Monday, October 20, 2008

Debt Rattle, October 20 2008: The Lord of More

National Photo Co. Filling 1924
Havoline Oil Company, Washington, D.C.

As British government borrowing has risen an astonishing 75% (!) in one year (what would the country have looked like without that?), a consensus emerges in the US to expand the budget deficit, and dramatically. Everybody still believes that is is indeed possible to borrow their way out of misery. The only other places where you can find this sort of thinking is in casino’s and crack-houses.

There is a completely unfounded and utterly irrational picture of the world being touted that claims all will be fine, and soon too. When the economy rebounds, in that familiar imaginary place that’s just around the corner beyond the horizon, the wonderful certainty of unbounded growth will dissolve all debt and make us richer than we've ever been before. All of us.

It would not be correct to call this a fantasy. It is much more. It’s religion. It’s chasing the golden calf. And it does not condone critical views and questions. Growth is such a powerful deity that taking on additional, even unlimited, debt, in order to get to the promised land tolerates no scrutiny, a principle not unlike the mind-frame of your everyday suicide-bomber.

Growth, in the eyes of its believers, knows no more limits than do the powers of any of the all-seeing ever-present gods found in the monotheistic religions, Judaism, Islam and Christianity. The faithful growth flock, after having grown from A into A+, accumulating already seemingly infinite earthly possessions, blindly follows their shiny calf along its unidirectional and one-dimensional path to more of the same. The Lord of More. And as long as no questions are ever asked, the only limits will be those imposed by another deity, Gaia.

I have a question. I would like to know why no-one ever asks what exactly is is that they wish to grow into. Where it is they want to go. We have all seen the surveys that show, without missing a beat, that the happiest people on the planet do not live in the richest communities, but in the closest knit ones. Happiness is not two and a half people in a 10000 square foot mansion with wall-size TV’s and a garage filled with vehicles modeled after rhinoceroses.

So why do the faithful of the Lord of More keep chasing the glittering bovine?

They do because they know of no other reality. They do because their brains are genetically preconditioned for lies and deceit. What we think sets us apart from everything out there that is alive, this quality we call consciousness, comes at a bitter and fatal price. You cannot be 'fully' aware of ourself and others without being able to fool yourself into thinking that you are better and more than you really are.

The best example, I think, of this, can be found among those of us who have witnessed man's true nature, that of the by far cruelest creature to ever walk this earth. Nobody who survived a concentration camp would be able to ever sleep again, let alone continue to live, if there were not a built-in mechanism in their neurons that allowed them to forget, to tell themselves everything is going to be better from here on in. And yes, the same works for the perpetrators of all that is heinous.

This is why we have such a need and desire for tomorrow to be more, better, than today. It provides justification for whatever it is we do to others, and for what they do to us. The notion we call hope, the idea that in the future our dark sides will be no more, feeds the ultimate religion. The Lord of More.

Unlimited economic growth, therefore, is the perfect fit for who we are. Even though we can easily rationally understand that the principle of always more is ridiculously impossible, and fatal to our survival, we cannot escape the trap it lures us into. The human mind is as unidirectional and one-dimensional as the religion of More.

And we have no choice but to lie to ourselves about that. We must believe that we do the things we do because our rational brain tells us to, even though, when we take a step back, we are all perfectly capable of seeing that it just ain’t so.

Today, in a sort of ultimate tragedy, we convince ourselves that it is possible to take on more debt in order to get out of debt, as long as there is more growth awaiting us in our fantasy future. It's no more than yet another lie we can't escape, simply because we can't escape who we are.

The Lord of More will always in the end leave you with less.

Do our rulers know enough to avoid a 1930s replay?
Events are moving with lightning speed as the global credit freeze evolves into something awfully like a classic trade-depression. The commodity and emerging market booms are breaking in unison, leaving no more bubbles left to burst. Almost every corner of the world is now being drawn into the vortex of debt deflation.

The freight rates for Capesize vessels used to ship grains, coal, and iron ore have fallen 95% to $11,600 since May, hence the bankruptcy of Odessa’s Industrial Carriers last week with a fleet of 52 vessels. Cargo deliveries dropped 15.2pc at the US Port of Long Beach last month, but that is a lagging indicator.

From what I have been able to find out, shipping is slowing as fast as it did in the grim months of late 1931. “The crisis is now in full swing across the entire world,” said Giulio Tremonti, Italy’s finance minister. “It is hitting the real economy, the productive forces of industry. It’s global, it’s total, and it’s everywhere,” he said.

Italy’s industrial output has fallen 11pc in the last year. Foreign orders have dropped 13pc. But we are all in much the same boat. Europe’s car sales fell 9pc in September (32pc in Spain). US housing starts fell to a 45-year low in September. Last week, the International Monetary Fund had to rescue Hungary and Ukraine as contagion swept Eastern Europe. It would not surprise me if Russia itself were to tip into a downward spiral towards bankruptcy (again) and fascism (again).

Russia’s foreign reserves have fallen by $67bn since August. Ural crude prices fell to $65 a barrel last week, below the budget solvency threshold of the now extravagant Russian state. The new capitalists have to repay $47bn in foreign loans over the next two months. In Russia, oligarch fiefdoms built on leverage - Mikhail Fridman (Alfa), Oleg Deripaska (Basic Element), and Vladimir Lisin (Novolipetsk) - are lining up for state bail-outs from a $50bn rescue fund.

Brazil is free-fall as well. Sao Paolo’s Bovespa index is down a third in dollar terms in a month. Hopes that the BRIC quartet (Brazil, Russia, India, and China) would take over as the engine of world growth have proved yet another bubble delusion. China says 53% of the country’s 3,600 toy factories have gone bust this year. Economist Andy Xie says China is at imminent risk of its own crisis after allowing over-investment to run rampant, like Japan in the 1980s. “The end is near. They’ve been keeping this house of cards going for a long time with bank support,” he said.

Lord (Adair) Turner, the head of Britain’s Financial Services Authority, offers soothing words. “There is no chance of a 1929-33 depression. We know how to stop it happening again,” he said. I hope Lord Turner is right, but his Olympian certainty bothers me. It assumes that the economic elites:
  • a) understand what happened in the 1930s – on that score I suspect that few, other than the Fed’s Ben Bernanke, have delved into the scholarship (sorry, Galbraith’s pot-boiler The Great Crash does not count);

  • b) that central banks will now jettison the dogma of inflation-targeting that got us into this mess by lulling them into a false sense of security as credit growth and housing booms went mad. Will they now commit the reverse error as credit collapses?

  • c) understand that non-US banks – especially Europeans – have used the shadow banking system to leverage a $12 trillion (£7 trillion) spree around the world, and that this must be unwound as core bank capital shrivels away;

Yes, the Fed made frightening errors in the early 1930s by raising rates into the crisis, but they were constrained by the norms of the age: the fixed exchange system (Gold Standard), and fear of the bond markets. Are today’s central banks are doing much better? The Europeans fell into the trap of equating this year’s oil and food spike with the events of the early 1970s.

As readers know, I view European Central Bank’s decision to raise rates to 4.25pc in July – when Spain’s property market was already crashing, and Germany and Italy were already in recession – as replay of 1930s ideological madness. You could say the ECB also acted under the constraints of the age: its rigid inflation mandate. But I suspect that Bundesbank chief Axel Weber and German finance minister Peer Steinbruck were quite simply too arrogant to listen to anybody.

Mr Steinbruck insisted that “German banks are far less vulnerable than US banks” just days before the collapse of Hypo Real with €400bn (£311bn) of liabilities. Had he not read the IMF reports showing that German and European lenders have an even thinner Tier 1 capital base than American banks? One can only guess what French President Nicolas Sarkozy has been saying to ECB chief Jean-Claude Trichet, but he must have warned in blunt terms that Europe’s leaders would exercise their Maastricht powers to bring the bank to heel unless it slashed rates.

Democracies cannot subcontract monetary policy (with all its foreign policy implications) to committees of economists in a fast-moving crisis. Those accountable to their electorates have to take charge. Whatever occurred behind closed doors, the ECB is now tamed. It has cut rates to 3.75pc, and will cut again soon, perhaps drastically. The risk is that rates have come too late in Europe and Britain to stop a nasty denouement, given the 18-month lag on monetary policy.

We should be thankful that President Sarkozy and Gordon Brown took action in the nick of time to save our banking systems. Their statesmanship should at least spare us mass bankruptcy and unemployment. But it will not spare us a decade-long toil of pitiful growth – or none at all – as we purge debt. The world stole prosperity from the future for year after year, with the full collusion of governments, regulators, and central banks. Now the future has arrived.

Bernanke Backs More Stimulus, Citing 'Weak' Outlook
Federal Reserve Chairman Ben S. Bernanke endorsed consideration of a fiscal stimulus package, citing the chance of a "protracted slowdown" and a "weak" outlook for the U.S. economy into next year Lawmakers "should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers," Bernanke said in testimony to the House Budget Committee.

"Such actions might be particularly effective at promoting economic growth and job creation," he said, calling consideration of a stimulus "appropriate." Bernanke's remarks differ with the Bush administration's position and may give momentum to legislation being proposed by House Democrats; in January Bernanke told the same panel a stimulus "could be helpful" and urged lawmakers to act "quickly." The impact of that $168 billion measure faded by July, and economists anticipate the economy will contract in the current quarter.

The Bush administration has been cool to the prospect of another stimulus. Press Secretary Dana Perino, responding to reporters' questions Oct. 16, said that "a lot of conversations about a second stimulus took place just last month" with Congress, but "we didn't think" the proposals put forward "would help bring money into the economy." House Speaker Nancy Pelosi has proposed a fiscal stimulus of as much as $150 billion to aid the economy after the credit crunch deepened in recent months and the impact of the first stimulus package wore off.

Wisconsin Representative Paul Ryan, the budget panel's ranking Republican, said in the hearing that the Democratic plan is "bloated" and may balloon the budget deficit to $1 trillion. Bernanke's support would lend the Democrats' plan both "validity" and bipartisan sheen that would make it easier to approve, Representative Scott Garrett, a New Jersey Republican on the committee, said before the testimony. Garrett said he intends to ask Bernanke why "we didn't see more of a lasting positive result" from the first stimulus.

The plan floated by Pelosi, a California Democrat, includes increased federal spending on unemployment benefits, food stamps, highway-construction projects and aid to cash-strapped state governments. No vote has been set. "Any fiscal action inevitably involves tradeoffs" that may "burden future generations," Bernanke said. Yet "with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate."

Evidence of a recession increased last week, as confidence among Americans fell by the most on record and single-family housing starts hit a 26-year low. Industrial output fell 6 percent in the third quarter, the most since 1991, and a factory index for the Philadelphia region hit an 18-year low this month. "The pace of economic activity is likely to be below that of its longer-run potential for several quarters," Bernanke said in today's testimony. "The slowing in spending and activity spans most major sectors."

The Fed lowered its benchmark interest rate a half point on Oct. 8 to 1.5 percent in an unprecedented coordinated action with other central banks. Traders see about a 46 percent chance of a half-point cut at or before the Federal Open Market Committee's Oct. 28-29 meeting, futures prices show. The contracts indicate 100 percent probability of a quarter-point move. As the credit crisis intensified into a freeze in early September, the Fed took unprecedented actions: rescuing insurer American International Group Inc. with an $85 billion loan, later supplemented by $38 billion of additional credit; backing legislation to spend up to $700 billion on recapitalizing banks and buying distressed assets; and setting up a short-term funding backstop for U.S. companies through commercial-paper purchases.

U.S. regulators last week announced fresh efforts to jump- start lending. The Treasury committed $250 billion in taxpayer funds to private banks and the Federal Deposit Insurance Corp. extended its insurance to include new debt sold by banks. "These measures were announced less than a week ago, and, although there have been some encouraging signs, it is too early to assess their full effects," Bernanke said.

Still, the actions "should help rebuild confidence in the financial system," Bernanke said. While the rescue legislation was "critical" for helping to contain "damage to the broader economy," stabilizing the financial system "will not quickly eliminate the challenges still faced by the broader economy," he said.

Business spending may decline further in coming months, and homebuilding may keep contracting into 2009, Bernanke said. Lower commodity prices and the slowing economy "should bring inflation down to levels consistent with price stability," he said. Today's comments echo Bernanke's warning last week that the economy may be in for a prolonged period of sub-par growth. "A broader economic recovery will not happen right away," and "economic activity will fall short of potential for a time," he said in an Oct. 15 speech.

The 1934 Securities Exchange Act and all that
When you sign up to a margin account in almost all cases you pledge your securities to the broker with the ability for them to repledge.  The reason the broker-dealer must be able to repledge is that it needs to finance the loans to you – and to reduce the cost of that financing it needs to offer collateral. 

So, when I take my million dollars worth of securities to the broker and borrow 100K on my margin account it looks like I have pledged a million dollars to a broker who might be questionable in order to get 100 thousand worth of financing. There is one word for this.  Dumb.  They can – on face of it – take your assets and pledge them to finance their risky business.

If you do not believe it is dumb have a look at my post on Opes Prime, a small broker-dealer that went down in Australia taking something near a billion in client assets with it.  It involved organised crime, guys that killed hitmen and all sorts of other colourful characters.  There ain’t no way I would want to lend my securities to these guys and wind up an unsecured creditor.

The US had huge problems with broker-dealers in the 1930s.  They folded and lots of people lost their entire fortune by not understanding their credit arrangements.  Enter the US Securities Exchange Act of 1934.  This is one piece of depression era legislation that survives and thank the Good Lord for that. What the broker dealer act does is (a) ring fence the US broker dealer and (b) limit the amount that the broker dealer can borrow against your securities and the amount of collateral it may take. 

I am hardly a lawyer, but the way it works is that the broker dealer may not borrow against your securities to finance their own business, only client business.  So Lehman Brothers US broker dealer could take collateral of securities and if they had 100 million out on client margin loans the most that they could raise using client securities is 100 million and not a brass razoo more.  This is really important because it meant that client assets were not used to finance Lehman’s disastrous commercial real estate and other businesses. 

Moreover when you deposit a million dollars at the broker dealer and give them the right to repledge those securities they can only rehypothecate 140 percent of your outstanding balances. If you have 1 million deposited and you have 100 thousand borrowed then only 140 thousand can be rehypothecated and the rest must sit in a segregated client account.  [If your broker wants to steal from the segregated client account there are precious few defences – but…] 

You can not contract out of this requirement. So (provided the broker is not acting criminally) you should get the bulk of your money back if the broker dealer fails.  And provided the capital requirements are adequate (and they mostly are) the broker dealer won’t fail.  Even the Drexel Burnham Broker Dealer did not fail. Goldman Sachs claims that they can determine the capital requirements of their broker dealer intra-day.  I have no proof of this claim – but in this age of computers that is plausible.

The result.  Whilst Lehman brothers went bust Lehman US broker dealer did not.  This pretty well saved the US hedge fund industry.  Europe however was a different story.  Lehman Europe failed – and the clients of the European broker dealer (read a good proportion of the London hedge fund community) are now queuing as unsecured creditors of Lehman.  Many funds have folded.  Far more have been nicked.  Whilst the US hedge fund business is currently looking dazed, confused and a little problematic the UK business is on life support. 

In some sense this is the end of the City of London. I am on record as saying the UK took Maggie Thatcher to heart and deregulated financial activity to such an extent that the whole UK market worked without capital.  That was of course inordinately attractive in a boom where having capital was just a cost.  That attractiveness was one of the reasons why the London market grew and grew – and why UK banks wound up being amongst the biggest in the world.

But now with the biggest bank in the world by balance sheet (Royal Bank of Scotland) effectively nationalised and the and a large part of the UK hedge fund community lying with open veins it looks a little stupid. This puts in a different light the 8 billion dollars that Lehman London transferred to the US when it was failing.  I stand open to correction – but I would guess that the money was obtained from client accounts from the European/London broker dealer.  It is certainly being investigated by Lehman clients.   

This is a scandal of the first order allowed by an insane laissez faire approach to financial regulation.  So here is a plea for US Depression style financial regulation.  Some of it (such as the Broker Dealer regulation) was well thought out and should be duplicated.   (Some of it was less sensible…)   If I have a plea to my home country (Australia) after the Opes Prime debacle – a copy of the US 1934 Act would be a good start. 

As for London – I am sorry, but it is a wreck.  Maggie Thatcher you stand condemned.

Consensus Emerges to Let Deficit Rise
Like water rushing over a river’s banks, the federal government’s rapidly mounting expenses are overwhelming the federal budget and increasing an already swollen deficit. The bank bailout, in the latest big outlay, could cost $250 billion in just the next few weeks, and a newly proposed stimulus package would have $150 billion or more flowing from Washington before the next president takes office in January.

Adding to the damage is that tax revenues fall as the economy weakens; this is likely just as the government needs hundreds of billions of dollars to repair the financial system. The nation’s wars are growing more costly, as fighting spreads in Afghanistan. And a declining economy swells outlays for unemployment insurance, food stamps and other federal aid. But the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.

“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message. Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes. But while the borrowing is relatively inexpensive for the government in a weak economy, the cost will become a bigger burden as growth returns and interest rates rise.

In addition, outlays for Medicare and Social Security are expected to balloon as the first baby boomers reach full retirement age in the next three years. “The next president will inherit a fiscal and economic mess of historic proportions,” said Senator Kent Conrad, Democrat of North Dakota and chairman of the Senate Budget Committee. “It will take years to dig our way out.”

The Congressional Budget Office estimates that the deficit in the current fiscal year, which started this month, will reach roughly $700 billion, up more than 50 percent from the previous year. Measured as a percentage of all the nation’s economic activity, the deficit, at 5 percent, would rival those of the early 1980s, when a severe recession combined with stepped-up federal spending and Reagan-era tax cuts resulted in huge budget shortfalls.

Resorting to credit has long been the American solution for dealing with expensive crises — as long as the solution has wide public support. Fighting World War II certainly had that support. Even now many Americans tolerate running up the deficit to pay for the wars in Iraq and Afghanistan, which cost $11 billion a month combined. And so far there is wide support for an initial outlay of at least $250 billion for a rescue of the financial system, if that will stabilize banks and prevent a calamitous recession.

“There are extreme circumstances when a larger national debt is accepted as the lesser of two evils,” said Robert J. Barbera, chief economist at the Investment Technology Group, a research and trading firm. There are also assumptions that help to make America’s deficits tolerable, even logical. One is that people all over the world are willing, even eager, to lend to the United States, confident that the world’s most powerful nation will always repay on time, whatever its current difficulties. “So far the market is showing that it is quite willing to finance our needs,” said Stephen S. McMillin, deputy director of the White House Office of Management and Budget.

