Saturday, January 31, 2009

January 31 2009: Superior ethics and piano players in brothels

National Photo Co Song Catcher February 9, 1916
Piegan Blackfoot Mountain Chief makes record at Smithsonian Institute

Ilargi: I have previously talked about the reason for Henry Paulson to do a U-turn on the TARP legislation as it was accepted by Congress. I suggested back then that they simply couldn't figure out a way to buy bad assets without revealing the value they would attach to them. Banks wouldn't accept too low (well, too low in their view at least) and the public wouldn't have gone for too high. It was better for all politicians and bankers (there's a blurry distinction if ever I saw one) if neither the real market value of the assets nor the price the taxpayers would be handed them for would be made known. Switching TARP funds into direct injection of capital prevented this unwanted -for Da Boyz- event from happening.

The Bad Bank plan, variations of which are considered in many other countries as well, looks to run into the same wall of "hardship". While people like CNBC's Charlie Gasparino keep hammering on the fact that the assets are "hard to price", I would pay serious attention to the idea that they are "hard to hide". It may be true that Obama's people have more scruples when it comes to burdening the citizenry with more debt, but that notion seems to be at least partially contradicted by the fact that so much attention has been given to the bad bank plan in the first place during the past ten days. Or maybe they hadn't understood the problems the first time around?

Applying valuations to the assets that are realistic in today's markets, and offering to buy them at those prices (anywhere from 5 to 20 cents on the dollar, I suspect), would finish off many if not most US banks. Simple as that. I also suspect that if you offer less than 80 cents, many banks would also fail. There are still people, even if by now it's hard to believe, who argue that the assets can provide a profit down the line, like Will Straw, Center for American Progress, in the first video below. No they cannot and they will not. We may call them "assets" till we're blue in the tonsils, but most of these "assets" are wagers, slips for bets on horses that lost the races they were in. And unless you have a time machine, you can not have those races run again. Suggesting that you can is for the senile crowd.

Unloading it on the public for more than market value is a criminal act, no matter how hard you shout that one day it will rise in price. You simply don't know that. Having the public buy it for realistic prices will kill the banks, if not the entire banking system. There are also rumors of plans to guarantee the paper and let it remain in the bank vaults, but how would that be different? You'd still have to agree on a price. The main issue with the toxic paper is not even its declining value, it's the confidence that has vanished because it remains hidden away from view. Guaranteeing would only prolong the secrecy, and thereby the lack of trust.

I suggest that perhaps it's time for America to take a look around the globe at watch the unrest in the streets. There haven't been major crowds seriously protesting in the US for a very long time, but that shouldn't make us think the country is immune. The focus for government, and for everyone, should be on how to minimize the risk that people freeze to death in their homes or are poisoned by their own drinking water. Trying to save the banking system doesn't address that. Trying to save the banking system with the money that belongs to the people makes it more likely they will freeze to death. That in a few words is the choice before us.

If we see a bad bank or ring-fence guarantee plan coming from Washington soon, we will know what choice the new president has made.

'Bad Bank' Plan On The Brink

Discussing whether the government is closing the door on the 'bad bank' idea, with Art Laffer, Laffer Investments; Morris Reid, Westin Rinehart; Will Straw, Center for American Progress; and CNBC's Charlie Gasparino & Larry Kudlow.

Another banking "solution" … or yet another failure?
Have you ever seen the fantastic Bill Murray movie "Groundhog Day?" Murray plays Pittsburgh weatherman Phil Connors who’s forced to cover the annual February unveiling of Punxsutawney Phil. He clearly isn’t thrilled. And his bad attitude shines through in several hilarious episodes. Fate punishes Murray as a result, by forcing him to re-live Groundhog Day over and over again until he improves his attitude and can win the love of his co-worker, Rita.

I feel like we’ve got something similar going on these days in the banking sector. Every few months, some bank, broker, or lender "blows up" - New Century Financial. Countrywide Financial. Bear Stearns. Fannie Mae. Freddie Mac. Lehman Brothers. AIG. You know the names. And every few months, some subsector of the credit market gets dysfunctional — first subprime mortgages, then Alt-A loans, prime residential mortgages, commercial real estate loans, leverage buyout loans, credit cards, and auto loans. Whenever these simmering crises explode into a boil — meaning the problems migrate from the business pages to the front pages and/or bank stocks tank - Washington Gets Into a Tizzy!

Then the politicians, regulators, and Federal Reserve policymakers run around like chickens with their heads cut off and push through some new "solution." • One of the first federal ideas was FHASecure. The plan was designed to help move troubled, subprime adjustable rate mortgage borrowers into FHA loans. • Then there was Hope Now, the government-industry alliance to modify terms on more mortgages. • Later it was Hope for Homeowners, a program whereby current lenders were supposed to write down borrowers’ mortgage principal balances and then refinance them into FHA loans.

Now, the government is shoveling hundreds of billions of dollars into the banking system via TARP. It’s buying bigger and bigger stakes in the country’s megabanks, including Citigroup and Bank of America. It’s helping arrange shotgun marriages between wounded institutions like Washington Mutual and Wachovia, and other banks. Finally, it’s guaranteeing hundreds of billions of dollars of crummy assets. Those moves essentially put the taxpayer on the hook for billions in future losses from bad mortgages, bad commercial loans, bad securities, and more.

Losing Count of All the Failed Rallies? You’re Not Alone … EACH AND EVERY TIME one of these bailouts has been announced, leaked, or otherwise picked up on by investors, the financial stocks have rallied. EACH AND EVERY TIME, those rallies have eventually failed with financial stocks falling to new lows. Just look at this longer-term chart of the KBW Bank Index, a benchmark index made up of the top banks in the U.S. How many failed rallies can you find? I’ve identified some of the major ones, each spurred by some new whiz-bang program out of the Treasury Department or the Federal Reserve. But there are plenty of minor ones, too. And none — NOT ONE — have stuck!

There’s a very simple reason all these failures: We just experienced a once in a lifetime credit market bubble. The housing market was the most visible sector trashed by the reckless interest rate policy of the Fed. Its demise was the result of the complete abdication of responsibility by U.S. regulators, the absolute stupidity of America’s top financial institutions, and the overwhelming greed of everyday borrowers and speculators. But it wasn’t just housing. The recklessness pervaded: Commercial real estate … The private equity business … Emerging markets lending … Auto loans … And more.

So naturally, the losses that began in housing and mortgages have spread throughout the credit world. Financial institutions worldwide have already taken a whopping $1.06 trillion in writedowns and losses, according to Bloomberg. But that could turn out to be less than half — or even just a THIRD — of the total losses we’ll eventually face. Just this week, in fact, the International Monetary Fund hiked its estimate of the costs of the global credit crisis to $2.2 trillion from an October forecast of $1.4 trillion. No wonder these bailouts keep failing!

What’s Behind the Latest Financial Lovefest?The latest plan from Washington that got the financial stocks running up is creating a "bad bank." This institution would be financed by some combination of taxpayer money, banking sector money, and other sources. It will reportedly buy toxic assets from banks, more than likely at inflated prices. Government officials will justify doing so by claiming today’s asset and security prices are "artificially" depressed by forced selling and that its "mark to model," hold-to-maturity prices are more accurate. This process will make bank balance sheets look better and supposedly resume the flow of credit to the economy.

I’m going to go out on a not-so-thin limb here and make a prediction: This latest scheme to save the world will fail just like all the others. That is because nothing … NOTHING … can prevent a painful adjustment process. I wish that weren’t the case. But the time to prevent this painful correction and deleveraging process was a few years ago when the bubble was inflating. If regulators, policymakers, borrowers, and lenders hadn’t acted so stupidly then, we wouldn’t be in this mess now. But they did, we are, and no amount of Washington happy talk can change that fact.

As individual investors, we can’t stop Washington bureaucrats from doing dumb things. All we can do is roll with the punches, try to ride the rallies and the sell offs as best as possible, keep a large chunk of our money in safe haven investments such as Treasury-only money markets funds, and hunker down. Finally, have you seen the carnage in the Treasury bond market? The long bond futures have tanked roughly 14 points in a straight line since December. Ten-year yields have shot up by more than 60 basis points! In fact, January is shaping up to be the single worst month for Treasury bonds in almost five years.

This should come as absolutely no surprise to you. I warned in my December 5, Money and Markets column that the long-term Treasury market had all the characteristics of a bubble — and now it appears to be getting pricked. The reason is simple and straightforward: Our country is borrowing and spending money it doesn’t have like never before. We rely on the kindness of strangers to fund our profligacy, and those investors appear to be getting cold feet. Bonds are oversold now, so they could easily bounce in the near term. But my longer-term prescription remains the same: "Stay the heck away!"

An open letter to the Western banking establishment
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency system involved.”
-          Ludwig von Mises, Human Action (1949).
“In a world of debt and deflation, inflation is our friend.”
 -       Crispin Odey, Financial Times (28.1.2009)
“Not if you’re a saver.”
 -       Anon (29.1.2009)


Re. your unauthorised overdraft

Dear Western banking establishment,
I notice that your unauthorised credit facility from international lenders of last resort now totals approximately $10 trillion. As a taxpayer and therefore your largest shareholder I would be grateful if you could repay this facility at your earliest convenience. I have charged you an additional £30 for this letter and a monthly unauthorised overdraft fee of £28. If you do not repay this facility shortly I will have no choice but to become further massively impoverished along with legions of fellow taxpayers for multiple generations to come.
I would also be grateful if the strategists and economists who work for you could abstain from publishing their unsolicited opinions about resolving the banking crisis within the financial media. I am sure you will agree that hearing from the same strategists who worked for the architects of such widespread financial destruction is likely to irritate those of us who were not actually complicit in the extraordinary and venal credit boom of the last several decades. There is an expression that if you’re not part of the solution, you’re part of the problem. Those of your employees who were the public face of the problem are, I think you will agree, unlikely to represent the solution, unless perhaps they are fired – en masse, from a giant howitzer, into an area where they can do no further harm. Alaska, perhaps.

I would further suggest that the high profile commentators who work for you and who have implicitly played their part in marketing and then amplifying this catastrophe might consider quietly entering another field with superior ethics and enhanced value to society at large: perhaps as piano players in brothels. This note has been copied to the letters editors of The Financial Times and The Wall Street Journal (which I understand is shortly to be renamed simply The Journal on the basis that Wall Street no longer actually exists – as was noted this week by Messrs Wen Jiabao and Vladimir Putin at Davos. Don’t worry about not being there – you weren’t missed).
Since the start of the year is always a time for slimming and working off the excesses of the festive period, I wonder whether your industry would consider operating along similar lines. Just as there is no real need to have 18 different coffee bars all touting their wares along my High Street, there is probably no real need to have 18 different banks, not all of which are subsidiaries of Santander, clogging the High Street and busily not wanting to extend me back any of my own money so generously lent to them.
I would also be interested in your views as to the wisdom and efficacy of the monstrous pile of credit being shovelled at you and your peers by governments when it was overmuch credit creation that precipitated this crisis. I do not, of course, expect anything other than a self-interested response. But you may find the following observations pertinent. If they seem acutely relevant today it is because they were written in the early 1930s, by one Garet Garrett (and a grateful hat tip to M. Gandon):
“The general shape of this universal delusion [that is, credit] may be indicated by three of its familiar features..
First, the idea that the panacea for debt is credit.. The burden of Europe’s private debt to this country now is greater than the burden of her war debt; and the war debt, with arrears of interest, is greater than it was the day the peace was signed.. Debt was the economic terror of the world when the war ended. How to pay it was the colossal problem. Yet you will hardly find a nation, state, city, town or region that has not multiplied its debt since the war. The aggregate of this increase is prodigious, and a very high proportion of it represents recourse to credit to avoid payment of debt.
“Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life. If they cannot immediately afford them.. nevertheless people are entitled to them, and credit must provide them.. Result: Probably one half of all government, national and civic, in the area of western civilization is either bankrupt or in acute distress from having over-borrowed according to this doctrine.. Now as credit fails and the standards of living tend to fall from the planes on which credit for a while sustained them, there is political dismay.. When [people] have been living on credit beyond their means the debt overtakes them. If they tax themselves to pay it, that means going back a little. If they repudiate their debt, that is the end of their credit. In this dilemma the ideal solution, so recommended even to the creditor, is more credit, more debt.
“Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase and exchange of wealth, and credit was its product.”

 It will probably not have escaped your attention that the National Housing Federation this week urged the UK government and its wholly owned banking subsidiary, Northern Rock, to extend mortgages to people on lower incomes. “Given that Northern Rock has been nationalised it should now be made by ministers to take on a social purpose and ensure that those people on low-to-moderate incomes who can afford to buy a low cost home, and have a good credit rating, are given access to mortgages,” said NHF chief executive David Orr. Be careful what you wish for. The Nationwide building society, on the same day, reported UK house prices falling at an annualised 17%. Perhaps Mr. Orr wishes a whole new sub-class of low-to-moderate wage owners to be lured into a collapsing housing market. Nice one. Said wage owners should perhaps be grateful that the banking system is currently so dysfunctional (a.k.a. “finally prudent”) – it may end up saving them a fortune in lost housing equity.
Perhaps you, like I, find it richly ironic that members of the public still use your investment subsidiaries as a means to protect and grow their private wealth. I think you should promote the activities of these subsidiaries more widely. My idea for an advertising slogan: “When it comes to moral hazard, we’re Number One. We helped trigger the biggest financial and economic collapse in history through our imprudent lending and investment. Between 18 million and 30 million jobs throughout the world are almost certain to be lost. And more than 50 million jobs throughout the world are now in jeopardy. As a result of our investment expertise, we’ve lost billions, and those of us that still exist and aren’t owned by the taxpayer are technically insolvent. Now, how can we help you with your finances ?”
In any event, this letter is also to let you know that now that you and your members, in collusion with your governmental paymasters, are offering negative real returns to cash depositors, I am withdrawing what remains of my funds since I can find altogether better opportunities for the preservation and growth of my capital within high quality pockets of the equity and corporate bond markets, and I can get sufficient “insurance” for my increasingly worthless fiat currency in the form of gold. I appreciate that the withdrawal of my funds may send you spiralling into nationalisation. Sorry about that. And since you appear not to know the meaning of the word:
“Sorry. (“sQrI), a. Pained at heart; distressed, sad; full of grief or sorrow. In later use freq. in weakened sense, and often employed in the phrase “I’m sorry” to express mere sympathy or apology. But not by members of the banking profession.”
Yours sincerely,
A. Customer.

How to Fix the Banking Mess

Hedge fund legend Julian Robertson, chairman of Tiger Management, and David Roche, of Independent Strategy, discuss the best ways to fix the banking mess.

Violent clashes in Russia as angry protesters call for Putin to resign over economy
Russia was rocked today by some of its strongest protests yet as thousands rallied across the vast country to attack the Kremlin's response to the global economic crisis. The marches, complete with Soviet-style red flags and banners, pose a challenge to a government which has faced little threat from the fragmented opposition and politically apathetic population during the boom years fuelled by oil. Pro-government thugs beat up some of the protesters.

About 2,500 people marched across the far eastern port of Vladivostok to denounce the Cabinet's decision to increase car import tariffs, shouting slogans urging Prime Minister Vladimir Putin to resign. Many there make their living by importing cars. Meanwhile in Moscow arrests were made as about 1,000 diehard Communists rallied in a central square hemmed in by heavy police cordons. Communist Party chief Gennady Zyuganov told them the Kremlin must throw out Western capitalism and impose sweeping nationalisation. Eduard Limonov, leader of the banned National Bolshevik Party - and one of the Kremlin's most radical critics - was arrested at another Moscow square.

Police dispersed demonstrators from the United Civil Front, comprising several radical opposition groups, who launched an illegal rally on a street near the Kremlin. Protesters gathered near an Metro station but then sidestepped police by taking a train across the city to another location. Some of the protesters were later arrested. Others were brutally beaten up by activists from pro-Kremlin youth groups. Several dozen demonstrators marched on a central Moscow street, shouting slogans such as 'Down with the government!' and 'Russia without Putin!'

'We are demanding civil freedoms and pushing for the government's resignation,' said one of the protesters, Valery Nadezhdin. Several van-loads of riot police only arrived at the site after protesters dispersed. The protests come after years in which the Kremlin has sidelined political opponents and established tight controls over civil society and the media, rolling back many post-Soviet freedoms. Today a small group of activists from an opposition youth group, We, stood near the Russian government's monolithic headquarters with blank posters and their lips sealed with tape. All were arrested.

The authorities countered with a rally of the main pro-Kremlin United Russia party next to the Kremlin - an area off-limits to all other demonstrations - where soldiers served hot tea and biscuits to some 9,000 participants. United Russia also staged similar rallies in several other cities across Russia. In St. Petersburg, where opposition groups were banned from holding rallies, they put individual protesters on the streets. One, Denis Vasilyev of the United Civil Front, stood on a street with a placard saying: 'Put the Government Under People's Control!' Police took down his details.

Governments across Europe tremble as angry people take to the streets
France paralysed by a wave of strike action, the boulevards of Paris resembling a debris-strewn battlefield. The Hungarian currency sinks to its lowest level ever against the euro, as the unemployment figure rises. Greek farmers block the road into Bulgaria in protest at low prices for their produce. New figures from the biggest bank in the Baltic show that the three post-Soviet states there face the biggest recessions in Europe.

It's a snapshot of a single day – yesterday – in a Europe sinking into the bleakest of times. But while the outlook may be dark in the big wealthy democracies of western Europe, it is in the young, poor, vulnerable states of central and eastern Europe that the trauma of crash, slump and meltdown looks graver. Exactly 20 years ago, in serial revolutionary rejoicing, they ditched communism to put their faith in a capitalism now in crisis and by which they feel betrayed. The result has been the biggest protests across the former communist bloc since the days of people power. Europe's time of troubles is gathering depth and scale. Governments are trembling. Revolt is in the air.

Alexandros Grigoropoulos, a 15-year-old middle-class boy going to a party in a rough neighbourhood on a December Saturday, was the first fatality of Europe's season of strife. Shot dead by a policeman, the boy's killing lit a bonfire of unrest in the city unmatched since the 1970s. There are many wellsprings of the serial protests rolling across Europe. In Athens, it was students and young people who suddenly mobilised to turn parts of the city into no-go areas. They were sick of the lack of jobs and prospects, the failings of the education system and seized with pessimism over their future. This week it was the farmers' turn, rolling their tractors out to block the motorways, main road and border crossings across the Balkans to try to obtain better procurement prices for their produce.

The old Baltic trading city had seen nothing like it since the happy days of kicking out the Russians and overthrowing communism two decades ago. More than 10,000 people converged on the 13th-century cathedral to show the Latvian government what they thought of its efforts at containing the economic crisis. The peaceful protest morphed into a late-night rampage as a minority headed for the parliament, battled with riot police and trashed parts of the old city. The following day there were similar scenes in Vilnius, the Lithuanian capital next door. After Iceland, Latvia looks like the most vulnerable country to be hammered by the financial and economic crisis. The EU and IMF have already mounted a €7.5bn (£6.6bn) rescue plan but the outlook is the worst in Europe. The biggest bank in the Baltic, Swedbank of Sweden, yesterday predicted a slump this year in Latvia of a whopping 10%, more than double the previous projections. It added that the economy of Estonia would shrink by 7% and of Lithuania by 4.5%. The Latvian central bank's governor went on national television this week to pronounce the economy "clinically dead. We have only three or four minutes to resuscitate it".

Burned-out cars, masked youths, smashed shop windows, and more than a million striking workers. The scenes from France are familiar, but not so familiar to President Nicolas Sarkozy, confronting the first big wave of industrial unrest of his time in the Elysée Palace. Sarkozy has spent most of his time in office trying to fix the world's problems, with less attention devoted to the home front. From Gaza to Georgia, Russia to Washington, Sarkozy has been a man in a hurry to mediate in trouble spots and grab the credit for peacemaking. France, meanwhile, is moving into recession and unemployment is going up. The latest jobless figures were to have been released yesterday, but were held back, apparently for fear of inflaming the protests.

