Thread: Bear Stearns exposed as a bank saddled with toxic sub-prime

Bear Stearns exposed as a bank saddled with toxic sub-prime debt

By Ambrose Evans-Pritchard
Last Updated: 12:07am GMT 16/03/2008

Big American finance houses have collapsed before. Continental Illinois required a $4.5bn (£2.25bn) bail-out in 1984 after coming to grief in Texas as the oil boom deflated.

The giant hedge fund Long Term Capital Management was saved by a club of banks in 1998 under the guidance New York Federal Reserve. The fund blew up after Russia's default, which ravaged its portfolio of Danish, Italian and Spanish bonds.

On both occasions the US economy was in rude good health. The damage was quickly contained.

The implosion of Bear Stearns is more dangerous.

A host of other banks, broker dealers, and hedge funds have played the same game, deploying massive leverage at the top of the credit bubble to eke out extra yield. Dozens of them are saddled with the same toxic debt - sub-prime property, credit cards, auto loans, and mountains of unsold paper from the merger boom.

This time the market for default insurance is flashing bright red warning signals across the entire spectrum of US finance.
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The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.

These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry. Hence the dramatic move by the Fed this week to offer a $200bn lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral.

Had the Fed delayed, many traders believe Wall Street would have plunged through resistance levels risking a full-fledged crash.

The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn.

They are still battling to raise enough to capital to save their 'AAA' ratings. Should they fail, the insured bonds will be downgraded in lockstep. Pension funds would be forced to liquidate huge holdings. As New York Governor Eliot Spitzer said before his own liquidation, such an outcome is too dreadful to contemplate.

You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.

Although 4,000 US banks failed in the early 1930s (mostly small ones), it was a long-drawn out affair. The bank runs began in the Prairies as falling food prices caused farmers to default in 1930. It seemed to be a local problem.

The crisis reached New York in December 1930 when the Bank of the United States succumbed to panic withdrawals. Legend has it that the 'WASP' clearing banks refused to back a rescue because of the bank's Jewish links.

In those days the contagion spread slowly to the rest of the world. It is much swifter now. The Swiss bank UBS has suffered US sub-prime losses on a scale to match Merrill Lynch and Citigroup, thanks to the curse of mortgage securities.

"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.

"Never before have banks seen such destruction of their balance sheets in such a short time. Moreover, there are signs that the problems are spreading. The risk premiums on commercial property, consumer credit and corporate loans have risen sharply," he said.

Debt levels have been much higher than in the Roaring Twenties; the new-fangled tools of structured credit are more opaque: the $415 trillion nexus of derivative contracts is untested. Nobody knows for sure if the counter-parties are able to deliver on vast IOUs, or whether the construct is built on sand.

What keeps Federal Reserve officials turning at night is fear that the "financial accelerator" will now set off a vicious downward spiral. There is a risk of "very adverse economic outcomes," said Fed vice-chair Don Kohn.

Albert Edwards, global strategist at Societe Generale, said the toppling banks are merely a symptom of a deeper rot. "The banks are not the problem. Nor even the grotesquely leveraged funds. The problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling," he said.

"US house prices have a lot further to fall, which will simply crush the global economy. The lesson from Japan in the early 1990s is that the death dance goes on and on and on," he said.

The Fed blundered badly in the Slump, delaying rate cuts for too long. It allowed the money supply to implode.

It is acting with breath-taking speed this time. Rates have already been cut from 5.25pc to 3pc, and will be slashed again this week. New means of showering liquidity on the banking system are being devised each week.

As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve.

http://www.telegraph.co.uk/money/main.j ... com115.xml

Comments

Great article. I disagree about the world's greatest expert being Bernanke. Please search 'David Walker'-Head of U.S Gov' accountability Office. Also- 'Dr Ron Paul', who is still a presidential 2008 candidate, have lectured Benanke on the reality. Youtube these guys. Thank you.
Posted by Andre on March 15, 2008 6:28 PM
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Dear Mr Senior Banking Executive - Why is your bank without any actual cash and do you want me to ask Jim to Fix It for you?
Jack Age 9
Dearest Jack
The reason we are in such a pickle at the moment is I have let far too many of the greedy little piggies near the trough. Once upon a time it was just me and a select few that got to "beef up" on pigswill and to be honest I wish we could go back to those halycon days at this very moment.
Over recent years we have had to get a bigger and bigger trough and several have had their snouts in. Only the other day I was gorging away on some lovely swill with both trotters when I nearly got knocked over by some whippersnapper piglet called Johnny Come Lately to The City. Johnny had apparently been sowing his seeds ( and apparently my banks money ) in the Wild West. Yesterday we had panic stations as all the senior piggies came to the trough as usual and there was literally nothing there but some foul debt which has been manifesting itself very severely over recent weeks, underneath our lovely pigswill. Not one of the swine wanted to touch this debt stuff and I fear I may have to leave the very honest banking ranks with great great haste i.e. I will have to do a midnight flit. Still I've had more than my fill over the years and I have it all safely stashed away in my House of Straw - don't you worry about me young Jack I'll be alright. There are a small number of senior Piggies who will survive the next few weeks but as for the rest of the little people and the imbecilical sweathorses working in the bank - well quite frankly they will simply have to eat cake. As I said before I'm alright Jack.
P.S. Jim couldn't fix this mess we have made. I have always said Jack its time in the market that is most important and I am now fully applying Fire Brigade principals - I'm getting out and I'm staying out!!

Posted by Baron Cuthbert Tomlinson of Cloud Cuckoo Land on March 15, 2008 6:11 PM
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This crisis is manmade not market made.

Market forces are not to blame as this situation has been caused by charlatans masquerading as professionals in the financial industry. The super whizzo financial schemes were concocted and then traded between each other seemingly with zero risk assessments and or due diligence have created the biggest pyramid scam in history.

I haven’t noticed any major political event, cultural shift, war or any other event that has led to this situation, all I see is huge mess caused by seemingly unregulated renegades thinking they were all so clever when the truth is the architects of these events should be getting hounded by their governments and to cap it all, the fed and others are helping them with taxpayers money.

And as the majority of the perpetrators of these schemes are still working in the sector, relatively untouched and free of the responsibility for this mess and free of personal debt and the associated harassment that that brings whilst the victims of these clowns have their dignity torn from them, their homes lost and their financial status ruined, it is criminal.

Bear Sterns and the others have made billions, help them now but make sure they pay for it and let the weasly fed and others put the screws on them and ensure that any duplicity and lies get punished.

Posted by John McDonald on March 15, 2008 5:54 PM
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Will any of these greedy, corrupt CEO's do the decent thing and apologise to the public and then commit suicude.

