Monday, September 15, 2008

The Bank Carnage Begins...

Yet again there is a flood of bad news, as the problems of the economies of the West are now being laid bare.

Lehman Brothers is the the latest casualty, and Merril Lynch have jumped into the arms of safety (so they think). The result of this will be a further collapse of confidence. Read this from the Telegraph:
"We as a company are wondering where to put our money. We've had a board meeting this morning and we can't be the only ones. If you have a sizeable sum of money, where the hell would you put it?"
And this (from here):

'Jon Moulton, founder and managing partner of private-equity firm Alchemy: "These really are unprecedented days. This is not stress testing this could be testing of where the failure point lies "What we're going to see is extreme instability in the markets. These kind of things make the probability of a deep recession more likely not less likely." However he said that the publics' savings are probably safe: "Bank deposits, building society deposits it's pretty unlikely the Government's going to let people lose money on those."

To this we can add the following (from here):
'Confidence among British businesses is languishing near a record low as consumers retreat in the face of slumping house prices.'
And finally (from here):
'Investors' flight to safety saw the dollar weaken sharply against the yen, the euro and sterling, while US government bonds and gold rose. The cost to shield corporate debt from default also surged on fear the turmoil on Wall Street will tip the global economy into a recession.'
They just do not get it, that there is no place of safety in the OECD (except maybe the Yen). As I look on I wonder at these institutions, with there highly paid economists. I wonder that they still can not see what is now staring them in the face. It is really quite shocking.

I have long been predicting the economic collapse, and said that it had already started. Now is the period of acceleration. My blog has, for a long period of time, been detailing the underlying problems, as well as some long term solutions. I think regular readers will see that the situation is deteriorating according to the script that was written, and almost perfectly in line with what I have proposed will happen.

My fear at this stage is that the politicians of the UK, and the West, will not accept the hard reality of the world as it stands, a world of hyper-competition. A world in which the efficient, the clever, and the fast moving will win. As I look to the horizon, I see no politician with the vision to manage the current crisis.

For the regular readers of the blog, they will be aware that the current banking crisis will just be the prelude to the more serious collapses as a second credit crisis erupts. As ever, I yet again advise that you have several bank accounts with immediate internet access. Get ready to move your money at short notice in the next 2-3 months, but the speed of acceleration is such that it could be sooner.

I have only detailed a few items of the news. I could say a lot more, but to no avail. What I have predicted is now in progress and now, at the stage, the course of events are fixed, and now the game must play out.

I can only apologise for such gloom, but looking at the current state of affairs, I can see no silver linings. I must apologise that I have little comment to add, as I have already detailed what is to come. It would be far more exciting to present a startling new prediction, some startling new perspective, but excitement has never been my aim, just a detailing of the reality of the situation.

For those new to the blog, I suggest that you start at the beginning of the blog, in the archives, and my first post. At that point you will see how inevitable this all is. As you read through the blog, you will find all of this detailed, and the reasons why will be explained.

Note Add 16 September:

Anatole Kaletsky, the Times columnist, has now reversed his previous optimism which I highlighted to illustrate the foolishness of mainstream economic thought. He now has this to say:
'It looks as if the prophets of doom may have been right after all.'
He then goes on to say that the crisis of the moment is due to the 'punitive' measures taken by Paulson against the shareholders of Fannie Mae and Freddie Mac. His theory is that the shareholder should not have had to take the pain of the nationalisation of the institutions. It is quite extraordinary how these people are allowed to write their columns. His last column was congratulating Paulson's action for restoring confidence, but now Paulson is in the wrong?

Interestingly (and unsuprisingly for the regular readers of this blog), there was an article in the Telegraph asking the question of how safe is money in UK banks. The conclusion of the article is far too optimistic, but the fact that the question is being raised speaks volumes. The article does not even consider any of the large banks being at risk, but there is no surprise there either. It is clear that the columnists seem to have a unique talent for wisdom in hindsight.

On an unrelated subject, I thought I would just reiterate why I wrote this blog. It is largely because I could see the current crisis coming, and I could see the complacency of the mainstream economists, and alslo the complacency of the politicians. As each month goes by, it seems that my understanding of the situation is proven to be more accurate than that of the mainstream. Whilst it is always gratifying to be proven right, I had hoped to be proven wrong. I do not want to see the UK, and the West, fall from the heights. It is for this reason that I have written articles on structural reform. I would like to see the West recover from the current disaster, but could see no answers coming forward for how this would be achieved. I hope that my ideas have greater credibility if only from the principle that, if you can demonstrate a genuine understanding of the problem, the solution that is proposed is more likely to be correct.

I had also hoped that this blog would prove to be very successful (by which I mean gaining a large readership). As it is, according to my website statistics, I have a large number of regular readers. I have avoided using my name in the Blog as I do not want to be well known. My purpose is to try to change the views of my readers, and in particular to try to prepare people for the changes that are necessary. Whilst I am grateful for my regular readership taking the trouble to read my thoughts, it is sadly still not enough. I have emphasised that we need to reform sooner rather than later. We need to start now.

As such, if you are one of the regular readers, then I would ask that you do something for me. I would like you to forward the address of the site to five people that you know. If you think that I have an accurate understanding of the situation, and you think that I am presenting some workable solutions, then the more people that are aware of these ideas, the greater the chance that people will be ready to accept the hard solutions. If you wish to do so, send the links of what you believe are the most pertinent posts, and hopefully those you recommend this blog to will also be persuaded of the reality of the situation, and the necessity for change.

Once again, sorry for such a gloomy post, but I am really not pleased to see the direction of the economy, even though it is exactly as expected.


  1. Mark

    Did you catch Anatole Kaletsky on Newsnight? I got the feeling he might be slightly embarrassed at having previously declared that "US economic recovery is now assured".

    If I interpreted tonight's interview correctly, he said that the events of the last couple of days have suddenly turned very serious and that no one could have foreseen them. He thinks that the rescue of Fannie Mae and Freddie Mac was disastrous because as the shareholders were wiped out people are now wary of investing in any bank (I think that's what he said).

    Hopefully it will be on the iPlayer if you missed it (it wasn't yet there when I checked just now).

  2. Mark,

    Re my previous comment:

    Apologies, but I hadn't seen the supplementary note you added to yesterday's post, and I now realise my comments about Kaletsky are not exactly news to you!


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