Defaulting banks - where will it stop?

[David Guyatt]

Allegedly the biggest queues in the US of A are currently for guns. Here's some anecdotal stuff from Ticker Forum - purely anecdotal, ya understand:

1) Got my concealed weapons permit renewed yesterday. There was a 4+ hour wait to get fingerprinted. The two women at the Probate Court said they went from doing 20 a month to over 1000 a month (Fulton County) in the past year.

2) My mom wanted to buy a small revolver this weekend. We couldn't find one even close to what she wanted (steel frame snubnose). We decided she would buy me a gun of equal value and she could take my 7-shot .357 snubnose and my whole stash of ammo and speedloaders.

3) The range is always packed. Average wait on the weekend for a lane is 1-2 hours. Most ranges are booked up as soon as they open since people are waiting at the door. My local range went from doing less than $700 in receipts some weeknights (including all sales and range fees) to averaging about ten times that on weeknights, and doing north of $25k each weekend. They've got 6-7 people working a store the size of my apartment and they are all busy, busy, busy.

4) Can't find ammo. Last year it was expensive to replace. In some calibers and loadings you can't replace it at any price.

5) The biggest online distributors of guns are sold out of nearly every model. The only models in stock are hunting weapons or target weapons. Most guns that can be concealed and formerly abundant pump-action shotguns and semi-automatic rifles are missing from the supply chain. You can find a few in stores but at insane prices . . . but I guess those are the prices now.

No wonder California wants to legalize pot and get everyone chilled...

Well yes, loadsa people forsee the complete breakdown in society because of the collapse of the banking system that they believe will eventually leading to rampaging hordes, food shortages, fuel shortages, no utilities and no effective policing or state control.

In such a scenario you plan to take care of yourself because the state no longer amounts to much at all.

I imagine that would be the thinking anyway...

[Jan Klimkowski]

Hmmm....

Desperate times call for trashy solutions:

http://www.reuters.com/article/governmen...4420090301

UPDATE 1-EU leaders back financial supervision blueprint
Sun Mar 1, 2009 2:01pm EST

By Huw Jones

BRUSSELS, March 1 (Reuters) - EU leaders backed on Sunday a blueprint for streamlining how banks are supervised to spot excessive risk earlier to better protect investors.

An emergency summit of European Union leaders on the economic crisis stressed the need to improve regulation and supervision of financial institutions.

They welcomed recommendations last week from a high level group headed by former Bank of France Governor Jacques de Larosiere and looked at how cross-border banks, insurers and markets could be better supervised. [ID:nLP506733]

That group recommended setting up two new broad supervisory bodies in the EU -- one chaired by the ECB to monitor system-wide risks, the other to combine the efforts of national supervisors.

"We encourage the European Commission to rapidly implement the de Larosiere report," German Chancellor, Angela Merkel told a news conference at the end of the summit.

French President Nicolas Sarkozy said everyone at the summit considered the report excellent and he wanted speedy action at the EU's next summit on March 19-20.

"We all agree it was important that this takes effect at the next European Council in March. We will take a decision," Sarkozy told reporters.

Gordon Brown, prime minister of Britain, the bloc's biggest financial centre, also welcomed the de Larosiere report, an EU diplomat said.

The Commission, which has sole powers to propose changes to financial market laws, will publish its response to de Larosiere on March 4 for the March summit to discuss.

"There was general agreement on the findings of the high level group I established. For a Europe without barriers we need a Europe with rules," European Commission President, Jose Manuel Barroso, told a news conference.

Sunday's summit also agreed to back the Commission's guidelines from last week on how EU states can deal with toxic assets on bank balance sheets which undermine investor confidence and leave banks fearful of lending to each other.

"On impaired assets, there was overall agreement, and I think a formal agreement can be taken now at the formal summit (mid-March) on those guidelines," Barroso said.

The summit sought to reassure countries which feared that the rescue of banks would affect the lending capacity of their branches elsewhere in the bloc.

"Support for parent banks should not imply any restrictions on daughter banks. We were able to agree to that," Barroso said.

Mirek Topolanek, prime minister of EU president the Czech Republic said: "We should now be able to move forward with a restructuring of the whole bank sector."

The summit later in March will prepare the EU's position for a G20 summit in April on financial regulatory reform.

"I think it is time to deal with the problems that arise both through regulatory havens and tax havens," British Prime Minister Gordon Brown told reporters.

His Irish counterpart, Brian Cowen, said leaders on Sunday saw regulatory reform as a matter of urgency.

BASHING BASEL

EU rules that determine how much capital banks set aside to cover risk should also be changed to make lending to the economy easier, Merkel said.