Are there any honorouble men left in the banking business?
Posted by James Caan on March 15, 2008 5:39 PM
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Let the Greedy bankers get what they deserve. They each made millions on the back of dubious loans to the poor. Now they're in trouble and want the the Taxpayer to bail them out so that they can get back to millions $$$ bonuses once again. NO, not in my name. I'm writing to my congressman in protest of this bailout by the FED.
Posted by Mike Spritzer on March 15, 2008 5:36 PM
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Anne Graff... turn on CNBC. It is not a "secret" that the financial market is imploding. In the US and globally. It is the daily news in the NY Times and WS Journal and all day long on CNBC since August 2007 when Jim Cramer broadcast his world-wide rant about the Fed's incompetence. And Bernanke just now getting with the program is hardly breakneck speed!
Posted by westside on March 15, 2008 5:22 PM
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Well, I thank God for the internet. Here in smalltown USA, we wouldn't understand the depth and breadth of this financial fiasco we are in if it weren't for sources outside the USA. So much for Freedom of Speech and Information.
Posted by Anne Graff on March 15, 2008 5:04 PM
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A lifetime ago, when I was in high school, the history teacher taught us that you cannot have a service economy, you need manufacturing and farming to back it up. As an example he used Spain, which went from a nation of explorers to a nation of has-beens thanks to relying on purchasing from others whilst letting her industry rot.

When the U.S. began to become like Spain in the late 1970's I began to scream that that move would lead to America's ruin. What was the response? People like me were ignored, the "elites" knew better.

Now manufacturing jobs are overseas, whilst the few that remain here are done by foreigners. Internationalist scumbags like Jim Rogers scream that these are jobs Americans "won't do," like teachers, accountants, IT, and the like.

Americans no longer are what they used to be, they are not worthy of the hardy stock they are descended from. They prefer to work on the plantation, rather than own one. A few (like myself) have our own companies, some even have small manufacturing ones. Insignificant, most of you say, but as Franklin said of the Montgolfier brothers' balloon: "Of what use is a seed, monsieur? Or a new born baby?" Those small businesses now, arising out of the ash like so many Phoenix, will be the large companies of tomorrow. Hopefully, the children and grandchildren of the founders will be imbued with the tragedy of today, and will avoid similar circumstances in the future.
Posted by mbabsit on March 15, 2008 4:58 PM
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Jennifer says, "Nowhere, nowhere does anyone blame the consumer - the stupid, lazy, useless americans who buy 5000 sq. foot homes, built with toothpicks to house 2.2 people. Caveat Emptor. It's always someone else's fault - the government, the banks, whatever. Take a look in the mirror people."

As an American, I can say that I completely agree. Our own greed, as "consumers" and as corporations, has caused our well-deserved downfall. We do, indeed, reap what we sow. See "americaslastchance" dot org, written 4 years ago.
Posted by Phil on March 15, 2008 4:57 PM
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At this point all we can do is prepare ourselves for a total financial collapse and chaos, world wide but starting in the US. The only thing which will be worth anything will be food followed by energy. Did anyone think this day would not come? It all started with the government involving itself in the economy. The government can't do anything right, excepting national defense, so how could we expect it to run our economy? We had a very stupid president of the US by the name of Richard Nixon who took us off the gold standard. Now we could spend all we wanted, right! After the Arab oil embargo of the 70s we should have gotten ourselves independent of them for our energy but all our presidents and all our politicians, especially the liberal Democrats have kept us tied to them. Now it is too late as the price of oil continues upward, but even it will fall like a rock but too late and those greedy bastards will get hit the worst. Afterall, how many veggies and cattle can you grow in the desert? And, in agreement with D.M.W. above, we ultimately find ourselves in this situation because we have abandonded God. God blesses those who keep his commandmants. Our 180 degree turn from God in the United States started in January of 1973 when our left wing Surpeme Court declared it was totally legal to kill any unborn baby for any reason or no reason at all. Just how long did we expect God would wait for us to correct our errors before removing his protective hand? For those of you who don't believe in God or that He would have anything to do with this, stick around; your education is about to start.
Posted by John Valenti on March 15, 2008 4:49 PM
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Reading all these comments - by a collection of Cassandras, of envious mediocrities and of pontificating antiamericans - is for me the best signal that we are well under way to resolving this crisis.

It is well documented that the point of maximum pessimism coincides with the low.

I have no doubts that there will be more tremors in this financial earthquake and that they are necessary to purge many excesses but anyone who thinks (or even hopes)that the world is going into reverse will be disappointed and will have to revert to wingeing from the sidelines.
Posted by Kermit on March 15, 2008 4:42 PM
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All part of the fleecing of America and every one else!
Seems to have back fired.
However, Finance must have Government Hand Outs.
To maintain a standard of living we can not afford?
Posted by John Fahy on March 15, 2008 4:31 PM
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Is there any way the showers of liquidity can be of gold?
Posted by johnny5z on March 15, 2008 4:22 PM
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Nowhere, nowhere does anyone blame the consumer - the stupid, lazy, useless americans who buy 5000 sq. foot homes, built with toothpicks to house 2.2 people. Caveat Emptor. It's always someone else's fault - the government, the banks, whatever. Take a look in the mirror people.
Posted by jennifer on March 15, 2008 4:21 PM
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For those of you hoarding cash, if all occurs as discussed herein, your cash will be worthless.
For those of you hoarding gold and silver, if all occurs as discussed herein, possession of it will be outlawed, and thus worthless.

