So, after months of “pressure” from the “regulators,” Citigroup and Merrill Lynch agreed to compensate thousands of investors who are stuck in the frozen Auction-Rate Securities market.

Citigroup agreed to buy back $7 billion worth of ARS from retail investors in the next three months, while Merrill agreed to buy back $10 billion worth at the start of next year.

UBS is still in discussions with the regulators about their own similar deal.

Many of the world’s biggest banks are proposing reforms that would limit the size and scope of their businesses in one of the most dramatic responses to the credit crisis.

The proposals would hold down the number of investors who can buy complex financial products, bring large swathes of the derivatives markets into regulators’ sights and call on banks to spend more on technology and risk management.

–

Too little, too late.

The Sunday Times reports that the Royal Bank of Scotland is about to announce a £1 billion loss at least for the first half of the year, with anal-ists warning that it could slide to £1.7 billion. That, they say, is the largest loss in UK banking history.

So I’m adding RBS to the UK watch list:

Barclays
Bradford & Bingley
HBOS
RBS

August is going to be an interesting month.

I wonder how many times I’ll get to use that headline? First Priority joins the list.

Failed Banks So far:

Northern Rock
Bear Stearns
IndyMac
First Integrity Bank
ANB Financial
Hume Bank
Douglas National Bank
First Heritage Bank
First National Bank of Nevada
First Priority Bank

Forthcoming failures(?):

Barclays (senior execs jumping ship)
Bradford & Bingley
HBOS
Downey Financial
Corus Bankshares
Doral Financial
FirstFed Financial
Oriental Financial
BankUnited Financial
Washington Mutual

… etc.

Apparently, banks and building societies are to blame for the economic turmoil, with the finger of public opinion being pointed at the biggest players, in particular.

Bloody cheek! While the banks are clearly corrupt, greedy, almost Satanic in their world view, they are not to blame for anything. Just as Monsanto is not to blame for Aspartame becoming the most widely consumed food additive.

JOE PUBLIC IS TO BLAME!

Yes, folks, instead of staring wide eyed around yourselves to find an excuse for your increasingly shitty lives, why not look in the mirror for a change and take some personal responsibility? No-one forced you to speculate wildly on the housing market, remortgage to the hilt to buy your gold plated bath. No-one forced you to run up massive credit card bills at Gordon Ramsay restaurants. Wise up! And while you’re at it, how about taking some responsibility for your children as well?

With the news today that two more US banks have failed, I thought it would be useful to see where we are with the continuing collapse of the global financial system.

Failed Banks So far:

Northern Rock
Bear Stearns
IndyMac
First Integrity Bank
ANB Financial
Hume Bank
Douglas National Bank
First Heritage Bank
First National Bank of Nevada

Forthcoming failures(?):

Barclays (senior execs jumping ship right now!)
Bradford & Bingley
HBOS
Downey Financial
Corus Bankshares
Doral Financial
FirstFed Financial
Oriental Financial
BankUnited Financial
Washington Mutual

… and many more. Keep you posted.

What with the British Army putting so much effort since 2001 into protecting opium poppy production in Afghanistan, resulting in record production, the British government obviously feels the need to improve the retail end of the market.

So in an otherwise bland budget speech today, Alistair Darling added 4p tax on a pint of beer, 14p on a bottle of wine and 55p on a bottle of spirits.

I wonder what the result will be, in these days of wildly increasing household bills? Does Darling really think he will increase tax revenues with this move? Or could it be that people will feel more inclined to spend their weekend entertainment money on the range of now cheaper-than-beer illegal drugs?

I think so. Good job, Al.

According to my MP, in a letter to me, there is no hyperinflationary pressure in the global economy. He should know … he’s on David Cameron’s Shadow Treasury team.

Oh dear. Apparently he doesn’t know, because he’s wrong.

Commodity inflation is out of control. Almost all commodity indices were up over 12% in February, and up over 18% since the start of 2008.

Taking a longer term view, wheat futures are 120% above 12 months ago, corn 20%, soybeans 80%, rough rice 55%, and platinum 80%.

The question is, where is the pressure on commodities coming from?

The obvious first point to make is that since most commodities are denominated in US dollars, that the collapse of the value of the dollar clearly has had an impact. However, the dollar is only about 4% lower against Sterling compared to 12 months ago.

Globally, there is nothing to worry about with stocks of crude oil, petrol and natural gas, so the fact that OPEC isn’t doing anything to increase production further to ease price pressures is no surprise.

Metals, on the other hand, have falling stock levels. The same goes for soft agriculturals and grains, which, sadly, have the added pressure of bio-foolery to cope with.

Finally, meat, is directly affected by the price of the grains necessary to grow the livestock.

However, the main pressure on commodity prices is coming from the clear realisation that the global financial system is in an unrecoverable mess. When complex financial instruments are no longer seen as good places for long term investment, and when the collapse of those instruments filters down to traditional paper assets, such as equities, then real physical goods is where the money goes. People seem to be remembering that the economy is physical!