Lenders are accepting interest rates of 4 percent or less, often much less, to buy what they consider super-safe American debt in the form of Treasury securities. The 4 percent rate means that the annual cost of borrowing an extra $1 trillion is $40 billion, a modest sum in a nearly $14 trillion economy, helping to explain why the current growing deficit has encountered little political resistance so far. But if recent history repeats itself, the deficit is likely to be an issue again when the economy recovers.

Interest rates typically rise during a recovery, so the low cost of servicing the nation’s debt will not last — unless a recession set off by the banking crisis endures, repeating the Japanese experience in the 1990s and perhaps even stripping the United States and the dollar of their pre-eminent status. The assumption is that will not happen, and as the economy recovers, the private sector will step up its demand for credit, making interest rates rise.

Higher rates in turn would increase the cost of financing the deficit, and there would probably be more pressure to reduce it through cuts in spending. That happened in the late 1980s, as Congress and the White House coped with the swollen Reagan deficits. The Gramm-Rudman-Hollings Act, with its attempt to put a ceiling on deficits, came out of this period. Another assumption, also based on 60 years of post-World War II experience, is that although the economy is sliding into recession, in a year or two that recession will end and the national income (also known as the gross domestic product) will expand once again.

When that happens, the national debt — the accumulated borrowing to finance all the annual deficits — will shrink in relation to the income available to pay off the debt. The nation’s debt as a percentage of all economic activity, while growing alarmingly now, is not at historic highs. The portion held outside the American government, here and abroad, in the form of Treasury securities was $5.8 trillion at the end of last month. That is a relatively modest 40.8 percent of the nation’s annual income, far below the 109 percent coming out of World War II or the nearly 50 percent in much of the 1990s.

Put another way, if the entire national income were dedicated to debt repayment, the debt would be paid off in less than five months. For most of the years since 1940, paying down the debt would have taken longer, putting a greater strain on income. Still, these are not ordinary times. The banking system is broken, and the national economy, in response, is plunging toward recession in a manner that evokes comparisons with the Great Depression. To soften the blow, the administration and Congress ran up a record $455 billion deficit in the just-ended 2008 fiscal year, and they are en route to a shortfall of $700 billion or more this year.

“I do think we need to be ready for a very significant increase in the budget deficit,” said Peter Orszag, director of the Congressional Budget Office. Apart from the war spending, outlays for unemployment insurance have risen by one-third and spending on food stamps has increased 13 percent over the last 12 months. Congress has agreed to expand education benefits for veterans of the current wars, and last spring it authorized $168 billion for a stimulus package, most of it in the form of tax rebate checks. Now the Democratic Congressional leadership is pushing for another stimulus of at least that much.

All of this is happening as tax revenues are falling, particularly corporate tax receipts, which were down $66 billion, or 18 percent, in the fiscal year that just ended. The decline accelerated in September. Many Republicans would probably go along with two elements in the stimulus package proposed by the Democrats — a tax cut of some sort and extended unemployment benefits. But they resist stepped-up spending on public works projects and a temporary increase in federal aid to the states.

Representative Roy Blunt of Missouri, the House Republican whip, said the stimulus bill should not be used to finance “a huge public works plan” or to bail out “states that spent a lot more money than they should have on Medicaid and other social programs.” To pay for the surge in spending — and the shortfall in taxes — the federal government increased the national debt by $768 billion over the last year, to the present $5.8 trillion, with $300 billion of that amount going to the Federal Reserve for a variety of rescue initiatives for the financial system.

The outlays swell as each day brings fresh reports of a financial system that is costly to repair and a rapidly sinking economy in need of a leg up. “The deficit is a burden in a long-term sense,” Mr. Barbera, the economist, said, “but it is small beer compared to the concerns of the moment.

US states face new budget shortfalls
The moribund economy is drying up tax revenues more dramatically than expected, forcing 22 states, including California, to confront growing budget gaps. Some states have already eliminated jobs and services -- and more cuts are likely.

The new shortfalls -- totaling at least $11.2 billion -- come just months after numerous states enacted belt-tightening measures while writing their yearly budgets. Officials also adjusted their revenue projections downward to account for the slowing economy. But in many cases, the actual revenue for the first quarter of the fiscal year, which began July 1, has proven to be even lower. The gaps "will almost certainly widen" as tax revenues continue to disappoint, according to the Center on Budget and Policy Priorities, a Washington think tank that compiled the state data in a report this month.

Economists and other observers fear the numbers may signal the onset of a historic fiscal crisis for state governments. "States have been confronted with bad economic circumstances in the past, but never so many states, all at once," said William T. Pound, executive director of the National Conference of State Legislatures. The revenue pools are shrinking for a number of reasons: Rising layoffs are cutting into payroll taxes. The credit crisis and housing slump are affecting taxes levied on real estate deals. Sales taxes are shrinking as shoppers worried about the economy stay home. Every state in the union but Vermont legally requires a balanced budget. So state governments have begun cutting.

In Utah, Gov. Jon Huntsman Jr. called the Legislature back for a special session last month to slash $270 million with an across-the-board 3% budget cut. Virginia Gov. Tim Kaine this month disclosed a sudden $900-million budget gap and announced 500 layoffs, the suspension of 2% raises for state workers and a hiring freeze. Georgia, faced with a $2-billion shortfall, is contemplating cuts of up to 10% at state agencies. Lawmakers are also discussing eliminating funding for the state's Music Hall of Fame in Macon. When legislatures convene in January, they will have to consider even harsher reductions, warned Donald J. Boyd, a senior fellow at the Rockefeller Institute of Government in New York, who tracks state budgets.

"What states have done so far -- still generally mild -- pales in comparison to what they will do," he said. The pain will probably spread beyond the warrens of state bureaucracy as laid-off state workers and curtailed government spending help fuel a vicious economic cycle. The Center on Budget and Policy Priorities -- which typically takes a liberal view on policy issues -- notes that as the economy declines, residents require more services from their state government, not fewer.

The only alternative to cutting services -- a tax increase -- has proven unpopular in a number of states, including California and Florida. As a result, said Florida Democratic state Rep. Ron Saunders, "we're doing what families are having to do. Most people I know don't have the same discretionary income they had last year, so they're facing difficult decisions." Some of the most dire problems are emerging in states such as California and Florida, where the housing collapse has been the most pronounced.

California lawmakers, who faced a $15.2-billion deficit going into the fiscal year, argued over the budget for months. In the final draft, state services took a big hit: Medi-Cal was temporarily cut by 10%, and the education budget was set at $3 billion less than last year. The bad news continues to mount. Last month, the state's revenue fell about $1 billion short of projections. Gov. Arnold Schwarzenegger and legislative leaders have been meeting weekly to discuss the problem and are considering calling lawmakers to a special session. In Florida, lawmakers faced a similar challenge as they wrote their yearly budget. The plan they devised was nearly $6 billion smaller than the year before. It resulted in 200 net job losses, tuition increases, cuts to nursing homes and the shuttering of 13 driver licensing offices.

Now the Legislature is scrambling to patch a new $795-million gap. Lawmakers may face yet another multibillion-dollar shortfall when they sit down to craft a budget for the fiscal year starting in 2009. Declining revenue is just part of the problem in Florida: Education costs are soaring because of the passage of a 2002 class-size-reduction ballot initiative, and rising enrollment and healthcare costs are bloating the Medicaid program. Budget woes engulfed more than 40states beginning in 2001, a result of the dot-com crash. At the time, economists said it was the biggest fiscal crisis for states since World War II.

"If you look at some of the basics of the economy -- unemployment, the stock market decline, the decline in consumer spending -- there is some reason to fear this crisis will be worse," said Nicholas Johnson, an analyst with the Center on Budget and Policy Priorities. Local governments, in particular, may get hammered harder this time around. In 2001, Johnson said, cities and municipalities, flush with cash from high property tax rolls, were able to pick up the cost of services that states had abandoned. But that will be more difficult now because declining home values have dragged down property tax revenues.

States have generally been conservative with their spending priorities since the last downturn, even as the housing boom swelled their coffers. Johnson noted that states, taken as a whole, set aside record reserves: At the end of the 2007 fiscal year, their total reserves of about $69 billion equaled about 10.5% of their combined budgets. In Washington last week, House Democrats addressed the issue, saying they would consider giving aid to struggling states as part of a $150-billion economic stimulus package. Illinois Sen. Barack Obama, the Democratic nominee for president, has also proposed a multibillion-dollar aid package for state and local governments. Republican John McCain's campaign did not respond to multiple inquiries about their candidate's plans to help states.

The reversal of fortunes has been dizzying for states such as Arizona. Only two years ago, the state was sitting on a $1.5-billion surplus, but the housing collapse sent the economy into a tailspin. When Gov. Janet Napolitano signed the budget this summer, it was already tightened to close a $1-billion deficit. The state drained its reserve funds, took $18 million that was to be used for maintenance at small airports and instituted a hiring freeze. But the financial situation has worsened in the last couple of months, and Arizona faces an additional deficit of as much as $800 million.

Napolitano earlier this month said that all expenditures over $50,000 would be reevaluated in light of the worsening financial picture. Officials warned that reductions in services may be inevitable. And they don't know when the bad times will end. Historically, fast-growing Arizona has been among the first states to recover from a recession, said the governor's spokeswoman, Jeanine L'Ecuyer. "But we're in a whole new ballgame now," she said.

Treasury: banks 'expected' to use capital from injections
U.S. Treasury Secretary Henry Paulson said on Monday that banks who apply to sell equity to the federal government would be expected to make use of their new capital and boost lending. Issuing regulatory guidelines for the new $250 billion equity purchase plan created last week, Paulson said there was interest from a broad group of banks of all sizes.

The Treasury previously announced it was investing $125 billion in nine of the largest U.S. banks, acquiring preferred stock. It intends to create a systematic program under which a broad range of financial institutions can access U.S. government capital. U.S.-controlled institutions who are interested must apply to their regulatory agency before November 14 and their applications will be reviewed by the Treasury's new Office of Financial Stability.

"Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending," Paulson said in a statement. Paulson said the purchase program was not being implemented on a first come-first served basis.

All transactions will be publicly announced within 48 hours, but the department said it would not announce any applications that are withdrawn or denied. "This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," Paulson said. Paulson said he expects the participating banks to strengthen their efforts to help struggling homeowners avoid foreclosure.

Joint U.S.-New York Inquiry Into Credit-Default Swaps
In an unusual partnership, New York State and federal prosecutors are investigating trading in credit-default swaps, the insurancelike securities that have come under close scrutiny for their role in the financial crisis. Prosecutors are looking at whether traders manipulated the largely unregulated market for credit-default swaps to drive down the price of financial shares over the last year, people briefed on the investigation said.

In the swaps market, investors buy and sell insurance protection against defaults on bonds. The cost of the protection, also known as a spread, rises when investors grow more concerned about the viability of companies. Since the spring, spreads surged on swaps tied to debt issued by Lehman Brothers, Morgan Stanley, Goldman Sachs and other financial firms. Those companies’ shares also tumbled, in part, analysts say, because the cost of protecting their debt was rising.

Collaborations between the New York attorney general, Andrew M. Cuomo, and the United States attorney in Manhattan, Michael J. Garcia, are not frequent, legal experts say. That suggests the two men believe the case is too big and significant to pursue independently. Representatives for both men confirmed their effort on Friday. The Securities and Exchange Commission is also looking into credit-default swaps.

Mr. Cuomo and Mr. Garcia are investigating whether investors drove up the price of swaps in transactions that were reported to data providers but never actually completed, according to people briefed on the investigation. If so, that would have helped anybody who sold short financial shares. In a short-sale, investors sell stocks they do not own in the hopes of buying them back later at a lower price.

To identify whether there was any manipulation, Mr. Cuomo’s office has issued subpoenas seeking data from various parts of the industry, including stock exchanges, investment firms and three companies involved in processing trades in swaps and stocks, according to people briefed on the inquiry. Those firms are: the Depository Trust Clearing Corporation, which serves as the clearing agent for most financial transactions including swaps and stocks; Markit, which provides swaps data to Wall Street banks and investors; and Bloomberg, the financial data company whose electronic system is used by traders to track markets and communicate with one another.

The inquiry is in preliminary stages, and people familiar with the investigation say it may not lead to a prosecution. One investor, who asked for anonymity to avoid drawing attention to his firm, said the swaps market was becoming a convenient scapegoat for regulators. He added that evidence of traders’ manipulating share prices was largely circumstantial. Concerns about the market have prompted the Federal Reserve Bank of New York to push investment firms to move trading in credit-default swaps to a regulated exchange by year’s end.

Joseph A. Grundfest, a former commissioner at the Securities and Exchange Commission and now a professor at Stanford Law School, said a partnership between Mr. Cuomo and Mr. Garcia made sense given the complexity of the swaps market. This is “an international market and it might well be easier for the United States attorney to get information from some foreign sources than have a local prosecutor pursue the information,” he said.

In the past, the state attorney general and the United States attorney’s office have often competed with each other on major white-collar crime cases, like the investigation of Frank Quattrone, the former Credit Suisse banker who was acquitted last year of federal obstruction of justice charges. Tensions between the offices ran high when Eliot Spitzer, the former New York governor, was attorney general.

While the United States attorney’s office brings criminal cases, the attorney general’s office typically pursues civil cases, though it can pursue criminal charges. “The efforts of the U.S. attorney’s office, whose primary role will be to determine whether any federal laws have been violated, will serve to complement the broader mandate of the attorney general’s office,” Yusill Scribner, a spokeswoman for Mr. Garcia, said in a statement.

Several senior lawyers in Mr. Cuomo’s office, including his deputy counselor and special assistant, Benjamin M. Lawsky, previously worked in the United States attorney’s office. “The probe will bring together top prosecutors from both offices while simultaneously avoiding multiple competing investigations,” Alex Detrick, a spokesman for Mr. Cuomo, said in a statement.

Churchill’s Dictum
“In the long run, Americans will always do the right thing-after exploring all other alternatives,” Winston Churchill famously said during Word War II, as Americans still were debating whether or not to enter the European war theater. One is reminded of Churchill’s dictum on observing a hyperkinetic Treasury Secretary Henry Paulson, in a managerial style that makes former Secretary Defense Secretary Rumsfeld look good by comparison, flail about frantically in search for an effective response to our financial crisis.

Paulson began this fumbling search with a counterproductive, three-page legislative bailout proposal roughly akin in tone and thrust to a teenager’s request to borrow his parent’s car for the evening, with the parent’s promise not to remark on any new dent the teenager might put into the car. 

By the time Congress had taught former Goldman Sachs CEO Paulson that the Treasury is not quite like a banker’s executive suite –where CEOs reign supreme and apparently can behave like brash and reckless teenagers — the stock market had become so spooked by the Secretary’s brashly but poorly developed proposal that eventual passage of the bailout legislation was greeted by the market with a succession of sharp drops in stock prices. So much for the market’s trust in the sagacity of the nation’s chief financial officer.

Paulson’s newest new thing has been to cram $125 billion of new “equity” capital down the throats even of banks that neither need nor desire such a bailout, with the preamble that “Government owning any stake in business is objectionable to many Americans, me included.” In truth, of course, this plan is not really given taxpayer’s an effective equity stake in the rescued banks at all. It’s just more of Paulson’s tomfoolery.

Under this latest bailout installment, the taxpayer would guarantee bank deposits without limit, guarantee all new debt issued by the banks, and inject billions of federal dollars into the networth section of the banks’ balance sheets - all in return for a completely passive “ownership” stake consisting of non-voting preferred shares that pay a dividend rate about half as large as that offered to private investors-e.g., Warren Buffet.

Furthermore, instead of making these preferred shares convertible into the banks’ common stock at a fair conversion ratio that might reward taxpayers for the risk they take on, the shares actually are callable by the banks after three years, at the banks’ option, without even the call premiums traditionally imposed on convertible debentures. On top of that, the Secretary still wants to use hundreds of billions of taxpayer dollars to relieve mismanaged banks of their dodgiest assets, undoubtedly at prices highly favorable to the banks and commensurately risky to the taxpayer.

It instills no great confidence that this daunting operation is to be managed by a 35-year old former Goldman-Sachs employee with only six years of experience in finance. Finally, any restrictions on the compensation of bailed out bank executives are apt to be cosmetic and can most likely be evaded. Paulson, former recipient of such largesse, apparently abhors such restrictions as well.

One must wonder whether American taxpayers will grasp the irony of it all. While Paulson loathes the idea of giving U.S. taxpayers a genuine, voting equity stake in the banks taxpayers are forced to bail out - and possibly a seat or two at the board table chosen on behalf of taxpayers from among Main Street chief financial officers who actually understand corporation finance and concepts such as “leverage” - Paulson sees nothing wrong with extending such voting privileges to foreign investors, including the sovereign wealth funds of Middle Eastern potentates or of Communist China.

For example, Paulson most likely was cheered by news that Mitsubishi UFJ, Japan’s largest megabank, will receive a genuine equity stake of up to 20 per cent in Morgan Stanley for a cash injection of about $9 billion. On the other hand, for an injection into Morgan Stanley of $10 billion of their funds, U.S. taxpayers will receive merely non-voting, callable, preferred stock, which effectively tells U.S. taxpayers to sit at a separate table and to shut up, like good little children.

What prompts the Secretary of the Treasury to treat American taxpayers so contemptuously, as second-class stakeholders? Why is it so much more abhorrent to him to have designated representatives of U.S. taxpayers sit at a bailed out bank’s board table than granting that privilege to, say, a Middle Eastern sheik or a Japanese banker? Secretary Paulson is reported to fear that letting American taxpayers own voting common stock in the bailed out banks they are forced to bail out would dilute the stock value of existing or future private shareholders.

Does he realize that the existing shareholders’ equity stake will be diluted also by any sale of new common stock to private domestic or foreign investors at current fire-sale stock prices? If, after this deal, anyone still believes that our hyperkinetic Secretary of the Treasury works tirelessly for the American taxpayer, rather than for his former colleagues on Wall Street who helped push the nation to the current economic precipice, I would offer that true believer some choice ocean-front property in Iowa.

As John Kanas, CEO of North Fork Bancorp was quoted on the bailout in The Wall Street Journal (October 15, 2008: A16): “It looks like a pretty good deal for the recipients and probably a pretty tough deal for taxpayers. It seems quite explicit that there’s no strings attached to this money. It seems like a gift.”

The hard-working and now hard-pressed American taxpayer deserves better than that. In my view, that taxpayer deserves Paulson’s early retirement and replacement - at least for some time — by a much wiser person Americans can trust: former Federal Reserve Chairman Paul Volcker. If asked, he just might do America this one more patriotic service in a long life of wise and faithful service.