For those of you hoping for and relishing in all occurring as discussed herein, you are worthless.
Posted by Keoni on March 15, 2008 3:53 PM
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I have read every comment posted regarding
this subject but not once did I ever read any
comment explaining the correlation between the
spiritual lives/health of individuals,
corporations, governments or nations except for
one: What you sow......therefore so shall ye
reap! I also believe that the book of Proverbs
condemns the practice of
usury....the cornerstone of the modern banking
industry and USA's Fed (not part of our
government but controlled by a powerful baking
cartel). Bayside Prophesy and extension of
Lourdes has said that "Our Father in Heaven is
getting this world ready for a crash in ALL of the
World's Monetary Systems." "Like a serpent it
will start in the US then move to Canada and
gradually engulf the entire world." All actions
have a spiritual "payback". Look at the history
of Rome then compare Rome with Sparta and
you will see the disparate difference. Our
choices/actions as individuals, corporations,
nations have "spiritual repercussions" that affect
every aspect of our lives. Proclaiming that "God
is Dead" does not make it so! One author
investigated the decline of civilizations and
found out that the overwhelming reasons for
their fall was not political, not due to militaristic
actions, not increment weather patterns or
fighting between groups within a country but
due to a progressive decline in the
beliefs/tennets/practices of that civilization! I
have reached that belief that as of now, the
world's civilizations as we know are reaching
"payback time" and all the roosters are coming
home to roost very shortly. Massive greed,
depriving individuals of a "living wage" (this is a
top concern of God and is found in the Bible),
materialism replacing God, unconcern for any
human life from conception (abortion) to the end
of our life (euthanisia) and the total arrogance of
scientists who think that cloning will put an end
to disease and eventually stop aging and death!
This monetary crisis point to a greater spiritual
crisis. Jesus said it correctly....The love of
money is the root of all evil! and "You can't
serve two masters, you will either hate one and
love the other." Looks like the "banking crisis" is
going to fall from the tree like a bunch of rotten
apples!
Posted by D.M.W. on March 15, 2008 3:51 PM
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"As luck would have it, the world's greatest expert
on the financial causes of depressions - Ben
Bernanke - happens to be chairman of the Federal
Reserve."
It's not luck, it's by design. It was known that this
could happen and Ben was placed to facilitate the
process. Now, the conspiracist in me is saying a lot
of other things, but time will tell.
Posted by Rob Dunford on March 15, 2008 3:40 PM
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Isn't it great that Ben is cutting rates and providing unending liquidity? Now, what was it that got us in this mess again?
Posted by We B Hosed on March 15, 2008 3:36 PM
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The skies are darkening over the banking numpties ,with the wings of chickens coming home to roost
Posted by Patrick Campbell on March 15, 2008 3:35 PM
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(Boy am I glad I own a lot of gold and silver and have at least 70% of my assets in cash and zero debt. I can sleep at night.) Yeah!... Well,.. Peter! you had better buy some food storage or MREs, (meals ready to eat) with those extra profits, try feeding your family cash, gold, stocks and bonds for dinner... The day will come when A pound of Gold will be traded for a pound of wheat.
Posted by bob on March 15, 2008 3:26 PM
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Americans were once a people who would burn ships over taxes on tea, but that spirit is long dead and we reap the goods of electing the status quo to office in Washington time after time. Ben Franklin said "Those who trade freedom for security deserve neither" We deserve neither.
Posted by A American on March 15, 2008 3:16 PM
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(60pc of the $11 trillion mortgage market - had a heart attack on Monday. Hence the dramatic move by the Fed this week to offer a $200 billion lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral.)
The rest of us poor bastards in America have to pay our own bills, buy 4 dollar gallon gas, and try to feed our family's.. But the Feds offer (welfare, social services, food stamps, and medicare) all wrapped up in one neat little 200 billion dollar package for the STARVING wall street investment bankers.. Next time someone belittles/mentions or makes fun of our poor families receiving earned income credits, I will slap the piss out of them.
Posted by bob on March 15, 2008 3:14 PM
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In all this hysteria,can some one explain the impact on those Sovereign Funds held by China,Japan and others who sold USA hard goods in exchange for the paer which we clearly stated " In god we trust" !!!With the decline in the value of US Dollar will not the indebtedness of USA decline??
Posted by Lal on March 15, 2008 3:08 PM
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Let the greedy and stupid banks go tits up. Not all will and those that survive will be stronger. They'll be a bit of pain but we will emerge stronger, wiser and able to move on. It's called evolution.
Posted by rich on March 15, 2008 2:57 PM
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In the event of impending collapse, kneel down, put your head between your legs, and kiss your rear end goodbye.
Posted by Karl on March 15, 2008 2:52 PM
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Wonderful and insightful comments, all.

In the presence of such erudition, I hesitate to add my rather pedestrian analysis, but here goes:

"Holy Shit. We are completely hosed."
Posted by JD on March 15, 2008 2:42 PM
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James Denver(March 15th 1.33pm) seems to have got it quite right in my view. We may add to his analysis the way that the Benefits system has masked much of the problem he outlines, i.e the transfer of wealth from young to old. My point is slightly at a tangent but it illustrates the mechanism by which this long-term transfer of wealth has been concealed.
First the Benefits system has taken away the impetus to march and demonstrate. Those who find their earnings less than the cost of living expenses are filled with shame and fear and instead of demanding better pay and lower housing costs they have to keep their heads down and get benefits.
Second, the Benefits system masks the amount of money that is in shortfall.
Let me give you an example of the way that wages and housing costs have become delinked. The rent and Council tax payable on this concrete council house (£7640) (decoration, carpets, fences etc supplied by tenant) amounts to, by my calculation from figures supplied by the Housing Association, 53% of the take home pay of the average Oxfordshire fulltime wage.
Those who find the gap between income and housing costs too large have to claim benefits. The Housing Association refused to divulge the number of their tenants in this position.
When we consider the number of people in this country who can no longer work and stand on their own two feet through no fault of their own and add to this figure the number who will struggle to meet mortgage payments it becomes very clear just how unsustainable our economy has become.
The banking crisis has been an accident waiting to happen for a long time because the economy has been run along the same rules as a pyramid scam

Posted by jane on March 15, 2008 2:39 PM
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I think James Drever is absolutely right that our so-called successful economy is mostly about the transfer of wealth to owners of assets, especially housing. The statistics on division between rich and poor is evidence of this, not to mention the absurd level of debt-fuelled house prices.

But listening to the fatuous comments of many in financial power, not least the Chancellor, and noting the gradual approach of the Fed towards writing off the self-inflicted solvency problems of the banks, I'm worried that society may be saddled with dreadful problems many years into the future. The beneficiaries of this wealth transfer are doing everything they can to avoid paying for all the bad decisions.
Posted by David on March 15, 2008 2:26 PM
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Cut interest rates to zero. Then everyone would rush to spend $$ for material things. Barter would then become the medium of exchange. Guns for oil. Bank buildings could be converted to condos for the poor and homeless.
Posted by milton on March 15, 2008 2:24 PM
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You had better hope and pray that Bernanke gets it right and staunches the implosion. Because if he doesn't, no one will be spared. Not the Europeans, the Chinese, the Japanese, or anyone else. Going by the examples of history, a second great depression will grease the skids to a true World War III.
Posted by Andrew P on March 15, 2008 2:21 PM
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More taxes? Higher tarrifs? Population control? Capitalism leads to serfdom? What country do you live in? Socialism is not the answer. The more the government gets involved in the problems outside of the government, the worse it will become. The best thing to do is allow everyone, from the large corporation down to the subprime lender, to just swallow their medicine. The quicker we take the hit the quicker we can get back on our feet. These people made bad choices. It was their right to make those investment choices and their right to suffer the backlash of those choices.
Posted by C. Pettigrew on March 15, 2008 2:05 PM
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ARE YOU WILLING TO SEE YOUR STOCKS PLUNGE TO 50% OF THEIR 2006 VALUE TEMPORARILTY TO GET THIS FIXED?

It may surprise you, but I am. Government and media are playing the "bail-them-out" card, and even that is not working. I realize that this would be a "painful treatment."

The irony is that it probably will occur anyway, no matter what Government tries to do to fix it.

I have no sympathy for the banks or investments houses that did this, and would just as soon see half their employees lose their jobs. They are only parasites and create no real wealth.

All economies are cyclical. Time is the only solution to this problem, which was created by greed and corruption in the first place. I say, keep government out of this. They are not helping anyway. There is nothing more government can do.