A balance of payments crisis last autumn, heavy indebtedness and a disastrous budget made Hungary the first European candidate for an international rescue. The $26bn (£18bn) IMF-led bail-out shows scant sign of working. Industrial output is at its lowest for 16 years, the national currency - the forint - sank to a record low against the euro yesterday and the government also announced another round of spending cuts yesterday. So far the streets have been relatively quiet. The Hungarian misery highlights a key difference between eastern and western Europe. While the UK, Germany, France and others plough hundreds of billions into public spending, tax cuts, bank bailouts and guarantees to industry, the east Europeans (plus Iceland and Ireland) are broke, ordering budget cuts, tax rises, and pleading for international help to shore up their economies. The austerity and the soaring costs of repaying bank loans and mortgages taken out in hard foreign currencies (euro, yen and dollar) are fuelling the misery.

The east European upheavals of 1989 hit Ukraine late, maturing into the Orange Revolution on the streets of Kiev only five years ago. The fresh start promised by President Viktor Yushchenko has, though, dissolved into messy, corrupt, and brutal political infighting, with the economy, growing strongly a few years ago, going into freefall. Three weeks of gas wars with Russia this month ended in defeat and will cost Ukraine dearly. The national currency, at less than half the value of six months ago, is akin to the fate of Iceland's wrecked krona. Ukrainians have been buying dollars by the billion. In November the IMF waded in with the first payments in a $16bn rescue package. The vicious power struggles between Yushchenko and the prime minister, Yuliya Tymoshenko, are consuming the ruling elite's energy, paralysing government and leaving the economy dysfunctional. Russia is doing its best to keep things that way.

Proud of its status as one of the world's most developed, most productive and most equal societies, Iceland is in the throes of what is, by its staid standards, a revolution. Riot police in Reykjavik, the coolest of capitals. Building bonfires in front of the world's oldest parliament. The yoghurt flying at the free market men who have run the country for decades and brought it to its knees. An openly gay prime minister takes over today as head of a caretaker government. The neocon right has been ditched. The hard left Greens are, at least for the moment, the most popular party in the small Arctic state with a population the size of Bradford. The IMF's bailout teams have moved in with $11bn. The national currency, the krona, appears to be finished. Iceland is a test case of how one of the most successful societies on the globe suddenly failed.

French Finance Minister warns crisis could provoke social unrest
Christine Lagarde, the French Finance Minister, today warned that the global economic crisis could provoke “social unrest” and echoed Gordon Brown’s caution against countries opting for protectionism to fight the downturn. Ms Largarde was speaking at the World Economic Forum in Davos as a series of a wildcat strikes at energy plants continued across the UK, following a walkout at an oil refinery in Lincolnshire over claims that British tradesmen were being barred from construction jobs by contractors using cheaper foreign workers.

This week in France, around one million workers staged a one-day strike against President Sarkozy and his handling of the economic slump. Ms Lagarde said: “Social unrest and protectionism are the two major risks of the world economic crisis.” She added that the risks were increased by “having to engage taxpayers’ money and by hampered growth." Yesterday, the British Prime Minister told delegates at Davos that countries must not opt for protectionism to stem the economic crisis. He said: “This is a time not just for individual, national measures to deal with the global financial crisis. This is the time ... for the world to come together as one.”

Mr Brown said: “In these unprecedented times, I’ve come here to Davos to say that politicians and business leaders, all of us, have an urgent responsibility to rise to the challenges of leadership. “This financial mercantilism - which is foreign banks retreating to their home base - will, if we do nothing, lead to a new form of protectionism. Indeed, a deglobalisation which would lead to a reduction in trade and cross-border business activity, which would be followed by the old trade protectionism of the past." Ms Largarde said that world leaders must take decisive action before a summit of the Group of 20 nations in London in April. “We need to give an extremely strong signal as early as April 2 at the G20 meeting in London to restore confidence in the system.” Mr Brown said yesterday: “The primary focus of the G20 summit will be on the economic recovery. It will be on jobs and growth.”

Protesters rally against World Economic Forum
Hundreds of people rallied in Geneva and Davos Saturday to protest against the World Economic Forum, saying the elite gathered for it annual meeting are not qualified to fix the world's problems. Carrying banners reading 'You are the Crisis' and throwing snowballs, several hundred protesters marched to fences surrounding the heavily guarded Hotel Seehof in the Davos ski resort, where many world leaders and business people stay during the forum. Protester Alex Heideger, a member of the Davos Green Party, said these were the people to blame for the economic mess.

"It's the same people who came last year and said the world economic situation is fine, and now we're in a financial crisis. Now it's the taxpayer who has to solve the whole problem. "It's people like you and me who have to pay for it with their tax money," he said. In Geneva, where the WEF has its headquarters, police in riot gear fired tear gas and water canon to disperse a crowd that had gathered in a square near the train station, sending people running in all directions. Witnesses said there did not appear to be any violence by the protesters. The rally in the city's normally staid streets was not formally permitted by local authorities. Florence Proton of ATTAC Suisse, one of the Geneva organizers, said it was important for outside voices to be heard in debates about how to resolve the crisis.

"The people meeting in Davos are the ones responsible for this economic crises that is becoming, and is now, global," she told Reuters, speaking in French. The last notable demonstration in Geneva took place in 2003 during a Group of Eight (G8) summit in nearby Evian, France. Shop windows were smashed and stores looted in that riotous protest in which police used rubber bullets, tear gas and water cannons to disperse the crowd. Geneva is best known as a world center for watchmaking and wealth management. The lakeside city is also home to the United Nations' European headquarters, the World Trade Organization, the Red Cross, and the offices of the World Economic Forum.

Dawn of new age of industrial unrest as wildcat strikes spread across UK
Strikes at 19 sites over ‘British jobs for British workers’
Gordon Brown’s pledge to create “British jobs for British workers” came back to haunt him yesterday when a dispute over foreign labourers sparked a wave of industrial unrest. Wildcat strikes flared at more than 19 sites across the country in response to claims that British tradesmen were being barred from construction jobs by contractors using cheaper foreign workers. Mr Brown, in Davos for the World Economic Forum, was caught by surprise when a ten-day-old strike at an oil refinery in Lincolnshire sparked copy-cat action at other energy plants. Unions claim that British workers are being barred from jobs because of a European Union directive which allows companies to bring in foreign labour for less than they would have to pay to Britons.

The Prime Minister was forced to order an investigation into the claims by the Arbitration and Conciliation Service in order to contain the spreading unrest. But Labour MPs last night emphasised that the wildcat strikes were a warning of mass industrial unrest ahead as the grip of recession tightens on the economy. Jon Cruddas, the Labour MP for Dagenham, urged ministers to act urgently to take the race issue out of the jobs market. Thousands of engineering, construction and maintenance staff from at least 19 sites around the country took action in support of the Lindsey oil refinery employees. Many held placards quoting Mr Brown’s soundbite. Oil refineries, power stations and chemical plants were affected as thousands of staff downed tools.

About 1,000 protested outside the Lindsey refinery at North Killingholme, Lincolnshire, where about 100 Italian and Portugese workers have been brought in by contractors in preference, unions claim, to British employees. The dispute prompted sympathy strikes at Grangemouth oil refinery in Scotland, the Aberthaw power station near Barry, in South Wales, a refinery in Wilton, Teesside, Kilroot power station in Carrickfergus, Co Antrim, a gas terminal at Milford Haven, West Wales, the Fiddlers Ferry power station near Warrington and a number of other smaller sites.

The rapid spread of the dispute through key energy facilities revived memories of the fuel protests in September 2000, when unofficial blockades of refineries threatened to bring the county to a standstill. The disruption looks set to continue into next week. A spokesman for British Nuclear Fuels said that 900 contractors at the Sellafield nuclear plant in Cumbria plan to meet before work on Monday to discuss taking their own industrial action.

Banker + gangster = bankster
Americans are pretty good at adding words to the English language. We owe them pin-up girls, highbrows, killjoys, stooges, hobos, drop-outs, shills, bobby-soxers, hijackers, do-gooders and hitchhikers who thumb a ride. The Americanisms are so much more concise and vivid. Instead of saying "sorry we're late but drivers ahead of us slowed us down when they craned their necks to look at a crash" you can say "we were held up by rubberneckers".

Words pop in and out of our language as social conditions change. The American gangster, which is still with us, has been around as a noun and a reality since 1896 according to my Shorter Oxford, but it seems to have dropped another Americanism from the 1930s and I think now is the time to revive it. The word is bankster, derived by a marriage of banker and gangster. It was coined, as far as I can deduce, by an American immigrant, a fiery Sicilian-born lawyer by the name of Ferdinand Pecora. He was the chief counsel to the US Senate Committee on Banking set up in the early 30s to probe the origins of the Crash of 1929.

He exposed quite a lot of the Wall Street practices that Harvard's Professor William Z Ripley had condemned in 1928. The believable Ripley called them - get ready for these Americanisms - "prestidigitation, double-shuffling, honey-fugling, hornswoggling and skullduggery". The professor had vainly tried to warn President Calvin Coolidge that Wall Street was full of gas and was bound to blow up. To great discomfort all round, Pecora identified Coolidge himself, by then out of office, as one of those who'd been in on the honey-fugling.

The great banking house of JP Morgan had the president on a "preferred list" by which the bank's influential friends were given a chance to buy stock at half price. Shall we say, they made out like bandits? Today the term bankster perfectly fits Bernard Madoff, whose crooked Ponzi scheme lost $50 billion of what the trade calls OPM - other people's money - invested with him. But the revelations come thick and fast. People are now struggling for words to describe the latest example of Wall St's money madness. The fabled investment bank Merrill Lynch, run by one John Thain, had so many big zeroes on its balance sheet it would have been liquidated in December but for a merger with the Bank of America.

That was actually a shotgun marriage - in the US vernacular - since the Bank of America was forced to take billions of government money when it learned later that Merrill Lynch was down another $15bn. Then what? In the few days in December while he was still in charge, Mr Thain reportedly spent nearly $4bn on staff bonuses. That's peanuts on Wall St. In 2007 Mr Thain himself received $83m. But a week ago, CNBC's Charles Gasparino, in a detailed scoop on the Daily Beast website revealed that during the time Mr Thain was busy cost-cutting, he spent $1.1m doing up his office - $86,000 for a rug, $35,000 for something called a commode on legs.

Readers bayed for blood, posting comments such as: "Oh how I wish this was Revolutionary France and we peasants could storm the offices…" The anger about the greed that got us into our mess is, in my view, wholly justified. And now we hear that 10 of the big banks that got $148bn from Uncle Sam so they could make loans to get things humming again have actually reduced their loan totals by $46bn. Mr Thain now is history, having resigned, but the great Bank of America, the biggest in the US and maybe the world is now on the list of banks that may have to be nationalised - a word no red-blooded American ever thought would be uttered in the land of enterprise.

The piquancy of all this is that if the term banker is ever to be restored to its former prestige, the public and Wall St might reflect on one highly relevant example of a banker who was not a bankster. It is the story of Amadeo Peter Giannini, a big man on the side of the little man. When the transcontinental railway started services to California after the line's completion in May 1869, he was among the very first passengers. He was in the womb of his newlywed mother, 15-year-old Virginia. His father, having made money in the goldfields, had gone back to Italy for her. It is nice to think that as the young immigrants crossed the Rockies, their adventurous spirits somehow crossed the placental barrier.

Amadeo was born on 6 May, 1870. He grew up on a little farm, whose produce his mother and father sold in booming San Francisco. In 1877 when he was six, he saw his father gunned down. His mother moved to the city to buy wholesale from farmers and sell to shops. Amadeo - or AP as he became known - grew into a tall, strong man, more than able to hold his own in the rough auctions for fruit and veg on the wharfs where traders met the farmers' boats. He helped to build a thriving business. When he was 31 he sold his share, saying he had no interest in accumulating wealth. "No man owns a fortune," he said. "It owns him." It was the motto of his life.

He'd married and on the death of his father in law, was persuaded to take his vacant place on the board of a little bank in North Beach. He was appalled that they'd not lend money to poor immigrants. The rows in the board room reverberated over North Beach until AP walked out and started a little bank of his own to do that, the Bank of Italy. From his work on the wharves, he'd become a shrewd judge of character, so he'd cheerfully lend money to pay doctor's bills for delivery of a baby if he judged the couple had integrity.

On Wednesday 18 April, 1906, San Francisco was devastated by earthquake and fire. AP rushed to get all his gold and paper money out of danger, hid it under orange crates to conceal it from looters, and stood guard all night in his home. It must have been a debilitating moment the next day to find his baby bank a mass of charred rubble. The bigger banks, who had vaults too hot to open, had no records and were not lending. AP instead went down to a wharf close to the smouldering North Beach, flung a plank across two barrels, and with his baritone booming across the desolation, started lending some of his $80,000 to rebuild San Francisco.

He looked for steamship captains he knew, shoved money into their hands, saying "go north and get lumber". AP radiated so much confidence, making a big show of jiggling his little bag of gold, hundreds who'd been hoarding cash and gold banked it with him. North Beach was built faster than any other area. By 1918 he'd established California's first state-wide banking system. A little local bank in the valley that would have closed in a run after a bad harvest could now keep open by borrowing from the city branch.

He set out to build a nationwide banking system so that distressed areas could be helped by ones that were prospering. Wall St hated him. He beat off their attempts to destroy him. In the Great Depression, he took every opportunity in the New Deal legislation to get California revived in time for the war and the boom that followed. He did it by putting the community first, himself last. He set up low interest instalment credit plans which enabled thousands to avoid the loan sharks and buy cookers and refrigerators and autos, and he built a whole new electrical industry with his loans.

He financed the Golden Gate bridge, and the Disney movie Snow White and the Seven Dwarfs. No man could do so much good without being maligned. It was said he wore the mask of populism to create a dangerous instrument of personal power and personal wealth. The truth is that the man whose life was money had no interest in money. He refused to take increases in pay and spurned every bonus. He banned insider trading. Shortly after retiring in 1945, when he found himself in danger of becoming a millionaire, he set up a foundation and gave it half his personal fortune. And the little bank for the ordinary man that he founded? The Bank of America.

It may look just like the Seventies, but this is a whole new European world of work
It looks a little like the 1970s as acrimonious, wildcat sympathy strikes spread across the country. But yesterday’s clashes at oil refineries and power stations are definitely a product of the here and now. Here is the single European market and globalisation hitting the world of work in a powerful way. Work is needed in one country and a company from another is able to win the contract and supply foreign labour for the task. In the earlier stages of Europeanisation and globalisation capital was global and labour local; now they are increasingly both global.

And right now unions feel that multinationals are flexing their muscles and making full use of extra flexibility afforded them by two relatively recent European Court rulings. These — the Viking and Laval rulings — effectively allowed companies to undermine existing collective agreements in countries where they undertake work. Both cases said that trade union action against overseas companies that had refused to apply pay and conditions of a host country had infringed the freedom of the company to operate freely under European Union law.

The rulings came in late 2007, not long after Gordon Brown’s somewhat quixotic pledge to deliver British jobs for British workers. Now we are seeing a spate of large construction projects in Britain that are using some element of drafted-in labour — as opposed to hiring migrants who are already here. Companies bringing in foreign labour argue that it is a question of skills and say they are importing specialities. British workers employed alongside them on the construction projects argue that while welding and other such tasks are skilled, those skills are not the preserve of foreign workers. An electricity linesman’s job was apparently advertised in Northern Ireland recently, stating that knowledge of Portuguese was essential.

If the unions are correct and the companies are using their flexibility simply because they are able to, rather than because of an acute shortage of construction skills in Britain, then they are choosing a pretty bad time to do it. With tens of thousands of jobs being lost every day, tensions are running high. And with large infrastructure projects offering one of the few pockets of growth in the economy, workers are desperate to hold on to employment opportunities. British construction workers are often reasonably mobile, often working away on site in the week and returning home at weekends. Part of this is inevitable if the work is with large, one-off projects but the practice has intensified over recent years as the world of work has become more fragmented.

As we are reminded of the Seventies with images of bitter protests, we may also be reminded that back then employment was a far more monolithic affair. Outsourcing and subcontracting were rarely practised and much work was done locally. Local employment and the encouragement of it is now becoming a priority issue for many councils as they reel from huge job losses. They are increasingly warming to the idea that giving work to small local businesses is one of the best ways to keep money in the local economy. On the broader national stage the anger at the use of foreign labour in preference to British workers is understandable. But it is also dangerous; already we are seeing anti-immigration sentiments emerging.

Mr Brown and the European politicians will come under increasing pressure to reduce the wave of unrest that could pander to racism. Europe will also be aware of the divisions and wave of anti-European feeling that its actions may be creating. In terms of the popularity and success of the European authorities this is way more damaging than ten years of banning the straight banana.

US "Bad bank" may be put on hold
Policy-makers have yet to reach a consensus on how a U.S. government-run bad bank would work and the idea may not move forward, CNBC television reported on Friday, citing unnamed sources. "The government-run bad bank idea that was being floated ... apparently has hit a snag, it might not happen," a CNBC anchor said recapping an earlier report. "Charlie (Gasparino) says the government has no consensus right now on how the bad bank would work, the issue is pricing."

"Making that thing work right now from what I understand is proving to be very difficult," CNBC's Gasparino said in his report. Gasparino said the Treasury Department has been talking with the chief executives at the biggest Wall Street banks on how to proceed and may shelve the idea of an aggregator bank and instead provide across-the-board guarantees for the troubled assets clogging up banks' balance sheets.

"The aggregator bank is been put on hold indefinitely," he said. "They may do a hybrid: aggregator bank-guarantees. This thing right now has hit a major snag." Another issue plaguing the proceeding on how to purchase the assets from the banks is the lack of senior staffing under Treasury Secretary Timothy Geithner Geithner was meeting on Friday with Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp Chairman Sheila Bair and Comptroller of the Currency John Dugan, with the Treasury saying it was "to discuss financial and regulatory reform."

A big bang plan to clean up US banking system
The big bang announcement by US Treasury planned for next week is likely to have three key economic elements: moves to clean up the banking system, moves to restore the flow of credit in securitised financial markets, and moves to reduce home foreclosures. The exact shape of the banking sector clean-up plan has still not been finalised. But it is likely to involve elements of both a “bad-bank” solution and insurance-style guarantees on pools of problem assets that remain on bank balance sheets.

Assuming this approach is approved, the bad bank would be capitalised with equity from the Treasury’s troubled asset relief programme (Tarp) and take on debt, possibly guaranteed by the Federal Deposit Insurance Corporation (FDIC), with some Washington insiders estimating it would have about $1,000bn purchasing power. It would acquire securities that had already been heavily marked down by financial institutions, probably using a valuation model rather than an auction-based process to determine pricing. The US authorities may also provide insurance-style guarantees on pools of problem assets that remain on bank balance sheets.

This approach is seen by some as better suited to assets that have not yet been heavily written down and for loan portfolios that are in the early stages of deterioration. The bank clean-up is likely to be paired with a revamped recapitalisation scheme, involving a thorough overhaul of Tarp. Additional restrictions on executive pay and excessive dividends are likely, in an effort to avoid leakage of public capital to employees and shareholders, as well as to shore up public support for the unpopular process. Treasury is also likely to announce a separate battery of moves designed to revitalise the securitised markets for credit. This could involve a scaling up of an existing Treasury-Federal Reserve joint venture called the term asset-backed securities loan facility, which provides low cost loans for investors willing to buy new securitised consumer loans.

This approach may also be used to try to restore the flow of credit for commercial mortgage-backed securities, jumbo mortgage-backed securities and municipal bonds. It is possible that the Treasury could offer some credit guarantees in a further effort to boost credit flows, though some policymakers are hesitant. The foreclosure relief element of the package is likely to commit tens of billions of dollars to support schemes that aim to lower monthly mortgage payments to no more than 38 per cent of income, though it will probably also include backing for loan principal reductions in cases where the mortgage is worth a lot more than the value of a home.

The 38 per cent limit has emerged as a rough consensus among policymakers, as the standard used by the FDIC, Fannie Mae and Freddie Mac, the Hope Now alliance of mortgage servicers and recently the Federal Reserve. The Fed recently announced plans to support loan modifications to reduce monthly payments to no more than 38 per cent of income and to support principal writedowns for loans worth 125 per cent of the value of a home or more, for mortgages owned or part-owned by some of its special purpose vehicles. While this is a Fed-only programme, it provides some indication of where Treasury’s thinking may come out.