U.S. deflation fears surface, putting Fed on alert
Plunging commodity prices could drag U.S. inflation below zero next year and the Federal Reserve will have to stay alert to the risk of a damaging deflation that could erode the economy even if it worries that low interest rates could spark inflation over the longer term.

The Fed's emergency action to offset the credit crisis has included slashing interest rates to 1.5 percent and pumping well over $1 trillion into financial markets, which has doubled the size of the Fed's balance sheet and sent the U.S. money supply soaring. At some point this could create price pressures, especially if the Fed lowers rates further as many economists expect. Right now, however, it looks like good insurance against an even more damaging dose of deflation.

Deflation is a prolonged and widespread decline in prices that causes consumers and businesses to curbing spending as they wait for prices to fall further. It also increases the burden of any given amount of debt. Fears of a global recession have triggered a slump in oil prices, which fell to about $70 a barrel last week from a record peak in July of $147.

There has also been a collapse in inflation expectations as measured by the yield spread between 10-year U.S. Treasuries and inflation-index bonds. The spread has shrunk to just 90 basis points from 270 basis points over the last three months. "Bond markets are more worried about deflation than inflation," said Michael Darda, chief economist at MKM partners in Greenwich, Connecticut.

Fed Vice Chairman Donald Kohn noted in a speech on Wednesday that lower commodity prices should lead to a sharp reduction in headline inflation. Dean Maki, chief U.S. economist at Barclays Capital in New York, estimates that the year-on-year change in U.S. consumer inflation will slip to zero or even fall slightly by July.

Policy-makers will not be too concerned that a potentially damaging deflation is taking root, provided the decline does not start showing up in so-called core inflation, which excludes energy and food prices. But if the economy is still weak and core prices converge downward toward headline inflation near zero, the U.S. central bank could become concerned.

Japan confronted a period of damaging deflation after its property and stock market bubbles burst in the early 1990s, inflicting a "lost decade" of economic stagnation. Some analysts fear the United States faces a similar threat from its housing meltdown. If deflation risks were to rise, it would make it harder for the Fed to gauge when it should begin withdrawing the enormous monetary stimulus it has unleashed to protect the U.S. economy, and this could lead to policy mistakes.

"I think deflation Japan-style is unlikely here. Higher inflation here seems unlikely for a year or two, but I worry about the longer run outlook," said William Poole, a senior fellow at the Cato Institute who retired as president of the Federal Reserve Bank of St. Louis in March. When former Fed Chairman Alan Greenspan declared in 2003 that he wanted a broad firebreak to guard against deflation, the Fed wound up cutting interest rates to 1 percent and keeping them there for a year.

Many now claim that this laid the foundation for the current credit crisis by inflating the housing bubble. During that episode, as now, the Fed looked to Japan's experience to inform its own behavior. U.S. policy-makers believe that unlike earlier this decade, the risk of a fresh bubble is very small since credit is not available. This belief has given them the comfort to move aggressively to settle markets and protect the economy. "If they were doing nothing, you could very well have a deflationary collapse," Darda said. "Central banks of the world know how to stop deflation. You just print enough money."

Iceland to unveil IMF-led rescue package
Iceland is reported to be ready to announce a $6bn (£3.5bn) International Monetary Fund-led rescue package to steady its economy following the collapse of the banking system. The IMF is expected to contribute just over $1bn with central banks from the Nordic region and Japan contributing the rest, the Financial Times reported on its website.

It is unknown whether Russia, which has been wavering over making a loan to Iceland, will participate. If Iceland accepts help from the IMF, it will be the first Western nation to go cap-in-hand to the fund since Britain’s humiliating loan in 1976. The Icelandic government met yesterday to debate the issue. Frettabladid, a daily newspaper, said in its Monday edition that the government had received IMF's conditions for aid and was meeting to decide whether those conditions were acceptable.

"This has got that far that we are analyzing the conditions, costs and benefits of how this would look like," Bjorgvin Sigurdsson, minister of trade and commerce, told the newspaper regarding the talks between the government and the IMF. Earlier this month, the IMF activated an emergency cash fund for troubled countries, amid fears countries would have to be bailed out.

The fund has readied a $200bn (£117bn) war chest for countries struggling in the financial crisis and could lend out cash almost instantly to anyone who requires it. Ukraine is said to be preparing to accept a $14bn (£8bn) loan, while Hungary and Serbia are in emergency talks with the IMF.

UK mortgage lending slumps 42% in a year
Mortgage lending slumped by 10% in September to its lowest level for more than three-and-a-half years as the housing market slowdown stifled demand for new loans, figures showed today. The Council of Mortgage Lenders (CML) said its members advanced loans worth £17.7bn over the month, a decline of 42% on September 2007.

Over the course of 2008 net mortgage lending, which takes into account repayments and redemptions, could fall to around a third of last year's figure, it said. September's gross lending figure is the lowest since January 2005 and reflects a sharp drop-off in loans to new borrowers, as both lenders and buyers pull out of the housing market. The CML said a seasonal fall was typical between August and September, but this was the lowest September figure for seven years.

Gross mortgage lending for the three months from July to September was estimated to total £62bn, down 16% on the second quarter of this year and 37% down on the same period last year. Despite the recent moves by the government to free up the mortgage market and reduce the cost of borrowing, mortgage lenders have been increasing the cost of some loans in recent days. Some have also continued to restrict lending, with Nationwide recently pulling its best deals for new and existing borrowers with less than 10% to put down as a deposit.

Despite this, the CML's director general, Michael Coogan, insisted: "The mortgage market is open for business." However, he added: "Weakening consumer demand and ongoing funding constraints will dampen monthly lending figures for the rest of this year and into the first quarter of 2009." As a result, Coogan said he expected gross lending over the year to come in at £255bn compared with last year's figure of £363bn, while the value of net lending could fall from £108bn to £40bn.

Howard Archer, chief UK economist at Global Insight, described the figures as "awful". "The extremely low level of mortgage activity in September shows that housing market activity continues to be hammered by the highly damaging combination of extremely tight lending conditions and still-stretched buyer affordability," he said.

Andrew Montlake, a partner at mortgage broker Cobalt Capital, said the figures reflected a "seismic shift" in the mortgage market with lenders moving away from the riskiest borrowers. "Despite the bail-outs that have taken place around the world I expect very little change in the mortgage lending figures for the rest of this year, mainly because the mainstream lenders are only accepting 'quality', low loan-to-value business."

UK government borrowing rises 75% in one year, at highest level since 1946
Public sector borrowing reached its highest level since 1946 in the first six months of the financial year, even before the Chancellor begins implementing a strategy to spend his way out of the economic downturn. Borrowing was £8.1bn in September, taking the total to £37.6bn in the first half of the year, some 75pc higher than at the same point last year, and the highest since records began when Britain started rebuilding the country after the Second World War.

It was significantly higher than the £6.6bn monthly figure expected by economists, who described the unexpected jump as alarming. Borrowing rose as tax receipts from stamp duty, corporation tax, national insurance and excise duties were all weak as the UK stood on the brink of recession. Receipts rose 1.9pc from April to September compared with the same period a year earlier, well below the 5pc level required to hit the Chancellor's Budget forecast.

Central government spending growth on the other hand was strong. It grew by 6.1pc in the first half, more than the Chancellor's full-year forecast for a 5.3pc increase. The budget deficit was £5.9bn in September, taking the first half deficit to £25.2bn - almost double last year's first half deficit of £13.1bn. Alistair Darling's original forecast that full-year borrowing would reach £43bn now looks even further out of reach, and some economists now predict that the total will surpass £60bn.

The high level of borrowing coincides with a time of economic turmoil in the UK, limiting the amount the Treasury can strengthen the public coffers through tax rises. The Chancellor said in an interview with The Sunday Telegraph that he would not limit public spending and would instead bring forward some public sector projects to support the UK's faltering economy. That will take the Treasury closer to breaking one of its own sustainable borrowing rules, which dictates that the government's net debt must not exceed 40pc of gross domestic product.

David Cameron warned this morning that the Government's approach threatened to restrict the Bank of England as it seeks to boost the economy by cutting interest rates. “If you have a big deficit, as we do, if you then go on a further splurge and make it larger, everybody knows that means taxes are going to go up in the future so they behave accordingly, and also the Bank of England will be more reluctant to reduce interest rates,” he said Instead, the Conservative leader backed a cut in National Insurance payments for small businesses as the best way to limit the fallout from a likely recession.

The total amount of net debt owed by the Government rose to 37.9pc in September, excluding the cost of nationalising Northern Rock, up from 37.3pc in August, according to the Office for National Statistics figures. The figure including the nationalisation of Northern Rock is 43.4pc. "Clearly, the Chancellor's aim back in the March budget to keep the PSNBR down to £43bn in 2008/09 and the current budget deficit down to £10.0 billion has been blown out of the water big time," said Howard Archer, chief economist at Global Insight.

The September borrowing figures do not take into account the government's part nationalisation of Royal Bank of Scotland, Lloyds TSB and HBOS last week. On Friday official figures are expected to show that the economy shrank for the first time since 1992 in the third quarter, putting the UK almost certainly on track for a technical recession - two successive quarters of contraction - by the end of the year.

The sharp economic deterioration in recent weeks is exacerbating fears that the downturn in the housing market will be prolonged and deep. Figures published by the Council for Mortgage Lenders show that mortgage lending fell 42pc last month, compared with September last year, at £17.7bn. Lending declined 10pc in the month from August to September.

2 million British home-owners underwater on mortgages
Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash. At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.

New research from Standard & Poor’s, the ratings agency, coincides with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments. It is a further signal that the financial crisis is now infecting the real economy as hundreds of thousands of families face the prospect of being unable to move house because their home is worth less than the value of their mortgage.

Many more homeowners will now be afraid that the bank may suddenly repossess their property. Repossessions have soared to 19,000 in the first half of the year, up 40% on the previous six months. That figure is expected to rise to 26,000 in the second half of 2008. Economists believe house prices will fall by up to 35% from their peak by 2010. This compares with a drop of only 20% in the early 1990s.

Last night opposition politicians blamed Labour for encouraging a “culture of indebtedness” that now threatens to cause an implosion in the housing market. Philip Hammond, the shadow Treasury chief secretary, said: “We are now paying the price for a decade of debt-fuelled boom, with hundreds of thousands of people unable to sell their property, after being encouraged by the government to overstretch themselves to get on the property ladder.”

Vince Cable, the Liberal Democrat finance spokesman, urged Gordon Brown to do more to prevent unnecessary repossessions. “It genuinely must be a lender’s last resort, which right now it certainly is not,” he said. With official figures out this week expected to show Britain has fallen into recession, Brown is planning a 1930s-style programme of public works, spending billions on new schools, homes and transport projects. He has urged senior colleagues to increase expenditure on big capital projects – despite forecasts that tax revenues are about to collapse.

Brown’s ambitious plan is modelled on Franklin Roosevelt’s New Deal, which helped drag America out of the Great Depression. A Whitehall source said: “We cannot afford to risk the complete collapse of our construction industry. We have to make sure that the skills have not been lost when we finally pull out of the downturn.” Standard & Poor’s has calculated that by the end of the month 335,000 homes will be worth less than their mortgages. The figure represents a rise of 260,000 in four months.

Capital Economics, the City consultancy, expects up to 2m properties will be in negative equity by 2010 — more than in the recession of the early 1990s. Northern Rock, the bank nationalised this year, is said to be behind a wave of aggressive repossessions. In the nine months to the end of September, the state-owned lender made more than 2,000 seizures.

Esther Spick, from Surrey, is three months in arrears on her Northern Rock mortgage. The lender has launched repossession proceedings, even though she owes just £1,200. In one case reported to The Sunday Times by a housing charity, the bank is trying to seize a home where the owner is just £800 in arrears, even though he has about £40,000 of equity in the £180,000 property.

Chris Tapp, director of Credit Action, a debt charity, said: “What makes these negative equity statistics so worrying is that they come at a time when banks are behaving so unreasonably over repossessions. “We are particularly dismayed with the inflexibility of Northern Rock. ” Adam Sampson, chief executive of Shelter, the housing charity, said: “Northern Rock is behaving very aggressively on repossessions, but it is not the only lender acting like that.”

The Council of Mortgage Lenders said there were no industry guidelines for how deeply in arrears a lender had to be for a home loan provider to be entitled to launch repossession proceedings. The government said last night it would bring forward laws forcing lenders to offer alternative payment schemes before they were allowed to take back possession of the property. Northern Rock denied that it was overly aggressive. “Repossession proceedings are only launched as a last resort,” it said.

The details of the prime minister’s extra spending on public works is expected to be unveiled in the pre-budget report next month. Brown has already tasked his new “enforcer”, the Cabinet Office minister, Liam Byrne, with compiling a list of major construction projects at risk from the credit crunch that would benefit from extra government support. Brown’s handling of the financial crisis has failed to improve Labour’s electoral prospects. Despite most voters saying he had performed well over the past few weeks, only 13% said they were now more likely to vote Labour, an ICM survey for the News of the World found.

Banks braced for Lehman Brothers' debt insurers' deadline
Financiers enjoying a respite from the panic of the past few weeks should brace themselves for further mayhem tomorrow, the deadline for insurers of Lehman Brothers' debt to pay up on billions of dollars of policies.

Last week, these borrowings were deemed to be worth only 9.75 cents on the dollar. There are about $400 billion (£231 billion) worth of insurance contracts — known as credit default swaps, or CDSs — written on Lehman's debt, leaving the underwriters on the hook for about $360 billion. Fears are mounting that billions of dollars of insurance will go unpaid and that dozens of financial groups will go under because of Lehman's demise.

Groups such as the Deposit Trust and Clearing Corporation (DTCC) argue that many insurers have hedged their exposure effectively and estimate that the “net settlement”, after hedging, will amount to only about $6 billion. Robert Pickel, chief executive of the International Swaps and Derivatives Association, said: “People have been monitoring these positions on a daily basis and have been hedging against their exposure. I don't think at this point there's any unexpected loss or unexpected payment.”

However, Hugh Johnson, head of Johnson Illington, an American fund manager, said: “I hope the $6 billion estimate is correct — that would be a real gift — but I don't believe anybody really has a good handle on the size of the net settlement. I have heard a range of $2 billion to $300 billion and have no idea what it is.” Mr Johnson said that “significant net settlement figures” could require further government intervention and may force down financial shares as investors fret about exposure to CDS contracts.

Part of the problem, experts say, is that the underwriters sold the policies on and nobody really knows who will be on the hook for the Lehman debt, by how much or whether they will be able to pay up. Any large hits are likely to leak out soon. About 350 banks and investors are thought to have taken on CDS contracts, of which hedge funds hold about a third.

Some institutions have already declared their exposure. These include Freddie Mac and Swedbank, with $1.2 billion apiece, and State Street, with $1 billion. Of greater interest will be the exposure of the hedge funds and whether they can pay.

Nervous times for investors in loan markets
Investors in European and US loan markets will enter their offices with great trepidation on Monday morning after a flood of forced selling by hedge funds and other leveraged investors sent prices crashing last week. In Europe, the average price of the most commonly traded large leveraged loans to companies such as Alliance Boots, Ineos, NTL and United Biscuits saw its biggest weekly drop, according to S&P LCD, the market information service, and Markit Group.

The US market for such debt, which is mainly used for private equity buy-out deals, has also suffered big falls in recent weeks as hedge funds and other market value sensitive investors have become forced sellers. Analysts do not expect the picture to improve in the near term because falling prices for loans and other risky assets lead banks to force hedge funds and other investors who use borrowed money to put up more cash in so-called margin calls or sell holdings.

Investors in such funds are increasingly asking for their money back as concern spreads about the state of credit markets. US hedge funds had to hand back $43bn in September according to TrimTabs Investment Research. “A vicious circle of redemptions, margin calls and further redemptions can only make us nervous on [loan and credit] spreads in the short run,” said Peter Goves, Citigroup strategist. “While funds in equities probably have plenty of cash on hand at this point to cope with redemptions, in credit we are not so sure.”

He added that a normalisation in loan and credit markets was only possible once so-called real money – or non-leveraged – investors saw value in such stressed prices no matter how bad the economic outlook. The US loan market saw its worst losses nearer the start of October, when the price of loans to companies such as Celanese and Charter Communications dropped from more than 90 cents in the dollar to the low 80s and the high 70s respectively in a matter of days. Loans to Ford Motor have dropped from 65 cents to 42 cents this month, according to data from Markit.

Investors put out requests for bids on portfolios of loans worth $2.28bn this month alone, according to S&P LCD, which compares with a total of $471m for all of the third quarter. In Europe, the average price dropped 7.2 cents in the euro to 73.32 cents according to S&P LCD, more than double the previous week’s decline and the biggest weekly drop yet seen.

Michigan Sweats GM-Chrysler Talks
A merger of General Motors Corp. and Chrysler LLC would land a heavy economic blow on Michigan, a state already battered by waves of home foreclosures and the loss of tens of thousands of auto-industry jobs over the last few years.

GM is negotiating a potential deal with Chrysler's majority owner, Cerberus Capital Management LP, hoping it can reap billions of dollars in cost savings by shutting down overlapping operations. Analysts estimate more than half of Chrysler's 66,000 employees would lose their jobs in a merger. Thousands more would be affected at GM and at suppliers and service companies that rely on work with Chrysler.

While GM and Cerberus have accelerated the talks in the past week, securing the financing for a deal remains a major hurdle and it is far from certain that a merger will come to pass. Still, Motor City and the entire state have little choice but to think ahead about the possible ripple effects.

Michigan has borne the brunt of the auto industry's massive payroll cuts. Since 2005, GM, Chrysler and Ford Motor Co. have cut more than 100,000 jobs across the U.S., pushing the Detroit area into one of the highest foreclosure rates in the country. The economy has turned so dire that the U.S. State Department recently cut back on the placement of Iraqi refugees in Michigan.

Michigan's unemployment rate in August was 8.9%, the highest in the U.S., and economists suspect it could hit double digits next year even without a GM-Chrysler deal. Michigan last month had 13,605 foreclosure filings, fourth highest in the country.
Analysts see the potential for job cuts and closures at several Chrysler facilities in Michigan that could be replaced by GM operations.

Chrysler's Sterling Heights car plant makes models that sell badly and compete against some of GM's top models. GM might not need a GM truck plant in Warren if it tries to increase production in its own plants. Chrysler's Chelsea testing facility could be combined with GM's nearby proving grounds in Milford. Locations outside of Michigan could also be at risk, including a truck plant in St. Louis; a car plant in Belvedere, Ill.; and stamping and assembly plants in Ohio.