Let the pain begin. The sooner it starts, the sooner it will be over-with.

sanjosemike






Posted by sanjosemike on March 15, 2008 2:05 PM
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The 'Great Credit Crunch' is an illiquidty resulting from a massively "overleveridged" supply of credit from 'Big Banks'. This oversupply of credit was created by the new found ability to 'securitise' ie to LEND OFF BALANCE SHEET (letting retail lenders advance the sub-primes loans). When Mr Farrow lent money to high risk borrowers OFF HIS BALANCE SHEET in 1920, he was sent to prison!
Don't blame "Goldfinger" (thats Mr Bernanke, by the way)

Posted by Gardiner on March 15, 2008 2:03 PM
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At the end of the day you can't beat the Post Office.
Posted by Ena Blenkinsop on March 15, 2008 2:03 PM
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the sub prime crisis is like the quotes for the scottish parliament building. origional cost £30 million,eventual cost £300 million.
the fed are still acting like the situation can be controlled.
noone knows what has yet to come out of the woodwork.
darlings budget showed this.he hasnt a clue.
Posted by rod smith on March 15, 2008 1:55 PM
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James's comments posted at 10.26 today are extremely reflective of the situation at present. The reference to the wheelbarrow full of money and the fact the theives took the wheelbarrow rather than the cash were most relevant at that time of raging inflation. Whats been happening over the last few years is the senior banking officials at the top have indeed been using wheelbarrows to take their personal bonuses home. More often they have been doing this in the dead of night and although many knew about it, it was kept under the carpet and hushed right up. In more recent times these greed deranged senior executives have slighty taken their eye of the ball and have at the same time become unsatisfied by a simple wheelbarrow. They have all flown over to the States and other global markets and lent our money to all and sundry. On the back of the profits to come from Tom, Dick and Uncle Harry they have discarded the old traditional barrow and hired a fleet of Skips to dump their bonuses in and transport to their manicured lawns in suburbia. A skip is much more effective than several back breaking trips with the wheelbarrow and if you pack it in tightly you can ensure it looks like these guys are really doing some proper honest work. I predict the wheelbarrow has a very limited shelf life with the senior executive market and the future will be in large tarpaulin covers for these characters to ensure their bonuses are properly covered in these difficut times. Rodentia the lot of them.
Posted by Honest Ernie on March 15, 2008 1:51 PM
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"A house of cards built on a 2 legged table on the poop deck of a ship of fools.Elaine Jones Bonham" Splendid way to put it! There are some simple ways to help: stop foreign workers H1B Visas, enforce laws on illegals and company's that hire them, and limit overall emigration. There's just too many people for the room and allow the industrial farming of Hemp. Food for fuel is ridiculous! See the price of wheat today? How 'bout corn? Do the math.
Posted by JoeMash on March 15, 2008 1:48 PM
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Europe rejoice! (ans so should the rest of the world! THE US IS FALLING LIKE A ROCK and is no long a super power! The number one country is the world will be a third world country in three years. Unfortunately, the world will have to intervene and stop in fighting and genocide with the US walls. But the US is gone, just like the Soviet Union, except the US is a far far worse shape then anything the Soviets had.

Why is everyone celebrating, GOOD BYE USA!
Posted by US on March 15, 2008 1:48 PM
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There is only one way to fix this, let the housing fall 50% and then put bodies in those homes with 150%-200% FHA loans, no CREDIT CHECKS. "A" paper borrowers are now walking away, they have to, their homes are falling to 50% of what they owe. The miscalculation by the government and media added five years to this mess. By trashing and blaming subprime, mortgages dried up for 40% of the nation and even if you find a buyer for your home, they can't get financing. When property falls to rent prices, that will be 50% drop in collateral for 38% of the world's investments (mortgage backed securities) Builders and investment banking companies are toast, they will implode like the mortgage market did this year. See ya in 2011 when the supply is gone, after all this is and always has been a supply and demand problemmmmmm.
Posted by catherine on March 15, 2008 1:44 PM
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Another illuminating commentary from Mr Evans-Pritchard, who analyses market psychology as brilliantly as his father did the Nuer or the Azande.

I think that we would benefit from seeing this unfolding disaster in a wider historical perspective. There was a significant spike in productivity following WWII (financed largely by US capital); profits and incomes followed, and were legitimised, by this positive trend in productivity. However, by the mid-60s the productivity curve could no longer be maintained (the productivity gains from obtaining cars or washing machines having been spent in large parts of the developed world: the "low-hanging fruit" had been plucked and eaten). How could the established trajectory in profits and incomes be maintained if productivity gains started to fall behind entrenched expectations? The answer was to bid for higher incomes and to leverage existing assets. Bidding for higher incomes ate into profits and provoked a reaction by capital against labour in the 70s and 80s. Leveraging assets was less controversial (until now) for political reasons; it satisfied capital and divided labour against itself.

However, leverage unsupported by comparable productivity gains, simply represented a transfer/expropriation of wealth - possibly the greatest in recorded history - from one section of the population (mostly the young) by older owner occupiers, and by the financial community. It has impoverished one section of the population, on which the future depends, in order to sustain the consumption of another.

This Ponzi scheme is unwinding because most of the capital gains of the past 40 years have been illusory or fraudulent: they are not legitimised by equivalent aggregate gains in productivity. The compounding of leveraging via financial "innovation" or otherwise was necessary to suspend the pyramid (of disbelief) upon a small and shrinking base of real wealth and to prevent a catastrophic collapse that was, in retrospect, inevitable.
The bankruptcy of the political and economic consensus that has evolved over the last two generations is being exposed. The result will be long-term insolvency and a massive transfer of power to creditor nations.

The only way that we can guard against this, and against the effects of low productivity is: (a) to re-establish industries in developed nations (they would need to be shielded by tariffs for a period); (b) to prevent population growth, and (c) to tax hoarded wealth in order to sustain economic activity amongst the wider population. There is a strong moral case for taxing much of this wealth: much of it has accumulated because of the expropriation that has occurred because of the leveraging of assets, and has not been justified by thrift, industry, innovation, enterprise or prudence. In addition, the enfeeblement of interest rates as an effective impediment to loose credit during the boom means that taxation of speculative profits is the only credible alternative method of preventing the occurrence of dangerous asset bubbles.

Von Hayek was only partially correct: a (distorted and dishonest) capitalism is as effective a road to serfdom as dictatorial collectivism.