The rules, known as Basel II, were globally agreed upon and are applied in the European Union through the bloc's bank capital requirements law to make markets safer for investors.

Critics of Basel II say when a bank's assets become untradeable or fall in value due to plunging stock markets, banks are forced to top up their capital and have less cash for lending to the economy.

"We must see if we can rein in the pro-cyclical effects of Basel II so that credit capabilities for the auto sector and other sectors in difficult situations are not made even worse by Basel II," Merkel told reporters as she arrived at the summit.

The Basel Committee of banking supervisors and central bankers, which drew up the rules, is currently working on beefing them up.

The EU is already reforming its bank capital requirements rules to crack down on lightly regulated securitised products, and another wave of reforms are anticipated later this year. (Additional reporting by Adrian Croft and Mark John; editing by Ingrid Melander, Will Waterman and Bernard Orr)

[Jan Klimkowski]

But there's a big Teutonic problem:

http://online.wsj.com/article/SB12359143...od=testMod

* MARCH 1, 2009, 4:51 P.M. ET

European Union Rejects Call for Eastern Europe Bailout

By PAUL HANNON and LEOS ROUSEK

BRUSSELS -- Some eastern European leaders on Sunday joined Germany in opposing the establishment of a European Union fund to bail out countries in the region, despite signs of growing financial strains in their countries.

Concluding their summit here, the leaders from the bloc's 27 countries also said that first steps to reform the EU's system for regulating and supervising banks should be taken by early June.

Hungary came to the summit urging a €190 billion ($242 billion) aid package that would provide central banks in central and eastern Europe with much-needed euros and help fund and recapitalize commercial banks.

Germany, the EU's biggest economy, firmly opposed the proposal. So did some eastern European governments, fearing it would lead to the partitioning of Europe along economic lines. Some western EU economies are just as financially threatened, they said.

"The situation is very different" in Europe's economies, German Chancellor Angela Merkel said. "We cannot compare Slovakia nor Slovenia with Hungary."

Merkel said that countries could still receive aid on a country-by-country basis.

In presenting the plan, Hungarian Prime Minister Ferenc Gyurcsany warned that without aid, a new "iron curtain" would descend, once again separating east from west.

But other eastern European leaders argued that not all of the economies in the region face the same problems as Hungary, and in some cases, western European economies are in greater difficulty.

Setting up a fund just to aid eastern Europe would effectively split the bloc in two, they argued.

"I don't believe it is necessary now to separate countries in eastern Europe from the rest of the EU," said Czech Prime Minister Mirek Topolanek.

Polish Prime Minister Donald Tusk said that while it was important for EU members to demonstrate solidarity, that must be applied for the whole of Europe.

"Our position is that we must differentiate between countries that are in difficulties and those that are not," Polish Finance Minister Jacek Rostowski said.

"We are in favor of supporting countries in need, like Hungary," Rostowski said. "But there are a number of countries in central and eastern Europe that are not in need, such as Poland, the Czech Republic, and Slovakia. And there are countries in the euro zone that need help."

In their closing statement, EU leaders said they recognized that there were "clear differences" between eastern European members.

Western European members also agreed that in providing support to their own banks, they don't prevent those funds being used to help their subsidiaries in eastern Europe.

"Support for parent banks should not imply any restrictions on the activities of subsidiaries in EU host countries," the EU leaders said.

According to the statement, the leaders committed to "getting the real economy back on track by making the maximum possible use of the single market, which is the engine for recovery."

They also said that restoring credit flows is crucial if the fiscal stimulus packages announced by the various EU members are to stimulate demand and aid the recovery.

When formulating plans to deal with "impaired banking assets" -- otherwise known as toxic assets -- governments must ensure that they don't give their banks an unfair competitive advantage, the leaders agreed.

On bank regulatory reform, a high-level European panel last week called for the creation of a new regional supervisory council responsible for monitoring broader systemic risks, and for a gradual harmonization of regulatory rules within the EU.

The panel recommended leaving the day-to-day regulation of banks and other financial institutions to national regulators, in a move that disappointed some European policy makers who envisaged a central regulator.

In their statement, EU leaders said they "welcome the contribution" made by the panel.
—David McQuaid, Gabriele Parussini, Peppi Kiviniemi, Carolyn Henson, Matthew Dalton and Alessandro Torello contributed to this article.

[Jan Klimkowski]

That's as clear as muddy Panzer tracks then...

tupido3:

[Jan Klimkowski]

The following article, written four months ago, is now being seriously debated by the luminaries on Karl Denninger's Ticker Forum.