Chrysler declined to comment about the merger talks or possible job cuts or plant closures that could follow a deal with GM.
At Chrysler's headquarters here, where 10,000 people are employed, several workers said the mood is grim. "Nobody's doing much work," lamented an engineer. "We all figure we're just going to get marched out of here when the deal is done. I don't think GM thinks there's much of Chrysler worth keeping."

Any deal could run into union opposition. United Auto Workers President Ron Gettelfinger has said he is against a merger between Detroit auto makers. Canadian Auto Workers President Ken Lewenza agreed. "There are no pros, only cons" to a tie-up between GM and Chrysler, he said last week. Both unions have contracts with GM and Chrysler that prevent the companies from closing plants in the near term.

Sean McAlinden, chief economist and vice president for research at the nonprofit Center for Automotive Research in Ann Arbor, Mich., said the real question would be how quickly the cuts would happen for those represented by the UAW, including white-collar workers. The center had estimated that the U.S. auto industry will have lost almost 150,000 jobs between 2005 and 2011, before taking any merger into account.

"The average age of the Chrysler hourly worker is like 42, 43 -- about four or five years younger than those at GM. And they don't want to leave anymore," even with the enticement of a substantial buyout, Mr. McAlinden said. "That's one barrier to a merger even happening." In the city of Auburn Hills, 25 miles north of Detroit, anxiety runs high. In early 1996, Chrysler's world headquarters moved into a blue-glass skyscraper towering above Interstate 75 -- a giant "Pentastar" logo adorning its top. The well-to-do city relies heavily on its business tax base, with about 60 corporate offices in a city with less than 20,000 residents.

People have said "it would never happen," said Michelle Hornberger, chief strategy officer for Crittenton Hospital Medical Center and a board member at the Auburn Hills Chamber of Commerce. "They just couldn't see the benefit and are shaking their heads trying to figure out the value in the merger."

Chrysler, arguably the city's most important corporate citizen, sold almost 2.7 million cars and trucks last year. It is expected to provide Auburn Hills about $4 million in tax revenue this year, according to city officials. But Chrysler's contributions extend beyond the tax rolls. Last year the auto maker's foundation doled out more than $20 million in charitable donations across the region.

Dean Mohan Tanniru, at Oakland University's school of business administration, said Chrysler provided $35,000 this year to help support a teleconferencing effort to link business students in Auburn Hills to those in China and India. "Surely we're interested in the immediate impact," Mr. Tanniru said. "But we also have to think in terms of competitiveness."

Mike and Kathy Jansen, who have lived in Auburn Hills since 1974, said they worry about what a merger would mean if it was followed by job cuts. Mr. Jansen has concerns about what a jump in the city's jobless rate might do for real-estate values and the rate of foreclosures.

Mr. Jansen, who had worked part time for the city's fire department, remembered fondly when he visited the Chrysler complex as it was sprouting on old farmland almost 15 years ago. "I just hope that we don't have empty buildings up there soon," he said.

German Cabinet Agrees on Conditions for Bank Bailouts
The cabinet of German Chancellor Angela Merkel has approved a rescue package for the country's banking sector but so far few banks are rushing to avail of the massive bailout. The government met before the opening of the markets on Monday morning to sign off on the €500 billion ($674 billion) rescue deal that had been rushed through both houses of parliament on Friday.

The move marks an attempt by the government to protect Germany's banking sector from the ravages of the global financial crisis. The cabinet, made up of members of Chancellor Angela Merkel's conservative Christian Democrats and their coalition partners, the center-left Social Democrats, set a number of strict conditions for any banks that accept the state funds.

The bailout plan includes up to €400 billion (US$538 billion) in lending guarantees for banks, plus as much as €80 billion (US$107 billion) to recapitalize banks and, if necessary, buy up risky assets. Each bank will be allowed a maximum €10 billion for recapitalization while the state would spend up to €5 billion per bank to assume bad securities. However, unlike the packages in the United States and in the United Kingdom, in Germany it is up to the banks themselves to request state support.

Any bank that signs up will have to put up with the government having a say in how it does business and will be required to set "appropriate" salaries for its top managers. On Monday the cabinet decided that salaries above €500,000 would be deemed inappropriate, although exceptions could be made. Banks would also have to scrap many severance and bonus packages. In exchange for the bailout the banks would also be required to allow the government to examine their business policies and give it the right to force institutions to reduce risk-taking activities. Any dividends paid by participating banks would have to go back to the state rescue fund.

So far most German banks have balked at stepping forward to receive the government funds for fear that such a move would send their shares into free fall on the still volatile markets. However, over the weekend Bavaria's public sector bank BayernLB indicated it may accept of the package. Bavarian state Finance Minister Erwin Huber, who is also chairman of the board at BayernLB, told the Bild newspaper in an interview published on Monday that the bank's board would meet on Tuesday to discuss the package. And Martin Blessing, the head of Germany's second biggest bank Commerzbank, has also said his institution would take a close look at the deal. Deutsche Bank CEO Josef Ackermann last week ruled out accepting any state aid.

The German government lashed out at Deutsche Bank CEO Josef Ackermann on Monday for criticizing the rescue package. Chancellor Merkel's spokesman Thomas Steg said that Ackermann's comments that he would be "ashamed" if Deutsche Bank had to accept state aid were "incomprehensible and unacceptable." Steg said that Ackermann's comments could dissuade other financial institutions from signing up for the rescue package. He pointed out that, in fact, companies that did so would be acting very responsibly. Steg said the fact that Ackermann had called for a systemic solution made his criticism of it all the more incomprehensible.

Meanwhile, across Europe governments continue to try to shore up their banking industries, with the Dutch government on Sunday agreeing to make €10 billion available to the Netherlands' largest financial services company ING. The company had suffered a battering on the markets on Friday, with shares plummeting by 27 percent. The capital injection seemed to have worked on Monday, with shares rebounding by more than 20 percent at the stat of trading.

On Monday the Swedish government outlined its plan to support the country's financial institutions, including credit guarantees and a bailout fund. Stockholm announced that financial firms' liabilities would be guaranteed up to a level of 1.5 trillion Swedish crowns ($205 billion) while 15 billion crowns would be set aside for a stabilization fund.

In France the crisis has claimed the first scalps with the top three executives at Caisse d'Epargne, one of the country's biggest banks forced to resign under pressure from the government. Chairman of the board Charles Milhoud, CEO Nicolas Merindol and head of finance, Julien Carmona, announced they would step down late Sunday night after the board met to discuss the €600 million lost in trading derivatives in the midst of the stock market collapse earlier this month. President Nicolas Sarkozy said the bank's top management should "take the consequences" of the heavy losses which were announced on Friday. Last week the French government put in place its own €360 billion rescue package to ensure its banks did not collapse.

Financial woes a blow to Russia
A year ago, Yevgeny Chichvarkin was the very picture of Russia's rollicking vanguard of young millionaires in a nation of seemingly endless stacks of cash and lines of credit. The 34-year-old's cell phone company, Euroset, began with one retail shop in 1997. A decade later it had an annual turnover of more than $4 billion.

"During the first eight years we didn't count money," Chichvarkin said in a recent interview, to which he wore a yellow sweatshirt with red skulls on it that referred to "the poor" with an obscenity. "If we counted money, we would never have done what we did." But last month, they had to start counting — and there wasn't enough. So he and his partner sold the firm for a reported profit of $400 million, one-tenth of its annual business.

Chichvarkin said he and his partner sold the company because of worries that they couldn't find a bank willing to refinance Euroset's loans. While he wouldn't detail the sale price, other than to say it was far less than he could have gotten earlier in the year, the Russian press has said that the $1.25 billion deal included the buyer assuming about $850 million in debt.
It's just the latest example of Russia's Wild West business environment at a time of international financial crisis. Known for its light government regulation and widespread corruption, Russia's economy has been unable to cope with the tightening of credit, leading to the fire sales of banks and firms. The upheaval also raises serious concerns about the Russian government's ability, or perhaps willingness, to bring transparency to its financial system.
Prime Minister Vladimir Putin announced late last month that $50 billion would be allocated to Russia's development bank, VEB, to help refinance the country's debt-laden companies and banks; VEB's chairman said on Monday that he'd already received requests beyond that amount. Among them was VTB, Russia's second-largest bank, which is looking for a loan to help with its $11.4 billion in foreign financial obligations through 2009, according to Russian news wires.

The liquidity shortage is directly linked to the crashing Russian stock markets, which have lost about 60 percent of their value since May, making them among the worst performing markets in the world, recently. On Wednesday, the Russian government again suspended trading on the RTS and MICEX markets after steep losses. "Many banks lost their capital on the market," said Pavel Medvedev, a member of Russia's national banking council and the deputy chairman of a committee on financial markets in the lower house of parliament. "The government and the central bank were afraid of panic and ... tried to find buyers."
Medvedev pointed to three recent examples of banks that he said had faced shortages of capital:
  • The owners of one of the country's largest investment banks, Renaissance Capital, said late last month that they were selling half of the company for $500 million.
  • Shortly after, Russia's state development bank, VEB, said it was going to buy a 98 percent stake in the troubled bank Svyaz, which had 49 branches across the country. It paid a symbolic price of 5,000 rubles, about $190.
  • Two weeks ago, two government-run companies announced a deal to purchase 90 percent of another leading investment bank, KIT Finance, for a reported 100 rubles, less than $4.

Representatives at Svyaz and KIT declined to comment. Quinn Martin, a spokesman at Renaissance, said the deal for half of his company would "accelerate Renaissance Capital to the next level" by partnering the buyers' financial strength with the firm's banking skills.

Medvedev said that Russia's largest banks weren't having difficulties but acknowledged that "with some of the smaller banks there are problems." His comments didn't address the fact that the country's second-largest bank also is looking for government-backed loans. Because of Russia's opaque business practices, it's difficult to know exactly what happened at the three banks that have been sold so far or whether others face similar scenarios.

On the open markets, there was evidence of rampant speculation. Underneath much of the sell-off and resulting losses on the RTS and MICEX, analysts say, were indebted investors and firms facing "margin calls" to come up with more money to back their loans. Speculators had borrowed money to buy stocks, convinced that the shares would continue to skyrocket and they'd be able to pay back the loans and make large returns. Public companies in turn used their high stock market values to secure bigger lines of credit.

Gazprom Debt Priced as 'Distressed' Amid Russian Market Turmoil
Russia's worsening financial crisis drove the cost of protecting against a default by OAO Gazprom to more than 1,000 basis points, the level for borrowers that investors term "distressed." Credit-default swaps on Gazprom, the state-controlled monopoly for natural gas exports, climbed 79 basis points to a record 1,011, according to CMA Datavision.

Russia's main Micex Index of shares has lost more than 68 percent this year. Finance Minister Alexei Kudrin said he sees further declines because of the risks from the global credit crisis, Interfax reported. The government will invest 175 billion rubles ($6.7 billion) in highly rated Russian securities next week, Kudrin told reporters in Moscow today.

The cost to protect the bonds of OAO Sberbank, Russia's biggest lender, jumped 104 basis points to 980, and No. 2 lender VTB Group increased 242 basis points to 1,417. Credit-default swaps protect bondholders against default by paying the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, is equivalent to $1,000 on a contract that protects $10 million of debt from default.

Contracts on Russian government debt rose 125 basis points to 738 basis points. Gazprom may withdraw from a deal to buy a 63 percent holding in the Kovykta gas field in east Siberia from TNK-BP, saying that the stake is likely to be worthless, the Financial Times reported.

Austrian banks, central bank bail out troubled Constantia
Five Austrian banks have taken over Constantia Privatbank after a liquidity squeeze at the closely held bank in Austria's first such bailout for two years, financial authorities said on Friday. Central bank governor Ewald Nowotny told Reuters the bank was relevant to Austria's financial health because it had a fund business managing 10 billion euros ($13.5 billion) in client assets.

"Constantia is managing 300 funds and is from this aspect relevant for the stability of Austria's financial system," Nowotny said in a telephone interview. The bank itself has a balance sheet total of only 1.2 billion euros. The bank had suffered deposit withdrawals recently which brought it into a liquidity squeeze despite a sound capital basis, he said. Nowotny said Constantia's problems were not directly caused by the financial market turmoil, but by internal issues involving the bank's management that also made the ownership change necessary. He declined to elaborate.

"The problems were linked to the specific situation of this bank, and an ownership change was the only way to restore trust in a sustainable manner," he said. Under the bailout, UniCredit's Bank Austria, Erste Group Bank, cooperative banking groups Raiffeisen Zentralbank (RZB) and Volksbanken, and BAWAG are providing 400 million euros in liquidity to Constantia.

Sources familiar with the situation said that Bank Austria, Erste and RZB were injecting 100 million euros each, with Volksbanken and BAWAG sharing the remaining 100 million euros. The liquidity is backed by a government guarantee. The central bank is topping up the amount with another 50 million euros. The five banks are also taking over ownership of Constantia via a special purpose vehicle, according to a statement by the central bank and watchdog FMA.

Austrian prosecutors said earlier this week they were investigating a report by financial watchdog FMA which could lead to charges of false accounting against Constantia. The allegations are linked to two property firms, Immofinanz and Immoeast, which were started by Constantia in the 1990s and were both managed by Karl Petrikovics, a manager who was also on Constantia's board. Petrikovics stepped down last week and the property firms subsequently disclosed investments with off-balance sheet vehicles in Liechtenstein. Austrian media also reported Constantia had owned a stake in Immofinanz it had not reported.

Two sources familiar with the situation said media reports about the investigations had caused deposit withdrawals at Constantia which then led to a short-term liquidity shortfall of 100 million euros, triggering the intervention. "This shortfall emerged because of media reports regarding the bank's trouble relating to Immofinanz," one of the sources said. "This made it difficult to get fresh liquidity."

Nowotny confirmed there had been withdrawals but declined to go into details. Austria's parliament is due to approve the government's new 100 billion euro bank rescue plan on Monday. The Constantia bailout was orchestrated under the existing legal structure.

Pakistan reported nearing default, to seek IMF help
After failing to get help from China, Pakistan may need to turn to the International Monetary Fund -- a politically unpopular move -- for cash to bolster its economy and avoid defaulting on its debt obligations, according to news reports Sunday.

The country, perceived as one of the world's riskiest borrowers, may need as much as $6 billion to boost its foreign-currency reserves, which fell more than 74% in the past year to about $4.3 billion, according to a Bloomberg News report. The next interest payment for Pakistan on its dollar-denominated bonds is due in December, and the government is scheduled to repay $500 million in February on a 6.75% note, the report said.

Pakistan's President Asif Ali Zardari returned from China late Friday failing to secure a cash commitment from its neighbor, the New York Times reported. China had been seen as a last resort before Pakistan turns to the IMF, the Times report said. Saudi Arabia, another of the country's traditional ally, refused earlier to offer concessions on oil, it said.

Receiving help from IMF would be seen as humiliating for Zardari's government, which took office this year, as help from the world lender would require his government to cut spending and raise taxes, moves that Pakistan officials said could hurt the nation's poor, the report said.

Fitch Cuts Ukraine Credit Rating on Financial Crisis
Fitch Ratings cut Ukraine's credit ratings as risks about the hryvnia, the bank system and the economy increased. Fitch lowered the credit rating to B+ from BB- and left the outlook negative, indicating it may cut the rating further, according to an e-mailed statement.

"The downgrade reflects Fitch's concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine's real economy is significant and rising," said Andrew Colquhoun, the director of Fitch's Sovereigns Group, said today in an e-mailed statement.

The global financial crisis is hitting more vulnerable emerging markets as investors shun riskier assets in countries with big current-account deficits in a flight to safety. Ukraine has the worst creditworthiness of Europe's emerging markets, based on the cost of credit-default swaps, which protect bondholders against default. Contracts on Ukraine's debt are traded at 2000 basis points, compared with 458 for Hungary, according to CMA Datavision in London. Hungary also lined up potential funding from the IMF this week.

Ukraine's current-account deficit will probably widen to $15 billion this year, weakening the national currency, the hryvnia, said central bank Governor Volodymyr Stelmakh on Oct. 13. The shortfall reached 7.2 percent of GDP in the first seven months, or $7.7 billion, as higher energy costs and domestic consumption boosted imports, the central bank said on Aug. 29.

The country is seeking a loan of as much as $14 billion from the International Monetary Fund to help cover the gap, said Oleksandr Shlapak, the first deputy chief of President Viktor Yushchenko's staff today. "Fitch would view a sizable and appropriately designed IMF program as a positive factor although the agency awaits precise details," said Colquhoun. "However, depositor confidence in the banking system may remain shaky and the economy will face a difficult adjustment even if a program is arranged, extending Ukraine's exposure to financial instability."

The hryvnia has slumped 13 percent versus the dollar since early September because of turmoil in global financial crisis, the government coalition collapse, and new nation elections, scheduled for Dec. 7. "The hryvnia is likely to stay under pressure from a widening current account deficit," said Colquhoun. " A relatively high share of FX-denominated lending (51 percent at the end of August) exposes the financial system to risks from enhanced currency volatility."

International credit rating services, including Fitch, say risks surged for Ukrainian banks because of turmoil in the global credit squeeze, fast inflation, a widening current-account gap and political instability in the former Soviet republic. The Natsionalnyi Bank Ukrainy pledged to support banks and has already injected more than 10.9 billion hryvnia ($2.2 billion) into the banking system this month, almost double what the central bank lent in September. The Kiev-based central bank also imposed restrictions on domestic lenders to increase credits and return early deposits until "the situation is stabilized," Stelmakh said.

"Fitch is unconvinced that the raft of emergency support measures announced by the central bank will be adequate to shore up depositor confidence and forestall further banking-system stress," said Colquhoun. "New central bank rules restricting loan growth threaten to exacerbate a slowdown in the economy, which could hit banks' asset quality relatively soon." Still, "Fitch believes risks to Ukraine's ability to meet its sovereign obligations remain low in the near term owing to the sovereign's modest refinancing needs," said Colquhoun.

Hedge funds’ panic hits Tokyo ‘floaters’
Panic selling by hedge funds has hit the Y44,000bn ($432bn) Japanese floating-rate government bond market. Some issues are trading at levels usually seen in countries at risk of default. The plunging value of so-called “floaters” could hurt Japanese banks, which are estimated to hold at least Y10,000bn to Y15,000bn of the bonds. They may have to take mark-to-market losses on them, on top of big losses on their equity holdings.

All such bonds are trading well below their par value, say analysts, in some cases as cheap as 88 per cent of par, as hedge funds and other highly-geared investors dump holdings to repay debt. The banks were encouraged to buy floaters earlier this decade, analysts and hedge funds say, because this was said to lower the riskiness of their portfolios. “There’s no subprime mortgages in Japan, but the government basically made subprime for their own banks,” said one large London hedge fund.