I see that the Fed has, in effect, stood as surety for Morgan's stake in Bear Stearns - thereby nationalising the relevant risk; the Fed has been spooked by the "daisy chain" of obligations amongst the white shoe banks (see Doug Noland's latest comments in Prudent Bear). This is a revolutionary form of insurance: the banks can, en masse, pass all risks onto the taxpayer because of the manner in which they have entangled themselves via derivatives obligations. This strengthens the case for taxing away the profits of individual bankers (who no longer have the decency to hurl themselves from skyscrapers).
Posted by James Drever on March 15, 2008 1:33 PM
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There is enough strength in the real economy for the US to work its way through this de-leveraging process. One net result is there will never again be such a concentration of wealth, power, and decision making in lower Manhattan. The regulators and Washington will never ensure that power gets dispersed. The investment banking system will be decentralized throughout the US and the Globe. In the US, banks such as Wells Fargo will become the new dominant players. As far as growth, agricultural products and intellectual property will be the two growth engines of America going forward. I have to think NYC real estate is going to have a major correction whereas middle America will see more growth. A depression of Wall Street, mild recession on Main Street, but a new agri-tech boom starting in 2009.
Posted by RC LIghtning on March 15, 2008 1:31 PM
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I suggest those of you with a modest portfolio of, say, 250k go and look at what has happened to it over the last six months. If it is a medium risk affair the likelihood is that it will have declined by 7-10k, no more. The spread of your return over that period which is attributable to "Global meltdown" is less than the historical spread between the UK and US exchanges anyway ( in other words, you make more money, more quickly, on the DOW than on the FTSE!)There are major problems out there, which are being tackled with both ingenuity and a very great deal of capital, the cold shower that banks have taken will ensure a more realistic regime is empowered from now on. Lending will be tighter, houses more difficult to buy ( though prices will be lower) The Saudi proverb to remember is "Bend your knees to fit your blanket, and you will spend the night in comfort"
Posted by John Wood on March 15, 2008 1:25 PM
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I really trust my bank and believe them to operate on extremely sound economic principals and have my very financial well being to heart. Its good here isn't it ( said rocking back and forth )Eddie, Ward 11, Mental Health Section
Posted by Eddie Cooper on March 15, 2008 1:24 PM
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They U.S. government should have forced them to pay back the excessive bonuses form '07 before extemding the money.
Posted by steve alpert on March 15, 2008 1:09 PM
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I've just been out and bought a Piggy Bank. Its safer than trusting these skunks!
Posted by Moustaka Chowdhury on March 15, 2008 1:09 PM
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To really analyse what is happening out there one must look carefully at the Laws of Nature. Lets take a herd of wildebeest on the African plain. They have to keep moving to survive and eventually they will reach a fast moving dangerous river which they will need to cross. They gather and assess the situation but eventually the force of the sheer weight of numbers means they must take on the risk and swim across. Thankfully many will survive but there are hidden dangers a plenty. The crocs for one will gather and await the slip of the weak and feeble or indeed the unfortunate. Several will not have the strength to get across and will flounder at the muddy bank on the far side. Tough. Rest assured that what's happening in the global finance melee. I can see several souls being eaten alive. I can see several bloated bodies floating on down stream and they will rot in some quiet eddy down the Swanee . But wait I can see several large jowly banking and insurance hounds at the top of the tree and they have got across safely (thank you very much) on the tops of submerged decaying bodies and they are grazing safely on the green shoots of the Prarie. Orwell was right. Four legs good Two legged Banking Robbers Bad.
Posted by Dr Glynn Bracegirdle on March 15, 2008 1:03 PM
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Forget that, I love being in debt to the government!

In 2008, average government wages were higher than the private sector for the first time in U.S history.

The dollar hit all time low after all time low.

Rumors of war in Venezula and Iran drove up oil prices ($26/barrel in 2002--$110 six years later)

Worthless Federal Reserve dollars pushed gold to an all time high.

How you can help?
Support a friendly foreign policy of trade with all, war with none, protect the liberties of the individual, and take away the bankers power with sound money.

Posted by John Jinx on March 15, 2008 12:59 PM
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Generals always fight the last war again rather than the current different war.

Even though Ben Bernanke is a theoretical expert in the First Great Depression, will much of that be of use in this different Second Great Depression? Even if these two great depressions are identical twins born 79 years apart, Ben Bernanke is an expert in theoretically analyzing on paper. Ben has practically no track record as an experimenter who can actually not cause a do-nothing fizzle in the lab, or worse an explosion of the entire lab. We have no idea how long it will take Ben to run through 17 variations on theories to see which 1 of the 17 (or 51 or however many) variations on theories 1) that don't cause more damage than good and 2) that actually rectify the system back to normalcy. Appliance repairmen are good at doing what they have done 500 times before on mass-manufactured commodity machines that were overtly designed to work. As a repairman, Ben (nor anyone else) has actually repaired financial system that is this seriously broken at the fundemantal foundation before, even once. And it is not clear at all that this financial system was overtly designed up front to really work until the end of time in the future.
Posted by Daniel on March 15, 2008 12:57 PM
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What nobody has mentioned yet is the Derivative Market,It is worth somewhere in the region of five hundred Trillion Dollars,it dwarfs the subprime fiasco,If this lot starts to unwind we are in real trouble,buy a tin hat,just in case.
Posted by Mr Barnett on March 15, 2008 12:54 PM
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I wonder why this is coming out right after 2007 bonuses were paid?


Posted by J Glubb on March 15, 2008 12:48 PM
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Where did Bernanke get the $400 billion anyway? He had to print more money to inject the liquidity. Look what it did ti prices in Germany sometime ago, and doing in Zimbabwe now. Playing shell games is no solution. The mistakes have been made, the damage is done and cannot be undone: it is time to pay now.
Posted by Narinderpal S Sood on March 15, 2008 12:38 PM
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Reap and you shall sow. The banks thought they were being really clever Trevors and could lend money in the States with guaranteed returns of 36% or so per annum. How they fell for those global scams is amazing. But then of course the greedy hounds have lined their pockets to the absolute brim and have more than likely done one by now. Where does that leave the poor man in the street with the inevitable rocketing mortgage repercussions to follow. More than likely out on the pavements. Banks fill my stomach with bile and anti acids and the sooner these CEOs and seven figure bonus merchants are brought to call the better. They are leeches on society and I hope one day they are answerable to the wretched ways they preach and instil and the misery they spread to employees and clients en masse. My prediction : They will all fall like a pack of cards with the strong howling winds of greed motivated sub prime lending. They have no backbone or gumption.
Posted by Harry Horseferry on March 15, 2008 12:36 PM
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What all you nice folks have missed, is:

"We have seen the enemy, and they are us."

You may think you're immune from a banking crisis because you're not rich, but you don't understand: Banks ARE us!

It takes 2 things to be rich. You have to have money. And that money has to be worth something. The second of those 2 things can go south on about a moment's notice.
Posted by Tim on March 15, 2008 12:21 PM
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All banks are toxic and they are a law onto themselves. They should horse whip the lot of them.
Posted by Chris Porterhouse on March 15, 2008 12:16 PM
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just one question. How do you want commodities to fall under this mkt situation? Common sense is back, greedy bankers and speculators are losing its pants. Good for mankind.
1929 is here again
Posted by Joseph on March 15, 2008 12:06 PM
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The boys at the top do tend to take care of their friends, and let 'the little people' carry the burdens. So it was in the beginning, is now, and ever shall be. God is truly green.
Posted by John Follmer on March 15, 2008 12:02 PM
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It is time we listened to Ludwig von Mises and the Austrian School.

