Global financial system implosion begins

[david dissadent]

Makes one wonder whether the apparently great idea of bailing out the banks for shares in them was really such a great idea. Would letting them fail and just guaranteeing all deposits would have been cheaper, as well as having the pleasure of allowing the banks that too many risks to go down the pan - sold off and broken up. The assets would have sold and life would have continued.

Instead we indebted ourselves to the hilt just coz our government didn't have the bottle.

In the face off between the banks and the government - the government blinked first and the banks won. The fact that it was a bluff on their behalf just makes it that much galling. The government was too concerned with being popular to notice that they needed to do nothing apart from just guarantee the deposits, keep a tally of the money paid out and wait for the market to stabilise.

Perhaps, there are many who hold that view, but I dont. I think something needed to be done, real nationalisation should have been done IMO, but other than that I can really see the reason for preventing the banks from failing.

The banks shareholders includes peoples pensions (huge amounts of the money people put into pensions goes into companies like banks) so they would have been wiped out for starters. Then there is the issue of the CDS's. These are unregulated and poor underwritten forms of insurance. As each bank failed huge volumes of CDSs would have been triggered, as happened with Lehamans. When Lehmans collapsed created a huge wave of CDS movement that in many cases simply meant emptying money into one 'counterparty' but getting it again from another. The problem is these counterparties are often banks themselves so many companies like insurers and so on would have been paying out billions in what they owed but their counterparties would have gone bust (as happened with AIG causing the US government to step in and dish out hundreds of billions of dollars to cover the CDSs it had written to prevent a worldwide market collapse.) The results could have seen banks and other financial companies scrambling to meet debts and having to sell assets very cheaply, rapidly exhausting their disposable capital and being unable to meet their immidiate needs, even things like cash deposits and withdrawls. Panic running round the worlds markets and people trying to turn electronic bank accounts into cash would have been other huge drains of banks cash. As peoples pensions and savings lost huge amounts of money they would have been forced to hold back on all but essential purchases. Those purchases are other peoples jobs. Unemployed people leads to waves of bankruptcies.

1929 redux.

I will state that many people disagree with this assesment but if people do, can you please clarify why they disagree.

 

[Gmart]

I will state that many people disagree with this assesment but if people do, can you please clarify why they disagree.

I can see the fear of this happening, and it is possible that it might have happened - but my reaction would be to ensure that if such a breakdown were to occur again, then we would be able to support the vast majority of people who are not involved in the intricacies of the money markets.

So we would need to be able to put money into the cash machines. So long as that is guaranteed, then the financial companies which have too many debts can go under. Actually they would be asset stripped and some investors with shares would lose money, but that is the nature of investing in the shares and stockmarket.

As I mentioned earlier we could reinforce the money markets by making buying stocks and shares in other markets open to a wider public. An investment in certain companies such as Microsoft or Shell would seem a safe investment and people need more than just property to invest in for their retirement...

Anyone have a comment on the news story about what they are actually planning to do as new regulation?

The vagueness of the quote shows that the status quo is reasserting itself without even a debate about what regulations could be written in.

 

[teqniq]

From the London Review of Books:

'It's Finished' by John Lanchester

http://www.lrb.co.uk/v31/n10/lanc01_.html

‘When people have been educated about money and how to work with financial services firms they are more likely to make the right decisions and to avoid difficulties.’ That’s true, but you can also just rob post offices.‘RBS is a responsible company. We carry out rigorous research so that we can be confident we know the issues that are most important to our stakeholders and we take practical steps to respond to what they tell us. Then occasionally, we blow all that shit off, fire up some crystal meth, and throw money around with such crazed abandon that it helps destroy the public finances of the world’s fifth biggest economy.’ See if you can guess which of those sentences is not in the report.

