Britannia Radio

Today has crept up on us stealthily as the day of real reckoning.  
The economic crisis has reached a tipping point across the world.  
This week as a 'starter' some of the British banks will reveal 
horrific figures and remember Britain is to host a global gathering 
of the G20 countries in April.  The latter seems a vain and hubristic 
commitment right now!

  I shall spend this morning pulling together  the disaster rapidly 
approaching on all fronts from which you will realise that opinion 
polls, Obama's inauguration, and Cameron's foolishnesses,  the third 
runway and the Olympics - to name a few - are but chaff in the wind 
compared with the collapse of the world as we have known it.   I 
CAN'T REMEMBER EVER WRITING A MORE IMPORTANT PIECE!

There is so much to report that I will summarise my sources first 
before sending the actual reports themselves.  There is a limit to my 
speed-reading abilities and so far I am concentrating on one paper 
hat in my view has the most authoritative columnists and the best 
judgements.

Firstly the Sunday Telegraph's headlines where it matters - in the 
Business News.  The main paper goes - as they do - for the 'populist' 
approach ["Taxpayers face years of debt in bank salvage deal" ]   :
1. "Toxic debt plan is the last throw of the dice"  Mark Kleinman, 
city editor
2. "The rescue has failed: it's time to fess up, reboot and start again"
- Liam Halligan
3. Monetary Union has left half of Europe trapped in depression" - 
Ambrose Evans-Pritchard
4. "No wonder the government is shying away from a bad bank"  -Edmund 
Conway

Now to each in turn!
1. Toxic debt plan is the last throw of the dice [extract)
[nb this is an updated version of that on the website)

Mervyn Davies' first task as minister for trade is to devise a 
solution to this phase of the crisis which genuinely draws a line 
beneath the horrors on the banks' balance sheets. - - - -    His 
first task, alongside his new ministerial colleagues, is to devise a 
solution to this phase of the crisis which genuinely draws a line 
beneath the horrors on the banks' balance sheets.
There is justifiable concern that the lack of uniformity among the 
banks about the way they are accounting for bad loans is heightening 
the uncertainty about the extent of the remaining problems.
The last week has told us that the system cannot move on without that 
uncertainty ending, regardless of the number of schemes the 
Government concocts to kick-start bank lending.
Last night a toxic bank which purges the balance sheets of the major 
lenders  appears to have been rejected, in favour of a giant 
insurance scheme to backstop banks losses .

Davies and his colleagues will have to pray that this idea works; 
this time there really will be no going back
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

2. The rescue has failed: it's time to fess up, reboot and start 
again  [extracts]
It's official. Government policy isn't working. As bank shares 
collapse amid renewed carnage on global markets, we now know the 
worst isn't over.
This crisis just entered a whole new phase. Gordon Brown's "rescue 
plan" lies in tatters. Perhaps now the Prime Minister - and his 
counterparts across the Western world - will do what needs to be done.
Regular readers know what's coming next. I've been writing the same 
thing for months. But I make no apologies - for this ghastly episode 
will only end once senior bank executives are forced, under threat of 
custodial sentence, to FULLY DISCLOSE to one another and the 
authorities, on the basis of all available evidence, the extent of 
their sub-prime liabilities.
I accept that's not easy. The toxic debts have been sliced, diced and 
securitised - then sold on many times. Millions of trades must be 
unravelled, often across international borders.
But this onerous task must be done  ---------
I know what I'm saying is drastic. But this is a drastic situation. 
In the UK and US, in particular, the banks aren't playing ball. They 
think they're more powerful than our elected officials, and for the 
last six months they have been getting away with hiding losses and 
burying mistakes while screwing many billions of pounds out of 
taxpayers.
---------------------------
No wonder rumours then swirled of vast buried losses at Barclays and 
Royal Bank of Scotland. No wonder their prices collapsed. And such 
fears will fester and keep bursting to the surface until our banks 
"fess it all up" - and a credible number is put on potential losses 
at each of our major banks.
Yes, those numbers will be horrific. Yes, bank shares will be hit 
once more. But until we do the maths and swallow the write-offs, the 
rumours will continue and trust will remain elusive - to say nothing 
of long-term financial stability.
-------------------------------------
We may now even need to revisit America's 1933 Emergency Banking Act 
- closing our banks for a period, flooding them with government 
inspectors, killing off the technically insolvent and reorganising 
those strong enough to survive.
As if all this renewed banking angst wasn't enough, yet another fear 
is now stalking international capital markets. Last week, any 
remaining hope the eurozone had escaped the worst of this crisis was 
blown out of the water. Economic sentiment is now at a post-war low. 
Even the European Central Bank, admirably restrained until now, could 
resist the political pressure no longer and cut its interest rate to 
2pc.
This column has long questioned the eurozone's long-term survival. 
Now global markets are doing the same. At the start of last year, the 
average 10-year government bond yield among the weaker member states 
(Portugal, Greece, Spain, Ireland and Italy) was just 25 basis points 
above the comparable number in Germany. That spread is now six times 
bigger.
Credit default swaps (the cost of insuring against a government 
default) among the most feckless eurozone members have reached Latin 
American levels. Would French and German taxpayers bail out another 
eurozone member? The longer this crisis goes on, the larger that 
incendiary question looms.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