Obama economic officials see the backing for banks and credit markets on the one hand, and housing on the other, as part of a three-legged stool – the other being the fiscal stimulus plan before Congress. Many economists support this approach, but some fear that it will result in the government spreading its efforts too thinly, particularly if insufficient money is ultimately available to fund bank recapitalisation.

Meredith Whitney to banks: Deal with it
Banks are looking for a second chance to dump some toxic waste from their balance sheets on the hope that the Obama administration will set up a "bad bank" to buy massive amounts of their troubled assets. The end goal is to get banks lending again, but Oppenheimer bank analyst Meredith Whitney doesn't think that separating the bad from the ugly will get money flowing. Instead, she says banks should bite the bullet and start selling their good assets. In an interview with Fortune Friday, Whitney argued that a "bad bank" does not attack the fundamental problems eating away at these firms.

"The bad bank is a covert way to recapitalize banks by paying more for the assets than the market would, she said. "Then the banks might be able to write up the value of the securities. This would give them, on paper, more tangible equity. In theory they would look stronger." But Whitney believes the banks will remain weak, even if their books look healthier, because they have to deal with a lot more than just bad assets: As consumer and business spending slows, banks will still incur losses on their "good" loans; they would be forced to set aside more cash, which would cut into earnings; and there's also the simple fact that a recession means less demand for their business.

Banks created and held onto billions of dollars in esoteric credit products that were made up of everything from subprime residential mortgages to credit card payments. These securities have sunk in value as default rates on the underlying assets rise. As the credit crunch gathered steam, banks hoarded cash, including the money they received from the Treasury's $700 billion Troubled Asset Relief Program. This program was originally conceived to buy their toxic assets, but was used instead to inject money directly into the banks. The original TARP plan was rejected in part because of worries about asset pricing. If Uncle Sam paid too little, the banks would crater anyway - pay too much and taxpayers would eat the losses. The "bad bank" proposal faces the same essential pricing problem.

Whitney says it would be better to force big institutions like Citibank and Bank of America to sell the marquee pieces of the business that they can, fill the hole, and shrink. "That's what people like you and me, what taxpayers have to do when we are in financial distress. We have to sell whatever it is we can, which is almost always our best assets, and deal with it. We can't just sell what we want to, which would of course be our bad stuff." It's a punitive measure that banks are trying to avoid, and they argue that there are no buyers out there for even the good, stable pieces of their businesses. But Whitney disagrees. "There is always a buyer at the right price, be it private equity or a rival business or another bank," she says. "If the government provides a facility through which people can get long-term funding, then buyers will come to the market for the 'crown jewels' assets of these banks."

Geithner meets with regulators on bank plans
Treasury Secretary Timothy Geithner was meeting on Friday with top U.S. banking regulators who would have authority over a fast-developing government plan to support the financial system. The Treasury said Geithner would meet with Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp Chairman Sheila Bair and Comptroller of the Currency John Dugan "to discuss financial and regulatory reform." The Obama administration is working on a comprehensive plan to stabilize the banking sector and revive lending to restore U.S. growth. It is expected to roll out a menu of options tailored to banks' individual needs, according to a source familiar with administration thinking.

These could include a "bad bank" to soak up distressed assets from bank balance sheets, government guarantees for certain asset portfolios and continued capital injections by the government in exchange for common shares. The Treasury's statement did not provide any more detail, nor timing, on Geithner's meeting with the top regulators. The Fed has been active in providing asset guarantees and creating lending facilities aimed at restoring liquidity to credit markets, while the FDIC chairman is said to have been pushing to run an entity that would take over bad debts from banks. The comptroller's office has been a key determiner of which banks receive government capital injections.

The Treasury also said Geithner has been making introductory telephone calls to foreign finance ministers and discussing the global economic situation, fiscal stimulus efforts and unlocking credit markets. These included conversations with his counterparts in Britain, France, Germany, Australia, Singapore, Russia and Japan. Geithner will meet them in person at the Group of Seven finance ministers and central bank governors' meeting in Rome on February 13-14, the Treasury said. In a discussion with UK Chancellor of the Exchequer Alistair Darling, the Treasury said: "They agreed that significant international action is necessary for global growth to regain its footing." The Treasury statement made no mention of currencies being among the topics Geithner discussed with foreign finance ministers.

Germany plans individual ‘bad banks’
The toxic assets of troubled German banks will be spun off into separate “bad banks” under a new government plan, the Financial Times has learnt. Instead of setting up a national “bad bank”, the German government wants banks to set up individual vehicles to hold their illiquid assets. These would be issued with state guarantees by the government’s existing bank rescue fund. Once rid of these assets, the banks could apply to the fund for fresh capital. Angela Merkel, German chancellor, has come under pressure to modify the government’s October rescue package for the sector, which has failed to shore up confidence in the banks.

With its latest plan, Berlin hopes to stop the spiral of asset writedowns eating into balance sheets and forcing banks to hoard capital. Coalition officials agreed on the outline of the plan on Friday at a closed-door meeting in ?parliament, participants told the FT. There had been only minor differences between the finance ministry and ?representatives of Ms Merkel’s Christian Democratic Union, they said. The finance ministry refused to comment. Berlin aims to finalise the scheme by the beginning of March, too late to have an impact on last year’s balance sheet but in time for the publication of most banks’ annual reports and general meetings. Officials said they did not know whether the sector would support the plan.

The government’s original €500bn bank rescue package included €400bn in credit guarantees for new bank debt as well as fresh capital for cash-strapped lenders. The package is distinct from the €50bn fiscal stimulus adopted by the government this month to support consumption and protect jobs. Under the proposal, the “bad banks” could use German accounting rules, allowing them to price assets at book value instead of “marking to market”. The international standard has forced banks to undertake continuous writedowns and raised their need for capital. The coalition is also considering extending the life of the guarantees issued by Soffin, the state body that runs the bank rescue fund, from three to five years. This would require approval by the European Commission.

The proposals of the finance ministry definitely go in the right direction,” Albert Rupprecht, chairman of the parliamentary committee that oversees Soffin, told the FT. Mr Rupprecht, a Merkel ally, said minor differences remained between the CDU and the ministry over the timing of the plan and the type of assistance Soffin could grant both “good” and “bad” banks.The plan would satisfy two conditions set by Peer Steinbrück, finance minister: that it should not involve any new financial commitments by the government; and that the banks, not the taxpayer, should ultimately continue to carry the risks associated with toxic assets.

Federal regulators shut 3 more banks; 6 this year
Federal regulators closed three banks on Friday -- one each in Utah, Florida and Maryland -- bringing to six the total number of failures this year. The Federal Deposit Insurance Corp. was appointed receiver of the banks: MagnetBank of Salt Lake City, Ocala National Bank of Ocala, Fla., and Suburban Federal Savings Bank in Crofton, Md. Twenty-five U.S. banks failed last year, far more than the previous five years combined. The trio of failures announced Friday matched the total for all of 2007.

It's expected that many more banks won't survive this year amid the pressures of tumbling home prices, rising mortgage foreclosures and tighter credit. Some may have to merge with other institutions. The FDIC said it was unable to find another bank to take over the deposits and operations of MagnetBank, which had assets of $292.9 million and deposits of $282.8 million as of Dec. 2. As a result, the agency said checks will be mailed on Monday morning to retail depositors for the amount of their insured funds. Regular deposit accounts are insured up to $250,000.

CenterState Bank of Florida is assuming the deposits of Ocala National Bank, which had assets of $223.5 million and deposits of $205.2 million as of Dec. 31. CenterState also agreed to buy about $23.5 million of the failed bank's assets; the FDIC will retain the rest for eventual sale. Ocala National's four locations will reopen Monday as branches of CenterState. Bank of Essex in Tappahannock, Va., is taking over the deposits of Suburban Federal and agreed to share losses with the FDIC.

The federal Office of Thrift Supervision found that Suburban Federal was "critically" undercapitalized and in unsound condition, which the regulators blamed on a failure by the bank's directors and managers to oversee an aggressive program of mortgage and development lending that started in 2005. Earlier this week, the thrift office gave Suburban Federal until Friday to find a buyer or be subject to a possible government takeover. Suburban Federal had assets of about $360 million and deposits of $302 million as of Sept. 30. Besides assuming the deposits, Bank of Essex also agreed to buy about $348 million of the assets; the FDIC is retaining the rest. The seven offices of Suburban Federal will reopen Saturday as branches of Bank of Essex.

The FDIC estimated that the resolution of the Suburban Federal case will cost the federal deposit insurance fund $126 million. It said the resolution of Ocala National will cost an estimated $99.6 million. Since October, the Treasury Department has been using most of the first half of the $700 billion federal bailout fund to buy stock in banks and other financial institutions, with the idea that cash injections will spur banks to get lending again. The government recently extended a new multibillion-dollar lifeline to the country's biggest bank by assets, Bank of America Corp., providing an additional $20 billion in support from the bailout fund on top of the $25 billion it previously received.

Officials have been considering several programs, including a government-run "bad bank" that would buy up troubled assets clogging banks' balance sheets, additional guarantees against losses like those granted to Bank of America Corp. and Citigroup Inc., and more capital injections. A Treasury spokesman on Friday said the administration would announce reforms to the bailout program "soon." Seattle-based thrift Washington Mutual Inc. failed in late September, the biggest bank collapse in U.S. history. It had $307 billion in assets.

The FDIC estimates that through 2013, there will be about $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank last July. The agency has raised insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $34.6 billion, below the minimum target level set by Congress and the lowest level since 2003. The FDIC has in place a program to guarantee as much as $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan.

Under the program, which is meant to thaw the freeze in bank-to-bank lending, the FDIC is providing temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank. Of the roughly 8,500 federally insured banks and thrifts, the FDIC had 171 on its confidential list of troubled institutions as of Sept. 30 -- a nearly 50 percent jump from the second quarter and the highest tally since late 1995.

Worst January Ever for Dow, S&P 500
Facing more evidence of a weak economy, stocks tumbled again yesterday and capped the worst January in history. The Dow Jones industrial average briefly traded below 8000, then closed down 1.8 percent, or 148.15 points, at 8000.86. The Standard & Poor's 500-stock index fell 2.3 percent, or 19.26 points, to 825.88, while the tech-heavy Nasdaq composite index lost 2.1 percent, or 31.42 points, to close at 1476.42. Despite rallying earlier this week after two days of sell-offs, all of the indexes were down slightly for the week. It also capped a rough month for the S&P and Dow, which both fell about 9 percent -- the largest January sell-off ever for both indexes. The Nasdaq fell about 6 percent in January.

During the past 30 years, Wall Street's performance in January has accurately predicted the direction of stocks for the remainder of the year 87 percent of the time, according to Dow Jones Indexes. The market has found a "rough bottom," said Collin Monsarrat, a trader at Connecticut-based Birinyi Associates. But "that doesn't mean go rush out and buy. There is still a lot of risk in the market." Investors had largely shrugged off massive layoff announcements and signs of increasing weakness in the housing market earlier this week, while cheering reports that government officials are contemplating a program to buy up the toxic assets of troubled banks.

But the bad news continued to build, including a government report yesterday that the gross domestic product shrank by 3.8 percent during the last three months of the year, the steepest contraction since 1982. Despite evidence that the economy's problems deepened during the latter part of the year, the results were better than expected, said Nigel Gault, chief U.S. economist for IHS Global Insight. "But scratch the surface just a little and the good news melts away. Spending across most major private sector categories plunged," he said.

Investors also digested a mixed batch of earnings reports yesterday. Procter & Gamble reported that its profit for the October-through-December quarter climbed 53 percent as it sold its Folgers coffee business. But the company lowered expectations for 2009 and its stock fell 6 percent, to $54.50 a share. Exxon Mobil's stock fell 52 cents, less than 1 percent, to $76.48 a share after it reported that plummeting fuel prices helped drag down profits 33 percent in the fourth quarter. The company still managed to report a profit of $45.2 billion for 2008 -- the largest in U.S. history. Rival Chevron earned $4.9 billion during the fourth quarter and $23.9 billion for the year. Its stock fell 10 cents, less than 1 percent, to $70.52 a share.

Why Be a Nation of Mortgage Slaves?
Preventing foreclosures has become a top priority of politicians, economists and regulators. In fact, allowing foreclosures to happen has merit as a free-market solution to the crisis. If the intent is to help homeowners, then foreclosure is undoubtedly the best solution. Household balance sheets have been destroyed by taking on too much debt via the purchase of inflated assets. With so little savings, a household with negative equity almost implies negative net worth. Walking away from the mortgage immediately repairs the balance sheet. Credit may be damaged, but homeowners can rebuild it. And by renting something they can afford, instead of the McMansion they cannot, homeowners are most likely to have some money left over each month that they can save toward a down payment on a house they can eventually afford.

If the intent is to help the credit markets, then foreclosure is undoubtedly the best solution. The securitization model has proven to be flawed. Slicing loans horizontally into tranches created asset classes that have conflicting interests in a dissolution strategy of the same underlying asset. The holder of a senior tranche would be agreeable to modification, since his position is secured; the holder of a junior tranche would essentially be wiped out. The lower tranches are worthless but are still legally an encumbrance, hindering any type of sale or work-out effort. Consider a property that sold for $500,000 at the peak, financed with a $400,000 first lien and an $80,000 second lien, which is now worth $300,000. The second lien is worthless, but the lien will remain as a cloud which complicates any modification effort by the senior lien holder. There is no incentive for the junior lien holder to voluntarily agree to a modification. Foreclosure would be the best and finite action. It wipes the slate clean.

What is the market telling us? Dataquick recently released December sales data for Southern California, once the hotbed of speculative excesses supported by nontraditional financing. Foreclosures now dominate sales. Prices are down. Sales volume is up. New home construction is down. These are beautiful textbook illustrations of supply and demand driving price and market equilibrium. Toxic financing abruptly stopped during the spring of 2007. By that summer, there were no more 100% financing, negative amortization option ARMs, piggyback seconds, or the now-infamous NINJA (no income no job no assets) loans. Even though real-estate prices have continued to decline, post summer 2007 purchases are by a different class of buyers financed by loans with much tighter underwriting guidelines. We are at a crossroads. The time line of the default and foreclosure cycle is about to hit 2007 vintage loans. If the default rate on them is lower than for loans made from 2004 to early 2007, it would be the confirmation of a turning point.

Foreclosures provide the foundation of recovery, both for Main Street and Wall Street. As properties are foreclosed, they can move from weak hands to strong hands. Households that have been foreclosed upon today are the buyers of tomorrow, when given a chance to recover. The replacement of credit flow is not all about money. It is about a new system of delivery that will provide clean guidelines, so there will be a reliable source for borrowers based on sound underwriting standards and a product that fixed-income investors have confidence in buying. With the government in total control of the Federal Housing Administration, Fannie Mae and Freddie Mac, this is the perfect opportunity to reform the secondary market.

Finally, loan modification is not only ineffective, it is evil. Coercing borrowers to continue paying a mortgage on a home that is hopelessly overvalued and not informing them of alternatives is predatory lending. The media should interview those who had been foreclosed upon. Do they feel sorry or relieved? Are they rebuilding their credit, not to mention their lives? Do they miss the pressure of having to make payments they cannot afford on a McMansion that belongs to the lender? The intent of modification programs to date is to create a generation of mortgage slaves. Fortunately, mortgage slaves can free themselves via foreclosure, and the masses are choosing to do so.

A super distraction from our woes
It's Super Bowl weekend, which, in my long-ago life as a sportswriter, was always my favorite weekend of the year. Not for the football, of course. Most Super Bowls have been dogs. And not for the spectacle, which you can see far better at home on the big-screen TV you bought when you still had credit. And definitely not for the chance to get up close and personal with Up With People, who, in the early days, were usually the halftime entertainment along with - speaking of dogs - pooches invariably dressed in wide collars catching Frisbees. No, I loved going to the Super Bowl for the chance to write about the True Meaning of the Game, which has always been, of course, about wretched excess, Harmony and Understanding notwithstanding.

I would write about this while copping my tickets for the annual Friday night Super Bowl party/bacchanalia, at which one might be met at the door by a gaggle of, yes, chanting monks. You read that right - monks. It happened. By the way, through the years, I kept waiting, vainly, for the Singing Nuns to appear, but maybe that's just me. This year, the Super Bowl comes to us as the news of recession grows ever worse. I try never to use GDP numbers in a column, but any time it tumbles 3.8 percent, I make an exception. At one Super Bowl party, the theme was art through the ages, in which they featured very bad replicas of very famous art. You haven't seen bad art until you've seen Munch's The Scream done in chocolate. But you don't need art these days to know how to scream. You just need to glance at your, uh, holdings. In my business, of course, the recession looks more like a depression. And I won't say it's bad at the Rocky right now, but some anonymous restaurant sent over box lunches for the staff Friday - charity lunches, although, as far as I know, most charity lunches don't feature portobello mushrooms, not that they weren't great.

During the Great Depression, there was big business in Hollywood musicals made to take people's minds off their problems. Now, we've got Springsteen as the Super Bowl halftime act to provide the same service - Springsteen, the voice of the American working stiff, and with a new album out to sell. He's also a far bigger star than anyone on the field in a game that no one actually cares about (Steelers-Cardinals?) and which everyone will watch anyway. I'm not sure how the Super Bowl became the nation's secular midwinter holiday - it had something to do with Joe Namath and pantyhose - but I know it's growing ever bigger, just like those TV screens. Ten years ago, at the Broncos' last Super Bowl, the acts in the Progressive Auto Insurance Super Bowl XXXIII Halftime Show were Big Bad Voodoo Daddy, Gloria Estefan and Stevie Wonder. Since, we've had the Rolling Stones, U2, Paul McCartney and now Springsteen. Where do they go from here? If only Elvis were still alive . . .

The other big star is, of course, Madison Avenue, as if our theme needed more work. And, of course, the more Super Bowl ads cost, the more excited we become. And now the cost this year is, I swear, $100,000 per second. In other words, in the time it takes to say 100,000 dollars per second, it costs a half a million bucks. I can't wait for the Denny's ad. This is where we've come to: Steve Hayden, who co-authored the famous "1984" Apple commercial 25 years ago, told USA Today, "This is the first Super Bowl of the Great Depression 2.0. (Advertising) on the Super Bowl this year is like driving around in a Duesenberg in 1929." Or maybe like getting part of the $18 billion bonus money that went to Wall Street executives in 2008 - a number that Barack Obama, while taking time from planning his first White House Super Bowl party, called "shameful."

Or maybe being like yet another Obama Cabinet appointee who somehow failed to pay all his taxes. The latest is Tom Daschle, who had to repay $140,000 for a car and driver he didn't claim. Wouldn't you love to be able to owe $140,000 in taxes? How about just affording a new car? Which brings us back, of course, to the big game - and one of my favorite stories, which might even be true. It goes back to Super Bowl XXXI (do your own math) when Mike Holmgren, then the Green Bay coach, got his players ready on the eve of the game by spreading 96,000 $1 bills on a table - one bill for each dollar a Super Bowl win would mean to each player. Green Bay won. And if that isn't the meaning of the Super Bowl, well, just pass the beer and the bacon explosion, and we'll figure it out next year.

Banker warns of risk of political interference
The bail-outs of Citigroup and Bank of America could distort the market if the US lenders succumb to political pressure when making lending decisions, a senior executive at JPMorgan Chase has warned. Jes Staley, head of JPMorgan’s asset management and private banking operations, said political interference in the management of those lenders that have turned to the US government for large-scale support was the “biggest risk” facing his bank. His comments, made at a seminar on the fringes of the World Economic Forum in Davos, highlight the growing concern among financiers and policymakers that recent government banking bail-outs on both sides of the Atlantic could distort the market while undermining global capital flows.

The US authorities have in recent months taken on much of the risk on hundreds of billions of dollars of loans held by Citigroup and BofA. The incoming administration of Barack Obama, the president, is exploring the possibility of expanding this insurance scheme to other lenders as part of a comprehensive rescue package. “If the big banks start to be geared for public policy as opposed to economics we may end up competing against institutions that are being run for non-economic purposes,” Mr Staley said . “That is the biggest risk we see out there.” US banks have been sharply criticised by politicians for their reluctance to lend out to companies and consumers the $350bn (€273bn, £242bn) in government aid they have received.