LOL

 

[elbows]

China calling for the US dollar to be replaced as the global reserve currency again:

http://news.bbc.co.uk/1/hi/business/8120835.stm

 

[goebfwai]

The American Empire Is Bankrupt
By Chris Hedges
http://www.truthdig.com/report/item/20090614_the_american_empire_is_bankrupt/

The Crash Course
http://www.chrismartenson.com/crashcourse

 

[Gmart]

Here is a video about the crisis so far.

The opinion put forward is that devaluing the currency thru the bail out, and thus reinforcing the status quo companies rather than letting them fail will build up bigger problems later.

It would seem that business as usual...

 

[Dr Jon]

Jim Kunstler has spotted some interesting parallels:

The Man in the Mirror

 

[david dissadent]

Biggest fall in UK economy in 51 years

http://news.bbc.co.uk/1/hi/business/8125898.stm

 

[Barking_Mad]

Biggest fall in UK economy in 51 years

http://news.bbc.co.uk/1/hi/business/8125898.stm

From that article

[The ONS] said the recession started earlier than first thought last year.

The ONS now says the recession began during the second quarter of 2008 rather than during July to September, so that the recession has now been running for a whole year.

If they can't even tell when the recession began, what hope for when it will end?

 

[david dissadent]

British debt looking less popular.

So the cost of borrowing for the goverment is going up. So the percentage of state revenue to pay for interest is going up.


As debt goes up.


Its all so predictable but those green shoots aint looking so good.

 

[elbows]

Sterling crisis looms:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aptnrMueIerQ

Includes statements frm Niall Ferguson and Nigel Lawson.

“Our public finances are easily the worst we’ve ever had in peacetime,” Lawson, 77, says. “The amount of borrowing the government will have to do as a result of the deficit is very worrying.” He says yields on U.K. debt will have to climb to attract buyers.

Lawson, who expects Cameron to succeed Brown, urges Britain’s next leaders to make deep cuts. “It’s essential they take very tough action straight away,” says Lawson, who slashed spending in the 1980s. “The question is: How tough are they prepared to be? How much initial unpopularity are they prepared to ride through?”

Historian Ferguson sees no alternative to such stringency. “It has to happen,” he says. “This kind of red ink implies both spending cuts and tax hikes that could make the 1980s look like a teddy bear’s picnic.”

Methinks the next decade is going to be a rather ugly mess.

 

[Dr Jon]

Methinks the next decade is going to be a rather ugly mess.

I saw this movie the other week - you're not kidding...

 

[david dissadent]

Sterling crisis looms:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aptnrMueIerQ

Includes statements frm Niall Ferguson and Nigel Lawson.



Methinks the next decade is going to be a rather ugly mess.

The 80s we would have had without the oil and the financials big bang and the cash from privitisation. Except then we had the skills base to benefit from a weak pound and low wages to rebuild industry.

We had 3 decades to prepare. Grasshoppers and ants.

Link California out of cash and asking firms to take IOUs. Insane. But that means companies in a world of pain from lack of available credit are now having to operate without the state as a source of revenue in cash.

All a bit 3rd world really. (or Britain in the 70s)

 

[Giles]

Hopefully the government will soon have to just GIVE UP doing some of the things that they currently spend money on, and leave them to people to sort out for themselves.

Giles..

 

[Crispy]

California's not a great indicator - they have a state law that requires the state budget to be balanced every year - no borrowing - so they're particularly boned.

 

[Giles]

California's not a great indicator - they have a state law that requires the state budget to be balanced every year - no borrowing - so they're particularly boned.

If this is a law, how come they have ended up with an enormous deficit?

If countries had such a law, AND STUCK TO IT, then we wouldn't be in half the mess we are in now.

Live within your means. Save up for the stuff that you need, don't borrow loads so you can have it all now, and then realise you can't pay it back.

Can states in America just default like Latin American countries do every few years?

Giles..

 

[Crispy]

This is the law in question: http://en.wikipedia.org/wiki/California_Proposition_58_(2004)

 

[kyser_soze]

If this is a law, how come they have ended up with an enormous deficit?