$150 billion has been pumped into commodities markets since the start of the year by fund managers hedging against the (insane) explosive growth in the world’s money supply. The continuing falls in the dollar, along with “difficult” fixed income and equity market conditions, are compounding this effect.

So don’t expect to see commodity inflation go away any time soon. Goldman Sachs predict $200 a barrel oil in the not too distant future. And so, I have a message for David Gauke: pull your head out of your ass. Hyperinflation is here, and its going to hurt like buggery.

In a move which can only be compared to Dick Cheney’s launching of middle east wars, and then profiting by them via Haliburton, Alan Greenspan has taken a “consultative” role with Paulson & Co, a New York based hedge fund which profits handsomely from the housing collapse that Greenspan created.

Now that the new year has begun, banks are having to open their books to external auditors. Although many banks have admitted to huge losses during Q4 of 2007 already, the auditors seem to be finding that these admitted figures don’t tally with the reality of the balance sheets.

Reality is dawning that bank losses extend beyond the sub-prime mortgage crisis. A new crisis has been identified - that of consumer spending and its associated credit card debt. Now that home owners are no longer able to pull equity out of their properties to support their corrupt lifestyles, they have stopped spending. While this is bad for our “consumer” economy, it is worse for the banks, as home owners begin to default on credit card repayments.

The Washington Post yesterday quoted Joe Brusuelas, chief economist of the economic research firm IdeaGlobal, who said “We haven’t even scratched the surface of what the losses [in the banking sector] will be. I don’t think we’re anywhere near the end. Rather, we’re still at the beginning of this.”

So, then, we finally have two aspects of the banking disaster in the public eye. We could wait a little longer, until the reality of the unpayability of hedge fund/derivative debt, LBO fund debt, monoline insurance debt and national debt begins to bite.

We could wait and see. Or, we could recognise the truth now … that we are already in a recession. We are heading for a depression!

This needs to be dealt with now. But how? And by whom? The last time there was a global economic depression, this was the commentary in the news**:

“Stock prices have reached what looks like a permanently high plateau.” - Irving Fisher, Oct. 17, 1929

“There will be no interruption of our permanent prosperity.” - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

“I have no fear of another comparable decline.” - Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

“In most of the cities and towns of this country, this Wall Street panic will have no effect.” - Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

“I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.” - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

“…despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression…” - Harvard Economic Society (HES), November 2, 1929

“For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over.” - Business Week, November 2, 1929

“This crash is not going to have much effect on business.” - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“Financial storm definitely passed.” - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

“Hysteria has now disappeared from Wall Street.” - The Times of London, November 2, 1929

“… a serious depression seems improbable” - Harvard Economic Society, November 10, 1929

“This is the time to buy stocks.” - R. W. McNeal, market analyst, New York Herald Tribune, October 30, 1929

“Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.” - R. W. McNeal, October 1929

“[1930 will be] a splendid employment year.” - U.S. Dept. of Labor, New Year’s Forecast, December 1929

“The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin.” - Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

Whether or not the majority of people believed what they were reading, they didn’t act. Then it was too late …

“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.” - President F.D. Roosevelt, 1933

Reading down through these quotes, they don’t seem so different in substance to those of today. The question is, then, are we likely to see the bankers coming up with a plan, or their lackeys in Parliament?

The world’s economic woes can be fixed, but only if we act. The solution can only come from us - the people who have average household incomes or less. We are the (increasing) majority, and will be suffering most in the coming months and years. We need to be organising around principles to maintain social stability and the general welfare of the people of the nation.

We must require action from our elected representatives which will give absolute priority to the continuity of the essential functions of government (foreign wars, removal of civil liberties are not essential!), and which will give equal priority to maintaining the function of basic economic infrastructure, agriculture, manufacturing, and the distribution of goods and services essential for the lives of people and households.

There must be a moratorium on home repossessions. Remember, it’s going to be people renting properties who will be hardest hit by repossessions, as the landlord allows his buy-to-let mortgage to go to the wall first, in order to try and keep the primary home.

This should go hand in hand with an absolute guarantee of the bank deposits of individuals and small businesses, and protection of the high street bank branches which are necessary for a functioning economy. Any section of a bank (or private company, for that matter) involved in speculative activity should be offered no protection whatsoever.

The National Health Service must be maintained.

There must be an end to the so-called “independent” central banking system. Central bank issued currency must be replaced with government issued credit, which will primarily finance projects which develop our basic economic infrastructure: water management and general sanitation; mass transport of freight and passengers; power, with primary influence on nuclear and in the future, fusion; basic urban infrastructure; national and international mass systems of education, science and healthcare. Large scale, long term investment in these improvements in basic economic infrastructure supplies the foundation upon which the potential for real economic growth depends, and in contrast to the present solution offered by the central banks of dropping multi-billion pound loans on the financial system, financing these projects in this way is non-inflationary.

Generally, the rule should be that Government should stay as far out of the day to day affairs of people and small businesses as possible.