However, Citi and other banks have argued that in the economic conditions it is difficult to make loans to companies and individuals as most new lending would be loss-making and end up burdening their balance sheets with further writedowns. “Today it is cheaper to buy a loan in the secondary market than to make one,” Vikram Pandit, Citi’s chief executive, told Wall Street analysts this week. The warning was made as one of the leading private equity players said on Friday that private equity groups were looking for ways to bypass banks when raising capital. Henry Kravis, founder of Kohlberg Kravis Roberts, said those moves could accelerate in the coming year, given the scale of capital that needs to be raised and the difficulties that banks face in using their own balance sheets.

“We have set up a broker-dealer so we can go directly to people who provide capital, people like Fidelity, Templeton, insurance companies, pension funds and sovereign wealth funds,” he told a meeting in Davos. “We can get long-term debt. It will be smaller but the difference now is that we were relying on the banks as conduits. Now we go directly.” Mr Kravis said about $3,000bn of corporate debt would come due in the next five years, most of which was investment-grade debt. This would need to be replaced in some form, he suggested – creating a need for private equity groups to provide funds. The private equity sector as a whole already had some $400bn worth of equity raised, Mr Kravis suggested.

AIG in Talks for U.S. to Backstop Assets
American International Group Inc. is in discussions with the government about Washington backstopping some of its troubled assets and is considering selling units through initial public offerings. "We're looking at a broader array of recapitalization options," said Paula Reynolds, an AIG vice chairman who is overseeing the restructuring of AIG, which was rescued by the government in September with a bailout package that now totals $150 billion. "We both realize that the environment's changing and we have to adjust to that environment," Ms. Reynolds said in an interview, referring to the federal government. She joined the company after the bailout to help the giant insurer break itself up to repay a massive federal loan.

Backstopping of assets would be similar to government guarantees on troubled assets owned by Citigroup Inc. and Bank of America Corp. Were the federal government to extend to AIG the approach used with those banks, that could lessen some of the pressure on AIG from distressed assets still on its books. It could also mean the government wouldn't need to lay out as much money upfront. In AIG's case so far, the government has bought assets rather than backstopped them. The discussions reflect a potentially major shift in how AIG and the government, which got an 80% stake in the firm from the bailout, approach the situation facing the company, which is trying to repay a government loan of as much as $60 billion that is part of the bailout. As of Wednesday, it had borrowed $38.3 billion. A spokesman for the Federal Reserve, which made the loan, declined to comment.

The discussions also reflect the reality that the financial crisis has made AIG's initial strategy for repaying the loan -- selling off assets -- increasingly difficult. Finding buyers willing to pony up tens of billions of dollars -- or able to borrow such sums -- has been an uphill battle. So far, AIG has announced sales of only a few smaller businesses that, at least based on deals where a sale price was announced, will earn it a little over $1 billion. That is about what AIG is paying employees in retention payments to keep them from leaving for rivals, which could further erode the value of its units. Ms. Reynolds in the interview also suggested that AIG could adjust its roster of units for sale. "We might sell some things that aren't for sale, and we might not sell some things that are for sale."

Separately, the Government Accountability Office said in a report that it has begun a study to "assess any impact of the assistance to AIG on insurance markets and to determine, to the extent possible, whether the rescue package has achieved its desired goals." A spokeswoman for AIG said the company will cooperate with the GAO study. The GAO study comes after a request from two members of Congress who wrote "there have been troubling reports that market distortions may be occurring in the commercial property casualty market" due to federal aid.

Daschle failed to pay $128,000 in taxes
Former Sen. Tom Daschle, tapped by President Obama to lead his healthcare reform campaign, failed to pay more than $128,000 in taxes in the three years before Obama nominated him in December to head the Department of Health and Human Services. The disclosure -- involving unreported income and the use of a car and driver provided to Daschle -- comes 2 1/2 weeks after Obama's choice to head the Treasury Department, Timothy Geithner, admitted that he had not paid about $43,000 in taxes. Geithner was ultimately confirmed by the Senate, but the revelations about Daschle's taxes cast a shadow over the man that many hoped would be able to build political consensus behind an ambitious effort to reshape the nation's healthcare system.

Daschle did not comment publicly Friday on his tax problems, which are being investigated by the Senate Finance Committee ahead of his confirmation hearing before the panel. But a spokeswoman for the former Senate majority leader and close Obama ally stressed Friday evening that the tax errors were the result of simple mistakes that Daschle had worked in good faith to correct. "Sen. Daschle is embarrassed and disappointed by these errors," spokeswoman Jenny Backus said. The bulk of the unpaid taxes -- first reported Friday by ABC News -- stems from a lucrative business relationship that Daschle began with a wealthy investor shortly after Daschle left the Senate in 2005.

That year Daschle was paid $83,333 a month -- or $1 million a year -- to advise a private equity fund, according to a confidential draft report prepared by Republican staffers on the Senate Finance Committee. The South Dakota Democrat was hired by Leo J. Hindery Jr., a longtime friend of Daschle's, to consult for InterMedia Advisors. The private equity fund invests in media companies, including the Christian publishing house Thomas Nelson, the Gospel Music Channel, and Cine Latino, a leading Spanish-language movie channel. Hindery, a Democratic donor who made a fortune in cable television, also provided Daschle with a car and driver beginning in April 2005.

Daschle estimated that 80% of his use of the car was for personal reasons. But he did not pay any taxes on the service until Jan. 2, 2009, when he filed amended returns for 2005, 2006 and 2007. Daschle this month paid more than $100,000 in taxes and interest for the car service, according to Backus. He paid an additional $32,491 to cover taxes and interest for a monthly payment that was not reported in 2007. According to the committee report, InterMedia officials told committee staffers that unreported payment was the result of an employee being out on maternity leave when the May 2007 payment was processed. InterMedia had also not generated the proper tax form for Daschle at the time. Finally, Daschle paid nearly $6,000 in taxes and interest on donations that he had improperly classified as tax-exempt charitable donations.

Backus said Daschle and his wife had believed their donations to a wounded Iraq war veteran were tax-deductible. While Obama's vetting team reviewed Daschle's tax records, however, they discovered the payment had not gone through a qualifying charity. Daschle has thus far paid a total of $140,167 in back taxes and interest, according to the draft committee report. After news of the tax issues leaked Friday evening, White House Press Secretary Robert Gibbs issued a statement supporting the Obama nominee. "The president has confidence that Sen. Daschle is the right person to lead the fight for healthcare reform," Gibbs said. A month ago, Obama's pick for Commerce secretary, New Mexico Gov. Bill Richardson, withdrew his name from consideration because of an investigation of a campaign donor who had obtained state contracts. Whether Daschle will face greater difficulties with members of the Senate remains unclear.

Republican committee staff members are continuing to look into Daschle's travel on a corporate jet owned by education loan provider EduCap Inc., according to one staffer who was not authorized to speak publicly about the issue. And Iowa Sen. Charles E. Grassley, the ranking Republican on the Senate Finance Committee who is leading the inquiry, has been careful in recent days to avoid discussing Daschle's prospects. Friday, his spokeswoman Jill Gerber issued a statement pledging an open process. "Sen. Grassley's position for this nomination is the same as it has been for every other nomination processed by the Finance Committee since 2001, that all relevant information about a nominee must be made public in order for the confirmation process to go forward in the committee," she said. The committee, which will meet privately with Daschle on Monday, has yet to schedule a confirmation hearing.

Banks are forced to hoard capital, says ECB chief
Financial markets are forcing banks to restrict lending, and thus making the recession more acute than it would otherwise be, according to the president of the European Central Bank. Jean-Claude Trichet said that "the market is demanding more capital requirements than we consider appropriate", with the effect of pushing banks towards hoarding capital and trimming balance sheets, at a time when political pressure on them to pass on interest rate cuts and expand credit has never been more intense. "The market has a tendency to be pro-cyclical, enormously pro-cyclical," M. Trichet added.

He raised further concerns about a number of forces that have produced "pro-cyclicality" in the economy – amplifying the scale of booms and busts alike. "We have to correct systematically all the pro-cyclicality embedded in the system, on capital ratios, accounting and government policy," he said. The current vogue among central bankers is for so-called "macroprudential tools", meaning that the credit cycle would be managed by altering the banks' capital ratios to reduce lending in upswings and increasing it in downturns. For now, however, the gyrations in bank share prices, potentially leading to self-fulfilling collapses, are concentrating official minds.

However, in answer to a question from the deputy governor of the Bank of England, Sir John Gieve, M. Trichet did not seem over-enthusiastic about the concept of the "utility bank"; he preferred the creation of "air bags" to buffer the banks in bad times, though he was careful not to rule out any options for banking reform. Plans for central clearing houses for credit derivatives, which would reduce counterparty risks for banks and hedge funds involved in such financial instruments, also met with M. Trichet's approval. "This is an area where all authorities are looking closely," M. Trichet said. "The initiative on a central counterparty or exchange seems to us very wise," he added. "This is one of the areas where we could see an explosion." A number of exchanges in the EU and US are currently looking at setting up central clearing houses.

Calls for change also came from within the financial world. "The current financial framework, though well-intentioned, has proved inadequate and must be fundamentally revised," said HSBC's chairman, Stephen Green. He said that fair-value accounting and capital adequacy rules had worsened the financial crisis and called for a new set of principles and rules to boost financial market transparency. However, banks and other firms needed to work with governments and regulators to learn the lesson from the financial crisis, and needed to boost trade by improving transparency and simplicity in the financial system.

Mr Green added that HSBC would stay in the private sector. "We do see value for our proposition, both for investors and customers, in being a clearly independent, international bank, unquestionably," he said. Henry Kravis, a founding partner of Kohlberg Kravis Roberts, called for a "closer alignment" of the interests of all stakeholders in financial institutions, and criticised the award of bonuses on an annual basis with "no ratchet back" if returns subsequently falter.

Freddie Mac to rent foreclosed properties
Mortgage finance company Freddie Mac said it will allow some borrowers to rent out their homes after losing them to foreclosure. The goal of the new policy, announced Friday, is to prevent properties from becoming vacant so they won't fall into disrepair. Freddie Mac also said it will allow renters to remain in their homes even if their landlord enters foreclosure. The McLean, Va.-based company currently has about 8,500 properties in the foreclosure process, but many of those are vacant. "Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery in the housing market," said Freddie Mac Chief Executive David Moffett.

Fannie Mae, which announced similar plans earlier this month, said it has stopped about 20,000 foreclosure sales and halted 6,300 evictions of owners or renters this winter. Under Freddie Mac's new policy, tenants and former property owners need to demonstrate that they have enough income to pay the rental bill. Freddie Mac also said it would consider reinstating a mortgage for those borrowers who can qualify for a modified loan. Washington-based Fannie Mae and Freddie Mac were taken over by the government in September after mounting mortgage losses put them in distress that was a prelude to the broader financial crisis that hit Wall Street last year.

Fannie and Freddie combined own or guarantee about half of the $10.6 trillion in outstanding U.S. home loan debt. Both Fannie Mae and Freddie Mac also said Friday they would extend a previously announced suspension of evictions through the end of February. However, Freddie Mac hasn't explained how tenants will be notified of the policy and hasn't committed firmly enough to halting evictions, said Amy Marx, a staff attorney at Connecticut-based New Haven Legal Assistance. "The only thing that Freddie Mac has agreed to do is to not send the sheriff to forcibly remove tenants," Marx wrote in an e-mail.

Thousands in UK poised for 8p-a-month mortgages
The 8p-a-month mortgage is set to become a reality for thousands of borrowers next week because of over-generous loan terms offered by banks and building societies in the benign era just before the credit crunch hit. Thousands of borrowers on tracker deals struck in the early summer of 2007 will pay almost no interest and could even be in a position to demand payment from their banks on a strict interpretation of the fine print. Their effective mortgage rate is set to fall close to or even below zero if, as expected, the Bank of England cuts base rate from 1.5 per cent to an unprecedented low of 1 per cent next Thursday.

The biggest beneficiaries will be thousands of Cheltenham & Gloucester borrowers who took out a tracker product in July 2007 which charges base rate minus 1.01 per cent. Lloyds Banking Group, now 43 per cent owned by the taxpayer and also the owner of C&G, said that there was a zero floor to the deal and that because its computer systems could not cope with zero, it would be temporarily charging 0.001 per cent if base rate is cut to 1per cent. For borrowers on a £100,000 interest-only mortgage that would translate into a monthly interest payment of 8p. Those on repayment mortgages will continue to pay more as principal repayments are included in their monthly bills. Borrowers would later be refunded the 0.001 per cent overcharge, Lloyds said.

Other banks facing the prospect of lending for almost nothing include state-owned Bradford & Bingley, which offered tracker mortgages at base rate less 0.75 per cent and HSBC and Halifax, also part of Lloyds, which priced tracker deals at base rate less 0.51 per cent. Some lenders, but not all of them, put in place safeguards known as “collars” to prevent the effective interest rate turning negative, which in theory could oblige them to pay interest to the borrower. One lending chief told The Times that he and many other institutions had been taking legal advice to establish the position if base rate was cut further. They are confident that the courts would support them in ruling that it was not reasonable to expect a lender to pay interest to a borrower.

Some lenders have slipped up by failing to alert borrowers to any floor in the rate in the Key Facts Illustration, a legal document that accompanies every mortgage offer. The Financial Services Authority established the precedent that floors had to be in the KFI when it told HBOS it could not enforce a floor set out in its fine print. The Council of Mortgage Lenders (CML) has called on the Government to impose an industry-wide collar on existing base-rate tracker mortgages held by more than three million homeowners. It argues that a collar preventing tracker mortgage rates from falling to 0 per cent “made logical sense” because historically low interest rates were hampering the banks as they try to attract new savings deposits.

Only 300,000 homeowners have mortgages that already have enforceable collars written into the small print. An industry-wide collar would prevent a further 3.6million homeowners on tracker deals from benefiting from future cuts in the Bank of England base rate. Michael Coogan, of the CML, said: “This is a unique and innovative solution to a unique situation. Low interest rates are a good deal for borrowers in the short term, but it is damaging the ability of lenders to fund new mortgages.” Interest rates, which have already fallen to a 315-year low of 1.5 per cent are widely expected to be cut further to 1 per cent next week.

Economists also forecast that interest rates could fall to as low as 0.25 per cent or 0 per cent before April as the Bank of England's rate setting committee battles to try to boost the economy in the face of a deep and prolonged recession. Halifax, Britain's biggest mortgage lender, Bank of Scotland, Birmingham Midshires and Intelligent Finance all withdrew base-rate tracker deals last night. All four brands have also scrapped self-certification loans and restricted the availability of buy-to-let deals and home loans for new build properties.

Honda suspends UK workers for 16 weeks
British workers at Honda will start an enforced four-month layoff today against the backdrop of a further dire warning over the trading outlook from the Japanese car giant. The company, one of the bellwethers of Japanese industrial health, slashed its annual profit target by more than half this morning as its quarterly profits slumped by 90 per cent. The poor results emerged as Japan revealed a record 9.6 per cent fall in manufacturing output during December, the sharpest fall since 1953.

Honda, Japan's second-biggest carmaker, will tonight be mothballing its plant in Swindon, where the majority of its 4,200 British employees are based, in response to a slump in car sales. The workers affected will receive their full basic pay for the first two months and about 60 per cent for the rest of the four-month break from the production line. The move comes in the same week that Lord Mandelson, the Business Secretary, announced a £2.3 billion rescue package for Britain's ailing car industry, which suffered a 21 per cent fall in sales last month.

Honda UK, which made almost 250,000 vehicles last year, intends to resume production on June 1, albeit at a reduced level. It said that it had no plans to make workers redundant, although as many as 1,000 are believed to have applied for voluntary redundancy packages. The start of the temporary shutdown came as the Japanese group blamed rising costs, a stronger yen and falling sales in key markets for a fall in net profit from 200 billion yen (£1.6 billion) to only 20.24 billion yen in the three months to December. Third-quarter revenues fell by 17 per cent to Y2.53 trillion. The group also cut its profit target for the current financial year by 57 per cent, to Y80 billion, the fourth time this year that it has lowered expectations.

Like other carmakers all over the world, Honda has moved to slash costs as the global economic downturn has hurt demand for new vehicles. The maker of the Accord and Civic marques has announced job cuts and scaled back production at manufacturing lines worldwide. The measures include cutting all of its temporary workers by April of this year. Although Honda is still expected to make a full-year profit, the rival Toyota last month projected an operating loss of Y150 billion in the year to March, a figure that analysts expect to worsen.

Honda's warning follows hot on the heels of further economic figures painting a dire picture of Japan's economy as the country battles soaring unemployment, plunging exports and the return of deflation, its most dreaded foe. Economists said that jobs figures, which showed unemployment rising 0.5 per cent in December to hit a three-year high of 4.4 per cent, made a "mockery" of a promise made earlier by Taro Aso, the Prime Minister, that Japan would be the first major economy to emerge from the global financial turmoil.

Britain's richest man loses $51 billion
Over the past eight months, Lakshmi Mittal, Britain's wealthiest man, has lost around $51bn (£35bn). Mittal, who controls steel producer Arcelor Mittal, has profited from the construction boom of the past decade, driven by the emerging economies of China and India. His stake in the business in June was worth $65bn. But, as demand for steel has crashed, so has the Arcelor Mittal share price. His holding is now worth $14bn - a staggering loss, although he is not exactly on the streets yet. Mittal is not alone. Many of the world's richest are finding their fortunes hollowed out by the havoc wreaked on financial markets.

Sir Tom Hunter pledged to donate £1bn to charity at the peak of the markets, but some of his retail investments have run into trouble, including USC which went into administration this month. Some estimates suggest his wealth has shrunk by £250m and he recently sold his villa in the south of France for £50m, although he maintains that was simply an offer he couldn't refuse. Robert Tchenguiz, whose astute investments, built a fortune alongside his brother Vincent, has also suffered heavy losses. The property tycoon was left an estimated £800m out of pocket after demands for the recall of loans from the Icelandic bank Kaupthing forced the sale of stakes in J Sainsbury and pub group Mitchells & Butlers.

Mike Ashley, the Newcastle football club owner who made more than £900m from the flotation of Sports Direct, also fell foul of volatile markets last year, admitting that he lost £100m from a gamble in HBOS shares. That was nothing compared with the $1.2bn losses nursed by the currency speculator Joe Lewis after buying shares in the Wall Street firm Bear Stearns in the months before it was sold at a knockdown price last year.

Slowdown in lending threatens new squeeze on companies
Lending to companies slowed sharply in December, highlighting the threat of a worsening credit squeeze on businesses that would increase the impact of the recession. Bank of England figures yesterday showed lending growth to private non-financial companies at 3.7 per cent, down sharply from 4.9 per cent a month earlier and 8.5 per cent in September. The figures do not show whether the drop was due to reduced demand or availability of credit, though both are likely to play their part as banks remain wary of lending while businesses cut investment as the economy shrinks.

Alan Clarke, UK economist at BNP Paribas, said: "I'm surprised it [credit to companies] is still growing at above the trend pace of the economy. The outlook is still getting worse and worse and if that is what is controlling the availability of credit to firms there is more down before we go up again." The Bank and the Treasury are working to prevent a credit drought that could see otherwise sound businesses go to the wall because of lack of finance. The Bank will spell out plans next week to buy up corporate debt to increase the availability of credit and bring down the price companies pay to borrow.

In a further sign of the strain on Britain's companies, a CBI survey released today shows that small and medium-sized manufacturers are cutting jobs at the fastest rate since the early 1990s as demand for UK-made goods drops. In the three months to January, employment, new orders and output among manufacturing small and medium-sized enterprises (SMEs) fell at a rate not seen since the last recession, and firms are braced for the next quarter to be tougher. Russel Griggs, the chairman of the CBI's SME council, said: "This survey closed before the Government's measures to kick-start lending across the economy were announced and we hope these will soon begin to make it easier for firms struggling to access the credit they need to go about their day-to-day business."

There was also bad news from consumers as confidence fell close to a record low and lending to individuals slowed. The recent spate of big job losses increased consumers' gloom, especially among the under-30s, taking sentiment close to the level struck in July, which was the lowest since the Gfk NOP survey began in 1974. Bank of England figures showed that loans secured on dwellings grew by 5.7 per cent in December, down from 6 per cent in November. Credit card loans dropped 0.1 per cent during the month, the first time customers had paid back debts since the middle of 2007.