In a brilliant and important theoretical accomplishment Mises answered a problem most economists thought unanswerable. How can we explain that the price of money is influenced by demand if to have demand it must first have a price? He traced the time component in the demand for money back in time to a useful barter commodity (e.g. silver and gold).

The dramatic implications meant money could only originate on the free market out of demand. Government, despite any attempts to the contrary, could not originate money. Money is not arbitrary pieces of paper but must originate as a useful and valuable commodity.

He argued that a credit-induced boom must eventually "lead to a crack-up boom." He wrote, "The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system."

Professor von Mises is the painstaking architect of the economy of a free society. However, mainstream economists totally ignore his blueprint. He stands far above the current arguments about how the money supply and the economy should be manipulated. For he maintains our greatest error is for government to exert any influence or control over the supply of money and the economic system.

"It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not only annul economics; they will stamp out society and the human race."
Posted by David WA Robertson, Inverness on March 15, 2008 11:45 AM
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And through all this it's bonuses as usual for the Masters of the Universe that caused this mess. Emptying the coffers while there's still a little left. Isn't that illegal? They really are beneath contempt.

Posted by Peter M Smith on March 15, 2008 11:40 AM
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I have absolutely no sympathy with any of these banking instititions. They have become obsessed by greed. As soon as a client signs up for any banking services they seem to think they have a divine right to rape and pillage the poor client and sell commission swollen products hand over fist. This of course without any embarrasment or thought for the customers needs. They have instigated Nazi style macro management and have subject their down trodden employees to the extent many live in constant fear of the day in day out bullying. They have lost the plot and have allowed the so called clever Charlies in the City to lend unprecedented amounts of money to Quivering Jelly type foreign inter continental Get Rich Quick schmes. The whole world of banking is devoid of any professional ethics and I for one glory in their inevitable down fall. I hope all the bullies that I have been subjected to over recent years either rot in hell or are immersed in an acid bath ( of a decent depth) I shall of course remain fully positive first thing on Monday when I once again enter the ranks of these poisonous greedy snakes and toads.
Posted by Donald Curruthers - Smythe on March 15, 2008 11:36 AM
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Can anyone tell me how to lay my hands on these credit default swaps index spreads. Ambrose says that Lehman Bros is now at 465, then it is on a par with the two Icelandic banks reported by Channel 4 news last week. I want to know how indebted my bank is!
Posted by Andrew on March 15, 2008 11:36 AM
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Can someone telll me how to access these credit default swap spreads that Ambrose Evans-Pritchard refers to in his article? Lehman |Bros spreads now equal those of the Icelandic banks Channel 4 referred to last week. As the FSA says we should assess risk much more carefully, I want to get my hands on this index!
Posted by Andrew on March 15, 2008 11:29 AM
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The Chinese see the economy given to them by greedy venal Western business as a MAGIC CLUB ... perhaps they are just showing us how it works...!!!
Posted by Hugh E Torrance on March 15, 2008 11:25 AM
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The question i have is:

What are Banks doing to 'sure up' their finances, balance the books etc.

Moreover, what is the government doing, and i mean with a great deal of urgency to make sure we cut our debt levels/ borrowing and start improving the current account?

I fear that the government's protection of Northern Rock and the same now of Bear Stearns is merely holding off a major crash in the world economy.

It is now just a question of time before the house of cards collapses.

I do hope we can weather this storm.

But there again free markets always have.


Posted by ian on March 15, 2008 11:22 AM
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No need to worry over here we have Brown's FSA and they are as much use as a chocolate teapot.
Brown's incompetance and labours total disregard for this nations economy will now silence all their mouthy supporters.
The bottom line is we are skint and it is Brown the incompetant clown that is to blame .
Seen any gold reserves recently Brown?.
Posted by kenherts on March 15, 2008 11:20 AM
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"As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve."

This gives me greater cause for alarm than having an imbecile running the show.
Posted by chuck on March 15, 2008 11:10 AM
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In the real world the ant would be eating the imprudent grasshopper. Those who did not partake in the loose credit madness should be reaping the benefits of tight money, high earned interest and low low prices for cash purchases. Yes, it is a democracy. The grasshopper mob gets what it wants and the minority ants get screwed.
Posted by bob on March 15, 2008 11:05 AM
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I'm afraid more draconian measures are needed, call it anti-capitalism or communist measures but they are needed for the benefit of the system. I also think lower US rates will sink the dollar further pushing up commodity prices as speculators seek safer havens thus further pushing up inflation.

The Eurozone is also doomed, speculators forcing up the currency due to higher rates, forcing firms to outsource production away from Europe and pushing up unemployment and unraveling brittle economies built on housing like Spain.

Most people need a reality check and clearly understand mass speculation is never good for anyone.
Posted by Zak on March 15, 2008 11:00 AM
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It all makes me want to grab my cash out of the bank and stuff it under my mattres! scary times....
Posted by John on March 15, 2008 10:48 AM
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Its interesting how the Fed has re-acted to this, using JP Morgan as its vehicle, it has effectively bought Bear Sterns (like Northern Rock here). What message does this send to the other banks in trouble? Someone had to test the water of going illiquid and the Fed has sent the message that it aint so bad!

Now those that were tettering may decide that they may as well throw in the towel, while the Fed still has the money to bail them out! It will be interesting to see what happens to Citibank, Merrel Lynch and UBS, the most highly exposed, in the next few weeks. I suspect with the side show of Carlyle, growing with Bear Sterns, if one more big bank jumps ship the whole system is going to collapse? Bernanke admitted last week that the outlook could see 'one or two banks failing' it explains why he flooded the market with $200bn this week! They already knew whats coming next and it is starting look like the perfect storm. When he made that statement he didnt mean sometime- he meant within weeks!

Thanks Evans I've been following your articles for sometime now, and fortunately, unlike so many others, you tell it like it is. I am fortunate, I cleared all my debt and have cash in the bank (a safe one). I am hoping to watch this storm from the sidelines, but god help anyone whose carrying a lot of personal debt. This is now starting to get really scary!
Posted by David Croney on March 15, 2008 10:47 AM
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As usual a very interesting article from Ambrose. He's right, and so is Bernanke. The important thing is to get rates right down fast, and prevent such disasters as Bear Stearns collapsing, as he has done. Keep the financial system working, the economy rolling, and men and women in jobs, earning their livelihoods.
Everything else is secondary, inflation, falling currency, build- up of government debt. These problems will be settled later.
If the Americans know how to get us all into trouble, it is they who have the brains, energy and flexibility to get us out of it. Who will have the shortest recession ? My bet is on the Yanks. The EU will have the longest, with King and Darling close behind!
Posted by Robert Sebag-Montefiore on March 15, 2008 10:42 AM
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What happens when a full CO2 Cap and Trade system destroys industry and power output on top of the banking troubles? Take the Blue out of Green and you are left with the hidden RED!
Posted by mikiwud on March 15, 2008 10:37 AM
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The British government just spent TEN PER CENT OF GNP bailing out Northern Rock. How long before JP Morgan is in trouble? 2008 vs. 1929? It will make what is coming look like a cake walk.
James 5

1Go to now, ye rich men, weep and howl for your miseries that shall come upon you.