So don’t sit on your hands. Organise locally. Build up your group of collaborators, and reach out to others of a similar mind. Make sure that your MP recognises that he works for you, not for the financiers and cartels. Make sure that your MP realises that you will not tolerate anyone who works in the hope of a future payoff.

Time is short, but there is still time.

–

** Thanks to contracycle at the Politics and Current Affairs forums for this.

Yesterday evening’s ITV news reported that the majority of British people see David Cameron as more of a leader than Gordon Brown. This view is echoed by the Telegraph, which seems to be leading the anti-Brown campaign these days.

The Telegraph, that City of London mouthpiece, wants to get rid of the “weak kneed” Fabian, because they see Cameron as the “tough guy” who will steer Britain through the austerity needed to deal with the collapsing economy, and push imperialist provocations abroad. In an effort to bolster Cameron’s chances by questioning Brown’s capabilities when the going gets tough, the Telegraph’s Ambrose Prichard has been amazingly honest about the state of the economy, with a steady stream of doom and gloom articles in recent weeks and months.

Prichard’s honesty is echoed from time to time by other City of London mouthpieces. Jacques Attali, writing on the 3rd of January in the French financial weekly, L’Express, said “It is the whole world which seems to be going over the precipice … as if a collision of trains going at full speed was being prepared. As if, in a vortex emptying the bottom of a bathtub … [T]here is no stability in sight for the global economy.”

He went on, “Beyond the subprimes, many other debts are circulating and no one knows how the banks will be able to honor them: those of hedge funds, of monoline insurers, of LBO funds, and of holders of credit cards, which form a pyramid amounting to much more than the bank’s own funds, which would have been closed a long time ago, had the central banks not agreed to refinance them all without restraint.”

However, unlike Prichard, Attali dared to identify the link between the proceeding financial collapse and the eruption of chaos in an increasing number of nations of this planet. “That the murder of an opposition leader of a country of the South [Pakistan] would so gravely shake the Asian financial markets, and with them those of the entire world, reveals the extreme fragility of the planet.”

Attali is not the only commentator to notice a link between financial collapse and increasing chaos. In his homily for the Feast of Epiphany, the Pope said “It cannot be said that globalisation is synonymous with world order, it is the opposite. Conflicts for world order and the pillaging of [natural] resources, water, and raw materials make the work of those who strive for a just and fair world, all the more difficult.”

And in South Africa, Thabo Mbeki’s mother, wrote in a letter to the South African people, published in the Johannesburg Sunday Times. “The anarchic tendencies that have taken root in the ANC lately,” she wrote, “coupled with the blatant disrespect towards the highest office in the land, raise high suspicions of a Third Force in operation … South Africa wake up. Zemk’iinkomo Magwala Ndini!” (The cattle are being stolen, you bloody cowards!)

The question is, who is stealing the cattle?

Since the summer, it is estimated that $1.5 trillion in bank assets have been wiped off the books, and an equal amount of equity has evaporated on world stock markets. The idea that the crisis can be “solved” by hyperinflationary injections of cash is insane. If anything the crisis is only going to get worse, with a collapse of the insurance sector and a popping of the derivatives bubble.

And it is in this context that the globally increasing levels of assassination, ethnic cleansing, tribal conflict and general chaos, can be understood. None of these is a local or regional event. They are all part of a single strategy aimed at one objective: the destruction of nation states resulting in the consolidation of the raw material wealth of the planet, in the hands of City of London based private cartels - today’s British Empire.

It’s not hard to see the shape of the “invisible” British Empire if you shine a light in the right places:

• Virtually all the offshore financial centres that dominate this globalised, deregulated planet, are located in British or Dutch colonies, like the Cayman Islands, the Dutch Antilles, the Isle of Man, the Grand Bahamas, etc.

• Britain has a history of working closely with the raw materials cartels, through the private mercenary industry, particurly Executive Outcomes, Sandline, Defence Systems Ltd. These cartels already own the lion’s share of the precious metal wealth of Africa, Australia, and South America.

• British counterinsurgency methods, pioneered during the 18th and 19th Century heyday of the British East India Company, are still practiced on a global scale, by British intelligence operatives and “former” officers, now operating under private cover. In fact, it could be argued that the privatation of large sections of the Ministry of Defence and the secret services in recent years is just a reversal of the nationalisation of the British East India company and its intelligence organisation begun by Lord Shelburne.

• The Commonwealth, made up of 53 nations spanning the globe, accounting for one-fifth of the land mass of the Earth, and a very high percentage of its strategic resources and population. Though nominally an alliance of independent states, the Commonwealth was founded in the late 19th Century as a perpetuation of the British Empire.