The economy needs Britain's already heavily indebted consumers to keep spending despite the grim outlook for employment and incomes. Andrew Goodwin, the senior economic adviser to the Ernst & Young Item Club, said: "December is an important month for consumer spending and these weak consumer credit figures provide further evidence that a significant consumer retrenchment is under way." Mortgage approvals rose to 31,000 from 27,000 a month earlier, surprising economists and registering their biggest rise since before the credit crunch. But the level of approvals remained close to historic lows and the increase is unlikely to prevent a further sharp fall in house prices this year.

Charles Davis, an economist at the Centre for Economics and Business Research, said: "It is the collapse in lending to households and businesses that underpins the sharpest contraction in economic activity since 1980." The Bank's Monetary Policy Committee (MPC) meets on Thursday to decide interest rates. The MPC is widely expected to cut the cost of borrowing by another half point to a new all-time low after a barrage of grim economic news. The International Monetary Fund predicted last week that Britain would be the worst-affected developed nation by the global recession.

Taxpayer cash 'too late for many small businesses'
More than 20,000 small and medium-sized businesses (SMEs) will go bankrupt before the Government's scheme to boost lending to them takes full effect, a leading business body has warned. The Federation of Small Businesses said that 110 SMEs a day would fail this year, with a loss of 150,000 jobs, despite the Government launching a £20 billion scheme this month to boost their access to finance. It has been cut dramatically by the banks during the credit crisis, forcing many businesses into difficulties.

Stephen Alambritis, spokesman for the federation, said: “It's going to take six months for the Government's efforts to take effect because it will take time for the banks to get used to it. We expect 20,000 businesses will go bust before then and that another 10,000 firms will fail in the final six months of the year.” The government scheme has also come under fire from the Forum of Private Businesses, which said that many of its members were still being rejected for loans and overdrafts by some banks. Phil Orford, the forum's chief executive, said: “These financial packages were a welcome next step in supporting small business lending and stabilising the economy. However, the early indications are that small businesses are still being bracketed as risky propositions, often regardless of how well they are performing in difficult conditions.”

Under its working capital scheme, the Goverment will guarantee £20 billion in short-term bank lending to companies with a turnover of up to £500 million and a further £1.3 billion of bank loans to small firms with a turnover of up to £25 million. An additional £75 million enterprise fund is being set up for small firms in urgent need of equity. The bleak forecast for SMEs, which employ nearly 60 per cent of the private sector workforce in Britain, came as new figures showed that small and medium-sized manufacturers are shedding workers at the fastest rate since the last recession. Slumping demand for British-made goods, coupled with difficulty in accessing finance, forced 38 per cent of SME manufacturers to cut jobs in the three months to January, figures from the CBI show. Only 7 per cent of SMEs hired new staff, pushing the resulting balance to -31, down from -13 in the previous three months, and the lowest on record since 1992.

Job losses are expected to intensify as increasing numbers of firms face further falls in demand. The balance of firms reporting that they will reduce staff over the next three months fell to a record low of -38, down from -27. The EEF, the manufacturers' organisation, said that this year it expects 90,000 jobs to be lost in the manufacturing sector, of which SMEs account for 90 per cent. Russel Griggs, chairman of the CBI's SME council, said he hoped that the Government's loan scheme could ease the pressures on small firms. “Only the availability of credit will help stem the tide of job losses.” But Mr Alambritis warned that the deep recession would continue to take a heavy toll of small businesses, even if credit was available. “Any small firm that has an umbilical cord to the motor industry or areas related to discretionary spend cannot be helped by the government scheme because the demand is simply not there,” he said.

Optimism slips again
— Optimism among small and medium-sized manufacturers has deteriorated sharply, with the gauge of optimism falling to –71 in the three months to January, down from –57 in the previous three months
— The EEF, the manufacturers’ organisation, said problems for small manufacturers had been exacerbated by difficulties in the automotive sector
— It is calling for urgent action to help preserve skills within the manufacturing sector during the downturn

Do as we say, not as we do when it comes to protectionism
So much in public policy right now is virgin territory that it is reasonable to forgive the politicians the odd mixed message. Even so, it is impossible to ignore thecontradictions at the heart of the Government's lecturing on thedangers of protectionism. On the one hand, ministers warn of the threat to trade and capital flows posed by the present rush towards what the Prime Minister Gordon Brown calls "deglobalisation", where nations retreat in on themselves. On the other hand, they seem unashamedly to be practising it in their own backyard.

In a week when there were strikes in protest against the use of foreign workers, ministers have been valiantly holding the free trade, open-borders banner aloft here in Davos. It would be the worst possible outcome, warned Peter Mandelson, the Business Secretary, if the economic crisis ended in creeping trade and financial protectionism, especially for Britain, which relies for its prosperity on its international dimension and appeal. Yet he already sensed a "creeping" protectionism of import controls, bungs and subsidy, and a potential unravelling of everything that had been achieved in the European single market. The "buy American" aspects of the Obama fiscal stimulus, which threatens to exclude foreign firms from infrastructure spending, is "un-welcome, undesirable, and unnecessary". I think we can all agree.

Perhaps inevitably, the practice is a little bit different. British banks are being encouraged to engage in the same "deglobalisation" that Messrs Brown and Mandelson complain of; with credit in short supply the world over, British banks that are now nationally controlled are being forced to reserve whatever lending capacity they have for British borrowers at the expense of foreign ones. What else do you call a 30 per cent devaluation of sterling, deliberately encouraged by the British authorities as a way of making British business more competitive, other than another form of beggar-thy-neighbour grab for market share?

If this had happened between France and Germany, there would already be border controls in place. It is only because for the time being it badly affects only a comparatively tiny part of the eurozone economy – Ireland – that we haven't heard more complaint about it. But we certainly will as the recession bites everharder and the battle for shrunken markets grows ever more intense. Lord Mandelson is right. It would be a disaster for Europe and the world if the crisis caused the hard-won gains of free trade and global capital flows to unravel. Yet the message needs to more consistent. Sadly, it is in the way of economic disaster that in the struggle for survival, self interest takes precedent. Even Lord Mandelson, apragmatist whose return to government is being warmly welcomed by British business leaders here, is bound to be caught up by it. It surely can't be long before he's launching his own "buy British" campaign. Where will open borders be then?

Dubai, the emirate that used to spend it like Beckham
With hindsight, the £15m party to open the outlandish luxury hotel on a palm-shaped artificial island had more than a hint of fin de siècle. The fireworks at the November extravaganza cost £3m, and Kylie provided the entertainment for guests including Robert de Niro. Dubai is a playground for the rich, its streets lined with priapic towers. Some 20% of the world's construction cranes are said to be in the small city-state. But even here the party has come to an end.

The airport has become swamped with abandoned cars bought on credit as expats flee the country and leave their debts behind. Professionals from Europe, Australia and the US have been going home as work dries up. "There have been some horror stories," says one expat. "One banker moved out here with his family after selling up in London only to be sacked after four weeks. He was traumatised." Dubai has relatively little oil and has sought to reshape itself as a centre for financial services, tourism and property largely on the back of borrowing - its corporate and sovereign debt has reached $80bn. But the property market has crashed, prices falling in some areas by as much as 50%. The investment banks have begun to cut staff. Building has slowed or ground to a halt.

Nakheel, the developer of the palm tree-shaped islands on which celebrities including David Beckham have bought homes, last month cut 500 jobs. There is speculation that Abu Dhabi, the richest of the United Arab Emirates, may be forced to bail out Dubai. The emirate's ruler, Sheikh Mohammed bin Rashid al-Maktoum, has put together a war council of top executives to steer it through the downturn. Its banking system has been bailed out and its two main mortgage providers folded into Abu Dhabi banks.

Tata Motors' Reversal of Fortune
What a difference a year makes. Just last January, Tata Motors was on top of the world. It had sewn up a $2.3 billion purchase of the Jaguar and Land Rover brands, had just unveiled the intensely popular Nano—the world's cheapest car—and its shares, along with India's stock market, were soaring. But on Friday evening, Jan. 30, at the stately Mumbai headquarters of India's sprawling Tata Group, the bad news just kept coming: quarterly losses of $54 million, the first in more than seven years; a nearly one-third drop in revenues on a quarter-over-quarter basis; no solid date for the mass launch of the Nano, which has been delayed by several months after the company was forced to change production sites; and no clarity on how the company intends to pay back the billions of dollars in bridge loans it took out to pay for Jaguar/Land Rover.

In spite of the gloomy results, the company struck a hopeful note. "We are seeing an upturn in consumer demand," says Ravi Kant, the CEO of Tata Motors. "[We are] more hopeful this quarter." The rapid reversals at Tata, which is probably the most internationally visible of Indian automakers, mirror the suddenness with which many Indian companies have seen their fortunes change as global lines of credit have frozen and the local economy has slowed down. Exports are dropping for the first time in nearly a decade. Interest rates have remained high to help control runaway inflation, which for a while last year crossed 12% before stabilizing to just under half that figure.

"It's not just Tata; it's the entire sector, even though this is particularly bad timing for them, since they have so much looming debt," says one auto analyst, who asked not to be named because of company policy. "Unless interest rates come down, and salaried professionals feel more secure about their jobs, it's really not likely that car sales are going to go up." In effect, the rules of the game changed just while Tata Motors was set to hit a home run. The No. 3 carmaker in the world's second-fastest-growing car market saw its revenues sag, then go into free fall, as Indians delayed car purchases in a bad economy. Tata Motors had expected blockbuster sales for the Nano, which was to have launched around October 2008.

But protests over the way a local government acquired land from farmers before leasing it to Tata forced the company to shut down and move a nearly completed $350 million factory across the country. "Dismantling is a complex problem with moving suppliers, etc.," says Kant. "But there are some interim arrangements to produce the Nano in small numbers to whet the appetite but not satisfy the hunger." At the same time, India's manufacturing sector has slowed down because of tight credit, and Tata's commercial vehicle sales (where the company owns nearly 60% of the world's fifth-largest commercial vehicle market) have dropped precipitously. And the bills for the purchase of Jaguar/Land Rover, completed when the global economy was gorging on easy credit, came due just as that credit vanished, leaving the company struggling to convert expensive bridge loans into cheaper long-term commitments.

For those looking for a silver lining, though, there's been some good news this week. On Wednesday, the company bagged a $450 million, 12-year contract to build and maintain buses for the city of New Delhi, which is in the midst of upgrading its infrastructure. That should come as a shot in the arm for Tata Motors, which sold nearly 40% fewer commercial vehicles this quarter than the comparable quarter a year ago. And for its Jaguar/Land Rover subsidiary, which declares results separately and is believed to have been profitable last year, there was hope in Tuesday's announcement by the British government that it would guarantee $1.9 billion in loans from the European Investment Bank for car manufacturers and another $1.4 billion in other lending.

Tata Motors, which took out expensive bridge loans to pay for the Jaguar/Land Rover purchase, has had trouble raising money to pay those loans back, but it is still unclear if it can use those EIB credit facilities to pay back the bridge loan. "Of course, we plan to apply for as much help as we can get under that program, but the indication we've gotten from the [government officials] there is that the loans are intended to help keep production lines running, not directly pay off accumulated debt," says an official at the company's finance department, who asked not to be named because he was not authorized to speak to the media.

After an undersubscribed rights issue, Tata has sold millions of dollars of commercial paper at interest rates as high as 11%, according to data collected by Thomson Reuters, making it the second-largest seller of commercial paper in India. In December, to raise cash to pay back loans that were coming due in the first half of 2009, the company even took cash deposits from investors and others, offering an 11% return on the investment, raising a little over $60 million. With the money from the rights issues, the company has paid down about $1 billion in debt, says Kant. "We are still in talks with the banks," he says. "We are in an upturn, and the cycle will begin to correct itself."

Of all of India's companies, Tata Motors is perhaps the least likely to be swamped by these problems. Part of a well-capitalized group, the company has options others don't, including assistance from its parent company, the Tata Group. As India's economy recovers, car sales will revive and so will commercial vehicle sales, which already saw an uptick in the last month, according to data from the Society of Indian Automobile Manufacturers. Tata Motors' stock, down 52% this past quarter and now trading well below book value, is seen as a good long-term bet. It is already inching up this week, up as much as 5% when the British loan guarantees were announced.

Cybercrime threat rising sharply
The threat of cybercrime is rising sharply, experts have warned at the World Economic Forum in Davos. They called for a new system to tackle well-organised gangs of cybercriminals. Online theft costs $1 trillion a year, the number of attacks is rising sharply and too many people do not know how to protect themselves, they said. The internet was vulnerable, they said, but as it was now part of society's central nervous system, attacks could threaten whole economies. The past year had seen "more vulnerabilities, more cybercrime, more malicious software than ever before", more than had been seen in the past five years combined, one of the experts reported.

But does that really put "the internet at risk?", was the topic of session at the annual Davos meeting. On the panel discussing the issue were Mozilla chairwoman Mitchell Baker (makers of the Firefox browser), McAfee chief executive Dave Dewalt, Harvard law professor and leading internet expert Jonathan Zittrain, Andre Kudelski of Kudelski group, which provides digital security solutions, and Tom Ilube, the boss of Garlik, a firm working on online web identity protection. They were also joined by Microsoft's chief research officer, Craig Mundie. To encourage frank debate, Davos rules do not allow the attribution of comments to individual panellists.

Threat #1: Crime.
The experts on the panel outlined a wide range of threats facing the internet. This is not vandalism anymore, but organised criminality. There was traditional cybercrime: committing fraud or theft by stealing somebody's identity, their credit card details and other data, or tricking them into paying for services or goods that do not exist. The majority of these crimes, one participant said, were not being committed by a youngster sitting in a basement at their computer. Rather, they were executed by very large and very well-organised criminal gangs. One panellist described the case of a lawyer who had realised that he could make more money though cybercrime. He went on to assemble a gang of about 300 people with specialised roles - computer experts, lawyers, people harvesting the data etc. Such criminals use viruses to take control of computers, combine thousands of them into so-called "botnets" that are used for concerted cyber attacks. In the United States, a "virtual" group had managed to hijack and redirect the details of 25 million credit card transactions to Ukraine. The group used the data to buy a large number of goods, which were then sold on eBay. This suggested organisation on a huge scale. "This is not vandalism anymore, but organised criminality," a panellist said, while another added that "this is it is not about technology, but our economy".

Threat #2: the system.
A much larger problem, though, are flaws in the set-up of the web itself. It is organised around the principle of trust, which can have unexpected knock-on effects. Nearly a year ago, Pakistan tried to ban a YouTube video that it deemed to be offensive to Islam. The country's internet service providers (ISPs) were ordered to stop all YouTube traffic within Pakistan. Do we need a true disaster to bring people together? However, one ISP inadvertently managed to make YouTube inaccessible from anywhere in the world. But in cyberspace, nobody is responsible for dealing with such incidents. It fell to a loose group of volunteers to analyse the problem and distribute a patch globally within 90 minutes. "Fortunately there was no Star Trek convention and they were all around," a panellist joked.

Threat #3: cyber warfare.
Design flaws are one thing, cyber warfare is another. Two years ago, a political dispute between Russia and Estonia escalated when the small Baltic country came under a sustained denial-of-service attack which disabled the country's banking industry and its utilities like the electricity network.  This was repeated last year, when Georgia's web infrastructure was brought down on its knees during its conflict with Russia. "2008 was the year when cyber warfare began.. it showed that you can bring down a country within minutes," one panellist said. "It was like cyber riot, Russia started it and then many hackers jumped on the bandwagon," said another. This threat was now getting even greater because of the "multiplication of web-enabled devices" - from cars to fridges, from environmental sensors to digital television networks. The panel discussed methods that terrorists could use to attack or undermine the whole internet, and posed the question whether the web would be able to survive such an assault. The real problem, concluded one of the experts, was not the individual loss. It was the systemic risk, where fraud and attacks undermine either trust in or the functionality of the system, to the point where it becomes unusable.

"The problems are daunting, and it's getting worse," said one of the experts. "Do we need a true disaster to bring people together?," asked another. One panellist noted that unlike the real world - where we know whether a certain neighbourhood is safe or not - cyberspace was still too new for most of us to make such judgements. This uncertainty created fear. And as "the internet is a global network, it doesn't obey traditional boundaries, and traditional ways of policing don't work," one expert said. Comparing virus-infected computers to people carrying highly infectious diseases like Sars, he proposed the creation of a World Health Organisation for the internet. "If you have a highly communicable disease, you don't have any civil liberties at that point.

We quarantine people." "We can identify the machines that have been co-opted, that provide the energy to botnets, but right now we have no way to sequester them." But several panellists worried about the heavy hand of government. The internet's strength was its open nature. Centralising it would be a huge threat to innovation, evolution and growth of the web. "The amount of control required [to exclude all risk] is quite totalitarian," one of them warned. Instead they suggested to foster the civic spirit of the web, similar to the open source software movement and the team that had sorted the YouTube problem. "Would a formalised internet police following protocols have been able to find the [internet service provider] in Pakistan as quickly and deployed a fix that quickly?" one of them asked.

Tragedy of the bank high-flyers who can't bear the stress of failure
Last September my husband Kirk Stephenson threw himself under a high-speed train. It seemed as though I had suddenly woken up in the wrong play. For ten years my life had been a light domestic comedy, of interest only to my friends and family. Now it had become a tragedy and was blazoned across the world’s media as the “first credit-crunch suicide”.

I have decided to write my own account of what happened in the hope that it can be of some help to all the men whose wives have told me of their husbands’ fragility, of how they break down in tears at the thought of not being able to be the provider, of troubled work situations that become all-encompassing, of depression and of nervous breakdowns. Although the catalyst for this collective depression is the credit crisis, the causes have to do with the make-up of high-achieving personalities and a culture that exacerbates the problems.

In the early days after Kirk died, seeing the world continue in its routine when the man I loved was gone was an outrage. Even the dog failed to register the change, gambolling round the dining room as the police told me that my husband had died. He then mourned my husband, lying in the study and waiting for him to come home. Walking the dog during the Indian summer in the weeks after Kirk’s death was a parody of real life. To the outside world I seemed composed. Inside, I veered between the agony of his absence and believing that he would somehow reappear. What sustained me were family — above all our eight-year-old son Lucas — and friends.

I lost my faith after Kirk’s death. He thought that religion was a load of rubbish although latterly, as the financial crisis intensified and our problems mounted, he admitted that he envied me for it. The Sunday after he died I went to Mass in a country chapel. There was a roomful of humankind, but God was not there. Now, my faith has come back and I feel immensely thankful that I had my husband for nearly a decade. They say that your children are on loan as they then leave the nest. Kirk, too, was on loan and I was so very lucky to have him.

I met my husband-to-be over a bridge table in Pimlico. Definitely not my type, I thought, but would make a good fourth for a bridge evening. He thought that I was a loud bit of Eurotrash. For our first date he unaccountably took me to a London Business School dinner hosted by an interim dean whose lack of charisma and conversation settled like a wet blanket over the table. Despite these inauspicious beginnings, we had a marriage that I could only dream of. To find a soulmate is not something granted to everyone. He told Lucas that the happiest day of his life was when he married Mama.

Learning to live without him is very difficult. He was a besotted father and although he was the disciplinarian in the family, our son had him sussed. When he was 2, some incident prompted Lucas to refuse Kirk a kiss as he left for work one morning. As Kirk moved away, though, Lucas ran after him and gave him a kiss and a cuddle. He then turned to me, the sense of power resplendent on his face. “He happy now,” he said. On a more mundane level, Kirk dealt with all the bills, all the travel, all the school stuff, all the taxes, all the driving and all the home maintenance. I had relaxed into the cocoon of marriage and, in hindsight, the division of labour seems rather one-sided. He even edited my work as a financial journalist and could spot errors in articles on the Pakistani economy or banking regulation. Knowing about complex international finance, however, does not help me to bleed a radiator or deal with an insurance company.

Kirk was my constant playdate, but to the outside world he was much more than that. New Zealand-born, he arrived in London in 1983 with a first- class brain and strong work ethic to take up a post as a trainee at the merchant bank SG Warburg. He followed that with a stint at the American investment bank Morgan Stanley before leaving banking to work as a chief financial officer and chief operating officer at several large, well-respected organisations including Amersham, Coats Viyella and the international law firm Freshfields Bruckhaus Deringer. Latterly he had worked at Olivant, a private equity firm that suffered after the collapse of Lehman Brothers. This was the trigger for Kirk’s suicidal crisis and it was so swift that there was very little time to register how serious it was.