3. Ambrose Evans-Pritchard's article is talking of disaster stalking 
each country in the Eurozone  and as his headline suggests ("Monetary 
union has left half of Europe trapped in depression") being in the 
euro has made it impossible for each country to escape nemesis.  So 
the euro may collapse under the strain (which will harm the rest of 
the world too)  but the individual countries will face considerable 
unrest as well.  A.E-P: tells of riots in Latvia, Lithuania, Bulgaria 
and Greece and collapsing economies in Spain and Ireland with 
galloping unemployment (though he gives praise to the Irish for at at 
least facing the facts!)   The horror story is so great that I urge 
you to read the report below in full.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
4. "No wonder the government is shying away from a bad bank"
This article is in the main paper and explains the thinking behind 
the choice of route the government  - as at noon - appears to be 
taking.  To avoid overload I do NOT give it in full below.  I was 
going to give the link but I can't find it on the website .  I am not 
going to type it out because I'm getting goggle- eyed already and 
will leave it to those of you who can find it on page 23!!
============
Other headlines include
= Lloyds resists Government share offer
Lloyds Banking Group is to resist an imminent offer from the 
Government to convert its preference shareholding into ordinary 
equity in an attempt to avoid falling under state control

=Action needed now to avoid depression'
Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club 
said that quantitative easing is needed immediately

=Reviving the world's burst-bubble economy seems further away than ever
In the US and in Ireland, governments have been scrambling again to 
support their banks.
For the economic prospects of these countries, and the world economy, 
that is troubling. Recession is only just beginning and yet many 
banks are holed.
Governments are being obliged to pour in more capital, adding to the 
huge liabilities they now face. This vicious circle augurs poorly for 
recovery.
It is not that governments should avoid intervening in banks. They 
are obliged to.
============
GOOD READING!  I NEED A DRINK!

xxxxxxxxxxxxx cs
===================
SUNDAY TELEGRAPH       18.1.09
  TWO Articles in full

A. The rescue has failed: it's time to fess up, reboot and start again
  Liam Halligan

It's official. Government policy isn't working. As bank shares 
collapse amid renewed carnage on global markets, we now know the 
worst isn't over.

This crisis just entered a whole new phase. Gordon Brown's "rescue 
plan" lies in tatters. Perhaps now the Prime Minister - and his 
counterparts across the Western world - will do what needs to be done.

Regular readers know what's coming next. I've been writing the same 
thing for months. But I make no apologies - for this ghastly episode 
will only end once senior bank executives are forced, under threat of 
custodial sentence, to FULLY DISCLOSE to one another and the 
authorities, on the basis of all available evidence, the extent of 
their sub-prime liabilities.

I accept that's not easy. The toxic debts have been sliced, diced and 
securitised - then sold on many times. Millions of trades must be 
unravelled, often across international borders.

But this onerous task must be done. Then the losses must be written-
off. Only after such purging will the banks begin to rebuild mutual 
trust - allowing the interbank market to reboot, so restoring the 
credit lines that are so vital to the broader economy. And all this 
needs to happen BEFORE more public money is spent recapitalising our 
banking sector.

I know what I'm saying is drastic. But this is a drastic situation. 
In the UK and US, in particular, the banks aren't playing ball. They 
think they're more powerful than our elected officials, and for the 
last six months they have been getting away with hiding losses and 
burying mistakes while screwing many billions of pounds out of 
taxpayers.