“If you’re looking for the origins of Kenya’s ethnic tensions, look to its colonial past,” wrote Africa specialist Caroline Elkins in the Washington Post on the 6th of January. “Far from leaving behind democratic institutions and cultures, Britain bequeathed to its former colonies corrupted and corruptible governments … Added to this was a distinctly colonial view of the rule of law, which saw the British leave behind legal systems that facilitated tyranny, oppression and poverty rather than open, accountable governments. And compounding these legacies was Britain’s famous imperial policy of ‘divide and rule,’ playing one side off another, which often turned fluid groups of individuals into immutable ethnic units, much like Kenya’s Luo and Kikuyu today … We are often told that age-old tribal hatreds drive today’s conflicts in Africa. In fact, both ethnic conflict and its attendant grievances are colonial phenomena … Britain was determined to protect its economic and geopolitical interests during the decolonisation process … It’s not hard to discern similar patterns … in other former British colonies such as Pakistan, Zimbabwe and Iraq that share similar imperial pasts.”

It is the apparatus of the British Empire that has been unleashed, all around the globe, to foment chaos and provoke warfare. Global assymetric warfare, in combination with a global financial and economic collapse, is the last phase in the great game which will bring about the New World Order.

The London travelling public’s free morning rag, The Metro, reported today that this month’s nationwide 3.2% drop in house prices was as a result of people trying to get their properties sold before the requirement to provide a Home Information Pack.

Contrary to most so-called experts predictions, London’s drop in prices was a massive 6.8%.

“The substantial drops in asking prices are further confirmation of the underlying trend of more sellers re-adjusting their prices downwards to try and tempt buyers in deteriorating market conditions,” the BBC reports Miles Shipside, the commercial director of Rightmove, as saying.

While it may be the case that HIPs have had some impact, it’s ridiculous to suggest people in London would choose swallow an average £40,000 house price drop just so they could sell their house quickly enough to avoid paying the few hundred pounds for one.

People are constantly telling me that London will be least affected by a house price correction because there will continue to be huge “demand” for housing there. If commentators could be honest for once, they would be reporting that demand has fallen away as a result of a lack of available finance. It is irrelevant that people will continue to need homes in London - that’s only half of the “demand” equation required to support the market. If the finance isn’t available, the market has only one way to go.

Auditors are in a difficult position in these post-Enron days, with the demise of Arthur Andersen on everyone’s mind. If they refuse to rubber-stamp the banks’ fictitious valuations, the banks will collapse, but if the auditors allow the fiction, they run the risk of being severely punished for malfeasance.

So Peter Spencer of Ernst & Young’s Item Club argues that the British “government must suspend a set of key banking regulations at the heart of the current financial crisis, or risk seeing the economy spiral towards a future that could ‘make 1929 look like a walk in the park’.”

The regulations mean that banks forced to take off-balance sheet assets from troubled structured investment vehicles on to their books had little choice but either to raise money from abroad or cut back dramatically on their spending, he said.

Spencer tries to blunt the clear meaning of his statement, by claiming that the banks are refusing to lend to each other, not because they are insolvent, but rather that they are being prevented from lending to each other because the regulations are overly restrictive. The regulations he blames are the capital requirements set by the international Basel agreements, which require the banks to have an 8 percent capital reserve, which Spencer said should be cut to about 6 percent.

He dismissed as “window dressing” the move announced by central banks around the world this week to pump extra money into the money markets and increase the type of collateral they will accept in return, in an effort to get them running again.

“This won’t get to the core of the problem: the fundamental lack of collateral. As these problems drag on, the consequences for the macro-economy of not relaxing [the Basel regulations] are unthinkable.”

In reality, its absurd to suggest that a mere 2 percent reduction in capital requirements would head off a crisis that would make 1929 look like a “walk in the park.” What the auditors are really saying is that, as the rules are currently constituted, the banks are already insolvent, and that the capital requirements must be lowered so that the auditors can certify their books for one more year.

James Turk, founder and editor of GoldMoney, was quoted in the Asia Times yesterday as saying, “pleas to the Federal Reserve by US investors to lower interest rates are no different than those made to the Reichsbank to create more currency to make up what was being lost to inflation. The dollar is headed the same way as the doomed Reichsmark, and Fed chairman Ben Bernanke is taking actions that are basically little different from those taken by the head of the Reichsbank. The clear conclusion is that the dollar is headed the same way as the Reichsmark. Failing demand is eroding the purchasing power of the currency, and the central bank responds to it by creating more currency units — ‘printing paper’ in the case of Reichsbank and ‘adding liquidity’ in the case of the Fed. They are in fact exactly the same thing.”

Well, that depends on what the banks will do with it, doesn’t it?

“Investors and hedge funds are scrambling to buy risky assets again, renewing bets on the yen ‘carry trade’, piling back into equities and pushing up commodity futures,” Ambrose Evans-Pritchard wrote in the Telegraph yesterday.

So there you have it. Stupid speculation got us here, and the first thing on everyone’s mind when they get more cash, is more stupid speculation.

As a result, inflation is here.

Or is it? The European Central Bank issued a report yesterday claiming that inflation in Euroland is at 2.6%, and that consumers’ perception “might have been magnified at the current juncture by the extensive media coverage of [food] price increases in some countries.”