The insecurities of the high achievers who gathered this week for the annual World Economic Forum in Davos, Switzerland, are emphasised by the words of a former central bank governor from Latin America. “Davos is full of people who are more successful than you. It is full of successful people who are used to everyone standing to attention when they walk into a room. But there, no one looks at you,” he says. Most men share the caveman’s instinct to bring back the food for the family, to provide and take care of them. In the credit crunch, as they face, at best, deep salary cuts and, at worst, redundancy, their masculinity and sense of worth is being chipped away. The depression lies in how they understand what is happening to them. High achievers don’t blame the recession. They tend to blame themselves — if only they had changed firms; if only they hadn’t invested in the banking sector; if only they had sold their house 15 months ago. Because of their intelligence and professional record, they believe that they are in control of their lives and so are quick to condemn themselves.

High achievers are found in every profession, but finance attracts a disproportionate number of them. “It is likely that a macho culture of ‘survival of the fittest’ makes it more likely that people will choose to define themselves as a success or a failure. It promotes the idea that if you can’t cope then you are weak and therefore have failed in life,” Joe Ferns, deputy director of service support at the Samaritans, says. Finance has become a dirty word and bankers even more so. The Government’s blanket condemnation of bankers stereotypes the half a million people employed by banks in Britain and hundreds of thousands more who work in general finance. There are definitely those who deserve the scapegoating, but many who do not are suffering from the feeling that society blames them for the recession, while their peers dismiss them as failures.

A key risk factor for suicide is a negative change in lifestyle, either sudden or expected, Mr Ferns says. “It is likely that people who are considered to be high achievers may be people who have worked hard for their success and, by definition, have ‘worked their way up’ to their positions. This means these people are aware of what it will be like to go back to where they were before their success and anticipating such a change is unbearable for them.” There have been well-publicised recent cases, including a South Korean fund manager and the German tycoon Adolf Merckle, but there are many more that do not make headlines. A firm of strategy consultants for executives contacted me this month to ask whether there were support groups for partners of suicide victims, as they had recently encountered a couple more.

Madeleine Clarke, a chartered psychologist who is on retainer to a bank and a hedge fund, notes that the higher up you go in an organisation the greater the stress and loneliness. One of the partners of the hedge fund disapproved of her appointment and spoke about “namby-pamby mollycoddling”. Seeking psychological help is becoming more acceptable in society as a whole, but in finance — infused with what Dr Clarke calls a froth of testosterone — it is still taboo. Lord Stevenson of Coddenham, the former HBOS chairman, is one of the few City high-rankers to admit to clinical depression. He tells employers that to get the best out of their employees they must create a culture of humanity, have the proper network for dealing with mental health issues and realise that senior people are particularly prone to suffer.

Spotting the signs of depression, as opposed to the stress that is all part of the job, is not easy. Dr Clarke says that there is very little written about it. But the Samaritans have some suggestions. “We must promote the idea that to face your problems, to seek help and ultimately strive to overcome those problems is something which denotes courage and strength but that there is support available which can help you find a way through. Dealing with problems at an earlier stage can help to prevent bigger and more far-reaching difficulties,” Mr Fern says.

This may help some people. In our case, my husband shared his worries with me but he refused to seek professional help, or even to approach friends for advice, because he did not really believe that it would help. Kirk also believed, as one friend who tried, unsuccessfully, to commit suicide says, that “your loved ones will be better off without you”. We are not better off without him. I miss his dry sense of humour, the twinkle in his eye, watching him and Lucas play board games with intense concentration, even that endless story about his great aunt in Canada. And so much more. But the knowledge that Lucas and I were everything to him sustains us and carries us forward.

The Financial Crisis Is Driving Hordes of Americans to Suicide
The body count is still rising. For months on end, marked by bankruptcies, foreclosures, evictions, and layoffs, the economic meltdown has taken a heavy toll on Americans. In response, a range of extreme acts including suicide, self-inflicted injury, murder, and arson have hit the local news. By October 2008, an analysis of press reports nationwide indicated that an epidemic of tragedies spurred by the financial crisis had already spread from Pasadena, California, to Taunton, Massachusetts, from Roseville, Minnesota, to Ocala, Florida.

In the three months since, the pain has been migrating upwards. A growing number of the world's rich have garnered headlines for high profile, financially-motivated suicides. Take the New Zealand-born "millionaire financier" who leapt in front of an express train in Great Britain or the "German tycoon" who did much the same in his homeland. These have, with increasing regularity, hit front pages around the world. An example would be New York-based money manager René-Thierry Magnon de la Villehuchet, who slashed his wrists after he "lost more than $1 billion of client money, including much, if not all, of his own family's fortune." In the end, he was yet another victim of financial swindler Bernard Madoff's $50 billion Ponzi scheme.

An unknown but rising number of less wealthy but distinctly well-off workers in the financial field have also killed themselves as a result of the economic crisis -- with less press coverage. Take, for instance, a 51-year-old former analyst at Bear Stearns. Learning that he would be laid off after JPMorgan Chase took over his failed employer, he "threw himself out of the window" of his 29th-floor apartment in Fort Lee, New Jersey. Or consider the 52-year-old commercial real estate broker from suburban Chicago who "took his life in a wildlife preserve" just "a month after he publicly worried over a challenging market," or the 50-year-old "managing partner at Leeward Investments" from San Carlos, California, who got wiped out "in the markets" and "suffocated himself to death."

Beverly Hills clinical psychologist Leslie Seppinni caught something of our moment when she told Forbes magazine that this was "the first time in her 18-year career that businessmen are calling her with suicidal impulses over their financial state." In the last three months, alone, "she has intervened in at least 14 cases of men seriously considering taking their lives." Seppinni offered this observation: "They feel guilt and shame because they think they should have known what was coming with the market or they should have pulled out faster." Still, it's mostly on Main Street, not Wall Street, that people are being driven to once unthinkable extremes.

And while it's always impossible to know the myriad factors, including deeply personal ones, that contribute to drastic acts, violent or otherwise, many of those recently reported are undoubtedly tied, at least in part, to the way the bottom seems to be falling out of the economy. As a result, reports of people driven to anything from armed robbery to financially-motivated suicide in response to new fiscal realities continue to bubble to the surface. And since only a certain percentage of such acts receive media coverage, the drumbeat of what is being reported definitely qualifies as startling.

In September 2008, a 23-year-old woman from West Norriton, Pennsylvania, robbed a bank, police reported, to pay her rent. According to East Norriton Detective Sgt. Peter Mastrocola, "She said that the reason that she went to PNC Bank and committed the robbery was because she was two months behind in her rent and she was going to be evicted." In fact, after stealing $1,410, the young woman reportedly told police that she "took the cash from the robbery and went to another bank where she purchased a cashier's check for $1,410 made payable to Westover Village Apartments…"

The next month, in Northampton, Pennsylvania, a 49-year-old woman reportedly robbed a bank and, just 18 minutes later, "arrived at a check-cashing business and arranged for several money orders -- totaling $1,090 -- to pay a portion of the rent she owed her landlord." According to court papers, a "confidential informant" told police the woman had confided that "she was going to rob the bank to satisfy about $1,800 in back rent." The police reported that she was "in the process of being evicted."

This, however, is no Keystone State phenomenon. As the Los Angeles Times recently reported, "Another sign of the bad economic times… [b]ank robberies, which had been declining for years, rose in 2008 in Southern California… [by] 22% compared to 2007." In Orange County, the spike was especially acute, a jump of 41% to 145 robberies. Similarly, Inland Empire News Radio reported that authorities attributed a 13% rise in bank robberies in Riverside and San Bernardino counties to a "poor economy." "We've certainly seen a rise in bank robberies across the country particularly in our metropolitan areas," FBI Special Agent Scott Wilson recently pointed out. "The bank robbery rate has risen dramatically."

Last year, according to the New York City Police Department, bank robberies in that city jumped to more than 430, a 54% rise over 2007. On December 29th alone, CNN noted, "robbers targeted five banks in the Big Apple, some striking in broad daylight and near famous landmarks." Interviewed by the New York Times, a customer in one of the robbed banks put the obvious into words: "It makes me think that the recession is making people go to extreme measures." Illinois Wesleyan University Economics Professor Mike Seeborg agrees. Commenting on a similar local spike in crime, he told a Central Illinois TV station, "There's a clear linkage nationwide that when the economy is in bad shape, when unemployment begins to increase, if people lose their jobs and output falls, that crimes against property especially increase."

At least 33 people chose to commit suicide in national parks in 2008. And there seemed to be an economic component to at least some of the cases. For example, an Associated Press report noted that a "49-year-old builder blamed the economy in a note he left for his ex-wife and attorney before killing himself at the edge of the woods at Georgia's Kennesaw Mountain National Battlefield Park." Similarly, in October, Bruce J. Colburn, a "[f]reshly unemployed, former business executive" from Reading, Pennsylvania, traveled to Montana's scenic Glacier National Park where "he shot himself in the chest with a handgun, according to park officials."

Others stayed closer to home. On October 14, 2008, a woman in Bogart, Georgia, was "supposed to go to court for an eviction hearing." Instead, she called the police and informed them that she was thinking of killing herself. Not long afterward, she shot herself in the head. On October 29th, a 47-year-old man from Blount County, Tennessee, "killed himself when sheriff's deputies tried to evict him from his rented home." The next month, according to Mike Witzky, the executive director of the Mental Health and Recovery Board in Union County, Ohio, two local men committed suicide due to financial problems, while another failed in his attempt. On December 5, 2008, Ricky Guseman of West Palm Beach, Florida, was to be evicted. Instead, local officials told the South Florida Sun-Sentinel, he "barricaded himself in a mobile home… set the place on fire and then shot himself in the head with a shotgun."

In December, coroner's investigators in Kern County, California, revealed that they were "seeing a wave of people committing suicide because of financial stress," a 5-10% increase over 2007. An analysis of 2008 "death reports" in Milwaukee County, Wisconsin, by local ABC television affiliate WISN-TV found "[f]inancial pressure in a difficult economy has led to desperate measures." Of 108 suicides -- a 20% jump over any of the last three years -- at least 25% of the victims "were struggling financially." For example, Wauwatosa resident Tom Brisch, a married father of two, fell on hard times after his wife of 20 years, Sherry, lost her job. At the same time, his job as a commission-only Ford car salesman fell victim to the sluggish auto market. As Sherry summed the situation up after his suicide, "[T]he economic picture with a kid going to college, another one starting high school... was pretty grim and we were struggling." She returned home one day to find that her husband had hanged himself. In his shirt pocket was a suicide note in which "he asked for forgiveness and wrote that he could not get it together to provide for them."

WISN-TV uncovered a host of similar tragedies including:
* A 21-year-old Milwaukee man who shot himself in the face after "he ran out of unemployment [insurance]."
* A 43-year-old West Allis man who hanged himself in his basement with a belt. "[T]he mortgage payments are behind," his girlfriend told the police. "There are astronomical medical bills."
* A 40-year-old Milwaukee woman who overdosed after having "financial problems."
* A 24-year-old Milwaukee man, "fired from his job three weeks before," who suffocated himself with Saran Wrap.
* And a 38-year-old Milwaukee man who shot himself in the head. He'd lost his job six weeks earlier.

In January, less than an hour's drive south of Milwaukee, 37-year-old Staci Paul's car was pulled from Lake Michigan, but they couldn't find the body of the Kenosha, Wisconsin, woman. As an article in the Kenosha News noted, however, friends "said they knew things hadn't been easy for Paul. A single mother, she worked hard to find jobs and as the economy worsened, friends speculated, Paul might have run into some financial trouble. Court records also show Paul had been evicted from her home in October." Paul apparently felt she had to deal with her problems on her own. Others, however, have called for help. According to a January 9th report in the Pittsburgh Post-Gazette, local police received a phone call concerning a 64-year-old resident of Westview, Pennsylvania, who was "apparently distraught over losing his house." When they arrived at the home, they found him "sitting in a lawn chair in his driveway with a rifle under his chin." He was later taken into custody and sent to a psychiatric clinic for "evaluation."

Increasing numbers of desperate souls have also called the National Suicide Prevention Lifeline, which logged a record 568,437 calls in 2008. (There were only 412,768 such calls the previous year.) Similarly, a recent investigation by USA Today's Marilyn Elias found that suicide hotlines in Dallas, Pittsburgh, suburban San Francisco, Hyattsville (Maryland), Georgia, Delaware, and Detroit have all reported "increases in callers since the economy slid." The report added:
"In Boston, more hotline callers with mental health problems mention job losses, evictions or fear that they'll lose their homes, says Roberta Hurtig, executive director at Samaritans Inc. [a not-for-profit volunteer organization dedicated to reducing the incidence of suicide.] In Kalamazoo, Mich[igan], and other locales, callers with mental illnesses such as bipolar disorder say loss of insurance and cutbacks in public health programs are preventing them from getting medications.

"At the Gary, Ind[iana], Crisis Center, suicidal callers with economic worries are increasing, and their depression is more severe, says Willie Perry, program coordinator for the hotline." In Franklin County, Ohio, suicide hot line volunteers are "logging more calls from people in financial distress, says Mary Brennen-Hofmann, coordinator of suicide-prevention services at North Central Mental Health Services in Columbus." She continued, "We have seen a lot more calls dealing with financial problems, evictions, foreclosures and job loss." Similarly, the Hopeline of North Carolina Inc. in Raleigh saw a 50% jump in calls in October and November.

"We get calls from people who are suicidal because the stock market is down," said executive director Courtney Atwood. "They have lost money and are not able to provide for their family." In Los Angeles, calls to the city's "busiest suicide hot line" increased by as much as 60% last year. "A year ago, many of the calls we would get were from people with mental illnesses," commented Sandri Kramer, the program director of the center that operates the hot line. "Now many of the calls are from people who have lost their home, or their job, or who still have a job but can't meet the cost of living."

Not surprisingly, the economic meltdown has also strained marriages and, according to experts, is contributing to a rise in domestic violence. Retha Fielding, a spokeswoman for the National Domestic Violence Hotline, notes that calls increased 18% between October 2007 and October 2008 and attributes the spike to the poor economy. "It is bringing increased stress and violence into the home. Domestic violence is about control. If you lose your job, that's control you don't have, so you may want to have more control at home." Sometimes economically exacerbated violence can turn deadly. On December 9th, for example, 59-year-old Thomas Garrett of Midwest City, Oklahoma, murdered his wife. According to Midwest City Police Chief Brandon Clabes, "Garrett told officers he shot his wife because he didn't know how to explain that they were evicted from their home while she was in the hospital." He apparently planned to kill himself too, but was stopped by the police.

Thirty-one-year-old Eryn Allegra had lost her home as well as her job, and had, according to press accounts, been thinking about suicide for weeks. On Christmas day, the Port St. Lucie, Florida, resident reportedly checked into a hotel, gave her 8-year-old son over-the-counter medicine to put him to sleep, and then smothered him. She subsequently slit her own wrists in a failed suicide attempt. Noting a man's pickup truck parked in his driveway at a time when he was normally at work, neighbors in an "upscale neighborhood" in Manteca, Georgia, entered his home which a bank had recently approved for a short sale. (A short sale often takes place when a buyer in default is trying to avoid foreclosure.) According to the Manteca Bulletin, they found him "lying in the foyer of the home… dead of a gunshot wound." Arriving at the scene soon after, police discovered the body of his wife nearby "and located a firearm near the two bodies."

On January 11th, Pinole, California police responding to a domestic disturbance call found 43-year-old Kimberly Petretti sitting on the curb in front of the home. She was being evicted that morning. Inside the house, which "showed no signs of a preparation for the move," they found the woman's mother, 62-year-old Claudia Petretti, dead -- shot in the head with an assault rifle. According to Deputy District Attorney Harold Jewett, a two-page letter on the scene indicated a murder-suicide plan linked to the family's financial difficulties. "It was a significant event in their lives that may have precipitated this tragic and desperate act," he said.

Last October, a man in Los Angeles, beset by financial troubles, shot his wife, mother-in-law, and three sons before turning the gun on himself. An eerily similar scene replayed itself this week, when another Los Angeles resident apparently killed his wife and five children -- an 8-year-old girl, twin 5-year-old girls, and twin 2-year-old boys -- before faxing a letter to a local television station and then killing himself. "This was a financial and job-related issue that led to the slayings," Deputy Chief Kenneth Garner "In these tough economic times, there are other options. In my 32 years, I've never seen anything like this."

On December 15th, a 41-year-old Dubuque, Iowa man "used liquid pre-shave to set his apartment on fire because he thought he was going to be evicted." On December 21st, a 31-year-old woman who had been evicted from her Orange Park, Florida, apartment, "started a weekend fire that caused an estimated $500,000 in damage" to the complex that was her former home. That same day, a woman in St. Augustine, Florida, "was charged with arson… after vacating a house she was evicted from that was later found burning."

On January 5, 2009, Bobby Crigler, the property manager for Holly Street Apartments in Fayetteville, Arkansas, said, "I went over and had a confrontation with [tenants about an eviction notice], and they got belligerent." After that, he sent the property's maintenance man, his son, 49-year-old Kent Crigler, to change the locks at another tenant's apartment. When friends of the tenant facing eviction spotted Kent, they assumed, according to Bobby, that he was there to evict their buddy. They set upon Kent, punching and kicking the father of four to death, according to a report in the Northwest Arkansas Times.

Generally, however, if you weren't a multimillionaire intent on suicide, what you did to your house, your husband, your wife, your child, your bank, your neighbors, your landlord, or yourself remained a distinctly local story, a passing moment in the neighborhood gazette or a regional paper. And for the range of such acts, unlike sports statistics, there are no centralized databases toting up and keeping score. Every now and then, though, a spectacular act of extreme desperation makes it out of the neighborhood and into the national news. One of these occurred this January, although the media generally played it as a sensational screwball story rather than another extreme act stemming from the economic crisis. In December, Marcus Schrenker, a money manager and sometime stunt pilot, penned a letter that read, in part: "It needs to be known that I am financially insolvent… I am intending on filing bankruptcy in 2009 should my financial conditions continue to deteriorate." They did.

As the Indiana investment adviser grew more desperate to escape mounting financial difficulties and legal issues stemming from accusations of investor fraud, he reportedly hatched a plan that was splashed all over national television as it unfolded. According to news reports, he staged a Hollywood-style getaway from his rapidly deteriorating life, complete with a fake mid-air mayday call, a parachute jump over Alabama, and a faked death from a plane he put on autopilot that crashed in a swamp near a residential area in the Florida Panhandle. Schrenker then raced away on a carefully pre-stashed motorcycle, before being discovered by federal marshals just after he had slashed his wrists at a Florida campsite. He recently pleaded not guilty in federal court to charges that he willfully destroyed an aircraft and made a fake distress call.

Across the United States, people have been reacting to dire circumstances with extreme acts, including murder, suicide and suicide attempts, self-inflicted injury, bank robberies, flights from the law, and arson, as well as resistance to eviction and armed self-defense. And yet, while various bailout schemes have been introduced and implemented for banks and giant corporations, no significant plans have been outlined or introduced into public debate, let alone implemented by Washington, to take strong measures to combat the dire circumstances affecting ordinary Americans.

\There has been next to no talk of debt or mortgage forgiveness, or of an enhanced and massively bulked-up version of the Nixonian guaranteed income plan (which would pay stipends to the neediest), or of buying up and handing over the glut of homes on the market, with adequate fix-up funds, to the homeless, or of any significant gesture toward even the most modest redistributions of wealth. Until then, for many, hope will be nothing but a slogan, the body count will rise, and Americans will undoubtedly continue going to extremes.

Life after the apocalypse
I am standing in a wood with a tall man and a dead pheasant. There is blood everywhere: on my shoes, my hands, my face. Why am I here? Because the man - his name is Leon Durbin - is preparing me for the apocalypse, now. What would happen if you awoke one morning and everyone was dead? Or if, less melodramatically, the world as we know it - and our teetering financial systems - ceased to function? What if you awoke to find your bubble-wrapped, gilded life was over, and for good? Could you survive? Could I?