Look at the cause of this latest spasm. Opposition politicians point 
to the Government's decision to lift the ban on short-selling - 
allowing traders to pile pressure on bank stock. That misses the 
bigger picture.
Bank shares collapsed on Friday because of renewed fears that said 
banks have simply enormous liabilities on their books that they're 
still trying to hide.

In the US, Citigroup, Bank of America and Merrill Lynch unveiled a 
$25bn combined loss for the final quarter of 2008. But what was 
really shocking was that $15bn was sustained at Merrill Lynch - and 
the Bank of America, which bought the brokerage last year, didn't 
even know.
In a bid to save his job, Ken Lewis, Bank of America's boss, admitted 
he hadn't foreseen such a "significant deterioration" in Merrill's 
finances. But his words lifted the lid on the extent to which 
financial institutions are disguising the true state of their balance 
sheets - even to their own parent companies.

No wonder rumours then swirled of vast buried losses at Barclays and 
Royal Bank of Scotland. No wonder their prices collapsed. And such 
fears will fester and keep bursting to the surface until our banks 
"fess it all up" - and a credible number is put on potential losses 
at each of our major banks.
Yes, those numbers will be horrific. Yes, bank shares will be hit 
once more. But until we do the maths and swallow the write-offs, the 
rumours will continue and trust will remain elusive - to say nothing 
of long-term financial stability.

There is much talk of Franklin D Roosevelt. Trying to justify big 
pork-barrel spending, and yet more government borrowing, politicians 
on both sides of the Atlantic are employing the rhetoric of the 
depression-era President's New Deal.

One important lesson we can learn from FDR is to restore the Glass-
Steagall firewall he erected between commercial and investment 
banking - so foolishly removed by the "bankers-turned-public 
servants" who dominated Bill Clinton's administration in the 1990s 
and who are now back, in the Obama fold.

But we may now even need to revisit America's 1933 Emergency Banking 
Act - closing our banks for a period, flooding them with government 
inspectors, killing off the technically insolvent and reorganising 
those strong enough to survive.

As if all this renewed banking angst wasn't enough, yet another fear 
is now stalking international capital markets. Last week, any 
remaining hope the eurozone had escaped the worst of this crisis was 
blown out of the water. Economic sentiment is now at a post-war low. 
Even the European Central Bank, admirably restrained until now, could 
resist the political pressure no longer and cut its interest rate to 
2pc.

This column has long questioned the eurozone's long-term survival. 
Now global markets are doing the same. At the start of last year, the 
average 10-year government bond yield among the weaker member states 
(Portugal, Greece, Spain, Ireland and Italy) was just 25 basis points 
above the comparable number in Germany. That spread is now six times 
bigger.
Credit default swaps (the cost of insuring against a government 
default) among the most feckless eurozone members have reached Latin 
American levels. Would French and German taxpayers bail out another 
eurozone member? The longer this crisis goes on, the larger that 
incendiary question looms.

====================AND----->
B. Monetary union has left half of Europe trapped in depression

By Ambrose Evans-Pritchard

Events are moving fast in Europe. The worst riots since the fall of 
Communism have swept the Baltics and the south Balkans. An incipient 
crisis is taking shape in the Club Med bond markets. S&P has cut 
Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on 
negative watch.

Dublin has nationalised Anglo Irish Bank with its half-built folly on 
North Wall Quay and ?73bn (£65bn) of liabilities, moving a step 
nearer the line where markets probe the solvency of the Irish state.

A great ring of EU states stretching from Eastern Europe down across 
Mare Nostrum to the Celtic fringe are either in a 1930s depression 
already or soon will be. Greece's social fabric is unravelling before 
the pain begins, which bodes ill.

Each is a victim of ill-judged economic policies foisted upon them by 
elites in thrall to Europe's monetary project - either in EMU or 
preparing to join - and each is trapped.

As UKIP leader Nigel Farage put it in a rare voice of dissent at the 
euro's 10th birthday triumph in Strasbourg, EMU-land has become a 
Völker-Kerker - a "prison of nations", to borrow from the Austro-
Hungarian Empire.