In fact, consumers’ perception of inflation has been magnified by the reality of food price increases. For example, the Italian Central Statistics Institute has released figures which show that in October alone, bread prices increased 10.3%; pasta, 6.4%; milk, 5%; poultry, 7.3%, fruit, 5.3%. If price increases in August and September are added in, Italian consumer associations calculate an average increase of €400 for the average family food bill at the end of the year, on top of the increased fuel bills, mortgage or rental rates, and utility bills. It’s really not misrepresentation to exclude food and energy prices from the headling inflation rate, is it?

But then again, maybe my perception of the ECB’s lying is just magnified at the current juncture by extensive media coverage …

In a last ditch attempt to breathe life into the dead patient before heading to the pub for a final hoorah, the world’s central banks yesterday announced huge liquidity injections in the form of loans to the national banks. The BBC used the word “unprecedented” in its evening news reports, and carried a comment from an “expert,” who explained they were just adding “some oil to the engine.” The inflationary effect of this move is already being felt, as oil jumped back above the $94 per barrel mark.

Back in June, when lenders seized and tried to sell collateral from two failed Bear Stearns hedge funds, it was quickly discovered that the collateral could be sold for nowhere near the value the funds carried the assets at on their books, with buyers offering a reported 30-50 cents on the dollar. The lenders were forced to cancel the sales, not because of the losses they would take on the transactions, but because of the impact on the market as a whole of such an action.

The central banks’ actions today are designed to prevent such sales on a far wider scale. It is market confidence that the banks are trying to prop up. “Sentiment has been deteriorating fast in the global financial markets,” a source told Reuters. “This operation is less about liquidity and more an attempt to restore confidence.”

Speaking of confidence, I was chatting to some colleagues yesterday evening, one from New York. He commented on the behaviour of investors in the US, who, despite the clearly collapsing economy over there, continue to behave like nothing is happening. The stock US indices continue to climb. It occurred to me that its all very reminiscent of the over confidence of dot com investors just before the bubble popped.

Of course, there are so many bubbles in the process of popping right now that will make dot com seem like a gentle stroll in the park, and I really wonder if anyone is really dumb enough to believe that the central bank move will have any positive effect whatsoever.

The longer this goes on, the harder it’s going to be. We need to recognise that the patient is indeed dead, and that the only way out of this mess is through a new Bretton Woods style economic summit, and a new financial system.

Without the nutters that have run the system in the last 40 years or so.

Well, they didn’t do it yesterday after all. Instead, the ECB waited until today to make a huge injection of cash to help bailout the rapidly sinking European banking system - €178 billion to be exact.

The banks are due to repay this money in 7 days. Unfortunately, the ECB has found that banks have been a tad reluctant to do that in the recent past. So it has placed the banks on the naughty step and tried to reduce such liquidity injections - a strategy which, since the system is deceased, has not worked so well.

Last week, the ECB provided €27 billion in overnight money, but failed to collect €10 billion owed from previous loans. The banks involved begged like desperate gamblers that they still needed the money.

Should we expect a half-a-trillion euro bailout next week?

The economic news continues to get better and better. City of London speculators are betting, via some new tradeable derivatives contracts, that the UK housing market will follow the US, with a drop of 7% in the coming year.  The FT is reporting that these contracts have seen a surge in trading volumes in the last few months. In other words, its a certain bet.

In the meantime, the so-called “credit crunch” continues apace. The European Central Bank is likely to apply more inflationary pressure today, by injecting an unprecedented amount of previously non-existant cash into European money markets. Interest rates in short-term lending markets have risen at a pace not seen since August, as investors shy away from risk and banks become increasingly wary of lending to one another, according to the Wall Street Urinal.

Former US Treasury secretary, writing in todays FT, says: “The odds now favour a US recession that slows growth significantly on a global basis.”

As I’ve said before: no shit, Sherlock?

In a disgusting example of what it means for “high net worth individuals” when US foreclosure rates go through the roof, Californian hedge fund Lahde Capital has made more than 1,000 per cent return this year by betting against US subprime home loans.

The European market for trading “Covered Bonds” was shut down yesterday afternoon for at least a week, because of unprecedented volatility. Covered Bonds are asset backed securities, which are considered to be super-safe, because they are not only secured against highly rated mortgages, but also give the investor a claim against the issuer.

European banks were ordered by the European Covered Bond Council to cease trying to market these bonds to each other, at least until Nov. 26. Reuters reports that this action became necessary after the price of buying derivatives contracts to insure these securities against default, shot upwards, in extremely volatile conditions. “In light of the current market situation and in order to avoid undue over-acceleration in the widening of [default] spreads,” the Bond Council said it had to act.

This is a big escalation in the global financial crisis. The covered-bond suspension hits Europe’s banks in particular, because this trillion-dollar market is dominated by German banks such as Deutsche Bank. Covered bonds are one of the oldest, largest, and supposed-to-be safest parts of the bond market, even considered “surrogates for government bonds.” Yet now, they cannot even be traded by banks.

Don’t worry, though, it’s just a “slow down.” There’s no collapse, and it’s certainly not systemic. Eh?