The bottom line is the suggestion that we're heading not for the Wall Street Crash and the Great Depression, but for a cataclysmic crash along the lines of 1873.

October 14, 2008, 9:26 am
New York and the Panic of 1873
By Jennifer 8. Lee

Comparisons to the stock market crash of 1929 were tossed around last week as the Dow Jones industrial average had its worst week in at least 75 years. Despite a big rally on Monday after countries around the world vowed to inject new capital into banks, anxieties linger about the long-term effects, particularly in New York, where the city’s economic fate is so closely intertwined with what happens on Wall Street.

In trying to make sense of recent events, a historian at the College of William and Mary has argued the crisis is not unlike the Panic of 1873, when rampant real estate speculation culminated in a credit crunch, and banking failures that led to broad panic in the stock markets. That crash lasted more than four years.

While the 1929 stock market collapse is widely perceived by economists to have played a role in the economic contraction, the stock market collapse in 1873 — much like the one now — came after a building boom created by easily obtainable mortgages and an ensuing banking crisis, said Prof. Scott Reynolds Nelson, whose piece in The Chronicle of Higher Education has been widely translated into Korean, Spanish, Italian and Russian (and noted in our sister blog, Economix).

“Most people don’t know a lot about it, but people who do know a lot about it are really creeped out,” Professor Nelson said of the 1873 crisis, which resulted in a near total collapse of the financial system.

Since his article was published, Professor Nelson, who specializes in 19th-century history, has gotten many calls from Wall Street observers asking about how the 1873 crisis played out. He has even received an offer to write a financial column for the Motley Fool, which he found amusing.

“Can you imagine how bizarre it would be for a 19th-century historian to write about the lessons of the day?” he said.

A visit to Google Books and The Times’s archives helps trace the arc of the 1873 crash.

Before the panic, railroad and real estate speculation had been rampant [pdf] — and values had multiplied to unheard of heights. Credit was easy, and new financial instruments were created, including new types of railroad bonds whose values no one could be sure of.

American securities were traded worldwide and about two-thirds of those bonds were held overseas, according to Professor Nelson.

As one historian, James Ford Rhodes, who lived through the period, observed

Prosperity was written all over the face of things. Manufacturers were busy workmen in demand. Streets and shops were crowded and everywhere new buildings going up. Prices of commodities were in high, demand pretty good. Everybody seemed to be making money.

Yet, there were already financial problems in Europe.

The panic here started on a Thursday, Sept. 18, when the prominent house that had essentially financed the Civil War, Jay Cooke & Company, had a cash crunch — in part because of the collapse of the ill-conceived Northern Pacific Railroad — and said it would suspend payments on the notes it had issued — akin to declaring bankruptcy. The announcement hit Wall Street with the force of a thunderbolt from a clear sky. As the Times reported at the time:

The brokers stood perfectly thunderstruck for a moment, and then there was a general run to notify the different houses of Wall Street of the failure. The brokers surged out of the Exchange, stumbling pell mell over one another in general confusion and reached their offices in race horse time. The members of the firms who were surprised by this announcement had no time to deliberate. The bear clique was already selling the market down in the Exchange, and prices were declining frightfully.

Within a day, other financial houses began to fail, including Fisk and Hatch, believed to be “one of the richest and soundest in New York.” The names of 18 other companies [pdf] unable to stand by their contracts were read off, leading to greater panic, a scene where “jobbers squared off at each other and screamed and yelled violently, flinging their arms around and producing a scene which bedlam itself could not equal.”

The government announced it would buy $10 million in bonds [pdf] to try to inject confidence into the financial system. Investors started trading the next day, a Saturday, optimistic that the panic had subsided [pdf]. But it hadn’t and on that day, Sept. 20, the New York Stock Exchange suspended trading for the first time in its history.

On Sunday morning, President Ulysses S. Grant and the treasury secretary, William A. Richardson, came to New York, spending the day in consultation with Cornelius Vanderbilt, Henry Clews and other prominent business men to cobble together a solution. Businessmen, bankers and merchants flocked to the Fifth Avenue Hotel, beseeching President Grant to increase the currency by every means in his power, declaring that unless the government came to the rescue nothing could save the country from bankruptcy and ruin. Meanwhile, banking houses in cities outside New York also failed.

Meanwhile, the government, having bought about $13 million in bonds, had reached the end of its tether and stopped this mode of relief.

With the credit markets frozen, at one point the overnight lending rate shot to a quarter of a percentage point, Professor Nelson said, which annualized is about 148 percent. The top national banks of New York formed a Clearing House Committee [pdf], pooling their cash and collateral into a common fund and issuing loan certificates against it that would operate like cash. This became the basis for the reconstruction of the credit markets.