I am an urban girl. I have no skills except whingeing and bingeing. I can barely open a packet of Hobnobs without an explosive device. But, unlike you, doomed and dying reader, I have decided to prepare for The End, and I am prepared to share the life-saving knowledge I will accrue. This is your cut-out-and-keep guide to the apocalypse. Put it in a drawer. One day you may need it. So you wake up; everyone is dead. For the purpose of this exercise, imagine it's like Survivors, the cheap BBC rendition of the apocalypse, where a plague wipes out humanity and then everyone is mildly annoyed that the trains are delayed. We could imagine total financial or ecological collapse leading to the failure of social structures, but let's say it's a plague. So, how long can you stay in your house?

The answer is: not long. According to the people at the National Grid, the electricity will stop. So will the water. These systems have buttons. Buttons need fingers. Fingers need people who are alive. You have a day, maybe two, of electricity. Then you will be in darkness, with no way of washing your face. What should you do? You can steal food from supermarkets but the rotting corpses on the floor of Sainsbury's will be fetid fonts of infection. And if you try to sit out the plague in your home, you could burn or drown. After a lightning strike, fires will begin and they will not stop. And if you live in London, the Thames barrier will fail without electricity and the low-lying areas of the city will flood.

So you have to leave. But where do you go? The apocalyptic norm - see 28 Days Later and Survivors - is for survivors to sit in desirable country mansions, eat tinned tomatoes, develop post-traumatic psychosis and shoot each other. Never in any apocalyptic scenario in any movie I have seen - and I have seen them all - does anyone try to live off the land. They prefer to feed on the crumbs of the lost civilisation. It never works. How can you rebuild civilisation with tinned tomatoes? You need to grow your own food.

But where? I choose Devon. It is warm and wet and fertile, and I have been happy there. There are cows. This is where I would live off the land, but I need to learn how. This thinking has led me to Durbin and the dead bird. Durbin is tall and tweedy. He is the sort of man who keeps firewood kindling in his pocket, just in case. He owns Wildwood Bushcraft, a company that explains how to survive if you are dropped into the wilderness with no supplies, no warning and no clue. Durbin leads me through the spindly, sleeping trees, pointing out different kinds of branch and bush, and their uses. According to him, the wood is a shop that will give you everything you need. "Willow bark can be boiled to relieve a headache," he says. "Yew is for making long bows. Oak is for shelters. Ash is for tool handles. Have you ever had a beech-leaf sandwich?" I don't bother replying.

To be competent in bushcraft, you have to be well equipped: before you leave the city, stop for a saw, chisel, spade, axe and hunting knife. Durbin has them all. They poke out of his rucksack in a manly fashion. We arrive at a clearing and Durbin demonstrates how to light a fire. He places a small block of wood on the ground and puts a wooden stake on it, point down. He takes a bow, made of wood and string, places it round the stake and, when he moves the bow in a sideways motion, the stake rotates very fast. Its friction with the block of wood magically creates a pile of super-hot matter. It can ignite dry hay or bark. This creates a conflagration that can light a fire.

How will I get water? Durbin runs bushcraft weekends for angry executives here, so he knows where it is. "Water," I cry, lunging at a small stream. "Careful," says Durbin. "We have to filter the water with a sock full of sand. Then we have to bring it to a rolling boil." Why a sock? He ignores me. Food is harder. It is winter and the countryside is closed for repairs. My two main vegetarian foods, Durbin explains, will be burdock root and hazelnut. Both are high-energy. You can make chips out of burdock and you can boil, mash and dry hazelnut to produce a repulsive kind of biscuit. Durbin picks up a spade and starts digging for burdock. He finds some, but it's rotten. "Winter," he sighs. "Hmmm."

So, with a fiendish flourish, I produce a dead pheasant from my handbag. I had spent the day before negotiating with the Guardian as to the legal and moral implications of murdering a rabbit for the purposes of this article. Finally we had compromised, and I had gone to a posh butcher's in Mayfair and bought this beautiful pheasant for £3.50. Durbin looks impressed. "You have to pull off its head," he says. "Just twist it." I close my eyes and twist. The head comes off easily; it feels like wringing out a slightly damp scarf. Then Durbin makes a hole in the pheasant's bottom and I stick my hand up and clutch everything inside. Out comes a squelchy mass of once-living flesh. Durbin grabs the heart and cuts it open. "Very nutritious," he says. I am slightly sick in my mouth. I pluck, and soon I have a pile of bloodstained feathers - and a nude bird. Durbin sticks it on a spit over the fire. When it is cooked, we eat it. It tastes slightly of excrement but I still feel strangely empowered. It was much easier than I thought it would be, to rip this bird apart.

I now have bloodlust. I ask Durbin how to trap animals. I could theoretically shoot them, but trapping is more suitable for the lazy or incompetent survivor. He looks slightly nervous. "It's illegal," he says slowly. But I prod and he tells me about different types of trap. I could try the pit trap, he says, where you dig a hole in the forest floor, line it with sharpened stakes and camouflage it. It is for large animals - deer, wild boar, parents, other journalists. There is also the deadfall trap, which is for small animals. They saunter over a trigger mechanism, and a lump of wood falls on their head. Bon appetit and ha ha.

But what would I eat if I couldn't trap? "Bugs," says Durbin happily. "Worms." There are 40 calories in a worm, apparently; this is the equivalent of two Maltesers. "Or snails," he adds. "But quarantine the snail for three days before you eat it. It may have eaten poisonous plants, and you will have to wait until it expels them." Now you need shelter. If I had the choice, I would probably look for a small stone cottage - hardy and easy to maintain - but if I am foraging, I have to go to where the food is. So Durbin shows me how to make a survival shelter. He hurls logs up against a tree trunk, and covers them with a foot of leaves and bracken and mud. "It is waterproof," he says. I climb in and lie down. It is a hole that only a troll could love. But there they are, the four pillars of survival: food, water, fire and shelter.

The next day, I go to Pullabrook Wood in Devon to practise my skills. It was easy to survive yesterday, with Durbin standing by. Can I cope alone? Pullabrook is a lovely wood, administered by the Woodland Trust. It is full of happy Tories and happy Labradors. But now I have my own mini-apocalypse. I fail at bow drilling. I find a stream, but a happy Tory says the water is poisonous, even if filtered by sock. Why? "Because sheep droppings have contaminated it," he says. Death by Sheep is only slightly behind Death by Snail in the encyclopaedia of embarrassing ways to die. The first shelter I build is too small for me to enter. My second shelter collapses. I decide to abandon bushcraft. I will try my hand at farming. Woman cannot live on worm alone.

So, a few days later, I am standing inside an Iron Age roundhouse at Butser Ancient Farm in Hampshire. Butser is a project that re-enacts Iron Age life. The roundhouse is huge and round and dim. I feel a bit as if I am standing inside a giant breast. Steve Dyer is the archaeological director. He is tall and red-faced, with a frizzy white beard. "Roundhouses are easy to make," he says, waving his arms. He points out two animal skulls, tied to the entrance posts. Is that a cow's skull? Dyer grimaces politely. "It's a horse," he says, before proceeding to tell me how to make a roundhouse.

The ingredients are: 27 large oak trees, 60 small oak trees, 100 hazel trees, 100 ash trees, wheat straw for thatching, and animal hair, clay, manure, soil and water for the walls. You will also need animals. Dyer escorts me to his pigpen to meet two nameless pigs. To domesticate animals, he says, you just have to enclose them in smaller and smaller areas. Provide them with what they need - food, water and attention - and they will obey you. You can then eat them, and peel them, and tan their hides for soft furnishings. But beware of sheep, he says, waving a bright red finger. "I know this guy called Si," he says. "He approached a frisky ram. It jumped up and broke his nose." I am back at Death by Sheep.

I telephone the psychologist Cecelia De Felice. I want to know if I will go insane in my new one-woman world, especially when faced with tasks such as chopping down 27 large oaks. "You will be in a state of trauma," she agrees. "You will quickly become lonely and paranoid. It is possible you will have a breakdown." And if I meet other survivors? Be cautious, she advises. "They too will be lonely and paranoid. Of course you are stronger in a group. But you do not know whether they will help you or just steal your resources. Trust no one." I am (vaguely) confident I will not starve. But there is one other thing I am sweating over: nuclear power stations. Professor Alan Weisman wrote The World Without Us, a description of what he believes would happen to Earth if we all vanished. I call him. He says I am right to worry. Why? Because most nuclear plants are water-cooled.

Water, he explains, in a dry, calm voice, needs to circulate around the reactors, or they will explode. If there were no humans to operate it, the plant would shut down automatically, and the water would be cooled with diesel fuel. For about a week. Then the heat from the reactor would evaporate and expose the core. "It will either melt down or burst into very radioactive flames," he says. So what would you do, Professor Weisman? "I would probably go to Canada," he says. "There aren't many nuclear power stations in Canada."

So, it comes to this. No matter how hard you try, Britain will probably become a nuclear wasteland. The snails that are your lunch will either die, or look very weird. So, again, what to do? My considered advice is this. You, Guardian reader, need to begin building a boat - a sailing ship, actually - to take you to - yes, Canada. Before you leave the city you should pause at a library and steal the entire boat-making and maintenance shelf. Canada may be your only hope of salvation. And that is as fitting an obituary for our civilisation as I can type. In The End, it turns out you don't just have to be the heroine of Survivors. You need to bloody well be Noah too. Happy apocalypse.

It's not all bad: Fun things you could do after the apocalypse
• Pop into the National Gallery and take Jan Van Eyck's Portrait of a Man off the wall. (If you have no taste, take a Renoir.) The Van Eyck is hanging in the Sainsbury Wing. If you want to preserve it properly, Thomas Almeroth-Williams of the National Gallery suggests you store it in a slate mine, where the temperature and humidity levels are perfect for its conservation.
• Go to the British Library and help yourself to one of its two copies of Shakespeare's First Folio. One is in a box in a strong room under the library floor; the other is in a glass case in the Treasure Room. If you want to preserve it properly, Helen Shenton of the British Library suggests you store it in a cool, dark place, and watch it carefully for infestations by animals or fungi. Dust regularly.
• Steal the crown jewels. If you can. "There are contingency plans in place in event of a power failure," says a Royal Palaces spokesperson, "so the crown jewels should remain safe." Really? To preserve them properly, do nothing. A diamond is for ever.
• Invade the News of the World - it's in Wapping - and read all its secret files. Then break into M15. It's on Millbank. Read all its secret files too. Oh, no! She was murdered! I knew it!
• Go and stand on the stage at the Theatre Royal, Drury Lane. Skip over the bodies of the dead actors. Re-enact the whole of Oliver!

The vital skills you will need

How to make bread
I type this in full because I want bread at The End, and I want you to have it too (should you survive). So, clear the land, turn the soil over to create furrows, take seed from any wheat growing wild, sow it 20cm apart and kick the soil over. Make sure that the birds don't eat the seed.
Stop browsing animals by hedging the field off and root out weeds. When the corn is ripe, thresh it by hitting it with a stick and mill it by rubbing it between large stones. Add the flour to water to make dough. Stick it in a pan on the fire. Result? Wholemeal flatbread!

How to make sanitary products and toilet paper
Find some sphagnum moss and use that. It is very spongy and it contains iodine, so it is slightly antiseptic.

How to eat snails
Always, always quarantine snails before eating them. Take the snail and put it where there is nothing for it to eat. Ignore its cries of hunger, leave for three days and then consume.

How to purify water
Collect the water from the purest source available, ideally a spring, minimising sediment and avoiding chemical contamination. Filter it through a sock full of sand. Sterilise the water by bringing it to a rolling boil for a few seconds.

How to clay bake a fish
Wrap the fish in large leaves, tying up the parcel with nettle stalk. Dig for clay in the earth. After combining the clay with water, cover the fish with a centimetre of clay, leaving no cracks. Scrape a shallow pit in the centre of the fire and lay the fish in it. Cover the fish with embers. After an hour, remove the fish and crack the outer shell open. The fish should be perfectly cooked.

How to remove the skin from a cow
You can kill a cow by strangulation apparently, although I have never met anyone who has done it. Or you can cut its throat, or spear it through the heart. Split the cow along its belly from the groin to the throat. Remove the internal organs. Hang the cow up by its hooves for several days to let the blood run out. Cows are heavy, so do not attempt to do this alone. To take the skin off, slide a blade or a sharp stone between the skin and the flesh. Once you have inserted the tool a little way, you can just peel the skin off.

How to shoot a deer with a bow and arrow
Deer are sensitive to human noise and smell. If you stomp through the wood with a bow and arrow you will never find one. Find out where the deer are going to be - they often walk the same way to the same place. Camouflage your scent, be quiet and do not move. When you see a deer, shoot it from 20m away. You ideally need a kill shot, eg in a lung. You don't want to hit it in the bottom, because it will run off and you won't get your dinner.


Anonymous said...

"...thanks to Milton Friedman and neoclassical economics in general, the Fed ignored the run up of debt that has caused this crisis, and every rescue engineered by the Fed simply increased the height of the precipice from which the eventual fall into Depression would occur.

Having failed to understand the mechanism of money creation in a credit money world, and failed to understand how that mechanism goes into reverse during a financial crisis, neoclassical economics may end up doing what by accident what Marx failed to achieve by deliberate action, and bring capitalism to its knees."

Anonymous said...

Being and economics dilettante my brief against Friedman is a mile long. I have some support from Doug Noland.

Don't know Doug Noland? He as written a mostly weekly column for 10 years on what he called the credit bubble. Doing it from the inside, well the fringe of the inside of the financial world. With an small investment firm specializing in mutual funds designed to perform well in bear markets. They performance was terrible from 03 through 07 of course. The firm was sold and moved but he is still on board. His archives are not available for search right now. They should be saved for posterity.

This weeks column. Note he devotes most of his column to recapping the weeks news. The meat is the comments down page which will have a header matching the columns name.

There might be an ideological mismatch with some here in that he is not a libertarian nor hard money guy. Always working on the belief the banking and financial system could work. I come from that world too but now it's all academic. A rhetorical game of what if.

Ilargi said...


"Don't know Doug Noland?"

We have posted a lot of Noland here. Get with the program. Take some time to read before you say such things. It makes you look empty.

Anonymous said...

"...We may call them "assets" till we're blue in the tonsils, but most of these "assets" are wagers, slips for bets on horses that lost the races they were in."

That is pure poetry.

When I used Ilargi's new expression for bank 'assets' as "wagers, slips for bets on horses" to a friend who thinks the banks won't die, like Tinkerbelle, if only we all would 'just believe', I could finally, finally see a flicker of awakening in their eyes that All is Not Well.

Hark the Dawn.

Anonymous said...

It's just in the last few days that this fact has really sunk in. The realization that all complex societies eventually collapse.

It's a scary thought and truly frightening. All that we are used to, the life we lead, the things we use daily could all be gone in the blink of an eye.

If it's not the gamblers in the wall street and london city casino dens, than it will be the 800 million cars guzzling petrol all over the world that will eventually cause us to succumb to peak energy.

William Catton, author of overshoot and collapse has an interview on google videos, where he says that we should enjoy the precious moments we have here. There have been millions of species that have overshot and collapsed and we are but one of them.

We can't beat our biology to compete and want more and more. So either way, whether it's this year or 20 years from now. The inevitable can not be escaped from. We were doomed to dieoff the day we came into being as a species.

99% or more of the species that have ever lived on earth are extinct. There is nothing special about humans that says it will be otherwise for us.

Anonymous said...

Someone was looking for signs a while back. Maybe the comment section of one of the articles has some.


el gallinazo said...

Barring a thermonuclear war that leaves nothing but cockroaches and glow in the dark cadavers, it is very unlikely that the human species will go extinct any time soon. It is just too freaking adaptable. Let's not confuse a 60-90% die off back to Terran carrying capacity with extinction. Let's not confuse our personal extinctions with that of the species in general.

Anonymous said...

Frank posted this at club orlov today.

I believe in worldwide Ponzi schemes and universal gullibility. I believe that reckless lending can be cured by reckless borrowing and that fraudulent borrowing can be healed by fraudulent lending. I believe that a housing bubble fueled by loose credit can be corrected by easing credit. I believe that each trillion of hallucinated dollars that disappears in a puff of Wall Street smoke then always reappears magically from behind a Treasury Department mirror.

I believe in America's almighty financial geniuses and monetary officials, who destroy wealth indiscriminately and indefinitely, and whose kingdom shall have no end. It is divine justice that those who cause financial catastrophes are rewarded with public money, while innocent bystanders are punished in their stead. I believe that central banks can print all the money anyone will ever need. I believe that if one stimulus package does not work, the next one surely will.

I believe in the redeeming power of financial complexity. I believe that hedge funds and sovereign wealth funds are righteous to enter into incomprehensible contracts having convoluted ownership and no inherent value. And I believe that opaque, secretive companies which pretend to insure those investments are offering a valuable service, even if this requires the use of public money.

I believe that economic stability and confidence will return when every failing business is bailed out, with no failure too small to be left behind. I believe that all dying institutions shall be consolidated, merging the smaller basket cases with the larger ones. The lion and the lamb shall lie down together in a new spirit of national competitiveness.

I believe that the end of days shall come when there is only one institution left, comprehensively unified, far too big to fail, owning everything and controlling nothing. All shall come and supplicate before its holy ATM machines, for they are subtle and quick to anger. It is in this one true financial institution that I put my faith, truly gigantic, truly bankrupt, amen.

There's only one thing to add, YES WE CAN!

The Lizard said...

Jesse's Cafe on the youthfulness of the men who brought the world to destruction.

A week ago today a family I'm close to memorialized the loss of their grandfather, who flew aircrew on 96 missions over Germany with RAF Bomber Command, receiving a DFC with bar.
By war's end this man was only twenty-four years old.

You can ask a great deal of a young man, if what you ask him to do is heroic, grand, physical, and involves wearing a uniform. Very young men saved us from the Nazis and from the Japanese Empire.

But left to themselves -

The comments here periodically lapse into discussions about survival and the reforms a new society must implement.
To their lists, might I suggest we bring back the idea of apprenticeship. Apprenticeship was never just about training: it doesn't take seven years to learn to run a lathe. But it takes longer than that to make a machinist.
Apprenticeship is aculturation - now a dirty word for two generations or more. Aculturation teaches you what you are committing your life to beyond supporting your own existance.
What defence of civilization could be expected of people who have never read anything except Atlas Shrugged?

Anonymous said...

Stiglitz has apparently coined what appears to be a useful meme for the Bad Bank approach: "Cash for Trash".

Stiglitz Criticizes Bad Bank Plan as Swapping ‘Cash for Trash’

Also interesting was the quote by the President of the Philippines: "We want Americans to do something,"

Interesting phrasing. Not "do the right thing" but "something". And the "depend on Big Daddy" mindset is also troubling. I know they can think for themselves. The times are going to force them to do so.

Anonymous said...

Well, since it's almost Superbowl Sunday here in the States, anyone up for some bets?

I'm betting that California won't pass a budget by midnight Sunday.

I'm also betting that there won't be riots on Monday, as I think the Politicians have figured out a way to delay things under Obama whips out his Stimulus Package.

The Disabled here are supposedly good for now, as somehow they've managed to get the Feds to pick up the tab for a bit (according to a one-line statement I saw in just one paper).

Those hurting for money, and who filed their Income Tax statements early to get a quick refund are hosed. They just get an IOU for now.

I haven't heard of any danger to the unemployed yet. Just IOUs for everyone else.

Last I heard, California was going to get $19 Billion to balance its budget. So I think the Pols are going to wait for the Cavalry to arrive before doing anything.

What a mess. And this is either the 6th or the 8th largest economy in the world.

Oh yes, my final bet. We'll see a repeat of this next year.

Stoneleigh said...

IMO the rally-that-didn't-look-like-one (ie the long sideways counter-trend move) is over, and we should see a significant move to the downside before a more notable rally. This will probably be accompanied by some alarming news, not because things have become inherently more alarming, but because when fear is in the ascendancy people focus on the most negative things that are going on. A downward move would probably terminate in a fear-driven spike low, which would be the kick-off for the next (larger) rally.

I would expect a resumption of the decline in equities to be accompanied by a rising US dollar, falling bond yields, falling commodity prices and falling prices for precious metals.

Stoneleigh said...


Thanks for that link. Everyone should read it as it goes to the heart of the credit economy and the rationale for deflation.

Anonymous said...