The cost of commercial leases is plummeting in the City of London. The big banks are putting their requirements for large lets on hold, and are opting for short term, 18 month leases, instead of the normal 10 to 20 years.

This is being seen as preparation for big layoffs at the major banks as the collapse of the financial system continues. This will hit rent prices and therefore property prices. City property prices are believed to have fallen already by 5 or 10% since spring, according to a report in The Times. A number of highly leveraged speculators who have in the last two years bought properties on yields that were below the cost of debt, based on the idea that price would go up, are all out of the business now.

HSBC, which sold its own office building in the Canary Wharf for 1.1 billion pounds, in fact loaned 800 million pounds to the Spanish real estate company that bought the building. Unfortunately for HSBC, they’re still sitting on the debt, and haven’t been able to sell it on thus far.

Yesterday, the Fed pumped another $47.25 billion into the markets, the biggest injection of cash since just after 11th September 2001. The Fed is run, of course, by Ben Bernanke. Ben’s a nutter, just like Mervyn King. In 2002, when the word “deflation” began appearing in the business news, Bernanke gave a speech about deflation. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money.

He went on to say that control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. He referred to a statement made by another nutcase, the late Milton Friedman, about using a “helicopter drop” of money into the economy to fight deflation. After that speech, Ben got the nickname “Helicopter Ben.” In a footnote to his speech, Bernanke noted that “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”

Well, he’s certainly keeping his word.

The Bank of England really is a scam on the UK taxpayer. We borrow money from a bank that we own, pay interest on it, and only get 25% of the profits back. And then, as soon as Mervyn King’s banking buddies get into trouble through greed and wrongheaded stupidity, we bail them out using loans underwritten by the taxpayer.

Darling has admitted in a letter to Vince Cable, that we, the taxpayers, will likely lose money on the loans extended to Northern Rock. Why? So that the Chief Executive can get his big bonus payoff when the private equity buyout comes off?

If it comes off.

The private equity firms aren’t going to buy a lemon. Oh no. They’ll make sure the taxpayer carries the can, so they can buy up what remains of the business in the January sales.

Yesterday, King gave signals that the Bank would probably be reducing interest rates in the new year, which resulted in further devaluation of Sterling against the Euro. That’s despite acknowledging that inflation will continue to accelerate. How does that work, then, Merv?

What a circus!

As the global financial system disintegrates at an ever accelerating pace, the Federal Reserve finds itself in an impossible position. In an analysis in today’s Financial Times, senior Barclay’s Bank economist, Tim Bond, says that on one hand, “U.S. monetary easing [that is, the Fed's two emergency rate cuts in the last two months] is provoking an almost immediate acceleration in inflation” worldwide. The reason, Bond notes, is that the dollar’s fall is so steep already, that Asian (and Ibero-American) central banks are having to keep their interest rates low, or lower them, and to print more of their own currencies in order to buy dollars and slow down the dollar collapse: The net effect, is that the inflation the Fed is creating is pumped directly into those Asian economies, forming speculative bubbles on top of their export growth. So the Fed is threatening these economies with the same super-bubble collapse which has already hit the U.S., Britain, Spain, etc.

But, says Bond, the Fed is under tremendous pressure to do more of the same, because of the credit collapse and bank crisis. So it is pulled hard, in opposite directions, simultaneously.

Inflation is becoming harder to hide for the UK as well, hitting 2.1%, above the government’s target of 2%. So the BoE is in a similar dilemma as the Fed, with inflation pressures increasing on one hand, and a collapsing economy on the other. What’s a banker to do?

In the meantime, Deutsche Bank says that bank losses from the continuing collapse of the subprime mortgage securities could eventually reach $300 billion to $400 billion worldwide. Wall Street alone will be forced to write down as much as $130 billion, with the rest of the losses coming from smaller banks and investors in mortgage-related securities. Already last month, Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley each announced write-downs in the ten’s of billions of dollars, led by Citigroup with write downs of more than $40 billion. The author of the report, Mike Mayo, expects total write downs at HSBC, UBS AG, Royal Bank of Scotland Group Plc and Barclays Plc to be “ballpark $5 billion or so” each. This could cause major problems for banks– HSBC, for example, has a $45 billion mortgage services business, and only $2.1 billion in loss provisions. Mayo apparently makes no estimate of what Deutsche Bank’s own losses might be.

And now, today’s “stating the bleedin’ obvious awards.”

Reuters reported yesterday that unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, “raising fears that already glum fourth-quarter growth prospects may tip toward recession.”

The Independent reported today that Blackstone’s president warned that the sub-prime crisis on Wall Street was getting “deeper, darker and scarier” yesterday as the US private equity firm posted a loss for the third quarter, hit by a fall in real-estate revenues and charges related to its initial public offering.

And the NYSun reported today that Jim Melcher,a Wall Street “superstar” who runs Balestra Capital Partners, says he’s “worried about a recession. Not a normal one, but a very bad one. The worst since the 1930s. I expect we’ll see clear signs of it in six months with a dramatic slowdown in the gross domestic product.”