2Your riches are corrupted, and your garments are motheaten.

3Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days.

And these ARE the last days.
Posted by V on March 15, 2008 10:35 AM
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I am not convinced by Ben Bernanke's cut rate valium cures for the Great Depression - I prefer the Free Market economics of Chauncey Gardener

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well... In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again...

Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy...

President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.
Posted by Laura Thomas on March 15, 2008 10:33 AM
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There is a lot of talk here about gold; starting with the very first comment.
Gold is priced in dollars, so when you come eventually to cash it in, the value will be first marked in dollars then converted to your own currency. You will find that the falling dollar rates will work against you. When gold reaches mythical rates the dollar may be virtually worthless. Of course, you could go the the USA and use the dollars there to buy cheap houses.
Paper money, gold, stocks etc. are only worth what we all agree they are worth. Many years ago in Weimar Germany a man was queueing to buy a loaf of bread with a wheelbarrow full of deutschemarks. He was robbed of the wheelbarrow, the thieves tipped the money away. It was worthless. But with the wheelbarrow they could earn money. So, what is money?
Posted by James Davey on March 15, 2008 10:23 AM
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At last! An article from the author that doesn't contain a dig at the euro.
Posted by Peter B on March 15, 2008 9:57 AM
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The reduction in interest rates in US is simply giving cheap money to speculators to make a fast buck in basic commodities - oil, food etc. and we are seeing the results already. The cause of the problem is cheap credit so the the answer to the problem is - cheaper credit ?????
Posted by Steve on March 15, 2008 9:48 AM
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Pay the ferry man, to cross the river of debt. Most credit was raised on property, so why not buy the repossessed properties for a penny in the pound by the government, give the tenant no right to occupy or buy it back, make them pay rent and use it to finance the purchase. Make the banks keep mortgages on book. Give the banks stricter lending criteria ' a corset' of financial lending.

Spending will fall, reducing import demand. Capital will return to the west to shore up weakness and take opportunity for 'fire sale' prices. there will be a sharp falling off of demand for resources. There will be an acceleratin of this as more civil unrest and political instability occurs in BRIC areas which will no doubt see major falls in share and bond prices.

The UK and US will remain financial centres because they are much more stable to live and work in...better standard of living for their families without worry about speaking out of turn with the local cadre, or not paying the right apparachik. The invisible tax of corruption is poison too.

Lets cross this river of debt....many will sink for jumping in, but some will just pay the ferryman to get to growth with a more engrained cultural prudence and wisdom.
Posted by gold finger on March 15, 2008 9:39 AM
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Until we learn they are lending us our money and then charging us interest on it, we will never solve nor end the problem.

We will never end poverty either for they make sure we remain in relative poverty so we cannot afford to help those in abject poverty.

They, in the meantime, become wealthier and wealthier and more powerful.

Posted by Charles Crosby on March 15, 2008 9:19 AM
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"As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve."

You are being ironic are n't you?
Are n't you?

Posted by Andy Bacon on March 15, 2008 9:19 AM
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The banks ARE the problem. THEY are the money changers and they will all be thrown out. How can you have an honest system if the 'money' is not honest ? All these bailouts are funded with the stroke of a pen !
Posted by Jeremy on March 15, 2008 8:53 AM
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Ben Bernanke is not chairman of the Federal Reserve due to blind fortune. He was appointed by President Bush.
Posted by Matthew Goggins on March 15, 2008 8:32 AM
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This is Greenspan's legacy as a result from cutting the interest rate to a silly 1%, post 9/11. If Ben Bernanke is such an expert on the causes of depression, why did he go along with those aggressive cuts back then? Lessons to be learnt? No, central banks have quite simply failed to learn from history.
Posted by cww on March 15, 2008 8:19 AM
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and so we see all these whiz kid highly paid finance "experts" on tv telling and giving us their wisdom

just shows they cant even run their own business let alone lecture everyone else
Posted by mhepton on March 15, 2008 7:30 AM
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For the first time that I have seen in the press, your colleague Damian Rees has acknowledged that the current financial crisis has broadened into a fundamental confidence crisis. He is right.

Rates may well be slashed, as Roger Bootle suggests, but will tinkering with interest rates restore confidence, or will it simply bring a couple of days temporary relief to the markets?

The Fed action to date has brought equity markets back from the brink, on a few occasions, but it has undermined the dollar, unleashed a commodity bubble and raised the spectre of long term inflation. If anything the Fed's policies have been short-termist and counter-productive. Risk spreads have widened and inflation projections have ticked up.

Rather than fiddling around with rate setting, I would hope that Central Banks are working day and night to ensure that they have rigorous lender-of-last-resort plans in place that ensure they are able to protect the deposit base. Otherwise there is a really rough ride ahead.

Given that the Bear Sterns announcement, like the Northern Rock announcement, doesn't include a blanket reassurance that depositors money is safe, it suggests that the Fed hasn't done this and it will be interesting to see what Monday brings in the form of a week-end rescue plan. I hope it is comprehensive.

As for the calls to slash interest rates, try as hard as they can, the Central banks are going to find it difficult to assist any investor or lender out there, who is up to their gills in long-term paper. If Central Banks let inflation off the leash, they can kiss any plans that they do have, good bye.

Posted by jjra on March 15, 2008 7:23 AM
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So the problem lies with structured
credit & "Nobody knows... whether
the construct is built on sand." It's
the not-knowing which feeds any
panic. As for the Fed's rapid recent
cuts, isn't that also a type of "loose
policy?"
We of the laity need a good deal of
explanation.
Posted by Ernest Werner on March 15, 2008 7:14 AM
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""The banks are not the problem. Nor even the grotesquely leveraged funds. The problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling," he said."

Actually, the Ethics of those Hosting the Show are at Fault and Defaulting. A Particularly Voracious Purging Virus.
Posted by amanfromMars on March 15, 2008 7:09 AM
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I think Ambrose intended irony in that last sentence and I hope it wasn't wasted on you. Bernanke studied in great depth the slowness of the US to drop rates in the 30s, and is the champion of the modern conventional wisdom that rapid rate cuts prevent depression. But rapid rate cuts to prevent small depressions (e.g. 2001 - 2003) gets us to where we are now - with that mountain of cheap debt piled up and desperate to liquidate. A smarter view might be Robert Smitley's - who wrote in 1933 "The complexity of this era of credit liquidation is far too great for the mob mind to grasp. It is hardly possible for them to see the picture wherein about 700 billion dollars of physical and intangible wealth is attempting to be turned into about 5 billion dollars of money". Getting out of this cycle suggests gold. But not here. Try Switzerland. Pity it's got so expensive, but then if it hadn't it would be so easy, wouldn't it?
Posted by Paul Tustain on March 15, 2008 7:04 AM
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Thank you for a very good piece. Lot's of interesting information I've not seen elsewhere.
Posted by Bob Hora on March 15, 2008 6:29 AM
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So you're saying I should sell.
Posted by Patrick on March 15, 2008 6:17 AM
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Not exactly a comment on this article - but a comment on another Telegraph article.