The market for floaters, which pay interest based on the market yield of 10-year fixed-rate bonds, minus a spread, had problems two years ago when banks began selling, but stabilised thanks to buying by hedge funds. It took another hit in March, when problems at several funds, including the collapse of London’s Peloton Partners and big losses at Endeavour, spilled over into fixed-income markets. “After the Lehman shock [last month] the situation started getting more serious,” said Koji Shimamoto, chief fixed-income strategist at BNP Paribas in Tokyo. “Liquidity is miserable as there are almost no buyers.”

The Ministry of Finance in August halved planned annual issuance to Y1,200bn. It plans to raise substantially the amount it buys back to Y1,400bn. But Mr Shimamoto points out the speed of the market deterioration is faster than the increase in the buy-back operation. Privately, some foreign investors say buy-backs would need to be about $100bn to make up for the flight of hedge fund capital.

The government is considering adopting temporary measures to help banks by easing mark-to-market accounting rules. This would take pressure off banks holding floaters and could stimulate demand in the market, Royal Bank of Scotland analysts said. “If they have to mark-to-market the [floater] bonds, it will be bad for banks, but it isn’t going to take them down,” said Stefan Liiceanu, a senior fixed-income strategist at Barclays Capital.

“It certainly won’t hurt them as much as the decline in the Nikkei, which virtually wiped out trillions of yen worth of unrealised gains on equities included in Tier 2 capital.” The falling prices of the bonds means that the yields are rising, forcing the government to pay more to issue new floaters. “If the market remains broken, it increases the cost of financing,” said Mr Shimamoto. “If the market normalises, they can finance at a lower interest rate.”

OPEC Plans Supply Cut as Crude Oil Heads Toward $50
OPEC, the supplier of more than 40 percent of the world's oil, plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s sends crude toward $50 a barrel.

Options contracts to sell oil at $50 by December soared 28- fold in the past two weeks on the New York Mercantile Exchange. Goldman Sachs Group Inc. and Merrill Lynch & Co. analysts say crude, which fell more than 50 percent from a record high in July to a 14-month low last week, may drop another 44 percent should the world economy slip into a recession.

The Organization of Petroleum Exporting Countries, which meets Oct. 24 in Vienna, three weeks earlier than planned, is facing the weakest growth in demand since 1993 just as new fields come on line from Angola to the Gulf of Mexico. Members may cut daily output by as much as 2 million barrels, President Chakib Khelil said yesterday. "OPEC is going to try to prevent some of the price decline," Francisco Blanch, head of global commodities research at Merrill in London, said in a Bloomberg television interview. "It's going to be very difficult to stem a price fall."

Options contracts that allow holders to sell 1,000 barrels of oil for $50 each by December closed at $280 on the Nymex on Oct. 17, up from $10 on Oct. 3. Oil rose a second day today, gaining 0.8 percent to $72.45 a barrel at 7:50 a.m. in Singapore. Even at today's prices, Venezuela and Iran, two of the organization's 13 members, may struggle to balance budgets because they rely on energy sales for more than half of their revenue, according to estimates compiled by the U.S. Central Intelligence Agency.

"Some countries like Venezuela and Iran need prices above $80 a barrel," said Leo Drollas, deputy director of the Centre for Global Energy Studies, a London-based consulting company. "The Saudis have a bottom price of about $65 a barrel, but they might go ahead with a cut to keep solidarity within OPEC." Gross domestic product in the six-member Gulf Cooperation Council of Saudi Arabia, United Arab Emirates, Kuwait, Oman, Qatar and Bahrain would shrink 25 percent if oil averaged $50 next year, ING Bank NV estimates.

Ministers from Algeria, Libya, Iran and Venezuela already called for a reduction in supplies from the current quota of 28.8 million barrels a day. Khelil, also Algeria's oil minister, said that while there is consensus for a cut, there is no agreement on its size. It may be necessary to make the cuts in two stages to ensure price stability, he told Algerian state television yesterday.
Qatar, Saudi Arabia

Qatari Oil Minister Abdullah bin Hamad al-Attiyah told Al Jazeera TV the cut will likely be 1 million barrels a day, or 14 percent more than his nation pumps. Saudi Arabia, which dominates OPEC proceedings as the group's largest producer, has yet to comment on its intentions. Attempts to support prices when the Standard & Poor's 500- Index is down 36 percent this year may sour relations between OPEC and its customers. Both U.S. presidential candidates, John McCain and Barack Obama, have called for greater energy independence to limit reliance on foreign oil.

U.K. Prime Minister Gordon Brown described potential supply cuts as "absolutely scandalous" on Oct. 17, Agence France- Presse reported. The world's industrialized economies will expand next year at the slowest pace since 1982, the International Monetary Fund said Oct. 8. Growth will weaken to 0.5 percent in 2009, from 1.5 percent this year, sending U.S. unemployment to its highest level in 16 years, the agency said.

While OPEC already agreed to curb production by observing output quotas after a Sept. 10 meeting to lower supplies by 500,000 barrels a day, members routinely pump more than their allocation, according to data compiled by Bloomberg. Since that session, Credit Suisse Group pared its forecast for oil next year by 32 percent to $75 a barrel. Deutsche Bank AG cut its 2009 assessment by 23 percent to $92.50 on Sept. 29. BNP Paribas SA lowered its outlook by 18 percent to $92.50 on Oct. 10.

At the same time, Exxon Mobil Corp.'s Saxi-Batuque fields off Angola's shore started pumping in August, while BP Plc's Thunder Horse field in the Gulf of Mexico is scheduled to increase supplies by the end of the year. World oil capacity will rise 1.45 million barrels a day in 2009, twice the rate of growth in demand, according to the International Energy Agency. "Prices could fall as low as $50 a barrel during the fourth quarter if OPEC can't find a way to offset the financial meltdown," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The prospect of OPEC cuts, slowing economic growth and falling prices drove the Dow Jones Europe Stoxx Oil & Gas Index down 25 percent in the past five weeks. Irving, Texas-based Exxon Mobil, the world's biggest oil company, fell 37 percent this year, while The Hague-based Royal Dutch Shell Plc, the second-biggest, lost 33 percent. OPEC lowered its forecast for demand in 2009 last week, saying consumption will be 450,000 barrels a day less than expected at 87.21 million a day. The Paris-based International Energy Agency shaved its 2009 outlook the previous week and said this year's demand growth of 0.5 percent will be the weakest since 1993.

U.S. motorists are driving less after gasoline pump prices topped $4 a gallon in July. Vehicle-miles traveled on all U.S. roads that month were 3.7 percent lower than a year earlier, Federal Highway Administration data show. Prices fell to an average of $3.21 a gallon last week, according to the Department of Energy.

As demand declined, OPEC trimmed supplies 3.8 percent to 31.8 million barrels a day in September, according to Geneva- based tanker-tracking service PetroLogistics Ltd. Saudi Arabia's volume fell 520,000 barrels a day to 9.18 million, PetroLogistics said. "This may be OPEC's toughest balancing act in their history," said Tetsu Emori, the fund manager at Astmax Co. in Tokyo, Japan's biggest commodities asset manager with $200 million under management. "By the time OPEC announces a cut, they would be hoping to have seen the bottom of the price."

The last time OPEC slashed quotas was at a December 2006 meeting in Abuja, Nigeria. That 500,000 barrel-a-day cut took effect in February 2007 and followed an earlier, 1.2 million- barrel reduction in October 2006. Those actions were reversed later in 2007 as prices rallied. "The situation has gotten dire enough that they're willing to move and even become a topic of conversation" during the U.S. election campaign, Ronald Smith, chief strategist at Alfa Bank in Moscow, said in a Bloomberg television interview. OPEC will cut by 1 million barrels a day "at the very minimum" and potentially "wait until after the election, then add another million on top of it, or half a million," he said.

Job losses spread in Silicon Valley
A wave of job losses has started to spread across California’s Silicon Valley as the trademark optimism of the region’s technology start-ups has turned to pessimism amid the financial market rout. The rapid reversal in mood has reawakened memories of the dotcom bust in 2001.

The entrepreneurs making the cuts, however, claim a much greater sense of realism than was shown during the first great internet shake-out, when many web companies reacted too late to the downturn. “It’s the need to get profitable immediately. We’re heading for some tough times,” said Iggy Fanlo, chief executive of AdBrite, an online advertising network that made 40 of its 100 employees redundant last week. “I made the decision to go very deep, very quickly so we won’t have to do it again.”

The change in mood in Silicon Valley was highlighted at a private meeting called this month by Sequoia Capital, one of California’s blue-chip venture capital firms, for the bosses of all the companies it has backed. Entrepreneurs attending the meeting were greeted with a presentation that began with a slide showing a gravestone and the words “RIP good times” and were told to treat every dollar they spent as though it was their last.

“The meeting catalysed not just Sequoia companies but a lot of companies starting to do cutting,” said Seth Sternberg, co-founder of Meebo, an instant messaging company, who was at the event. “We are just hiring for critical roles,” he added, after scaling back more ambitious expansion plans. Fears of a deep economic downturn have hit as members of a new generation of web companies, created in a start-up boom since 2004, have only just started to try to make money, with most still a long way from profitability.

“I think the situation is very, very serious,” said Loic Le Meur, founder of Seesmic, a video blogging site, who has made 10 of his 24 workers redundant during the past month. “From my network of entrepreneur friends, half are in a critical situation for the next six to 12 months.”

Cyan Banister, co-founder of Zivity, an adult entertainment website that last week cut eight of its 22 staff, said: “We needed to clamp down and weather whatever storm is about to hit.” Other experienced start-up investors have been spreading the same warning as Sequoia, telling companies to cut back in anticipation of a severe downturn.

Candidate Calls for Arrest of Deutsche Bank CEO
Gigantic, multi-billion-euro bank bailouts are one thing. But if we are to truly get a grip on the financial crisis, we might have to take more drastic action. Why not throw a few bankers behind bars -- starting with Josef Ackermann, CEO of Deutsche Bank? Sure, it sounds absurd. But Germany's far-left Left Party has never been a group to shy away from a bit of populism. The idea to arrest Ackermann comes from the party's newly crowned candidate for the German presidency, Peter Sodann.

If he were a (fictional) federal police commissioner, Sodann said, "I would arrest Mr. Ackermann, the head of Deutsche Bank," he told the Sächsische Zeitung on Thurdsay. "They would throw me out, of course, but at least I would have done it." Germany, of course, doesn't have a federal police commissioner. But until last year Peter Sodann played a fictional police commissioner in Germany's top television crime show called "Tatort" (or "Scene of the Crime" as it was known when it became one of the few German serials to cross the Atlantic and plazed on a minor PBS affiliate in Virginia). Sodann is the German equivalent of the folksy actor Fred Thompson running for U.S. president last year -- with the difference that Sodann has even less chance of being elected.

Still, his comments have generated a minor media storm in Germany. Ackermann immediately fired back, saying in the tabloid Bild that it was "outrageous that someone who is running for the highest office in a democratic state says such a thing." He added, "I am gradually becoming worried about this country." But so is the Left Party, as its leaders have made known. Party co-chair Gregor Gysi thinks the media storm has been augmented by the fact that Sodann grew up in the former East Germany.

Referring to the ciritcal firestorm over Sodann's comments, Gysi told the magazine Super Illu, "If a similar personality came from the west, such insulting comments (in the media) would not have been made." The Left-Party's other co-chair, Oskar Lafontaine -- never one to miss a chance for a headline -- went one better. "Unfortunately, the regulations we have for manager accountability are too modest. And the ones we do have aren't even used," he told the Stuttgarter Zeitung over the weekend. "If we had decent laws, then a number of them would have to be put behind bars."

The clash is unlikely to have repercussions. The term of Germany's current president, Horst Köhler, expires next year. The Social Democrats have nominated the respected academic Gesine Schwan to run against Köhler, though her chances appear to be slim. Germany's president is elected by parliament in conjunction with a number of politicians from each state. Because the position is largely symbolic, candidates do not normally do much campaigning.

The only reason the Left Party decided to name its own candidate is that Schwan made skeptical remarks about the Left Party -- which is a mixture of former communists from eastern German and disgruntled leftists from the west, among other elements. Schwan called Lafontaine a "demagogue" in a SPIEGEL interview earlier this year. But the Left Party's search for a candidate proved something of a PR disaster when a number of potential candidates declined the offer.

Sodann, 72, was the last man standing. And since his image has flickered across prime-time TV screens for 16 years in Germany, his candidacy has generated at least a modicum of interest. So have his political views. In the same interview in which he fantasized about arresting Ackermann, Sodann commented on modern-day Germany. "I'm not a fan of our lifestyle these days," he said. "I don't think that the system we currently have can be called a democracy."

Capitalism isn't working
1. UNEMPLOYMENT by Westminster Editor James Cusick
Nowhere is safe. This appears to be the core message from the works and pensions secretary, James Purnell, who said this weekend that every part of Britain will be hit by rising levels of unemployment that will, by Christmas, take the numbers out of work to above two million.
This is the estimate taken before the latest and most damaging chapter of the global turn-down caused by the credit crunch and a near fatal international banking collapse.

Economists in such times usually find a safe haven in their own internal language, resorting to impenetrable trends and sector analysis. Not this time. On the Bank of England's monetary policy committee and a respected labour market analyst, David Blanchflower described what lies ahead in words politicians usually run from. "These numbers are truly horrendous and much worse than I feared," said Blanchflower. He was referring to the statistics for the three months till August this year which has taken unemployment to its highest level since 1991. The current total is just under 1.8 million, a rise in the jobless rate moving from 5.2 to 5.7%.

Blanchflower is certain what happens next; more than two million looking for a job by Christmas. And with a full-blown recession just round the corner, with little prospect that the government can now, at this stage, do no more than watch and sound sympathetic, Capital Economics have forecast that by the end of 2010 the jobless total will hit 9%, around three million. Among the more left-leaning members of the Parliamentary Labour Party, there is an unease that all hell is going to break loose soon, and that Gordon Brown's current "saviour" status is going to disappear as fast as it arrived. One Midlands MP said: "The Conservatives only have to dust down their old Saatchi & Saatchi posters from 1979 to make the point that whatever we've done in the last 10 years, is about to be undone."

Brendan Barber, the general secretary of the Trades Union Congress, seems to be already preparing for what's coming. "I fear that the whole economy will soon feel the impact of the problems in the banking sector," he said. In a straight translation, that means that whatever the level of new jobs being within the UK economy, the job losses will be higher. Purnell's comments this weekend show that the government is already bracing itself in preparation for the political fallout that will come with soaring unemployment. The works and pensions department have in recent months been accelerating the gathering of regional jobless statistics to improve the picture they have of how unemployment will hit.

In the last turn-down in the 1980s some areas of Britain escaped, especially London and south east England. This time round, unemployment in London is already estimated to be 300,000 and rising daily as the City's financial institutions re-evaluate their needs in a shrinking market. The latest unemployment figures appear to show increases across Britain and there is no evidence to suggest that the rise towards three million won't be uniformly felt.

The National Statistics Office figures showed a rise of 164,000 in the three months to August. This means 1.79 million unemployed and 29.42 million in employment. Of the new rise, compared to the previous quarterly numbers, 19,000 job losses have taken place in Scotland, 10,000 in Wales, Yorkshire and Humberside lost 17,000, the North West 14,000, the East Midlands 13,000 and the South East 28,000. What will also be worrying Purnell as he briefs Downing Street on what lies ahead for the jobs market, are other underlying dangers.

Long-term unemployment, where people are out of a job for more than 12 months, is up from 21.6% to 24.5%. Blanchflower has also told the government that he is concerned at the substantial rise in the numbers of young people who are unemployed, many of them school leavers. Youth unemployment was first measured in 1992. The current 56,000 rise is the biggest increase since then. The jobless total is also reflected in those claiming jobless benefits, a jump of nearly 32,000 taking the total of claimants to 939,000, also the biggest rise since 1992. The sectors losing jobs at an accelerating rate include the service sector covering hotels and restaurants, the finance and business sectors struggling to deal with the credit crisis and how the bail-out packages announced by governments in the US, Britain, Europe and across the world can help them long-term.

Beyond the City, vacancies are also down in manufacturing and construction. The Institute for Employment Studies say when the downturn bites fully it is still likely to hit lower skilled workers hardest, those who find it hard to move to a new job and who have less wealth to see them through a tough recession. In the early 1990s, with steel jobs disappearing from central Scotland, employment advisers were sent into places such as Ravenscraig. Those facing the dole recalled how the advice was far from useful. One former steel worker in Motherwell said: "If we'd all acted on what they said we should do with redundancy cash, there'd be 3000 newspaper and sweet shops here."

This time Purnell is suggesting the government are better prepared, with a promise to make it easier for those hit to take up short-term work, other measures to cut red tape and a one-stop shop approach that would accelerate benefit claims for a person losing their job. But whatever the Ravenscraig equivalent of newspaper shops is this time, there appears to be no official government line yet. Purnell however was optimistic that the government's budget of £100m to help the unemployed retrain, would work.

For former bankers, Purnell suggested some retraining as driving instructors. The prime minister suggested there was an unexpected silver lining ahead, with those losing their jobs being given the opportunity to retrain as loft-insulators, thereby using new government cash to fight climate change and ease the rush towards three million. He said the fact that all of this makes no sense at all, indicates the panic that lies ahead. We can't as a government bring ourselves to use the word "recession". Last week we had no choice. We have had 10 years of boom, but the bust is going to be very painful, for everyone."

2. FOOD By Environment Editor Rob Edwards
As the credit crunch starts to bite and prices rise, shoppers are changing their habits and starting to search out cheaper food - and avoid the pricier premium brands. Monitoring by the market research company, TNS, has revealed a distinct shift in behaviour over the last year. The most dramatic change is a 34% rise in the sales of supermarkets' own cut-price brands, coupled with a 2% decline in their premium brands and a 9% drop in their more expensive "healthy" products.

TNS research also suggests a growing preference for cut-price food stores, while those that specialise in more expensive food are stagnating. Aldi has experienced a 22% growth in sales over the last year, while Waitrose's market share has declined from 3.9% to 3.8%. "The search for value intensifies", was how TNS described the "down-trading" trend. The company regularly monitors the buying of 75,000 supermarket food products by 25,000 representative households across the UK. The monitoring also uncovered what TNS called a "severe slowdown" in the growth of the organic food market since Easter. "This is precisely when we have seen the effects of the credit crunch start to creep through into the grocery trade," said TNS's Chris Longbottom.