Eventually, on Wall Street, the panic “had run its course, like a great fire that burned itself out” [pdf]. But it took about 40 days [pdf]. During the full course of the crisis, 73 members of the stock exchange and 5,000 mercantile companies [pdf] failed.

Even though the Wall Street panic was over, the commercial crisis across the country was just beginning because of the lingering credit crunch. Even two months later in Richmond, Va., just before Election Day, the effects of the economic crash were quite visible with shuttered tobacco companies, all-but-closed flour mills and a retail slowdown.

A number of railroads defaulted in the payment of the interest on their bonds (and railroad construction dropped from 7,000 miles in 1873 to 1,700 in 1875) [pdf]. Businesses with good credit curtailed their purchases, while those with bad credit had no buying power. The closing of cotton and iron mills and other manufacturers threw hordes of laborers into unemployment, many of them former Civil War soldiers. They became transients, and the words “tramp” and “bum” became commonplace American terms. Relief rolls grew rapidly in major cities, with 25 percent unemployment in New York City alone.

The panic was not without political consequences. The collapse of farm prices set the scene for an agrarian insurgency. Disenchanted farmers who believed that the government’s mismanaged currency policy was determined by Eastern bankers and industrialists eventually formed the short-lived Populist Party, which called for a graduated income tax, pensions and nationalizing transportation and communication.

This recession hit industrial workers particularly bad. A bitter antagonism emerged between workers and the leaders of banking and manufacturing, which led to labor unrest that continued through the following decades, resulting in some of the most violent strikes in American history. In January 1874, police violently broke up a demonstration by thousands of unemployed workers in New York’s Tompkins Square Park, which was the largest demonstration in the city’s history.

The financial crisis led Congress to pass a bill in 1874 that would allow for more printing of currency to spur inflation and reduce the real value of debts. In a surprise move that was viewed by many as the most important event of his administration to that point, President Grant vetoed the bill.

In early 1875, Congress passed a bill, known as the Specie Resumption Act, which would back United States currency with gold. By pegging the dollar against hard currency, the act helped curb inflation, tame speculation and produce a stable dollar. It turned the Republican Party toward a stance of conservative fiscal policies.

The American and world economy did recover — slowly, but it took more than four years of depression. A 1911 New York Times magazine article assessed the panic, observing in a perhaps overly lyrical way:

However, as the sun always shines after rain, so conditions began to improve in 1877, and by 1878 there was a better feeling throughout the nation.

Confidence returned slowly, but it did return, and the tide of prosperity rose steadily until its inspiration had penetrated every city and hamlet in the country. The fertile lands of the West and South brought forth bountiful harvests, and ocean commerce expanded under the stimulus of good crops. The excess of American exports was only one of the features of this golden period in our affairs, which broke all records.

Stocks began their rise in spring of 1878, and in 1879, men of means awoke suddenly to the fact that railroads were of value as investments after all, and a marvelous buying of securities sprang up, which electrified the financial world and led to a boom in prices.”

The article argued (perhaps too simplistically) that the panic ultimately helped to impose belt-tightening for consumers and businesses, a moderation that proved healthy for the post-panic economy: “During the depression of the 1870s, much wealth had been accumulated and people had learned to be economical and more efficient.”

An optimist could perhaps argue that the current financial crisis will also cause consumers and businesses to change their habits. Indeed, some changes are already happening: The last independent investment banks have agreed to live with more regulations as they become bank holding companies, and consumer debt dropped in August, the first time it has fallen in a decade.

http://cityroom.blogs.nytimes.com/2008/1...c-of-1873/

[Mark Stapleton]

Interesting, Jan. I didn't know about the crash of 1873.

The problem now compared with past economic collapses is that in the past recovery was made possible by the exploitation of natural resources and I doubt this escape route is still available.

Crops are failing, fish stocks dwindling, extreme weather is becoming a lethal threat. This poor old planet is crying out for help. The only thing we have in abundance is people. The planet is infested with human beings. If we can't feed the current 6-7 billion inhabitants, then there's no hope for the 9 billion inhabitants predicted by 2050.

We are already beyond the planet's carrying capacity. If modern economists can't accept this fact, then it's a failed ideology, operating beyond the boundaries nature has imposed. Religion has a lot to answer for too, but that's for another time and place.

It's looking more likely that the only viable recovery might be a soylent green led recovery.

Of course, I'm not advocating this. I'm just saying this is where we are at the moment, sadly.