Yesterdays events 'strengthen Browns case for a global financial watchdog' according to the Telegraph.

I thought as Chancellor for ten years he was meant to be the financial watchdog!

He took all the misplaced media plaudits for a 'financial miracle', when he could hardly have failed to know the truth.

When has a UK housing boom never ended in utter misery; when has a UK housing boom not get politicians re elected during the initial stage?

How could we have let Mr Brown rig the inflation figures downwards (RPI to CPI) just to allow the binge to creep onwards until his planned victorious election?

We have been let down by the politcians, the finacial regulatory authorities, the sham Bank of England MPC and the media. They have been gluttons on this cancerous debt culture.

Location, Location, Location - YUK.

Before anybody says its the borrowers fault for over extending themselves, think on!

How could a parent wishing to provide their family with a basic home have massive mortgage debts over the past 5 years? Is a basic home meant to be a luxury in modern Britain I wonder.

Lets face it - we have been duped again by the politicians and a bunch of hangers on. Shame.


Posted by john samuels on March 15, 2008 5:48 AM
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Correction: Bear Stearns is not a bank.
Posted by dugan on March 15, 2008 5:25 AM
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Albert Edwards, global strategist at Societe Generale, said ... the problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling."

And so the solution is apparently to slash interest rates to zero, or something very close to it? This is akin to fighting fire by throwing petrol on it! Is that really the best that these overpaid financial geniuses, who created the problem in the first place, can come up with? No wonder everyone is piling into commodities - who would trust their money in a bank if they had a choice?
Posted by Steve Cox on March 15, 2008 5:23 AM
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it's winter in america
Posted by Booj WaZEE on March 15, 2008 5:16 AM
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wow, is this the big one that every doomsayer has been predicting since the 1929depression? It looks like it. When banks crash, that is the beginning of the end.at last money lenders are getting their comeuppance. not that borrowers are celebrating, because they too will suffer. Those who live by That old adage neither a borrower nor a lender be, may now be vindicated. For years, they have seen borrowers and lenders prosper and grow filthy rich, and wondered if they too should have got in instead of being fools and letting the money pass by. Now they can be glad they stuck to the principle.
Posted by anthony w on March 15, 2008 5:01 AM
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You are witnessing to THE BEGINNING OF THE END and there is no hope on the horizon. U.S. presidential candidate McCain admits to having no understanding of economics, Clinton believes this is another right wing conspiracy and DUBYA believes toxic debt is another Gore environmental fairy tail.
Posted by Richard Heitmeyer on March 15, 2008 4:09 AM
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you love it, don't you, mr pritchard?

aww, who am i kidding, i love it too.
Posted by lawrence on March 15, 2008 3:54 AM
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Why is it that, for the truth of what is happening in global finance, I have to go to Ambrose Evans-Pritchard, limey (or Welsh) font of wisdom and telling-it-like-it-is? Ambrose, you are in league with Zeus, and I am grateful. Am I the only Canadian out there fed up with the Canadian media's mealy-mouthed, third-rate, and dull reportage? The global economy could flush right down the toilet and all we'd hear is that the TSX fell by 20 points, followed by an in-depth coverage of the latest insular barf of Ottawa politics. Lemme outta here!
Posted by Howie Morenz on March 15, 2008 3:52 AM
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The words "chickens" & "roost" come to mind. Big rewards = big risk. Basic economics.
Posted by John Cleeve on March 15, 2008 3:52 AM
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It's absolutely disgusting how the private Federal Reserve Bank has sold out the citizens of America.

First they created the real estate bubble directly by fomenting unsustainable growth of housing prices to ridiculous artifical levels by flooding the market with low interest cash and manufacturing demand at levels where it should never have existed. Then after manipulating the marketplace with the keys to the US Mint (thanks a lot, US Congress) to benefit their banker pals at the Fed branches and constituent banks around the country, they left our country with housing prices 50% higher than they ever should have been in the context of true free market forces. Any American citizen wanting a home now had to fight for their dream by overpaying on the backside of a huge mortgage or risk never being able to 'live the American dream'.

Further, after all of the rich bankers, having profited from the manipulated financial markets that sell out America's citizens for the greed and power of the elite who get to use the newly printed money before being so kind as to loan it [at markup] to the unclean middle class masses, have over-leveraged their actual depository resources many times over into bogus derivative investments this private institution (Fed) masquerading as a public interest organization decides to print US dollars 24/7 and invent a new instrument (TAF) to the tune of tens of billions for their banker buddies to keep from having to disclose the ludicrous off-book gambles that are falling like a rock industry wide.

Not enough to save the system, you say... Ok, then how about actually stooping to creating and trading 200 billion addition dollars worth of US Treasury securities for these garbage less-than-junk-bond quality mortgage backed securities that are worth between a dime and 80 cents on the dollar and which NOBODY wants???

Now our whole damn country is being dragged into the gutter by these rich, greedy, self-centered, megalomaniacs who could care less if their double digit Frankenstonian inflation monster is keeping middle class Americans from affording the necessary fuel to commute to work or even the groceries to feed their children. And those are the fortunate ones who still have their jobs and haven't yet had their homes foreclosed on.

This is why governments SHOULD NEVER HAND OVER THE CONTROL OF THE PEOPLE'S MONEY SUPPLY TO PRIVATE BANKERS!!!! Just as the US Constitution warned...

Sickening. Absolutely sickening how the ruling political class of both parties and their banker pals, along with the military-industrial and medical-industrial complex, have duped and sold out the American populous. And undeniable, as well. Absolutely undeniable...

Dollars will be worth sand before this is said and done. And rightfully so. Washington D.C. truly is a swamp of epic proportions.



Posted by Marc on March 15, 2008 3:29 AM
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"New means of showering liquidity on the banking system are being devised each weak." Huh? Is "weak" another esoteric British spelling?
Posted by Steve on March 15, 2008 2:51 AM
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Two words: Capital Preservation.
Posted by Derwentwater on March 15, 2008 2:48 AM
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Sitting over here in America with our pathetic dollar
being so weak you would think our exports would
be exploding. But NO! We don't make anything
over here anymore its all made in China. In my
lifetime I've seen the sun set on the British Empire
and now its our turn. I hope China is as magnanimous as England and America were.
Posted by Peter on March 15, 2008 2:39 AM
Re