Cos their tax base ha dissappeared. CA, like many states in the US, gets most of it's revenues via property taxes, usually levied against the value of the property. CAs property market has collapsed completely, hence massive drop in revenue hence huge deficit for this FY and the impending closure of just about all state services in the next one, unless someone comes up with an actual idea on how they're going to dig themselves out of the pit.

Couple this with CA resident's penchant for putting forward tax cutting legislation that gets voted on...

 

[david dissadent]

http://money.cnn.com/2009/06/25/pf/california_bonds_trouble.fortune/index.htm

California is still issuing municiple bonds. Dont know enough of Californian law to understand know the ins and outs of how that all works then. If the federal government bails out California then a host of other states will be at Obamas door in weeks.

 

[Giles]

Maybe each town or city should just raise a local tax to pay for what they absolutely need: bins emptied, streets cleaned, local police, the town school, etc.

Like people somehow managed 100 years ago.

The well-managed towns with few net "takers" from the communal kitty should do OK at least. The smaller the scale, the more obvious it becomes who is putting in and who is taking out, resulting in people being made to modify their behaviour accordingly.

Sod the big expensive projects and support and such for a few years. Just make ends meet.

They could do this over here, too.

Giles..

 

[david dissadent]

California's IOU's

te-issued IOUs could force suspension of some Shasta County services if they're around for more than just a few weeks.

The IOUs, referred to by the state as registered warrants, will be issued starting at 10 a.m. Thursday to welfare recipients, county governments, low-income seniors and others who depend on or deliver state services.

Welfare recipients and others dependent on assistance from the state to pay for essentials, such as food and rent, are given the same options as local governments when it comes to the IOUs: either wait until Oct. 1 to receive the money or hope a bank will cash it.

"If a bank won't honor the warrant, people can hold on to it until it is mature then receive interest or they can change banks to find one that accepts a warrant," said Hallye Jordan, spokeswoman for the controller's office.

Hill Country Clinic is already feeling the effects of a nearly bankrupt state government, said Richard Hardie, chief financial officer at the Round Mountain hospital.

The state owes the clinic about $99,000 in late reimbursements and on Friday didn't issue a $4,000 check expected by the clinic for reimbursement, pushing the funds into the 2009-2010 budget, he said.

"All the money they're supposed to pay people in the last week of June they're pushing into July to pretend it's in next year's budget," Hardie said.

$14 billion dollar shortfall from last years projection. New York, Florida and Michigan are also named as being liable to turn to IOUs to solve there budget gaps.

 

[david dissadent]

Here is a video about the crisis so far.

The opinion put forward is that devaluing the currency thru the bail out, and thus reinforcing the status quo companies rather than letting them fail will build up bigger problems later.

It would seem that business as usual...

There is alot I dont like about Peter Schiff but by hell he has been on the money for alot longer than Ive been watching this issue.

But also the UKs pensions crisis and the cleaning up of the financial crisis could see our debt push out too 200% of GDP. Link

 

[goebfwai]

some good advice here.

http://globalguerrillas.typepad.com/globalguerrillas/2009/06/journal-resilience-judo.html

http://www.telegraph.co.uk/finance/...nomic-slavery-and-find-a-new-way-to-live.html

 

[yield]

http://www.telegraph.co.uk/finance/...nomic-slavery-and-find-a-new-way-to-live.html

I disagree. Don't agree with the Great Men of History theory in general. Wilberforce was good, for a Tory. How is Ken Costa's Evangelical Christianity compatible with being chairman of Lazard International? Really weak article...

 

[Barking_Mad]

......

http://globalguerrillas.typepad.com/globalguerrillas/2009/06/journal-resilience-judo.html

I'd forgotten about that site - it's an interesting one. I liked this little bit from another article on the site...

Capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite

...the inflation-adjusted income of the highest-paid fifth of US earners has risen by 60 per cent since 1970, while it has fallen by more than 10 per cent for the rest.