[rant on[ It seems odd...I keep waiting for some member of the "bankster"class to admit,in public,with at least a shred of humility,that they are responsible for what is shaping up to be a world wide collapse that will likely result in the deaths of millions upon millions of us "Krill",but,its as if to admit this truth,the floodgates of heaven would open and wash these presumptuous,ideologically-chained fools to the oblivion they so deserve.

There will be a trigger.I do not know what it is at this time...and Obama is very wise,and can recognize the type of things that will draw those who are now completely preoccupied with staying alive,out to the streets.

Things like that leaked phone conversation with BOA and the home depoe thug,[excuse me ceo]

Most of us are to busy scrambling to keep it wired together to think political/active/demonstration/ect....That could change...depending on the speed and severity of this continuing nightmare in the employment world.When we start seeing 20-30....40% real unemployment,and 10-20 homelessness of families...with kids..and the sallow faces,and swollen bellies of starvation here...

My brother has always been the quiet,more stable of the 2 of us.A absolute top shelf/bleeding edge robotics/RFID programmer of the first water [on his 3 startup],He dumped the republican part 6 years ago,and pays very close attention to whats going on in the world.[Does currency trading for a hobby.]

He has always been the one to talk me down if I get spooked about what I see going on.As of this weekend that has changed.He is the one spooked now.[As am I.]I don't know if other folks are noticing it,but it seems to me as if the last few weeks the tempo of the bad news is increasing.We have had a steady beat of wham wham wham of bad stuff..but the timing has been such that it seems to be being dealt with timely and effectively by the new team,not missing a beat with the handoff from the bush team

Its probably just the focusing of the media on the economy alone ,w/o the distraction of the ongoing political turmoil,although the "new kids on the block"are starting to kick over rocks that have lots of crawlies underneath.This I guess will be the state of affairs for the next few years I guess,until the more obvious/majority of political nastiness is public knowledge.The bush years were 8 years of criminal behavior by those who saw their position in .gov simply as a way to enrich themselves and their friends.

This cannot be allowed to be swept under the rug.The damage done to our country is monstrous.Much evil was done by those in power."because they could".

It sometimes gets to me to the point I cannot listen to some radios programs as the rage is hard to swallow,and does nothing productive...Thom Hartmann,and Randie Rhodes are excellent source of hardcore information,and daily reports of whats happening in washington,but sometimes their news hurts.Bad.We,as the citizens of this country,have been wronged,so very badly ,by our leaders.Their actions have resulted in the destruction of 2 societies,and the probable collapse of the world economy,with all the misery and death that will go with it.

I ,[honestly]am fairly sure the majority of those who are responsible for this situation we common folk find ourselves in will never face the bar of justice.Nor,will those who ransacked the treasury,and stole the resource of our nation with impunity ever pay for what they did.Its not the way of things anymore,it seems.In some ways,this is the very greatest crime of all those committed by bush.

That we all expect the wealthy and connected to rob and loot,and steal,lie...imprison w/o trial or due process,kill by the tens of thousands.And at the end ,walk away with no trace of remorse,or the slightest guilt .They believe,and want you to believe,that it is their RIGHT to act in this manner as god has given them the power to do as they wish.[check out christian "Dominionist"[sp?]thought.[there is some very strange/sick theology batted about there]

I am just a mid-50s,ex-techy type living on a little patch of ground halfway back in the woods of Oregon.I spend a lot of time talking to folks back in the woods,and in town,and know where a lot of peoples heads and hearts are now.My job keeps me on the move,constantly interacting with all sorts of folks all day long.

People are all scared stiff right now,any who are still working,cause they all know there is no work next quarter...and damn little this one...and still they got bills...

But a lot of them now have gone past scared and are starting to get bone mad.They know that it wasn't them or their's or anyone they know that caused this shit.They know it was greedy corp. thugs,like the loan officers,and other lower-life forms they have had to deal with at the banks.They know it was the wealthy ones who dine well and dress better.

I leave you with a bit of advice,if "insider" or any of his type are still around.You had better park the status ,drive a beater,[like a old toyota],tell your trophy gold digger to put her girls best friends in a box...go buy some used ,rough clothes to be seen in.and start to practise keeping a low,low profile.

There is going to start being folks that will make a point now, to find those that they may consider "responsible"Remember all those times your name was in the paper?and you were associated with that bank that went down...hurt all those people...That was YOU wasn't it?

Or now that they have nothing to lose,the predators will start to come out,like they did in Argentina.The well-to-do here in the USA are not used to living as that class must in other countries.Constantly on guard,no "safe"" place...always scared of kidnapping,or worse. That class has been the strong supporters of the republicans for ever.They are now going to get to see up close and personal what the end result of the policies that they have endorsed so wholeheartedly.They normally can live with the assurance that the police and attorneys,and their money can ease their own,and their families way thru any crisis.Where we are going now,that,in many cases will not be possible.[Karma payback in spades]
[rant off]

Be good,or failing that be careful folks...


Anonymous said...

"It seems odd...I keep waiting for some member of the "bankster"class to admit,in public,with at least a shred of humility,that they are responsible"

You need to think like a Banker. Here's a quote from Davos on Bloomberg today:

“No banker or businessman wants to take responsibility,” said Dilenschneider, who counts 40 Davos delegates as clients, their identities shielded by confidentiality agreements. “It’s their view that everybody else did something wrong.”

I think there will be a long wait. The people in the Banking/Financial industry have been in their own fantasy land for years. It's hard to let that go.

And that is the big problem for the Presidential Economic Team. They did nothing wrong, and they want to return to yesterday. You know how this ends.

Nice post, btw.

Anonymous said...

It seems to me apparent that, at the very moment government spending is increasing enormously while at the same time governments dare not raise taxes, government revenues such as those from corporate and personal taxes are going to decline hugely. Just as one example, Honda's profits in the last quarter were said to have declined by 90%.

Someone correct me if I am wrong, but there seems to be little coverage or speculation about the hole that that governments are digging for themselves here. The media seems not focused at all on this very important question.

Furthermore, few western governments are talking about cutting spending or reducing the role of government.

Take New York City, for example. Between 2000 and 2007, New York City's tax receipts grew by 41% **after inflation**. There were huge property tax increases. Despite that, I am reading that Michael Bloomberg since coming into office (or should that be "coming into power"?) instead of cutting other parts of the budget [and using] the city's swollen coffers to service debt and pay for capital projects out of operating spending, he chose to increase borrowing. Between 2000 and 2007, NYC's debt grew by 5.7% annually and will continue to grow by 5.9% annually over the next four years. In other words, spending in real terms was up over 40% over 7 years and it seems on top of that borrowing was up too by a similar amount - the road to ruin. Yet if you walk around NYC today, it's hard to see that this money was spent to improve the ageing infrastructure or the lives of those who live or work there.

In many countries nearly half those working are working directly or indirectly for government yet this must be paid for by the remainder still working in the private sector. And we cannot all provide services to each other, people need to create wealth however that is defined - whatever it is, wealth it is not created by providing more and more services.

Local and central governments over the years built huge infrastructures. It extends to mundane things like unnecessary traffic lights and all that urban infrastructure that once created has to be maintained and paid for in perpetuity by the "taxpayer".

One way for politicians and local officials to increase their power or the importance of their function has been to demand ever increasing budgets and powers. The NHS in the UK (with a hugely expensive government imposed management structure) is one example.

This might be a theme for Ilargi or Stoneleigh in a future TAE.

And also the tendency for people to demonstrate and ask their own governments to fix the problems we see today, problems that their own governments (mostly still in power) themselves created. Do they want government to do more, not less?


Anonymous said...

The NHS in the UK (with a hugely expensive government imposed management structure) is one example.


Very true.

My wife is a GP working for the NHS through a the usual set up. The net earnings of GP's have been dropping for years - although the newspapers like to say otherwise. Spending on the NHS has been increasing over the same period. Guess where the increased spending is going - certainly not on "front-line services".

My wife is very busy and has no time or inclination to read blogs like this one. She gets her information from me and she knows that I am giving her the real stuff as I also read the FT on a daily basis.

The amazing thing is that her colleagues are so brainwashed by their sources of information that they are all deeply in debt. They assume that she is saving so as to put a deposit on some English overpriced hovel - to use the phrase our illustrious hosts used on one occasion.

At their partners' meetings, she has to contend with the constant expectation that underlies each decision - that things will get better. Denial is a dreadful thing and these are people who are constantly dealing with tragedies on a daily basis during their working day.

el gallinazo said...

Great rant, Snuffy. Sent it out to my general mailing. Your royalty check is in the mail.

Anonymous said...

The five stages of economic collapse (cribbed directly from Wikipedia):
1. Denial: * Example - "I feel fine."; "This can't be happening, not to me!"
2. Anger: * Example - "Why me? It's not fair!" "NO! NO! How can this happen!"
3. Bargaining: * Example - "Just let me live to see my children graduate."; "I'll do anything, can't you stretch it out? A few more years." I will give my life savings if..."'
4. Depression: * Example - "I'm so sad, why bother with anything?". What's the point?"
5. Acceptance: * Example - "It's going to be OK."; "I can't fight it, I may as well prepare for it."

I'd say we are pretty much done with stage 1 and are starting on stage 2. I'm hardly the first person to draw this comparison; a Google search found this (far more pessimistic)article by Dmitry Orlov (who has been cited many times here on TAE):

Anonymous said...

Snuffy, I can see by your rant that you don't understand what precitated this crisis. Who enabled the banksters? Why were government guarantees provided for mortgage losses? What policy directives motivated these decisions?

Until you recognize that the fatal flaw in every socialist dream devolves into raiding the treasury to finance sordid vote buying, then you will fail to see how bankster enablers sold the gov't the very rope they are now hanging themselves with.

Oh, as for the well-to-do middle class being afraid of the desperate poor? LOL. At least here in the US, they are armed to the teeth and well prepared. Haven't you heard/read any news about the unprecdented levels of gun/ammo sales? There are empty shelves and backorders - it's a veritable growth industry.

My advice to welfare dependents who have their funding terminated is to stay in the inner-cities unless they want to get their clocks cleaned.

Oh, and as for your lord protector, he's a lame duck not 2 weeks into his administration.

Anonymous said...

I’m going to take the other side of the argument.

When I look at the chart of all the “bail outs” and see that the slope is still going down, instead of saying, “The bail outs didn’t work”, I say, “The Bail Outs worked”. They did not save the markets, they did not save the financial systems BUT rather they bought more time to try to find a solution.
Without the “bail outs” we would have plunged off a cliff and be where we are today (or worst) in a matter of weeks not months.

After reading the Davos literature it is clear that everyone there realize the magnitude of the problem, the causes and realizing that they don’t know what to do to avoid “full disclosures” and the resulting collapse. “Dr. Doom” is having trouble hiding his glee and not rubbing in “I told you so”.
“Dr. Doom” is even toning down his final message and predicting a 3 to 4 year depression.

The experts seem to be of a singular mind set, “We know that we are f*cked but if we admit it and let the public know then it will be even worst.”

Apparently, there are Trillions of dollars that is now sitting on the sideline waiting for the denouement.
(Nobody is counting the few dollars that I managed to pull out from the system).

I’m thinking of going on a spending spree. Maybe I’ll go to Vegas and see it before it’s gone. Maybe I’ll splurge and bet the maximum on the penny machines or the nickel machines.

scandia said...

Snuffy,I had a strange dream last night that Obama asked for asylum with the people. A million strong swarmed the White House and just wisked Obama,Michelle and the kids away to a safe house. There he told his tale of dark doings and not only rec'd the people's protection but he led the revolution legally with documented evidence he's been stashing all along to warn the people.I wonder if he had an exit plan prepared before he took office? Sure as hell hope there is a code that alerts friends that he needs to be rescued.Upgrading Raytheon from lobbyist to seat at the table status tells me he is in trouble.
I was so sorry to awaken and find him spinning for the dark side still.Maybe this week...?

Anonymous said...

Thought you might be interested in this - a rather large multinational agro company has decided, ostensibly, to become a bank, loaning money to farmers to buy their seed and ferts.

It also predicts a 'stabilisation' in the worlds population.....


Anonymous said...

Sorry pineapple 5 stages don't apply to me.

I am with snuffy

Anonymous said...

I know this isn't a political blog, but in light of the theme that "Change We Can Beleieve In" is double speak for more of the same. Here is the morning headline in the LA Times this AM. "CIA Retains Power to Abduct: Obama preserves rendition program, a counter-terrorism tool whose role ... might expand."

Stick a fork in it and check to see if this guys 4 years are up yet.

Yeah ... that's right I voted for him ...

Anonymous said...


I would agree that time has been bought. For $8 Trillion.

The question is: was it worth it?

Keep in mind that chart from yesterday, which showed that we paid more for that delay than all the major expenditures of the past combined, in 2008 dollars.

That includes the Louisana purchase, WWI, WWII, the Marshall plan, NASA's programs and I forget what else.

Was it worth it? Doesn't that chart give us a little clue of how useless it was? And things are still broken. More money is required.

Nor is the full bill added up. We're still dumping trillions into this hole. Our grandchildren will be paying for it.

So, if the system is still broken, and no fix is remotely on the horizon, and things will still fail, is it really worth it?

Anonymous said...

Here's an interesting article. The news from the Elite Masters of the Universe:

No answer at Davos forum to global meltdown

"Everybody's lost in Davos," said Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy in Singapore.

"No one seems to have a clear understanding of how big this crisis is and what we need to do to get out of it." he told AP. "My own view is that you really need to do a fundamental reexamination of the whole global system to see what went wrong, and nobody here is yet ready to ask these kinds of fundamental questions in Davos."

IMHO, it's time to start heading for the lifeboats.

Stoneleigh said...

Weatherman (from Jan 29th),

I believe that there is little systemic risk in the market for normal commodity, currency and interest rate swaps that are a necessary part of modern commerce, because the underlying physical markets are working, ie, there is continuous price disclosure.

I'm afraid I do think there's systemic risk in those areas (that constitute some 80% of the derivatives market). It may take longer to be realized than in other cases though, depending on how quickly thing unravel.

I think we will see a chaotic currency regime once things really hit the fan - with competitive devaluations and extreme volatility. Interest rate moves could also be sudden and sharp, which would lead to counter-party risk being severely tested.

So, are you more concerned with derivatives based upon credit defaults and mortgage-backed securities and other CDOs, where the market for the underlying asset is broken, and no value of the underlying asset, or of the derivative contract can be determined?

I think these 'assets' are more vulnerable in the shorter term, but a meltdown there could easily precipitate a wider derivatives crisis affecting currency relationships and interest rate bets. In times of cascading markets, events can proceed very quickly. That doesn't mean everything comes down around our ears at once, as there will be sucker rallies all the way down, but rapid moves can pull the rug out from under people's feet quite abruptly.

This is why we tell people to prepare now by cashing out rather than trying to play these markets until the bitter end. Although you could make a lot of money if you're lucky, you stand a far larger chance of getting stuck along with everyone else and losing your shirt.

Or, is your concern mainly that some counter-parties to the derivatives contracts may not be able to meet their obligations due to deteriorating credit conditions?

Counter-party risk is huge, but is mostly unrealized as of yet. A large percentage of losers will not be able to pay, which will impact on the ability of winners of those bets to pay off on their own losing bets elsewhere. As Mish colourfully put it, most CDS are ultimately guaranteed by Madame Merriweather's Mudhut in Malaysia, or equivalent.

My understanding is that most intermediaries in the derivatives markets (ie, JPMorgan, BofA, etc.) lay-off most of their exposure by means of offsetting contracts. That is to say, their exposure to contracts which are 'in the money' is offset by offsetting positions in the mirror-image contracts which are 'out of the money'. And when you are left holding an undesirable position, there is sufficient liquidity to quickly exit or unwind this position. Of course this action immediately crystallizes your loss or gain.

That's how it's supposed to work, and in some cases it will. I think many parties will be stuck however, as liquidity can dry up very quickly. The problem is that the degree of leverage means that a relatively small percentage of defaults can represent disaster, and I think we're looking at far more than a small percentage of defaults over the next couple of years.

My guess is that your concern is with the sheer enormity of the derivatives market itself, combined with the collapse of the economy, the vaporisation of credit, the extreme volatility of the physical commodity markets, and the collapsing balance sheets of the major participants and intermediaries, combined with the lack of disclosure as to the impairment of the values of derivatives held by public companies. I can see that this might be worrisome.

LOL! I can see how it might be worrisome too, to phrase it as a considerable understatement.

However, all derivative contracts have expiry dates, so the valuation problems will last only so long before we see what the real losses and gains turn out to be. And there will be both winners and losers depending on which side of the bet was taken. So if JPMorgan loses $10 trillion, I guess some lucky counter-party made $10 trillion.

The winners are only lucky if the losers can pay.

The derivatives markets are probably shrinking naturally due to shrinking economies and falling commodity prices along with diminished credit availability and lack of appetite for risk amongst all parties.

I'm sure this is true. Some positions will be unwound uneventfully, but many others will not.

Is there any information on what happened to Lehman Bros' derivatives exposure after all their contracts were unwound? This should be an indicator of potential losses for other banks.

I don't think the real fallout from Lehman's collapse will be clear for a long time. Derivatives markets are notoriously opaque.

Anonymous said...

Orion said... "Our grandchildren will be paying for it."

No they won't ... unless they can fix the system

Anonymous said...

In the four seasons of the year, my pleasure is the same as others.The way transcends the form of nature.

The thoughts enter the ever-changing winds and clouds.

If a man does not indulge himself when he is rich and poor, and can be happy when he is poor and low,

He is a hero

Ch'eng Hua 1032

I suppose it might be worth considering the arcane writings of some ancient Taoist, especially in light of all the morose societal and economic predictions of late. But even some gloomy chiaroscuro needs a ray of light to describe itself--the necessity of contrast--and so I will take pleasure in the simple and indescribably beautiful sounds of a Joaquin Rodrigo, or some other easily accessible aesthetic pursuit. Real beauty is the great elixir, and not necessarily of the sentimental variety. Auguste Rodin wrote:

" There is nothing ugly in art except that which is without character, that is to say, that which offers no inner or outer truth.

" Whatever is false, whatever is artificial, whatever seeks to be pretty rather than expressive, whatever is capricious and and affected, whatever smiles without motive, bends or struts without cause, is mannered without reason; all that is without soul and without truth; all that is only a parade of beauty and grace; all, in short, that lies is ugliness in art.

" When an artist, intending to improve upon nature, adds green to the springtime, rose to the sunrise, carmine to to young lips, he creates ugliness because he lies.

" When he softens the grimace of pain, the shapelessness of age, the hideousness of perversion, when he arranges nature--veiling, disgusting, tempering it to pleasure the ignorant public--then he is creating ugliness because he lies.

"To any artist worthy of the name, all in nature is beautiful, because his eyes, fearlessly accepting the exterior truth, read there, as in an open book, all the inner truth.

" For him life is an endless joy, a perpetual delight, a mad intoxication. Not that all seems good to him, for suffering, which must often come to those he loves and to himself, cruelly contradicts his optimism. But all is beautiful to him because he walks forever in the light of spiritual truth.

'Yes, the great artist, and by this I mean the poet as well as the painter and sculptor, finds even in suffering,in the death of loved ones, in the treachery of friends, something which fills him with a voluptuous though tragic admiration.

" At times his own heart is on the rack, yet stronger than his pain is the bitter joy which he experiences in understanding and giving expression to that pain. In all existence, he clearly divines the purpose of Destiny.Upon his own anguish, upon his own gaping wounds, he fixes the enthusiastic gaze of the man who has read the decrees of Fate. Deceived by a loved one, he reels beneath the blow; then, standing firm, he looks upon the traitor as a fine example of the base. He salutes ingratitude as an experience which shall enrich his soul. His ecstasy is terrifying at times, but it is still happiness because it is the continual adoration of truth.

" When he sees beings destroying each other; when he sees all youth fading, all strength fading, all genius dying, when he is face to face with the will which decreed these tragic laws, more than ever he rejoices in his knowledge,and, seized anew by the passion for truth, he is happy."

Starcade said...

Anon 835: I think the best advice for the middle-class in your scenario is to shoot first and to start shooting now. Because the welfare class _WILL_ riot once the checks are stopped, and no later.

Anonymous said...

What's this phobia of the welfare class all about? As far as I"m concerned, the primary welfare recipients are the banksters and the corporations in general.