So there you have it. Not a pretty picture, is it. Its not too late to sort it all out, but we have to recognise that the system is gone. There is no solution within the present system. Its time to act. Call on your elected representative to encourage his government to organise a new Bretton Woods type conference. Today.

The chart says it all, really. (Click on it to see it full size.) Of note:

• The US dollar has now lost more than a third of its value (-35%) against a basket of major currencies since Feb 2002
• The decline is accelerating. The USD has shed -12.5% of its value in the last year, -3.5% in the last month, and -1.5% in the last week alone

This is not good news for anyone.

Bank of England Governor Mervyn King told the Financial Times yesterday that the world’s central bankers are now holding conference calls every day to discuss the credit collapse. Its clear now that they have lost all semblance of control over the hyperinflationary dollar collapse.

• The price of Gold leapt to $845
• Oil passed the $98 a barrel mark
• The dollar fell to nearly $2.11 against Sterling, to a 60 year low against the Canadian dollar, to below $1.47 against the Euro, nearly 113 Yen
• In their insanity, Wall Street was demanding that the Fed cuts interest rates again
• Stock indices continue to fall
• Morgan Stanley discovered a further $3.7 billion of new losses in mortgage securities
• Fitch Ratings threatened to cut the AAA ratings of the world’s largest bond insurers after a review of their $2.5 trillion exposure to the global market in collateralised debt obligations (CDOs, parcels of repackaged debt securities), which could trigger a fresh credit crisis.

More dangerous still, Xu Jian, a vice director of China’s central bank was quoted telling a Beijing conference a couple of days ago that the US dollar is “losing its status as the world currency.” Chinese government officials have said elsewhere that China will further diversify some of its $1.33 trillion of foreign exchange reserves, which can only increase the pressure on the dollar.

The only solution to the ongoing crisis is to admit defeat with the current fraudulent system, and build a new one based on principles of national sovereignty and science driven infrastructure development. The sooner we admit that, the sooner we can begin the work necessary to give our children a future worth living.

… according to the BBC. The Independent says that the markets are worried that undeclared bank losses will reach $1 trillion.

Alistair Darling told the Independent that “We are experiencing an unparalleled period of financial uncertainty caused by the problems in the US housing market … I believe that we can get through that. Many banks in this country have very strong balance sheets after years of making very good profits.”

The BBC article reports Mervyn King as saying “I think we did feel strongly that it would not be right to bail out imprudent banks - we didn’t do that - and we had to take action to protect not the managers, not the shareholders, but the retail depositors - and so far, no retail depositor in this country has lost a penny in this episode.”

Note the language - “many banks,” “so far.”

These guys are shitting bricks.

According to The Age, Leo de Bever “has warned mum-and-dad investors to prepare for a massive sharemarket crash.”

I say again, no shit Sherlock?

The crash has already happened. The only thing keeping the stockmarket alive is the continued pumping of hyperinflationary “liquidity” into the markets.

The FED claimed that as a result of the recent interest rate cut it had shifted from its previous stance of giving top priority to economic growth to one in which the upside risks to inflation “roughly balance” the downside risks to growth. What a pile of crap. What they mean is they will continue to massage the inflation figures so that the hyperinflationary rise in commodity prices is offset by the continuing reduction in costs of electronic and other goods that people can no longer afford to buy, and they can continue to announce an on-target headline inflation figure.

In the meantime, banks continue to demonstrate that they are already bankrupt, the so-called reserve currency of the world continues to collapse in a heap of steaming poo, and staples like pasta will be classified as “luxury foods.”

• During May and June of 2005, the Standard & Poor rating agency downgraded General Motors’ and Ford’s credit rating, on the more than $450 billion of the two companies’ debt, to junk-bond status. This set off an implosion of collateralised debt obligations (CDOs)–a form of highly speculative instrument–which caused hedge funds to lose hundreds of billions of dollars, nearly triggering the melt-down of the world financial system.
• In September 2006, the Greenwich, Connecticut-based Amaranth Advisers hedge fund, which had $9 billion under management, went bust, the largest hedge fund failure in history. This caused strong reverberations in the natural gas market–where Amaranth speculated–and among other hedge funds, which scrambled for liquidity, although the deniers of reality shouted that “the event wasn’t as big as LTCM.”
• During January and February 2007 the sub-prime mortgage crisis, which had been festering since the last half of 2006, erupted full force, as banks began to acknowledge sizable sub-prime defaults. The foundations of the $20 trillion U.S. housing bubble began to shake. On March 13, New Century, the second largest sub-prime lender (after Countrywide), once a hot property, was delisted by the New York Stock Exchange, and effectively ceased to exist. New Century’s market capitalisation had evaporated from $1.75 billion to a mere $55 million at the point it was put out of its misery.
• During the period between mid-Summer 2006 and November 1, 2007, 178 U.S. mortgage-related lending companies went out of existence. According to projections based on data provided by Foreclosures.com, during 2007, U.S. home foreclosures will reach 2.02 million, 52% greater than during 2006.
• During July 2007 in the United States, banks rang up spectacular losses in asset-backed securities, particularly Mortgage-Backed Securities (MBS). Then on August 9, France’s BNP Paribas, one of the world’s largest banks, announced that it was suspending all transactions in three of its “dynamic investment funds,” which all held mortgage-backed securities. German banks announced five similar funds were being shut down. The crisis had now hit Europe, and expanded globally, causing markets to freeze up–ranging from junk bonds to commercial paper, far beyond the sub-prime mortgages and MBS. Between late July and the end of the October, the Bank of England, the U.S. Federal Reserve, and the European Central Bank, frantically pumped in more than three-quarters of a trillion dollars in short-term and medium-term funds, to prevent markets from melting down, and banks from folding. This set the ground for a Weimar-style hyperinflation.
• During September and October, the U.S. banks recorded $35 billion in third-quarter write-downs and loan loss provisions, capped by these banks losing nearly a quarter trillion in market capitalization. But the losses were only a fraction of the actual losses that the banks carry on their books. During the last week of October, and first week of November, the crisis entered a new phase. With the more than $1.5 trillion SIV, conduit, and CDO markets frozen, Merrill Lynch announced an $8.4 billion third quarter write-down, and Citigroup a $6.5 billion write-down. But there were much worse financial convulsions going on inside these two companies, behind the scenes. Stanley O’Neal, and Charles Prince III were forced out as CEOs of Merill Lynch and Citigroup, respectively.