Total UK spending on supermarket organic food and drink has fallen from nearly £100m a month early this year to £81m a month in the summer. The biggest fall has been in organic eggs, but there have also been drops in organic fruit and vegetables. According to Longbottom, organic food's share of the market has declined for the first time in five years. Rising prices triggered by high grain costs have caused people to make complicated compromises. "Consumers seem prepared to pay 20p for a nice, kind free range egg compared to 10p for a battery one," Longbottom said, "but not 30p for an organic one." Sales of fairtrade food, which make up a very small percentage of the market, have held up.

The Soil Association, which certifies organic food, accepted that supermarket sales seemed to have "plateaued". But it pointed out that TNS's monitoring didn't cover direct organic box' sales from producers. The association's Scottish director, Hugh Raven, pointed to evidence from one of the UK's largest organic suppliers, Riverford, of a 6% increase in sales over the last year. "It's a mixed picture," he said. "While the direct sales market is growing, supermarket sales seem to have flattened."

3. SHOPPING By Rachelle Money
The Scottish Chambers of Commerce released the latest results of the third quarter of 2008 survey which showed declining sales in the retail sector because of a lack of consumer confidence. Retailers anticipate having to raise their prices in order to cope with rising costs of utilities and raw materials. The survey concluded that almost half the retail sector surveyed said they expected a further drop in profitability by the end of the year.

The high street looks like it will take another hit during the festive period as reports suggest 78% of Christmas shoppers will be going online for their presents. That number is up from 56% on last year. It is thought that shoppers will take advantage of competitive pricing and convenience of not having to drive to shopping centres or out-of -town malls. Some popular fashion retailers have increased the interest rates on their store cards. Karen Millen, Oasis and Principles have pushed up the interest rate by 4.3%, from 24.6% to 28.9%.

Mark Lyonette, chief executive of the Association of British Credit Unions Limited (ABCUL), says: "The news that store card interest rates are on the way up means that shoppers should think twice before putting purchases on their store card." Michelle Slade, an analyst at Moneyfacts, says: "It wouldn't surprise me if other companies hike their rates over the next few weeks. Where one leads, the others usually follow." Sales were up just 0.7% in August compared to a year ago, according to the latest figures from the Scottish Retail Consortium. They were the worst August sales figures since 2005. It could also be a quiet Christmas on the high street. Richard Dodd, spokesman for the Scottish Retail Consortium, says: "It's clearly going to be a tough year."

4. TRAVEL By Helen McArdle
Foreign travel and transport may be one of the few bright spots amid the economic turmoil - this week saw several major airlines, including British long-haul leaders Virgin Atlantic and British Airways, cut surcharges for economy class passengers in response to falling crude oil prices. As the world economy slides towards recession, demand for fuel has ebbed. The cost per barrel fell to a year-low of $69 per barrel on Thursday - down 53% since hitting a record $147 in July. Unfortunately, the surcharge cuts will only equate to a saving of between £5-£13 per passenger. According to travel association ABTA, however, the credit crunch has done little to dent Brits' enthusiasm for travel - in a survey conducted in September they discovered 83% of holidaymakers who had been on a recent overseas break were planning another within the next 12 months.

Motorists also had cause to cheer last week after Gordon Brown called on petrol companies to reduce their forecourt prices. Supermarket chains Asda and Morrisons have already slashed their prices to less than £1 per litre. Rail passengers, meanwhile, face a mixed outlook. While Virgin announced plans on Friday to introduce a number of cheap fares from December - among the bargains being a £12 ticket from Glasgow to London Euston - which must be purchased in advance.

Scotrail is set to review its ticket prices in January. Although a spokesman said it would "not be speculating at this stage", a large proportion of Scotrail's fares - including off-peak returns, season tickets, and all travel in the Strathclyde region - are set by Transport Scotland, pegged at inflation plus 1%. On the basis of current retail price inflation at 5%, passengers face a 6% hike in tickets in the New Year.

5. CHARITY By John Bynorth
Scottish voluntary groups have seen business sponsorship almost totally dry up over the last seven years, with the figure expected to plunge further with the difficulties facing major banks during the credit crunch, according to a new survey. The Scottish Council for Voluntary Organisations (SCVO) will publish a report tomorrow that shows corporate firms accounted for 0.3% of the country's income in the sector in 2006, the last year for which figures are available, against 1% four years ago and 3% in 2001.

Lucy McTernan, acting chief executive of the SCVO, warned that donors such as Royal Bank of Scotland, which contributed £57.7 million last year to community programmes worldwide, including a recently launched partnership with Macmillan Cancer Support and the Lone Parent Helpline which it solely funded, could be "compromised". She said: "The worry for the voluntary sector is that corporate social responsibility will fall further down the list of priorities, especially for the financial services industry. "The paradox is that as we enter even tougher economic times, the services of the voluntary sector will be needed more than ever. Yet without continued support form business and the public, the sector will struggle to keep up."

Ellenor Ferguson, Epilepsy Scotland's head of fundraising, said charity events were suffering from the financial crisis - corporate fundraising contributes a fifth of the charity's budget. Tickets for its annual black tie Wags dinners in Glasgow and Edinburgh, which each usually raise around £45,000, are selling poorly; Breast Cancer Campaign's Pink Tartan Ball has been called off and another leading charity event is also rumoured to have been scrapped.
Ferguson said some firms were aware they could not be seen to be enjoying lavish hospitality in the current economic climate.

6. THE CLIMATE By Rob Edwards
The credit crisis is squeezing investment in the renewables sector - but may provide the catalyst we need to avoid a catastrophic "climate crunch" in future. Claims made earlier this month by American biofuel entrepreneur Arnold Klann, that a shortage of capital was stunting the industry, echoed warnings made by green energy banker Tanja Cuppen in September, who predicted the credit crunch would have a "major impact" on the renewables sector, making the EU's target to cut CO2 emissions by 20% within the next 12 years impossible.

The part-nationalisation of Royal Bank of Scotland - the world's largest investor in sustainable energies - and the precarious situation of Barclays, another major financier of renewables projects, has lent credibility to their forecasts. In 2007, project financing by banks worldwide accounted for at least 39% of all investment into zero-carbon energy. A further 22% - $23.4 billion - was raised by clean energy companies floating on the stock market, but recent weeks have seen profits there dive. Even private equity and venture capital funding, just 9% of the total, could be hampered by the reluctance of banks to enter into investment partnerships.

While Renewable Obligation Certificates - effectively "green subsidies" for energy providers - offer a significant market pull for utilities companies whose balance sheets are still buoyant, and for whom investment in renewables such as windfarms remains strategically important, a reduction in bank lending would be a major blow. Professor Tim Jackson, chairman of the Sustainable Development Commission, said it has seen a "throttling" in funding availability during the past six to nine months. However, he also expects when cash flow resumes, funding into renewables will increase, driven by energy security imperatives and economic returns, rather than climate concerns.

7. SPORT By Steven Downes
The message was writ large all around Chris Hoy as he led Britain's Olympic and Paralympic medallists on their victory parade this week: every flag carried the logo for a credit card while the local evening newspaper had messages of congratulations from a bank that had earlier this year pledged more than £60 million towards the costs of the 2012 Games. Sport has been mainlining sponsorship money for the last four decades, but it is going to have to undergo some painful cold turkey as business backers halt the gravy train.

In general, modern sport pursues three main sources of income: gate receipts, TV revenue and sponsorship. Football, through mega-billion pound broadcast deals, has insulated itself to some degree from the financial crisis, though there may be embarrassments, such as West Ham's shirt deal with now-defunct travel firm XL. More serious problems will face clubs such as Liverpool, where its American owners cannot find loans to pay for a stadium redevelopment, yet still need to find around £20m each year just to make the repayments on existing £350m borrowing. In all, England's 20 elite clubs owe £2.5bn.

As the cancellation this week of the 2009 F1 French Grand Prix showed, it is the sponsorship market that is expected to feel the effects of the credit squeeze first. Which is why international rugby could soon be feeling the pinch as RBS gets to reassess its sponsorship commitments. The bank has a wide portfolio of sporting commitments: golf's Open Championships; Andy Murray and Zara Phillips; and "a major sponsorship" of the Williams Formula 1 motor racing team. Its £4m per year title sponsorship of Six Nations rugby is due to end in March. With the deal for rugby's English Premiership also up for renegotiation at the end of this season, the words of John Maynard Keynes won't offer much encouragement: "The market can remain irrational a lot longer than some people can remain solvent."

8. THE ARTS By Edd McCracken
The entire art world was focussed on a leafy corner of London's Regent's Park last week as the Frieze Art Fair got under way - not just for the visual art on display, but to see if anyone was buying. By being the first major gathering since the economy's recent near-meltdown, Frieze had unwittingly been transformed into the barometer for how art will fare in the inclement financial situation. And the outlook? Fair with some cloudy periods ahead. Visitor numbers were steady, those of casual buyers less so. Susannah Beaumont, who runs Edinburgh's Doggerfisher gallery, said: "People are looking and buying, whereas in previous years people were running and buying. Art will survive. People are still liking art."

Terry Anderson, president of the Scottish Artists Union, which represents the visual arts, said: "It's far too soon to know as it'll take time to filter through, but there are absolutely worries and concerns especially at a time when the landscape is being remoulded with Creative Scotland." Within the sponsorship departments of the unsettled banking triumvirate, Royal Bank of Scotland, Lloyds TSB and Bank of Scotland, the message is clear: it is business as usual. Between them they plough millions of pounds into events including Edinburgh International Book Festival, Edinburgh International Festival, and Aye Write. Several recent exhibitions at the National Galleries of Scotland have also received sponsorship.

"We're going ahead as normal with all the sponsors we work with," said a galleries spokeswoman. Film has long been considered a "recession proof" art form. Cinema takings sometimes increase during economic downturns as people consider a trip to the multiplex an "affordable luxury", according to a Scottish Screen spokeswoman. If the credit crunch is making any dent on film making in Scotland it has yet to be seen, she said, adding: "There is still plenty of production activity currently."

9. HOUSING By James Cusick
Do you want your housing forecast to be slightly depressing, gloomy or just doom-laden? This is the question home owners who want to sell and those who want to buy, will be asking their mortgage providers and estate agents. The chief UK economist of Morgan Stanley, Professor David Miles, believes the slump could be over by next year, if home loans fall by a further half a point, and the government's plan to re-capitalise Britain's banks works, and they all begin lending to each other on a significant scale. But before even this optimism kicks in, the gloom will continue. The 5% to 10% fall industry-wide prediction for next year, wiping a further £17,000 off the average UK home, could be eased if Miles proves to be right. And if he's wrong?

Cass Business School don't see it like that. Andrew Clare, head of asset management, believes house prices could slide by a further 40%, taking UK house prices to 2023 before they matched the level reached in 2007. With the government reliant on housing to return as the mechanism that will kick-start the UK's recession economy back to normal, there is not much to be gained on focusing on these extremes. But the reality is bleak. The Royal Institution of Chartered Surveyors (Rics) report the housing market to be getting worse. The volume of properties sold across the UK is at its lowest level since 1978. Rics reports that 91% of estate agents say that prices are continuing to fall as they have been over the last three months. Halifax and Nationwide say prices have dropped by 12% over the last year.

The Council of Mortgage Lenders are reporting 42,000 purchases across the UK for August - 59% lower than 12 months ago. There is a general recognition that house prices will slide a further 15% by the end of next year. The damage left? This rate of decline will leave five million properties across the UK with a lower value than the purchase price. The bad news is that the UK is only half-way through the pain. Good news? The smallest declines in value are predicted to be in Northern Ireland, Wales and Scotland.

10. ... And 10 reasons to be cheerful By Tom Shields
1: Be cheerful on my behalf that my money has been totally unaffected by the crisis. I did not buy shares in HBOS or Bradford & Bingley. I spent it on shoes for the children, travel, fine dining, wine and wild women. Well, one wild woman mostly: the wife.
2: Be cheerful when you think of all those friends and relatives who criticised your financial frivolity while they lived frugally to invest in HBOS, Bradford & Bingley etc.
3: Be cheerful that George W Bush will not be president of the USA in three months. This is nothing to do with the credit crunch. Just be cheerful that George W Bush will not be president of the USA in three months.
4: Be cheerful that you will receive much less email spam urging you to buy penny shares and retirement homes in Costa Rica. You will probably continue to receive the same number of emails offering to increase the size of your penis by four inches.
5: Be cheerful that the property correction should see an end to those TV programmes where a Home Counties couple sell their house and use the proceeds to buy a castle in Spain, a gite in Normandy, a duplex in New York and a pied-a-terre in Wester Hailes.
6: Be cheerful that a reduction in disposable income will give you a chance to get healthier. Now that the BMW has been repossessed, jog to the buroo.
7: Be cheerful that with the cutbacks (alleged) on bonuses in the City, there may be a merchant banker somewhere who is worse off than you.
8: Be cheerful that, with the crackdown (alleged) on bosses allocating themselves huge bonuses, MPs will also declare it is inequitable that politicians should be the last sector of society to set their own rates of remuneration. No?
9: Be cheerful that the Great Depression has finally given Gordon Brown something to smile about.
10 : Be cheerful that you now have the opportunity to use such phrases as: what does not kill us makes us stronger; we've never died during a winter yet; and to hell with poverty, chuck another lump of coal on the fire.


Anonymous said...

Hello Dan W.,

Concerning "over the top" comments, I was going to reply, but Stoneleigh put things well.

About swaps cancelling out, the 2% figure has been floating around for a long time. I&S published articles saying as much at the very beginning of TAE or perhaps even at TOD.

Hello JAS,

The overall analysis is clear. I was simply reacting to the "so what" attitude.

On reading your message at 16.58 (yesterday's issue), the impression is very different. More "wish we could help" than "so what".

Hello Eliza,

The learning curve here is very steep, i.e. with a bit of effort, you will learn very quickly.

The first step is to use Goggle. For example, type in "TED +finance" and you will have an answer.

If that does not work (e.g. ST GIC, no idea, so I looked and… found nothing other than in Singapore and India), then ask.

About the photos, I knew where to find many of them, but I was wondering if Ilargi had stashed specifically the ones used here so we could look at them without having to scroll through the entire site.


P.S. My replies probably seem disjointed with respect to the discussion, it has mainly to do with being is different time zones.

Ilargi said...


"About swaps cancelling out, the 2% figure has been floating around for a long time. I&S published articles saying as much at the very beginning of TAE or perhaps even at TOD."

I have this nagging feeling that the Lehman CDS will be rigged, i.e. we will see numbers pushed up through inside buying. I have no proof, just a feeling. If the outcome is less than $200 billion in losses, I would see that as proof.

As for the archive of both texts and pictures, someone has gracefully offered to archive it all in an as accessible as possible format. I insist on real fine search functionality, and I think we'll get there. The Blogger format has plusses and minuses, and we'll deal with it as best we can.

Mind you, my view is always towards the next day; I simply don't have time left to look back. But yes, we've been consistently -enormously- right, and I can see how looking back at that reinforces notions of what we do here.

I just can't see myself finding the time to do it. For me, it's always tomorrow morning.

Greenpa said...

Ilargi: "So why do the faithful of the Lord of More keep chasing the glittering bovine?

They do because they know of no other reality. They do because their brains are genetically preconditioned for lies and deceit."

I would like to put forward an additional aspect; which I think may be a somewhat original thesis. I feel pretty safe doing that here, knowing that you folks are sticklers for attributions.

I am persuaded a good deal of the "Perpetual Growth" myth is a result of our current place in human history.

What is the dominant culture, at the moment? Can we agree the USA dominates? Yes, I think.

And what is the origin of the USA?

I would trace the origin of current USA culture all the way back to the Spanish Conquistadores- who were blatantly genocidal murderers and thieves.

True, the bulk of our culture derives from later English invaders; but they were certainly initially motivated by a wish to duplicate the Spanish experience.

Who migrated first to this continent? Persons whose entire motivations were to grab every resource they could lay hands on- with no scruples whatsoever regarding how it was done.

That was our foundation. Later immigrants, possibly fleeing various bad situations at home, came to "the land of opportunity" ... and were taught that whatever you can grab, however you can grab it, is rightfully yours.

"Growth" is part and parcel of this basic attitude; manifestly, in a stable world (Europe, relatively speaking), opportunities to grab huge wealth are very limited. It's already been grabbed. Ergo; in order to maintain the basic rights of all Americans- plunder- endless growth is necessary.

I don't think this is clearly understood or stated by those belonging to the Growth God; it's more an unexamined underlying principle.

I'd be interested in Ilargi's and Stoneleigh's responses- and others, too, of course. Is any of this original thinking? I'm not deeply enough into the literature to know. I'm aware of discussions about the function of the "frontier"; I think this is a little different.

At this point- citizens of the USA have undergone some 400 years of genetic selection for survival in this environment. You bet that makes a difference.

Anonymous said...

Oh the talking heads on CNBC are euphoric today because of the stock market rally. They basically said that the stock market is rising because of the strong fundamentals in the economy, and it was fear that brought about the previous downturn. And of course, don't miss this wonderful buying opportunity.
So everyone... don't worry, be happy!

Anonymous said...

RE: "rigging the Lehman numbers"

I totally agree. In fact, it seems as though Spanky Paulson's raison d'etre (I'm sure I just massacred the spelling there) is to obfuscate and plug holes and shut people up and make sure that the REAL story doesn't seep into the mainstream press until he's long gone---living on his own island in the Western Pacific or something.

More about "it":

"This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," Paulson said at a Treasury briefing on the program. "This program is designed to attract broad participation by healthy institutions and to do so in a way that attracts private capital to them as well."

My god...why didn't I see this in the 1st place? Of course...We, the taxpayers, are gonna come out ahead on this deal. I, for one, am quite relieved. Phew!

Pretty amazing really. Professional liars. That's what we have here: politicians (Left & Right), FED scumbags, FDIC scumbags, rich scumbags...We are a society of professional liars. I've worked for them and with them, I'm friends with many of them, I've fought against them and bowed my head to them at the alter.

If Greed is a sin, then lying is the highway to hell. Professional liars, one and all. We lie to get what we want and lie to avoid getting what we should. We lie to fuck, lie to kill, lie to win. Henry Paulson is a liar. He understands that tens of thousands, if not millions, of people are going to suffer---many will die---as a direct result of his economic dictatorship. He lies to convince himself that it's the best he can do, he lies to rationalize and avoid feeling even a hint of shame or remorse...though he lies when he tells us that he does feel so sad.

Here's the truth: trillions of dollars of OUR money (in the form of future taxation and increased debt servitude) is being given to banks and other financial institutions so that (a) they can lend it back to us and continue to make a profit and (b) so that they can continue to richly reward their employees with handsome salaries and bonus packages. THAT'S the truth.