This week, Riga's cobbled streets became a war zone. Protesters armed 
with blocks of ice smashed up Latvia's finance ministry. Hundreds 
tried to force their way into the legislature, enraged by austerity 
cuts.
"Trust in the state's authority and officials has fallen 
catastrophically," said President Valdis Zatlers, who called for the 
dissolution of parliament.

In Lithuania, riot police fired rubber-bullets on a trade union 
march. Dogs chased stragglers into the Vilnia river. A demonstration 
outside Bulgaria's parliament in Sofia turned violent on Wednesday.

These three states are all members of the Exchange Rate Mechanism 
(ERM2), the euro's pre-detention cell. They must join. It is written 
into their EU contracts.

The result of subjecting ex-Soviet catch-up economies to the monetary 
regime of the leaden West has been massive overheating. Latvia's 
current account deficit hit 26pc of GDP. Riga property prices 
surpassed Berlin.
The inevitable bust is proving epic. Latvia's property group Balsts 
says Riga flat prices have fallen 56pc since mid-2007. The economy 
contracted 18pc annualised over the last six months.

Leaked documents reveal - despite a blizzard of lies by EU and 
Latvian officials - that the International Monetary Fund called for 
devaluation as part of a ?7.5bn joint rescue for Latvia. Such 
adjustments are crucial in IMF deals. They allow countries to claw 
their way back to health without suffering perma-slump.

This was blocked by Brussels - purportedly because mortgage debt in 
euros and Swiss francs precluded that option. IMF documents dispute 
this. A society is being sacrificed on the altar of the EMU project.

Latvians have company. Dublin expects Ireland's economy to contract 
4pc this year. The deficit will reach 12pc of GDP by 2010 on current 
policies. "This is not sustainable," said the treasury. Hence the 
draconian wage deflation now threatened by the Taoiseach.

The Celtic Tiger has faced the test bravely. No government in Europe 
has been so honest. It is a tragedy that sterling's crash should have 
compounded their woes at this moment. To cap it all, Dell is 
decamping to Poland with 4pc of GDP. Irish wages crept too high 
during the heady years when Euroland interest rates of 2pc so 
beguiled the nation
.
Spain lost a million jobs in 2008. Madrid is bracing for 16pc 
unemployment by year's end.

Private economists fear 25pc before it is over. Spain's wage 
inflation has priced the workforce out of Europe's markets. EMU logic 
is wage deflation for year after year. With Spain's high debt levels, 
this is impossible.

Either Mr Zapatero stops the madness, or Spanish democracy will stop 
him.
The left wing of his PSOE party is already peeling off, just as the 
French left is peeling off to fight "l'euro dictature capitaliste".

Italy's treasury awaits each bond auction with dread, wondering if 
can offload ?200bn of debt this year. Spreads reached a fresh post-
EMU high of 149 last week. The debt compound noose is tightening 
around Rome's throat. Italian journalists have begun to talk of 
Europe's "Tequila Crisis" - a new twist.

(They mean that capital flight from Club Med could set off an 
unstoppable process.

Mexico's Tequila drama in 1994 was triggered by a combination of the 
Chiapas uprising, a current account haemorrhage, and bond jitters. 
The dollar-peso peg snapped when elites began moving money to US 
banks. The game was up within days.)

Fixed exchange systems - and EMU is just a glorified version - 
rupture suddenly. Things can seem eerily calm for a long time. 
Politicians swear by the parity. Remember John Major's "soft-option" 
defiance days before the ERM blew apart in 1992? Or Philip Snowden's 
defence of sterling before a Royal Navy mutiny forced Britain off the 
Gold Standard in 1931.

Don't expect tremors before an earthquake - and there is no fault 
line of greater historic violence than the crunching plates where 
Latin Europe meets Teutonia.

Greece no longer dares sell long bonds to fund its debt. It sold 
?2.5bn last week at short rates, mostly 3-months and 6-months. This 
is a dangerous game. It stores up "roll-over risk" for later in the 
year. Hedge funds are circling.

Traders suspect that investors are dumping their Club Med and Irish 
debt immediately on the European Central Bank in "repo" actions.

In other words, the ECB is already providing a stealth bail-out for 
Europe's governments - though secrecy veils all.

An EU debt union is being created, in breach of EU law. Liabilities 
are being shifted quietly on to German taxpayers. What happens when 
Germany's hard-working citizens find out?