Britannia Radio

This is what I said in “A nation engulfed in debt” 15 months ago.

“These [following] are dire warnings of trouble ahead but there is 
little sign that anyone - politicians or borrowers are taking a blind 
bit of notice.  There is a day of reckoning coming for all, not least 
for the new prime minister – the architect of the mess.  As Jeff 
Randall says “This is the Britain that Tony Blair leaves behind: a 
nation engulfed by debt.”

And nearly two years ago I was writing of  “As our debts pile up, 
it's too late for Brown to get out in time ".

And 5 years ago, I warned of the dangers of the ‘remortgaging’ boom   
being used for luxury items.

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Here I give two respected commentators contributions plus an 
unusually detatched view from Richard North and an overview of what’s 
else is in the more serious press today.

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TELEGRAPH   30.9.08
1.Banking crash hits Europe as ECB loses traction
The global credit crisis has slammed into Europe with stunning 
violence over the last two days, triggering five major bank rescues 
and a near total shut-down of the region's credit markets.

    By Ambrose Evans-Pritchard

The Dutch-Belgian bank Fortis, Britain's Bradford and Bingley, and 
Iceland's Glitnir, were all partially or fully nationalized after 
failing to roll-over debts in the short-term money markets, while the 
French state pledged support for the Franco-Belgian lender Dexia 
after the share price collapsed on reports of a capital shortage.
"The European financial sector is on trial: we have to support our 
banks." said French President Nicolas Sarkozy. He has reportedly 
ordered the state investment arm Caisse Des Depots to shore up Dexia, 
even though the bank is based in Belgium.

Germany's Hypo Real Estate, a commercial property lender, was rescued 
with a €35bn lifeline from a consortium of local banks. The lender 
has $560bn in liabilities, almost as much as Lehman Brothers.
Hypo Real's share price crashed 74pc, setting off a masse exodus from 
financial stocks in Frankfurt. Commerzbank fell 23pc and Aareal Bank 
was off 43pc.

Anglo Irish Bank was down 44pc in Dublin on wholesale funding fears.
Europe's credit markets have come close to seizing up as three-month 
Euribor jumped to a record 5.22pc and OIS spreads rocketed to 113 
basis points.

"The interbank market has collapsed," said Hans Redeker, currency 
chief at BNP Paribas.
"We're now seeing a domino effect as the credit multiplier goes into 
reverse and forces banks to cut back lending to clients," he said.

Mr Redeker said the latest alarming twist is a move by banks to 
deposit €28bn in funds at the European Central Bank in a panic flight 
to safety. This has jammed the mechanism used by the authorities to 
shore up the financial system in a crisis.
"The ECB is no longer able to inject liquidity because the money is 
just coming back to them again. This is extremely serious. If 
monetary policy is no longer working, there is a risk that the whole 
system will blow up in days," he said.

The euro plunged on Monday as the wave of bank failures hit the 
newswires, dropping 2pc to $1.43 against the dollar. It recovered 
slightly as the US Federal Reserve flooded the markets with $630bn of 
dollar funding with fellow central banks in the biggest liquidity 
blitz in history.

Analysts say German finance minister Peer Steinbrueck may have spoken 
too soon when he crowed last week that the US would lose its status 
as a superpower as a result of this crisis. He told Der Spiegel 
yesterday that we are "all staring into the abyss".

Germany - over-leveraged to Asian demand for machine tools, and Mid-
East and Russian demand for luxury cars - is perhaps in equally deep 
trouble, though of a different kind.

The combined crises at both Fortis and Dexia have sent tremors 
through Belgium, which is already traumatized by political civil war 
between the Flemings and Walloons. Fortis is Belgium's the biggest 
private employer.
It is unclear whether the country has the resources to bail out two 
banks with liabilities that dwarf the economy if the crisis deepens, 
although a joint intervention by The Netherlands and Luxembourg to 
rescue Fortis has helped Belgium share the risk. Together the three 
states put €11.2bn to buy Fortis stock.