As was recently pointed out in the New York Review of Books, the Walton family, of Wal-Mart fame, is wealthier than the bottom third of the US population put together – about 100m people. These are staggering statistics, confirmed by measures such as the US and UK’s ever-rising Gini coefficients, which estimate income disparity. Another way of putting this is that the share of profits in gross domestic product is at a 100-year high, or was until very recently.

 

[david dissadent]

Pennsylvania runs out of money.

Budget deadlock.

In the just ended 2008-09 fiscal year, tax receipts ended up $3.3 billion shy of expectations, adding up to a shortfall of more than 11 percent, the Revenue Department said Wednesday. Democratic Gov. Ed Rendell and GOP lawmakers, who control the Senate, have no agreement on how to resolve the deficit, and their spending proposals for the 2009-10 fiscal year are at least $1.5 billion apart.

Rendell continued to advocate a 16-percent increase in the state income tax—a major friction point with Republicans, who insist that state spending be cut to compensate for the state's lackluster tax collections.

The state's welfare checks, debt payments and pensions will continue to be sent out and self-funding agencies, such as the Liquor Control Board, will not be affected. State parks will not close immediately, and many highway projects, paid for in the 2008-09 budget, will continue.

So far, government services in Pennsylvania have not been interrupted and the tens of thousands of state employees are being asked to continue working even though they would begin to miss pay starting July 17 and receive no pay at all after July 24. Once a budget is approved, they would be paid retroactively.

Linnk

Not the end of the world but a sign of the huge pressure US states are under. The answer is almost certainly budget cuts and tax rises. And very angry people.


I really dont see Obama getting a second term.

 

[yield]

Bank profits were due to ‘luck, not skill’
Financial Times. July 1 2009

The superior performance of the financial services sector in the years leading up to the credit crisis was almost entirely due to luck rather than skill – and banks increasingly gambled on luck in an effort to keep up with their peers, a senior Bank of England official said.

 

[goebfwai]

"The June [US] employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure."
Professor Nouriel Roubini

Trying to look on the bright side (in an unfolding era of an extraordinary number of medium to high probability/high consequence events someone's got to!), at least folk can 'dig for victory' and grow a nice recession kitchen garden in brown manure.

http://www.rgemonitor.com/roubini-m...sts_that_green_shoots_are_mostly_yellow_weeds

 

[david dissadent]

California begins issuing IOUs..

http://www.nytimes.com/2009/07/03/us/03calif.html?_r=1&hpw

The big waves of Option ARM resets are starting to build up, property prices are highly unlikely to recover any time soon: much more likely to continue to fall. Public jobs in America are in for some savage cuts with manditory days off being enforced in many departments. Schools, hospitals, police departments, fire brigades and the like are all suffering. And this with 3 trillion dollars of borrowed money being pumped into the economy.

Its hard not to see a wave of cut throat compitition for jobs massively undermining wages across the world, reducing demand further.

Oh and the US I understand that wage income per hour has fallen for the past three months. This means even those in the US who have jobs are earning less and less for that work.

Trade barriers and wage fixing may be the only way to really turn things around again...


This blog post is very worth a read.
http://www.ritholtz.com/blog/2009/07/wage-deflation-in-our-midst/

We are pretty damned close to a depression.

 

[Gmart]

An interesting article here, under the title: Failing US Banks seized by regulators.

Fed Chairman Ben Bernanke says an audit of the Fed would destroy the dollar and he is right. It would expose all the offshore secret accounts, the market rigging via their 21 dealers whom they direct. That there is little gold left in Fort Knox and all the secret agreements the Treasury and the Fed have with other governments and corporations are secret. All the real figures on money and credit would be exposed as well as their sweetheart deals with banks and Wall Street. Their part in aiding and abetting crime would be exposed as well. We’d find out what we have been paying for toxic bank assets. We would find all the major banks and brokerage firms are bankrupt. The public would find out who has been screwing them for all these years. The Fed is a fraud and it is broke. It could be they cannot deliver.

Who's scared of being open here?

The international bankers are playing games with the markets again, and our governments has been paying for them same old story...