Anonymous said...

@ Greenpa

Too Lamarckian for me...I think.

I also subscribe to a somewhat different view of American evolution into a culture of greed.

here's a link to a great essay on the subject. I had this guy as a prof in college...many moons ago. :),M1

Anonymous said...

here's the link.

ps---i forget to sensor one of my swears in a post...sorry 'bout that.

Anonymous said...

Ilargi, if you didn't so far, have a look at these articles. They are shockinly accurate:

Can the Bailout Prevent an Economic Meltdown?

"The bursting of the American real estate bubble was only the beginning. Artfully packaged US subprime mortgages, sold worldwide, ignited the flames, while additional exports from the US financial industry only added new fuel to the fire. For years, Americans have paid for their consumption by borrowing. They paid for almost everything with their credit cards, and going into debt was easy. As long as the economy boomed, everything went smoothly. For years, the total of bad credit card debt hovered at a relatively manageable level of about $25 billion (€18.5 billion).

But that too has ended. According to new estimates, non-performing loans on credit cards could quadruple to almost $100 billion (€74 billion) during the course of the recession next year. There are similar problems with car loans, the only difference being that "they were approved even more readily," says a senior executive at a German bank.

He should know. Many German banks bought the loans from US banks and are now forced to write them off as bad debt.

An even greater drama is unfolding in the global casino for the insurance of corporate loans. Lenders use credit derivatives known in the industry as credit default swaps (CDS) to hedge against their customers no longer being able to service their loans. The worse off a company is, the higher the premium for the insurance. Be it Deutsche Telekom, General Motors or Bank of America, there are CDS contracts for almost every major company and bank in the world.

But what began as a reasonable instrument to hedge against risk developed a dangerous double life in recent years. Banks, insurance companies and hedge funds began speculating with the premiums as if they were chain letters. The risks were passed on x number of times.

In the last four years, the market volume for CDS contracts has grown tenfold to its current level of €55 trillion ($74 trillion), which equals the gross domestic product of the entire world. This murky network of reciprocal payment guarantees now threatens to come apart the seams. The upcoming recession will drive up the number of corporate bankruptcies dramatically, suddenly causing a series of credit insurance policies to mature. "We had ideal conditions in the market for years," says Unicredit analyst Philip Gisdakis, "but now we are in for a real thunderstorm."

The Crisis Leaps to the Broader Economy

It has long been clear that the financial sector will have to shrink significantly in the coming years. In the boom phase after the turn of the millennium, banks greatly expanded their activities by outsourcing risks and granting new loans. To reestablish a healthy level, says Bernhard Blohm, chief economist at HSH Nordbank, the banks will have to cut back their business volume by about 40 percent.

The consequences are foreseeable. If the banks issue fewer loans, companies and consumers will lack the funds for investments and big-ticket items. The crisis will make the leap from the financial markets to the broader economy, as has already begun to happen in recent months. The outlook -- and the mood -- will worsen at an alarming rate.

As a result, almost all economic indicators point toward the red. Exports are declining, investments shrinking and consumer demand bobbing along at a low level. Only one variable will increase in the coming year: unemployment.

Assembly lines are already idle in many factories. One of the hardest-hit industries is automobile manufacturing. German carmaker Opel has taken to periodically furloughing its employees, and luxury carmaker BMW plans to close a number of its plants for several days at a time.",1518,585324,00.html


The Financial Crisis Reaches Germany's Economy

"In machine building, Germany's most important industry, with its 950,000 employees, customers are cancelling orders. Sales are declining in the automobile industry. To offset the drop in demand, Opel, Ford, BMW and Mercedes-Benz have taken to closing some of their plants for weeks at a time.

Software maker SAP, based in the southwestern German town of Walldorf, has reacted to a decline in demand with a hiring freeze. Publishing houses, like Grüner & Jahr, affected by declining advertising sales, are following suit. Lufthansa is seeing declines in its business travel and cargo business. Real estate brokers report that some customers are even canceling closings at the last minute, either because of crisis-related cold feet or banks changing their minds about previously approved mortgage loans.",1518,584374,00.html

Ilargi said...


You destroy your own argument right here:

"What is the dominant culture, at the moment? Can we agree the USA dominates? Yes, I think. And what is the origin of the USA? I would trace the origin of current USA culture all the way back to the Spanish Conquistadores- who were blatantly genocidal murderers and thieves"

The essence is monotheism, and especially Christianity. And it's Europe, not the US. There were as many people living in the America's as there were in Europe in 1491. The book, by Charles Mann, by that title is highly recommended.

It's always been Europe, at least for the past 1000 years. Who do you think owns the Federal Reserve?

Christ as the Lord of More. Yeah, that should make me popular. Read John Gray's 'Straw Dogs'.

Anonymous said...


My take on the modern world:

God = Money
Creed = Free Market Capitalism
Churches = Shopping Malls
Congregation = Consumers
Morality - none just profit.

Good piece.


Greenpa said...

Ilargi- :-) oh, I would dearly love the chance to argue it all in person, some day. I don't think you've pointed to a self-destruction.

Sure, all those aspects are important- I guess what I'd say is that current USA is a "subspecies" of European culture- one largely founded by the migration of the more predator-like Europeans to a continent open for plunder. I know it wasn't empty- but guns against arrows is a foregone conclusion.

Dan W- Larmarckian?? howso? I'm a pretty straight Darwinian, I think. Granted, cultural evolution is a more complex topic- and cultures can acquire characters from elsewhere... boy, this could get long. :-)

Anonymous said...

I am neither a communist nor a disgruntled Leftist from the west. I am in fact a US citizen and combat veteran who is now a resident of Germany and a proud and active member of Die Linke - The left.

The neo-liberal press needs to get over itself

Anonymous said...

Yes, Greenpa, the Spanish Conquistadores were murderers and thieves, but so were the Anglo-Saxon "colonists," as history shows.

Over time, the secular Spanish Conquistadores' ruthlessness was somewhat tempered by the more charitable monks traveling with them. The Conquistadores married indigenous people and later married black slaves as well. This is why in Latin America there are mestizos and mulatos -- words non-existent in English. Also, the Spanish rarely sought to annihilate the natives; they sought only to rule them.

Could the Lord of More be more connected with the Protestant Ethic? For example, the Puritans thought that wealth and power were marks of God's blessing. (BTW, I'm not religious.)

Human beings tend to be avaricious given the chance, as we all know. Nevertheless, the culture we live in largely determines the degree to which we will practice avarice.

I think Anglo-American culture in general is racist and materialistic -- white supremacy reigns, whether consciously or subconsciously. (Few Anglo colonists ever intermarried with the Native American population -- or with blacks later on.)

But yes, there is no question that human beings are deeply flawed. Perhaps only Gaia will put an end to our destructiveness!


Greenpa said...

Ahimsa- sure, I know. I was trying to deal with a thesis that requires a tome, in short-hand.

Every time I drive by a fast-food joint, and see faces that could come straight off a Mayan frieze, I'm made aware again that the outcome of the Spanish approach was- the survival of many indigenous groups. The Ango-Saxons were much more genocide oriented. In the earliest days, though- the Spaniards totally eradicated the Caribbean natives- one way or another.

"(Few Anglo colonists ever intermarried with the Native American population -- or with blacks later on.)" "married" - no; bred with, however- constantly. Like the event early on where the Puritans wiped out the Pequot tribe- many of whose women were taken into Puritan households as slaves. Wanna guess what happened then?

I know, I know. :-)

el gallinazo said...

Yes, the core of the coming debacle is exponential growth against finite resources. It's so freaking obvious, I think that most of our talking heads economists must have been pithed in high school biology class along with the frogs. We have already, in the age of cheap energy (7 years ago?) well over populated the carrying capacity of the earth. Just as the economies must contract violently, so must the population, and the process of this contraction will be quite horrible. In this sense, the doomers have it right. But much of the human race will probably go on, and there is also much good in people.

Far from economics, Ilargi's commentary today is basically religious. As far as I can figure, sociobiological. So why is he so outraged that the primordial molding forces of the universe have shaped us into such scumbags? That's Ilargi's own internal contradiction. Where is the fulcrum on which he can stand outside the human condition to make this evaluation? I subscribe to a very different metaphysics despite my background in the physical sciences. However, he and Stoneleigh are certainly calling the shots right vis-a-vis this meltdown, and I am learning a huge amount (for what it's worth). And they are educating us out of sheer altruism. Whose to figure? Ultimate metaphysics has a much to do with these day-to-day fiscal nuts and bolts as relativity and quantum mechanics do with building a suspension bridge.

Ilargi said...

"So why is he so outraged that the primordial molding forces of the universe have shaped us into such scumbags? That's Ilargi's own internal contradiction.'

I don't know where you would see outrage. I simply observe. No contradiction, either, there's not an inch of me that doesn't see that every inch of me is human.

Except perhaps, as you yourself note, that I choose to address other people's upcoming troubles, instead of focusing on mine, and paying -financially- a steep price for it. Then again, maybe I just need to be liked.

My 'fulcrum' is that I can predict events way before they happen, and I don't even find it all that hard.

bluebird said...

Ilargi says "It's always been Europe, at least for the past 1000 years. Who do you think owns the Federal Reserve?"

I have always thought it was old money, powerful banksters, behind the Federal Reserve. I just never connected it was still based in Europe.
Anonymous Reader

Stoneleigh said...

I wanted to offer my take on the 'what my town might look like by Christmas' argument. I doubt if you will see much difference by then, the reason being that we are due for a substantial counter-trend rally in the markets soon. My guess is that we'll see new lows first, but then a temporary bottom in the vicinity of the end of the month, followed by probably at least a couple of months of rally.

A sharp rally will probably be accompanied by a resurgence of optimism (or desperate denial), just as the March to May event was. By the time the rally is ending, governments and central bankers will be patted on the back and congratulated by the media for restoring confidence and pulling the global economy back from the brink.

That will be the set up for the resumption of the decline, just as it has been every time so far. I'm expecting the decline to begin again early in the new year, and to culminate in another cascade. My view is that Christmas could be a fairly optimistic time, but that the rug will be pulled out from under people's feet again shortly thereafter.

It may be tempting to buy into the
hopeful message that the media is likely to be pedaling down the line, but it's a trap for the unwary. The fundamentals are not going to get any better in that time, in fact they're virtually guaranteed to get worse, but the media never lets facts get in the way of the herding mentality. When the herd is in an optimistic mood, however unjustified that may be on rational grounds, the media, which is part of the herd, will offer optimistic coverage.

By next Christmas, and likely long before, you may not recognize your town. I would suggest using the approaching rally to position yourselves for the next leg of the decline, in other words as an opportunity to cash out before it's too late.

Anonymous said...

Lehman Credit-Swap Auction Sets Payout of 91.38 Cents(Update2)


How This Bear Market Compares

From a link posted on Jesse's Café Américain

Stoneleigh said...

Jason R (from yesterday),

What is to become of those of us in our late 20s early 30s strangled with student debt and little or no padding?

I'm very sorry to have to say that you will never achieve anything like the wealth or standard of living that your parents' generation did. If you're lucky, your parents may be able to help you, but many parents are in financial trouble as deep as that of their children, having been lured by easy credit into living beyond their means. Wealth has been squandered on a grand scale in recent years and we will all pay the price.

My guess is that you will probably never be able to repay those student loans, as your ability to earn an income will be very limited (along with everyone else). Trying to keep doing so may therefore be throwing good money after bad. Ceasing to do so would trash your credit, but credit is in the process of evaporating anyway, and will not be available to anyone but the super-wealthy in the future. Weaning yourself off it now would be good preparation.

You will have to decide for yourself what to do about the debts you carry, and that will not be an easy decision. Unfortunately, there are no good options, only perhaps the lesser of several evils. My guess is that the consequences of default will get worse over time as more people go to the wall and lenders try to get blood from a stone. Just as only an early few can cash out of the banking system, perhaps only a few will be able to deal with unpayable debts under the old rules.

In the longer term, your prospects for coping with what is coming will be better than your parents generation, thanks to your youth and health. Many older people are going to be incapacitated by a lack of healthcare and will be extremely vulnerable. Ideally the generations would help each other - the parents making a financial contribution to the welfare of the extended family in exchange for physical care from their children. Intergenerational bargains are typical where there is no welfare state, which means in most of the world.

The [Baltic Dry] index may also be telling us something scarier. It may be telling us that the world's great industrial powerhouse, China, could be in trouble and that its imports of raw materials are collapsing at a far greater pace than the slow slide in demand from the West for China's finished goods would imply.

That is exactly what the index is telling us. China has been in a huge bubble for a long time and it is now imploding, as bubbles always do. World trade will collapse over the next few years, leaving a global economy built on comparative advantage in deep trouble.

We have traded the security of self-sufficiency for dependency on others - even for the essentials - all in order to save a little money in the short term. That will prove to have been a disastrous decision. We'll be going back to self-sufficiency, but only to the extent that we can recreate it in a capital constrained world. In other words, we'll be doing without most things we currently take for granted.

If you need to get hold of spare parts or equipment only available from elsewhere, I suggest you do it now, when all you need is the internet and a credit card. You may not have either for all that much longer (ie a year or two at most I would think, and quite possibly less).

Stoneleigh said...

Snuffy and Dark Matter (from yesterday),

I would be interested in your rabbit talk as we are thinking of rabbits ourselves. If you chat about it off site, perhaps you could add theautomaticearth(at)gmail(dot)com to the discussion.

Anonymous said...

Stoneleigh -- I know you think the time for large commitments to precious metals is still at least a year or two distant. What are your general thoughts/expectations about those markets over the next few months? Would you expect them to rally with the stock market?


Anonymous said...

"We have traded the security of self-sufficiency for dependency on others...a disastrous decision."


Reminds me of what the 19th century economist Friedrich List said (to the best of my recollection) to the "free-traders" of his day: "What good does it do me to buy a cheaper shirt, when it costs me my right arm."


Stoneleigh said...

Maeve (from yesterday),

Stonleigh, I live in the UK and was wondering about your advice on being as liquid as possible. I live off my savings as I lost my job through ill health 2 years ago after my husband committed suicide, and as I am 48 (there is a big ageisim thing in the UK) have struggled to get replacement work.

I'm sorry to hear about your difficulties. I know all about ageism in the UK. I used to live there (until 2000) and am not far off your age. The cost is living is very high there too. Unfortunately, I think it's prospects are very poor (for reasons of both energy and finance), which is why I no longer live there. I still love it though, and it tears me apart to think of all the people I left behind.

I have cashed in my shares and unit trusts and I am very lucky I have no debts, I am a saver not a spender. I use Public transport, and live frugally. My garden is very small and subject to flooding so doesn't provide much produce, but my store cupboard has lots of dried and canned goods.

It sounds like you are in a much better position than most in the UK. Having no debt and being comfortable with frugality is a huge step in the right direction.

However, all my savings are in UK banks or building societies, which the government are currently backing. Some is also in government savings bonds bought through the Post Office. I don't see how these are different ? and I don't understand what the UK equivalent of the "Short term Treasuries" you refer to is ? I am scared of taking all my money and putting it under the matress at home.

UK short term treasuries are called gilts. My gut feeling is that government bonds bought through the post office will be safer than than bank deposits.

Government backing of savings is a bluff meant to inspire the confidence to prevent its ever needing to be carried out in practice. When the market calls that bluff, as it inevitably will eventually, that guarantee will be worthless.

What is it best for me to do to keep safe. Should i just hold my money at home? Should I buy some gold? If like Iceland there was no access to savings in UK banks wouldn't that be the same for my post office savings bonds? I am trying to stay calm but am very frightened, and I don't really understand enough about what is happening to make good judgements at this time.

I would suggest keeping at least some cash under your own control, so that you can still afford to eat if you lose access to your money. In your situation (debt-free and with some liquidity and no space for full-blown self-sufficiency measures), owning some precious metals (in physical form under your own control) might be a good idea. Cash will matter more for the time being, but you may be able to afford a small amount of metal as an insurance policy.

The best thing you could do would be to get to know your neighbours and build ties in your community, so that you will have some social capital 'deposits' in the 'karma bank', so to speak. You will be much less vulnerable as part of a larger group that can help to look after each other.

Best of luck. Many of my friends and relatives will be in the same position as you are.

Stoneleigh said...


I know you think the time for large commitments to precious metals is still at least a year or two distant. What are your general thoughts/expectations about those markets over the next few months? Would you expect them to rally with the stock market?

They could well rally with the stock market, as liquidity tends to float all boats (and the lack of it sinks them all).

The metals decision has to be a personal one, as it depends on your circumstances. If you are debt-free, have liquidity taken care of, have dealt with whatever self-sufficiency potential you may have and still have money looking for a home, then you could consider metals as an insurance policy, bearing in mind that you may have to sit on them for years. Not everyone can afford to put away a significant portion of their wealth for a long time, but if you can then metals will hold their value over the long term as they have for thousands of years.

Stoneleigh said...

Greg (from yesterday),

This is causing a systemic banking crisis that is very likely to result in people losing access to their savings.

Why would they lose access? Closed banks? Run on banks?

Yes. Deposit insurance won't be worth the paper it's written on.

sell real estate

I have a small farm why would one want to do that? It has the potential to provide food, fuel and income.

I should have said to sell investment real estate and real estate bought on margin (ie with a mortgage).

In your case (ie debt-free and living on a homestead property) I wouldn't sell, even though the property will nominally be worth much less in the future. If you're planning to stay put then by all means do. In fact I am in this position myself - with a small farm and no debt. I have no plans to sell as I don't care what it's worth. It's a homestead to me.

Stoneleigh said...

JAS (from yesterday),

Just talked to my bank (Everbank) where I have a gold account (pooled). I requested to exercise my option to receive the phyical gold, with a 'fabrication' cost of course, however they responded back, there are NO gold bars or coins available.. you can only cash out or hold.

Paper gold will be worthless. Physical gold will hold its value over the long term, after first being ravaged by the effects of deflation - as people sell what they can, not what they'd like to, in order to raise cash.

If your only options are cash or hold paper gold, then I would cash out while you still can. There may be some other way to get physical metal if that's what you want, but cash will be worth more initially in any case.

Stoneleigh said...

N (from yesterday),

So if I have 30k at the bank I'm supposed to take it out and.. what? Get some short-term Treasuries? Buy gold? Go to the local credit union? Mattress?

BTW, this isn't the money I live off - it's the money I pulled out of investments. (before they tanked, thank god)

Having got it out of the market in time, don't lose it in a banking collapse now. Cash and cash equivalents (short term treasuries) under your own control are the safest place. Be creative about how your store anything you keep at home. There are no risk-free options.

