

[Jan Klimkowski]

According to the scumbag speculators - who should be strung up and shot - the Pound Sterling is finished... kaput... dead as the dodo....

http://www.dailymail.co.uk/news/article-...w-low.html

Sterling's finished, says Soros partner as the pound plunges to new low

By Nicola Boden and Bill Condie
Last updated at 4:28 PM on 20th January 2009

Sterling plunged to a seven-year low against the dollar today as one of the world's top investors warned the currency was 'finished'.

The pound fell more than two cents to hit a low of $1.3965 as traders reacted to the Government's latest multi-billion bailout of the banking system.

It is the first time sterling has dropped below $1.40 since mid-2001 and is on track for its biggest one-day percentage fall against the dollar since late 1992.

Less than a year ago, it was still trading at $2. Today, it was also down against the euro and the Japanese yen.

Jim Rogers, who made his fortune when he founded the Quantum Fund with billionaire George Soros, warned investors they should start dumping the pound.

He said: 'I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK.'

Maurice Pomery from IdeaGlobal in London added: 'The British economy is in deep trouble and investors are in no mood to hang around and wait for a pick up.

'Some are becoming increasingly disturbed by the cost of all this and how it will ever get repaid.'

The latest plunge came as new figures showed inflation fell for the first time ever in the run-up to Christmas, raising the dreaded prospect of deflation.

The Consumer Price Index, which measures the annual rate of inflation, fell at its fastest rate since the 90s recession between November and December, down a whole percentage point to 3.1 per cent.

Huge high street sales and the Government's temporary VAT cut helped push it down from 4.1 per cent in November, the Office for National Statistics said.

The drop, although not as large as analysts had expected, heightened fears deflation is round the corner if the Government's second banking bailout fails.

A Treasury minister has already warned the scheme to use taxpayers' money to insure the 'toxic' bank debts could last nine years.

Lord Myners told the House of Lords last night that it needed to 'take the financial markets through this economic downturn and through and beyond the next cycle.

'So we are probably talking about policy durations of not less than five years, probably not longer than eight or nine years.'

The Retail Prices Index, which includes mortgage interest payments, also fell dramatically, down from three per cent to 0.9 - its fastest drop for 28 years.

Graeme Leach, chief economist at the Institute of Directors, said: 'Inflation is most definitely yesterday's story.

'Unless the huge stimulus from the VAT reduction, record low interest rates, a falling pound and the collapse in the oil price begin to take effect soon, the UK will be staring deflation in the face.'

CPI is still well above the Government's target of two per cent but has fallen significantly from its 5.2 per cent peak last September just as the credit crisis began.

The ONS said the cut in VAT had the biggest effect on inflation, knocking one per cent off CPI in December, with greater early Christmas discounting adding to the fall.

Two-thirds of all shops passed on the temporary 2.5 per cent reduction launched by the Government in November.

Cut-price promotions have already seen a huge deflation on clothing and footwear, down 10.3 per cent in December, its lowest level since official records began in 1997.

[Jan Klimkowski]

Here's Georgie the Currency Killer...

The bursting housing bubble "acted like a detonator that exploded a much larger bubble," George Soros said.

"The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger," he said.

http://www.reuters.com/article/businessN...sinessNews

U.S. stimulus not enough, TARP bailout misused: Soros

WASHINGTON (Reuters) - The stimulus plan the U.S. government is currently considering is necessary to help American citizens, but it will likely not reverse the country's economic decline, hedge fund manager and billionaire philanthropist George Soros said on Monday.

"It is not enough to turn the situation around," Soros told the U.S. Conference of Mayors about the $850 billion proposal to increase spending and cut taxes.

The plan, which was introduced in the U.S. House of Representatives last week and will likely be passed by next month, will help state and local governments balance their budgets and preserve important social services, Soros said.

At the same time, the $700 billion financial bailout known as TARP for Troubled Assets Relief Program had been carried out in a "haphazard and capricious way" and "without proper planning," he said.

"Unfortunately it was misused and the way it was done has poisoned the well. It has created tremendous ill will toward putting up more money," Soros said.

For more than a year, the United States has been crippled by a recession that was triggered by a housing market downturn. Last summer, financial institutions with exposures to securities backed by bad mortgages began to buckle.

The government stepped in with the TARP to inject liquidity into struggling firms. Last week, President-elect Barack Obama requested Congress release the second half of the funds.

Soros advocated using bailout money to recapitalize banks, but said the $350 billion would not be enough. He said such a move would take more than the entire $700 billion.

The bursting housing bubble "acted like a detonator that exploded a much larger bubble," he said.

"The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger," he said.

Soros said the United States needed "radical and unorthodox policy measures" to prevent a repeat of the Great Depression of the early 20th century that include recapitalizing banks and writing down the country's accumulated debt.

Also, he said, it should create more money to offset the collapse of credit and then rapidly pull that cash out of the system when inflation emerges. The government would have to be very nimble in the timing of such moves, he said.