This tripartite model is unlikely to work so well in others parts of 
Europe, since Benelux already operates as a closely linked team. The 
EU lacks a single treasury to take charge in a fast-moving crisis, 
leaving a patchwork of regulators and conflicting agendas.  [The EU 
has virtually opted out of the crisis, observing devdelopments from 
the sidelines!  -cs]

Carsten Brzenski, chief economist at ING in Brussels, said the global 
crisis was now engulfing Europe with devastating speed.
"We are at imminent risk of a credit crunch. Key markets are not 
functioning properly. The Europeans thought the sub-prime crisis was 
just American rubbish that the US should clean up itself, but now 
they are finding out that it is their rubbish too," he said.

Data from the IMF shows that European banks hold 75pc as much 
exposure to toxic US housing debt as US banks themselves. Moreover 
they have mounting bad debts from the British, Spanish, French, 
Dutch, Scandinavian, and East European housing markets, where 
property bubbles reached even more extreme levels that in the US.

The interest spread between Italian 10-year bonds and German Bunds 
have ballooned to 92 basis points, the highest since the launch of 
the euro. Bond traders warn that the spreads are starting to reflect 
a serious risk of EMU break-up and could spiral out of control in a 
self-feeding effect.

As the eurozone slides into recession, the ECB is coming under 
intense criticism for keeping monetary policy too tight. The decision 
to raise rates into the teeth of the crisis in July has been slammed 
as overkill by the political leaders in France, Spain, and Italy.

Mr Sarkozy has called an emergency meeting of the EU's big five 
powers next week to fashion a response to the crisis.

Half of the ECB's shadow council have called for a rate cut this 
week, insisting that the German-led bloc of ECB governors have 
overstated the inflation risk caused by the oil spike earlier this year.

Jacques Cailloux, Europe economist at RBS, said the hawks had won a 
Pyrrhic victory by imposing their hardline monetary edicts on Europe. 
"They have won a battle but lost the war. The July decision will 
hardly go down in history books as a great policy decision," he said.

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AND

2. What we must learn in order to profit from Washington’s lust for 
vengeance.
It was stomach churning to see the vote in favour draining away from 
the Paulson Plan as the tally for the yeas and nays vacillated in 
front of the watching world.

    By Damian Reece

The bill to push through Hank Paulson's $700bn rescue package for the 
financial industry could yet be resurrected but it will surely need 
radical changes for it to pass muster a second time and get through 
Senate before the end of the week.

But while the events of yesterday afternoon in Washington may prove 
to have been high drama in a story that eventually has a happy 
ending, at least for Paulson, the message of yesterday's vote to Wall 
Street was resounding: "You're on your own."

This was a piece of legislation that had the full backing of the 
Republican leadership but it was rejected by its own rank and file 
politicians.

America's Right is sick and tired of what it sees as the hypocrisy 
shown by the Bush administration and Wall Street leaders in this 
credit crisis.

There's no special bail out for crumbling inner city schools or help 
for those without medical insurance but the monied of Manhattan get 
special treatment for what appears as wild profligacy.

The vote reflects a simple homespun philosophy, taught on verandas 
across the nation for generations. Just as with any right, the right 
to freedom comes with responsibility.

But Wall Street is seen as trying to shun its responsibilities and 
that is what is angering so many Republicans on Capitol Hill.

Wall Street didn't just bet the ranch, it bet the entire US economy 
and it lost – at least that's the scale of the problem according to 
Paulson.

America doesn't just want reform, it wants punishment and a stick 
with which it can beat Wall Street for years.

If a Paulson Plan Mark II is eventually agreed it will be nowhere 
near as generous as the original version. But depending on how 
vindictive American politicians are feeling it could do lasting and 
permanent damage to not just one of its most important industries, 
but to its entire economy.

And this is what the UK must learn from the shocking scenes from 
Washington in recent weeks. However strong the temptation to hobble 
and restrict our financial services industry, it represents an even 
bigger slice of the British economy than it does the American.