Anonymous said...

Regarding student loan debt, a friend of mine went through bankruptcy as a result of being unable to pay a very expensive health care bill from an accident; it did not erase his student loan debt. It appears that in his case, at least, student loan debt is a perpetual millstone.

The Lizard said...

"Ultimate metaphysics has a much to do with these day-to-day fiscal nuts and bolts as relativity and quantum mechanics do with building a suspension bridge."

Your metaphysics ultimately determines whether you will be inclined to build a suspension bridge at all.

In the last year or so, after hundreds of hours of reading and podcast-listening, I'm convinced that the financial mind is fully and inherently sociopathic.

History is biography. Biography is personality.

Anonymous said...

With all the Mad Max talk and ruminations on human nature, I'm reminded that Tina Turner is touring again.

One of my faves: YouTube: We Don't Need Another Hero

Out of the ruins
Out from the wreckage
Can't make the same mistake this time
We are the children
The last generation
We are the ones they left behind
And i wonder when we are ever gonna change it
Living under the fear till nothing else remains

We don't need another hero
We don't need to know the way home
All we want is life beyond the thunderdome

Looking for something we can rely on
There's got to be something better out there
Love and compassion, their day is coming
All else are castles built in the air
And i wonder when we are ever gonna change it
Living under the fear till nothing else remains
All the children say

We don't need another hero
We don't need to know the way home
All we want is life beyond the thunderdome

What do we do with our lives
We leave only a mark
Will our story shine like a life
Or end in the dark
Give it all or nothing

Unknown said...

Today's debt rattle made me think of something Kurt Vonnegut wrote that I often come back to.

Joe, a young man from Pittsburgh, came up to me with one request: "Please tell me it will all be okay."
"Welcome to earth, young man," I said. "It's hot in the summer and cold in the winter. It's round and wet and crowded. At the outside, Joe, you've got about a hundred years here. There's only one rule I know of: Goddamn it, Joe, you've got to be kind!"

Anonymous said...

Stoneleigh said...

In your case (ie debt-free and living on a homestead property) I wouldn't sell, even though the property will nominally be worth much less in the future. If you're planning to stay put then by all means do. In fact I am in this position myself - with a small farm and no debt. I have no plans to sell as I don't care what it's worth. It's a homestead to me.

We just started raising sheep. Small enough to be able to handle without expensive chutes and trailers like with cattle.

So, what about money (treasuries) in places like Vanguard?

Market Moralist

"Jack could be a multibillionaire on a par with Gates and Buffett," said William Bernstein, an investment manager who wrote A Splendid Exchange: How Trade Shaped the World. "He chose instead to mutualize the company, to turn it into a nonprofit that exists to provide its customers the lowest price. I don't know any other story like it in American business history."

When Bogle launched Vanguard in 1974, his aim was to create a new kind of investment firm, a company that would serve investors "in the most honest, efficient and economical way possible."

Shareholders of Vanguard funds "own" the management company that administers the funds. Unlike other investment companies, Vanguard operates at cost, with each fund paying its share of the corporation's expenses. As Bogle is fond of saying, his greatest accomplishment was "putting the mutual back in mutual funds."

When it comes to cost, Vanguard, like its founder, is cheap. At the end of last year, its average expense ratio (expenses as a percentage of average net assets) was a rock-bottom 0.2 percent - a mere $100 on a $50,000 investment. At other investment firms, fees can run as high as 2.5 percent, or $1,250 on that $50,000.

Anonymous said...

Hey Ric the Tina turner reminded me of Grateful dead's 'Throwing Stones' Sorry no You Tube link, sound is too terrible.

Picture a bright blue ball just spinning, spinning free
Dizzy with eternity.
Paint it with a skin of sky, brush in some clouds and sea
Call it home for you and me.
A peaceful place or so it looks from space
A closer look reveals the human race.
Full of hope, full of grace, is the human face.
But afraid, we may our home to waste.
Theres a fear down here we cant forget hasnt got a name just yet
Always awake, always around singing ashes to ashes all fall down.
Now watch as the ball revolves and the nighttime calls
And again the hunt begins and again the bloodwind calls
By and by again, the morning sun will rise
But the darkness never goes from some mens eyes.
It strolls the sidewalks and it rolls the streets
Stalking turf, dividing up meat.
Nightmare spook, piece of heat, you and me, you and me.
Click, flashblade in ghetto night. rudies looking for a fight.
Rat cat alley roll them bones. need that cash to feed that jones
And the politicians throwing stones
Singing ashes, ashes all fall down.
Commissars and pin-striped bosses role the dice
Any way they fall guess who gets to pay the price.
Money green or proletarian gray, selling guns instead of food today.
So the kids they dance, they shake their bones
While the politicians throwing stones
Singing ashes, ashes all fall down.
Heartless powers try to tell us what to think
If the spirits sleeping, then the flesh is ink.
Historys page, it is thusly carved in stone
The futures here, we are it, we are on our own.
If the game is lost then were all the same
No one left to place or take the blame.
We will leave this place an empty stone
Or this shinning ball of blue we can call our home
So the kids they dance, they shake their bones
While the politicians are throwing stones
Singing ashes, ashes all fall down.
Shipping powders back and forth
Singing black goes south while white comes north
And the whole world full of petty wars
Singing I got mine and you got yours.
And the current fashions set the pace.
Lose your step, fall out of grace.
And the radical he rant and rage, singing someone got to turn the page
And the rich man in his summer home,
Singing just leave well enough alone
But his pants are down, his covers blown
And the politicians are throwing stones
So the kids they dance they shake their bones
Cause its all too clear were on our own
Picture a bright blue ball just spinning, spinning free
Its dizzying, the possibilities. ashes, ashes all fall down.

Fear ilargi, fear we won't get what we need and if we get it we fear that someone might take some so and then we wouldn't have enough so we need more and you know where that ends.

Starts when we are very young but not when we are born.

Anonymous said...

If I recall the numbers correctly, during the depression there was 25% unemployment. That means that 75% of the population was working.
The people of this forum, being intelligent and forwarned will most likely be in the employed segment of the population.

Anonymous said...

Trenchant and wise comments, today, (well, every day, but today's really resonate) Ilargi. Could write extensive reply, but what strikes me most is how "growth" has become another of those Orwellian, doublespeak words. What is called "Growth" in the church of materialism is really a metastatic process, the antithesis of growth. Just contrast it with real, homeostatic growth, and it becomes obvious that humanity is in a dis-eased state, about to go through a "healing crisis"...the work of people like Candace Pert, Bruce Lipton, and Joseph Chilton Pearce may have as much to say about sources of healing/ correction as economic theorists.

Anonymous said...

The nature of "growth" needs re-definition.What if ,for instance growth was also defined as the improvement of system....say improving the efficacy of a solar cell by 10%

Or mass transit systems to the point of personal cars not being needed... or wanted

Re-forestation of the areas not suited for hand.

Small scale ag...2-5folks in a neighborhood who are the "gardeners" for the block...and it being expected that the majority of the food consumed in a "block"is grown ,with the help of all...

Local metal fabrication facilities...where all the designs that still exist for gasifiers,old style and construction of anything needed in a community

I think the point I am trying to make is that growth can be something besides cancer.It can be the evolution of a society

Spiritual growth is something we all strive for,even though it may encompass quite different topics 'to each its own'

We all experience personal growth."I am not the man I was @twenty five..."

I think its time for us as a culture,as a species,and as a sentient creature to "grow up"This coming phase-change in our culture/civilization may be a good time...or the last chance we get to prove we are,as one poster at TOD states,are "smarter than yeast..."


EBrown said...

I have a question - You've recommended Prechter's book. I read it adn watched History's Hidden Engine on the web.

I get the value of using Elliot wave forecasts in that the basic premise is one of sentiment driving market behavior and not vice versa. My understanding of humans is that we are extraordinarily social creatures, and we pick up on emotional cues from one another all the time. I see this daily at work, I see it in my family interactions, I see it in social settings.

We agree stockmarkets are very sensitive gauges of the nation's population's sentiment. How did you get your predictions so right, while Prechter has bumbled through a number of awful predictions? If I'd taken his advice in 2002 I'd have missed out on a lot of gains. Having taken Ilargi's and your advice I've preserved money.

Did you think the onset of this great deflation were starting back when Prechter did? Do you use Elliott waves and interpret them in a different manner than he does? I'm curious...

scandia said...

Ilargi, You are a brave man to write as you have to-day about the
" Lord of More".
many religious rallies are a joyful celebration of abundance( read more). I had a period in my life believing in magical solutions. When I put to the test, " Ask and ye shall receive." I was really asking for material wealth, wealth beyond my wildest dreams. The concept of return on investment operates as a moral principal. If I tithe $10 I'll receive it back a hundredfold and all with the blessing and approval of the divine Lord( of More).
I was quite captivated by " Think and Grow Rich" by Napoleon Hill, other titles like Think Big and Grow Rich....To my point only realized this evening, I don't think I have ever had a healthy relationship with money. I've never been a sucessful earner of it.Of course I've been employed. What I mean is " Making money" has been beyond me. Many influences have contributed to this lack of skill. My generation of women were encouraged to seek and serve men who knew how to " Make money". It was not seemly to be seen to be engaged in " Making money". Just a couple of weeks ago someone said to me,"'ve got to learn to make money from friends." I was startled by the very idea. I've been taught to give to friends, not to take money from friends.
And truthfully I can't pinpoint how I came to take this belief as my own.
Quite a few people with the money making ability kinda went crazy and willfully disobeyed some universal truths. As Ilargi points out increasing debt to get out of debt is against a universal law. Even I recognize that truth. So increasing debt to get out of debt can only mean tranferring of debt.
As I take into account my personal position in this societal upheaval I notice some assets. I have a head start on many as long ago I relized that " stuff" gave only fleeting satisfaction. I know several stimulating community minded people. I like the town I live in. I am used to working physically so can do so for a bit longer. Best of all I have a library an easy walk away! A bus stops almost at my door! Old trees shade my street. Gardens bloom everywhere. I've already spoken of my companion, Mayacat.
I see that much that I call the quality of my life will remain.

Anonymous said...

If we are to use the next rally to get out of these markets, will it be difficult to get the bank to move my no load MFs out of the Investment Company and into their ST GICs?
I understand there can be a bit of a lag - this is all new to me - I am going to the bank in another day, but now not sure if I should wait, or get the process going.
Not sure who else I might ask, everyone I know thinks I am just over reacting.

Fred Dagg said...

Paul Farrell (Marketwatch) must be reading TAE - see today's comment{F63EC448-D9C1-4138-AC18-97BF0FE68EE3}

The emotion displayed by Farrell is as strong as the folks in San Diego in the story you ran recently. There is immense anger in the heartland of USA.

TAE is daily mandatory reading and has been for quite a while (and a while yet - hopefully).

Stoneleigh - are you aware of a New Zealand sauvignon blanc by that name? If not, highly recommend it.

Starcade said...

Great main post, Ilargi: It explains perfectly why this must end ugly. VERY ugly. Looting and shooting ugly.

These people know no different, and, hence, cannot (and WILL NOT) live any different. That's why all companies now practice fraudulent bookkeeping -- they can't be in existence otherwise and know no other way of existence.

You have stated time and time again as to how far they are willing to go to keep this up on an institutional level. When you translate that to rank-and-file people, it gets far worse. Social order cannot stand to _this_ tsunami.

Anonymous said...

Thanks for the responses to my ING question the other day. To add complexity to our decision-making, our project requires funds in both CDN$ and US$, and of course US$ are not insured (in so far as any deposit is insured right now) in Canada. On the other hand, it's hard to convince my cautious other half to hold the funds outside of the banking system, given the risks associated with socks in drawers... Can Canadians hold US treasury bills? We've got about 7 or so months to go before we will be using the funds.

el gallinazo said...

A Few Words in Defense of Our Country

Randy Newman - Harps & Angels Album

I'd like to say a few words in defense of our country

Whose people aren't bad nor are they mean

Now the leaders we have while they're the worst that we've had

Are hardly the worst this poor world has seen

Take the Caesars, for example

Why with the first few of them

They were sleeping with their sister

Stashed little boys in swimming pools

And burned down the city

And one of 'em, one of 'em

Appointed his own horse to be Counsel of the Empire

That's like vice president or something

No wait a minute that's not a very good example

Here's one Spanish Inquisition

Put people in a terrible position

I don't even like to think about it

Sometimes I like to think about it

Just a few words in defense of our country

Whose time at the top could be coming to an end

We don't want your love

Respect at this point's pretty much out of the question

Times like these we sure could use a friend

Hitler, Stalin, men who need no introduction

King Leopold of Belgium, that's right

Everyone thinks he's so great

Well, he owned the Congo, he tore it up too

Took the diamond, took the silver, took the gold

You know what he left 'em with? Malaria

A president once said

"The only thing we have to fear is fear itself"

Now we're supposed to be afraid

it's patriotic, in fact, color-coded

What we supposed to be afraid of?

Why of being afraid

That's what terror means, doesn't it?

That's what it used to mean

You know, it pisses me off a little

That this Supreme Court's gonna outlive me

Couple young Italian fellas

And a brother on the Court now too

But I defy you, anywhere in the world

To find me two Italians as tight asses as the two Italians we got

And as for the brother

Well, Pluto's not a planet anymore either

The end of an empire, is messy at best

This empire's ending like all the rest

Like the Spanish Armada adrift on the sea

We're adrift in the land of the brave

And the home of the free





el gallinazo said...

It has come to my attention recently, that huge student loans in the medical area, particularly for students who are not pursuing an actual MD are particularly debilitating, and default would probably result in a loss of license. Perhaps the good news is that state governments will be so impoverished in a couple of years, they won't be able to enforce their licensing.


Anonymous said...

Equating the quest for more to the pursuit of happiness is a fallacy. The relentless pursuit of more goods, money and bigger houses is the antithesis of happiness. What these people are seeking is power and pretense. What they will end up with is misery. It is a shame the rest of the world will have to pay for their vacant, disengaged minds.

el gallinazo said...

What seems to be ensconced behaviorally in social vertebrate evolution is hierarchy and dominance. Unfortunately for the planet, owning stuff has become a symbol of dominance just as really spiffy tail feathers has for some birds. The worst thing that could happen to Wall Street types is for everyone to have their own private genie.

Anonymous said...

@ el_pollo RE: music

OK...I can't resist:

Here's something I wrote and recorded last March...a commentary on cultural sickness:

Anonymous said...

Roccman said...

Excellent post!!!

Really - spot on.

Humans really should have the word "content" branded on our collective asses.

Anonymous said...

Scandia said:'ve got to learn to make money from friends." I was startled by the very idea. I've been taught to give to friends, not to take money from friends.

We are living in the age of networking not friendship. Next to calling the noble vegetable a 'veggie' I think that 'networking' is that most 'disgusting' of words:)

Anonymous said...

This is j:

First, thank you Stoneleigh, for your response re: student loans. Initially, after reading it, I wanted to pay the whole thing off right then and there! However, I realize the wisdom of having money on hand for other, more immediate concerns.

By the way, I am an L.M.T. – practicing massage and bodywork for over 20 years. It is a wonderfully rewarding profession, and I have done well, considering there is a high attrition rate due to injury and that therapist’s often find they don’t make the kind of income they hoped for. I always joked that I’m waiting for my son would hire me in his chiropractic office, as my leaning veers toward the more structural type of bodywork, and pain-injury therapy. However, right now I work in a high-end Caribbean resort and it will be interesting to see how the economic situation impacts the ‘old money’ types that come here. I advise your daughter to pay particular attention to her body mechanics, as it will go a long way to ensuring a lasting career in such a physically demanding profession. Tai Chi and Yoga are extremely helpful in this regard also.

Greenpa – my son said that not paying his debt is not an option. If he stops paying his student loans he risks forfeiting his license and then loses the possibility of earning a higher income.


Anonymous said...

Snuffy @12:15 a.m. -

Yes, humans must evolve collectively or we'll be facing death/extinction via nuclear war or anthropogenic, catastrophic climate change.

Unlike where I reside, you are fortunate to live in the Portland, OR area where many individuals are evolving.

It seems like not enough people are evolving (spiritually, etc.) in time to make a difference and change the present destructive path followed by world societies (especially Western "developed" nations).

Forty years ago I was hopeful that the world would change in time. Not today though. IMO, the world won't change. Things have only gotten worse during the last forty years.


Anonymous said...

I think I am missing an episode or ending? in the continuing saga of Lehmans, is there a update 3?

Went back to the article (see above update 2) and could find only this 'click here' in it!

As a kid always hated it, when the Saturday morning Tom Mix serial, in the final episode he started talking in Urdu. Popcorn was thrown and whiskey bottles were thrown.

Jesses Cafe has more neat graphs today.

The Lizard said...


Does Jesse's Cafe have some page explaining how to read their cryptic graphs?

Anonymous said...

I reread this post as there is so much and my brain is fried after doing a 12 hour shift.
There is a nurse researcher at UCSF who I have heard speak more than once and who I have deep respect for. Her name is Dr. Patricia Benner (E. Brown will know who I am talking about.)
She wrote a book entitled from "Novice to Expert" and her research explains how an expert nurse uses an almost sixth sense to detect trouble in a patient long before it happens.
We are all extremely fortunate to be able to have you share your expertise with us.

Lumberjack said...

No comment really. Just thanks for publishing the best blog on the web.

Anonymous said...

thehangedman says:
'Does Jesse's Cafe have some page explaining how to read their cryptic graphs?

Read them? Oh! So that is what they are for, thanks hangedman, I'm up to speed now!:)

Anonymous said...

the hangedmnan,

...but sorry pardner, I am not really from these parts myself. Maybe Stoneleigh?

Anonymous said...


I am a painter by trade and I look at Jesses work more for his artful depiction in these works ofthe direction 'down'. That more than any thing else excites me, the man you must admit has great verve.

The Lizard said...

"I am a painter by trade and I look at Jesses work more for his artful depiction in these works ofthe direction 'down'. That more than any thing else excites me, the man you must admit has great verve."

That it does. A Jackson Pollock of finance.

Anonymous said...

Stoneleigh? Ilargi? When you have a sec., could you comment on this?:

"...Jane Baird has the latest on what Alea calls "the non-event of the year": the Lehman Brothers CDS settlement on Tuesday. The upshot is that there's very little to worry about: The worst-case scenario is limited to the failure of a small hedge fund or two, and even that seems improbable..."

Anonymous said...

A finely written essay, Ilargi, and spot on.

Anonymous said...

In the rubble of decadent Western society will lay the opportunity for the strong & noble to triumph.