[Magda Hassan]

There is enough food to feed everyone. There is enough of everything for everyone. It is not that the planet is infested with human beings it is that it is infested with a particular type of mentality and that is especially true for many of those that see themselves as 'leaders', 'rulers', 'elite' etc. They have never encouraged self sufficiency or ever distributed the socially created resources, products and its profits in an equitable way. Because that is all this is. A matter of organisation and distribution. It is man made not a natural disaster. As we can see there is a total lack of imagination about what to do for the people and the best they can do is bail out banks, insurance companies and car makers which is akin to rearranging the deck chairs on the Titanic. Instead of spending their money on recreating feudalism and setting up Madrasas and and underwriting fundamentalist religions of all kinds they could have spent it on educating the female half of the world. Where ever the female population has high literacy and education and autonomy there are low birth rates.

[Peter Lemkin]

I think the current [just warming-up] global economic collapse is 'their' answer of how to deal with us. Not far from Hitler's way of dealing with some he didn't like - or Stalin or other of their ilk. I'd bet this whole thing was planned, but DAMN SURE it is NOW being used as a weapon against all but the most elite of the power elite....... [we will be easy to control when on our knees - and many will perish in the interim, as well]

Dueling positions all....:fight:

From an Environmental, Economic, Political, and Moral viewpoint I think the next 1-3 decades will decide all for humanity on this small Planet.:questionmark: Time is up for homo ovis/sapiens. Choose.

[Jan Klimkowski]

Genesis (Karl Denninger of Market Ticker) reports that market insiders have placed bets on GE being bankrupt by the third week of June, 2009.

Yes. General Electric.

Of course, Wall Street's beloved GE CEO, Jack Welch, increasingly steered GE away from making things and into using its hard-earned AAA credit rating to become the loan shark of last resort. So the hubris of Welch means that GE may indeed deserve its bankruptcy.

NB there are charts at the url:

http://market-ticker.org/archives/846-He...es-GE.html

This is what is going to happen, as I noted in BlogTalkRadio yesterday afternoon, if "The Bezzle" is not removed from our system NOW.



Take a look at that folks. That's a snapshot of today's volume for June GE $2.50 PUTs.

That's over 52,000 contracts traded today, controlling 5.2 million shares.

They were purchased for about 30 cents, which means that the price has to be under $2.20 for them to go "in the money".

This is a bankruptcy bet on General Electric by the third week of June.

That's right - General Electric.

Folks, this is precisely what I was talking about last night on BlogTalkRadio. Go listen to my monologue on "The Bezzle", right at the front of the show, very carefully.

This is precisely what has happened with many financial institutions already and what happened to hundreds of companies during the 00-03 Tech Wreck.

General Electric is a stalwart of our financial and industrial system. A bankruptcy by GE would be catastrophic for our economy and capital markets. The follow-on damage with suppliers and customers would be even worse.

If "The Bezzle" is not brought under control right damn now this is what is going to to happen to company after company. We WILL see the S&P trade at one hundred if we start to see firms like GE go down the toilet.

Ladies and Gentlemen, Legislators and President Obama, your time is running out to change direction.

The number of people who have told me that I am wasting my time continues to grow.

You folks who are sending me those emails are missing the point of my activities in this regard.

It is my intention to guarantee that these actions and intentional and willful blindness is documented so that when these failures occur, which I have predicted and provided a path by which they can be prevented, occur due to the intentional and willful malfeasance of our lawmakers and policy "wonks", the people can correctly hold to account the people responsible for their unemployment, homelessness and hunger.

When firms like GE come under attack like this what I am talking about here is coming - imminently.

Either behavior changes RIGHT NOW or the outcome will become inevitable.

[Mark Stapleton]

There is enough food to feed everyone. There is enough of everything for everyone. It is not that the planet is infested with human beings it is that it is infested with a particular type of mentality and that is especially true for many of those that see themselves as 'leaders', 'rulers', 'elite' etc. They have never encouraged self sufficiency or ever distributed the socially created resources, products and its profits in an equitable way. Because that is all this is. A matter of organisation and distribution. It is man made not a natural disaster. As we can see there is a total lack of imagination about what to do for the people and the best they can do is bail out banks, insurance companies and car makers which is akin to rearranging the deck chairs on the Titanic. Instead of spending their money on recreating feudalism and setting up Madrasas and and underwriting fundamentalist religions of all kinds they could have spent it on educating the female half of the world. Where ever the female population has high literacy and education and autonomy there are low birth rates.

While I agree with you about the lack of an adequate global food distribution system, I disagree about there being adequate food for everyone.

If, as some scientists suggest, global warming results in the collapse of the gulf stream, then the ocean will cease to function as a food source.