If the US goes too far in its lust for vengeance, then New York will 
never recover its place in world finance. The UK, having achieved top 
spot, cannot afford a similar result.

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EUREFERENDUM   30.9.08
Doomed?

US lawmakers have "taken leave of their senses" says EU trade 
commissioner Peter Mandelson. He adds, "I hope that in Europe we will 
not see politicians and parliamentarians replicating the sort of 
irresponsibility and political partisanship that we have seen in 
Washington."

The US stock market gave a more tangible response to the House 
rejection of the Paulson plan by a vote of 228 to 205. The Dow lost 
778 points, its largest point decline ever, and posted its biggest 
daily percentage slide since the 1987 stock market crash. The 
benchmark S&P 500 also had its worst day in 21 years.

At the time of writing, Forbes was reporting that Japan's Nikkei 
average was expected to fall, possibly hitting a new low for the year.

Bloomberg recorded the response of Thomas Sowanick, who helps oversee 
$22 billion as chief investment officer at Clearbrook Financial LLC 
in Princeton, New Jersey. Speaking before the Asian markets had 
opened, he said, "Something very positive has to come out before 
tonight's opening or the equities going to get crushed again in 
overseas trading."

His view of the House vote was that the failure to get the bill 
passed was "disgusting" and "disgraceful."

So, are we doomed?

Well, The Guardian is reporting that UK government "was bracing 
itself last night for further casualties after a day of panic on the 
world's financial markets." And that appears to have been written 
before the House vote was known, prompted by fears that the 
nationalisation of Bradford & Bingley would have a domino effect on 
the banking sector in Britain.

Now, anything goes.

Later comment in The Guardian cites Peter Morici, professor of 
business at the University of Maryland. He says: "Things are going to 
get so bad something will have to be done in the next few weeks. 
Banks will sink, credit markets will seize, the economy will go into 
something much worse than a recession."

Nevertheless, it is too early to say what will happen, but the London 
stock market in the morning will give us some clue. While others are 
talking of a "meltdown" and "looking into the abyss," The Times 
contents itself with saying that this is a "dangerous moment."

Me? I go with Morici. We are doomed. But then, what do I know?
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Posted by Richard North
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SOME OTHER HEADLINES - - - 30.9.08

TELEGRAPH

RBS fails to calm investors' nerves
Royal Bank of Scotland's shares continued to fall despite attempts to 
reassure investors that it will not be affected by the part-
nationalisation of its former bid partner Forti

Santander in pole position
Spanish group now has 10pc of UK savings after deft steering on B&B 
[=Brown sells out to foreign bank- cs]
Santander may have found a bargain in B&B carcass
Spanish bank Santander has made another opportunistic swoop.

Tesco chief says food inflation has peaked
Tesco chief executive Terry Leahy said that the sharp rise in food 
prices will ease for "hard pressed" consumers.

Recession looms as UK economy grinds to a halt

Cameron says Tories will work with Government
The Conservatives will work with the Government to protect the 
British economy from further damage, David Cameron has said
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FINANCIAL TIMES
Dexia receives €6.4bn capital injection
Three governments step in to rescue lender - [Belgium, france, 
Luxembourg]

Tesco sees tougher times ahead
Interim profits ahead 11.3% -

Eurozone inflation falls for second month
No ECB rate cut seen before December

Revised GDP data give UK little respite
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THE TIMES

HBOS shares hit new low on rescue deal fears
Investors question if Lloyds TSB's £12.2 billion bailout of the 
Halifax owner will go ahead 'in its current form'

BUSINESS COMMENT
  “The bailout will surely be passed or every major US bank will 
fail”     Anatole Kaletsky

Central banks fight as abyss beckons
Transatlantic currency swap arrangements increased to $620 billion to 
try to keep liquidity in the money markets

Consumers to foot bill for B&B nationalisation
Analysts suggest that the rescue could hasten the end of free banking 
as banks attempt to pass on costs to their customers

Ireland gives savers unlimited guarantees
Britons may switch to Irish banks as Government boosts depositors' 
protection by removing upper limit for two years