"If they are successful...the deflationary pressures will be replaced by the specter of inflation and the authorities will have to drain the excess money from the economy almost as quickly as they pumped it in. Of the two operations the second one is going to be, politically, even more difficult than the first," he said.

[David Guyatt]

The idiocy of allowing naked short selling to begin again in the UK simply underlines either the ignorant and dangerous stupidity of Gordo (or his advisers) or that the City fix is in, imo.

When the government stands behind all the banks and major industry as it has clearly signaled (and the Bank of England are already buying UK corporate bonds as part of the government support strategy), this amounts to nothing more than an open invitation to the Hedge Fundsters to ferociously short sell in the satisfying knowledge that the government will be there as the buyer of last resort.

They sell, the price drops, the government buys, the prices rises. The gap between the two extremes is profit, profit, profit. This is "Black Wednesday" all over again when the markets knew the Tory Chancellor was shadowing the EMU. It's a win-win situation for the nasties and this time, they'll be directly draining money from the tax-payer.

I've yet to read what new regs the government has put in place to regulate the market in the light of recent events? Maybe I'm missing something but as far as I can see the only change is that the government now stands ready to support the banks and economic health of big corporations with handouts and that the FSA has said it will get tough with the markets (before it followed what it calls a "soft-touch" approach -- rather like cleaning and powdering a baby's botty I suppose).



There are no new regulations. It's all smoke and mirrors.

[David Guyatt]

Battle lines grow more obvious. Do we follow the US are Euro?

Cleggs phrase "volatile global capital flows" is clearly code for speculation, I think.

**

http://www.ft.com/cms/s/0/90908dc6-e72d-...ck_check=1

Euro could ‘anchor’ economy, says Clegg
By Alex Barker and George Parker
Published: January 20 2009 23:26 | Last updated: January 20 2009 23:26

Britain must prepare to ditch the pound and join the euro in order to salvage the public finances and prevent the “permanent decline” of the City, Nick Clegg, Liberal Democrat leader, said on Tuesday.

Predicting that debate over the euro could soon return with a vengeance, Mr Clegg argued that joining a “major reserve currency” would protect Britain from its “extremely dangerous” exposure to volatile global capital flows.

In an interview with the Financial Times, he said public opinion could “turn on its head” and swing against the pound as the “sheer brutality” of the crisis prompted the public to yearn for the stability offered by the eurozone.

“In that context of people just longing for clearer rules, for reliability, for stability, for certainty, you might just find that becoming part of the reserve currency on our doorstep might become part of the recipe . . . by which we put the British economy back together on a more sustainable footing.”

The Lib Dem leader’s attempt to put the euro back on the Westminster agenda is likely to be seen as a nuisance by nominally pro-European ministers and as a red rag to eurosceptic Conservatives. Polls still show the public staunchly against joining the single currency, in spite of the recent plunge of the pound.

Mr Clegg’s enthusiasm for the euro could cause problems for the Lib Dems as they prepare for the European elections in June. While the party is the biggest cheerleader for the European Union in the Commons, there are internal divisions over how loudly to express their passion for the European project.

Mr Clegg says he is not pushing for immediate entry and admits that the past housing bubble might have been even worse had Britain been tied to eurozone interest rates.

But he says the “page has been turned” in economic policymaking, highlighting the need for an “anchor” against the “incredibly vulnerable exposure to international financial markets”. Refusing to discuss the euro is a “failure of political leadership”, he says.

Turning to the public finances, he argues that preparing for currency union could also provide a vital path to fiscal sustainability.

“The strict rules attached to the euro could emerge as one of the best ways to persuade the markets that we will put Humpty Dumpty back together again, put the public finances in order”.

“The euro is no magic wand, the eurozone is not immune, but it is irresponsible not to appreciate the new vulnerabilities to the British economy, which are huge, which are immense,” he says.

“People will be asking themselves questions about the footloose, fancy-free world of City banking, but also whether it is right for the UK to be in quite such an overexposed environment where the currency is bobbing up and down violently.”

In a scathing attack on leading figures in the City, Mr Clegg slammed the “shameful elevation of greed and corporate overreach”, with chief executives hypnotised by the “vain belief that size matters”.

“It makes you livid, it beggars belief that the one industry that is supposed to count your money in and out cannot say how much money it has lost.”

Mr Clegg, whose father was a banker, on Tuesday told a breakfast of City luminaries that the debate over the euro would be essential in shaping the future of Britain’s financial sector.

“Limitless boom years in the City will never come back,” he warns. “The City will have to be reregulated, work at a more measured pace and seek protections for its vulnerability to the flows of capital.”

He accuses governments since the 1980s of being “abject in their obsequious desire to do what the City needed”.

Pandering to these vested interest, he says, created a flawed economic strategy that “made the rest of the British economy wholly subservient to the gravity-defying, golden-egg laying potential of the City”

Copyright The Financial Times Limited 2009