Yep, that global economy sure is robust.

“London moves on Generali,” “The Lion and the Locusts,” “Funds attack Generali,” are some of the headlines today in the Italian media, commenting on the newest cannibalisation war among financial caymans. The story is that the same hedge fund group that took over ABN-Amro is now moving on the Italian insurance giant Generali. The move is important not only because Generali is the third-largest European insurance group, but it has been an historical stronghold of Anglo-French-Venetian oligarchies. Currently, Generali still represents the Lazard-Mediobanca alliance, which was cemented toward the end of WWII between Mediobanca founder Enrico Cuccia and Lazard founder Andre Meyer. Mediobanca is the clearing house for Franco-Italian business families, and is the largest shareholder of Generali with 14%. Generali’s chairman is Antoine Bernheim, Meyer’s successor at Lazard. A recent new entry in Mediobanca was Vincent Bolloré, one of the owners of French PM, Sarkozy.

The hedge funds moving on Generali are TCI and Algebris, which share the same address in London and are both connected to the Royal Bank of Scotland. They sent an aggressive letter to Generali’s CEO complaining about low returns, and overly high wages for Bernheim (!), but mostly the “conflict of interest” with Mediobanca. “Yesterday evening in Trieste, questions were raised and even suspicions on who are the real players in the game,” Corriere della Sera reports.

The Financial Times says that the locusts are afraid that the Italian government, through the increased presence of banker Cesare Geronzi on Mediobanca’s board, will have an undesired influence on the Mediobanca-Generali group.

Generali is currently the largest western insurance group in China.

On the 12th October, the U.S. Federal Reserve Board of Governors agreed to extend Federal Reserve contingency lines of credit to two British banks–$10 billion to the Royal Bank of Scotland (RBS), and $20 billion to Barclays, two of Britain’s Big 4 banks. The Federal Reserve would open these $30 billion facilities to the two banks, should the banks, in turn, need them to extend credit to their clients “in need of short-term liquidity to finance their holdings of securities and certain other assets,” the Federal Reserve said in a letter to the banks.

With respect to the Royal Bank of Scotland, the Fed said that the coverable assets could include “residential and commercial mortgage loans and mortgage-backed securities, asset-backed securities, commercial paper and structured products.” At the same time, the Fed lifted the limit on how much credit the RBS and Barclays could extend to their “affiliated broker-dealers,” to $10 billion for RBS, and $20 billion for Barclays, matching the size of the contingency lines of credit that the Fed would extend to them. RBS’ and Barclays’ affiliated broker-dealers would be the vehicles, which would then extend the funds to the two banks’ collapsing clients.

Thus, the U.S. Federal Reserve is preparing to extend a hyper-inflationary $30 billion to bail out the British banking system, and the Cayman Island and London headquartered hedge funds.

With the Fed promising to backstop its actions, the Royal Bank of Scotland went into action: It announced on the 21st Oct, that it was deep in talks to take over the failed Cheyne Finance, a $6-7 billion Structured Investment Vehicle (SIV), which was set up and is controlled by the London-headquartered Cheyne Capital. This SIV was on the verge of a fire-sale of illiquid assets. Deloitte
Touche, Cheyne Finance’s accounting firm, received an extraordinary ruling by Britain’s High Court last week, which allowed Deloitte Touche to declare the Cheyne Finance SIV to be “insolvent.” Deloitte Touche, appointed as receiver, is now offering to sell Cheyne Finance to Royal Bank of Scotland.

Simultaneously, Barclays Bank is heavily involved with three deeply troubled SIVs, one of which, Solent, is headquartered in
the Cayman Islands.