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Worst-case scenario is approaching rapidly (crisis growing at Warp 9)
Times of London ^ | 10/06/08 | David Wighton

Posted on 10/06/2008 7:02:37 AM PDT by TigerLikesRooster

October 6, 2008

Worst-case scenario is approaching rapidly

David Wighton, Business and City Editor

The credit crisis, which has been building slowly for the past year, is now moving so fast that governments around the world are finding it impossible to keep pace.

On Saturday Angela Merkel, the German leader, criticised last week’s decision by the Irish to guarantee all deposits in their leading banks without consulting other European countries. The Irish Government said that the move was forced on it by the threat of a run on one of its banks. Only a day later Ms Merkel was forced to take almost the same action in almost the same circumstances.

In the longer term, this clearly raises questions about the hopes for (or fears of) European financial integration. In the short term, it presents serious challenges for other European governments.

A week ago the British Government was hoping that it had coped with its immediate banking headache after the bailout of Bradford & Bingley. With the proposed rescue takeover of HBOS by Lloyds TSB, this stabilised the two big British banks that looked most vulnerable.

Then came the shock move by the Irish Government to guarantee not only individual savings but also the large deposits held by companies. Downing Street was furious because British banks feared they would see a flight of money towards Irish banks.

Downing Street decided merely to accelerate the planned increase in the ceiling on guaranteed deposits from £35,000 to £50,000, although the decision remains under review.

(Excerpt) Read more at business.timesonline.co.uk ...


TOPICS: Business/Economy; Front Page News; News/Current Events
KEYWORDS: bankingsytem; cascadingdefault; creditcrisis
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To: JasonC

Jason, if we could only monetize metaphors, you could rescue the whole thing yourself, without breaking a sweat.


201 posted on 10/06/2008 7:03:20 PM PDT by Notary Sojac
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To: JasonC
"You simply cannot have a banking system unless you allow it to be profitable to be a banker."

Banks have been piling on penalties and fees for quite some time now. They also lend out money at what seem to be reasonable interests rates for them to make a decent profit.

Corporations that are well run can hold off on expansion plans for the near term and pay most of their bills using working capital.

Corporations that have gotten used to keeping most of their working capital invested in risky high-return ventures while borrowing for their short-term needs will be hurt.

Banks that have been depending on making money by selling loans rather than keeping and managing loans will also be hurt.

People and organizations that on the wrong side of CDS's and don't have the financial wherewithal of an insurance company will be hurt.

202 posted on 10/06/2008 7:08:12 PM PDT by who_would_fardels_bear (The cosmos is about the smallest hole a man can stick his head in. - Chesterton)
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To: Flathead Catfisherman
Sad to say,

that was my first thought as well.

203 posted on 10/06/2008 7:09:53 PM PDT by SIDENET (Hubba Hubba...)
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To: sanchmo

Looks like I picked the wrong week to stop sniffing glue.

204 posted on 10/06/2008 7:12:54 PM PDT by SIDENET (Hubba Hubba...)
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To: SIDENET
"Looks like I picked the wrong week to stop sniffing glue."

LOL, that movie just ended a few minutes ago. Classic!
205 posted on 10/06/2008 7:13:46 PM PDT by Windcatcher (Obama's propaganda is being fashioned by COMMUNISTS. That's enough for any American to stop him!)
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To: JasonC

>>Nonsense, it was the chaotic unwind of
>>Lehman that set it off,

LOL. By Dick Fuld’s own admission, it was sub-prime that caused Lehman to “unwind”.

>>Finance isn’t fraud,

Falsifying FICO scores is.


206 posted on 10/06/2008 7:14:35 PM PDT by LomanBill (A bird flies because the right wing opposes the left.)
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To: JasonC
if the banking system collapses it will cost the treasury 10 times as much, minimum.

Jason - what if there's no long term collapse - but just a nice process of bad banks being bought out by responsible banks? Personally, I'm happy the rip-off banks are being bought out.

207 posted on 10/06/2008 7:15:19 PM PDT by GOPJ (If Sarah had been friends with Timothy McVeigh, would the MSM give her an "Ayers pass"?)
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To: EternalVigilance

I hate to ask, but is that a nipple on that woman?


208 posted on 10/06/2008 7:24:58 PM PDT by Texas Songwriter
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To: Lurker
Funny, that's what I was just thinking. While the vast majority of us were saying, "Hell no!" to the bailout, he was calling us all kinds of names for not understanding the need for the bailout to save the world.

Rule Number One: Whenever the government tells you it must do something for your own good, do not believe them.

209 posted on 10/06/2008 7:25:39 PM PDT by onemiddleamerican
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To: who_would_fardels_bear
You are completely wrong. Half the corporations in the western world will go under the hammer in six months, in this state of things. The "reasonable interest rate" will be 20% - that is what bondholders are demanding from major banks right now, even with the Fed trying to hold short rates at 2%. Corporate paper offered at 6% above treasuries today, nonfinancial corporates of the highest credit rating, no buyers. Why would anyone, when they can get twice that across the street in distressed bonds? And no bank it going to make money holding loans made at yesterday's rates of 6%, when its funding costs go to 20%.

You either let bondholders get return of principle when lending to financial names, or you go straight to hell. Law of physics.

210 posted on 10/06/2008 7:26:43 PM PDT by JasonC
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To: JasonC; Scotswife; headsonpikes
[If everyone on earth decides one morning that capitalism is evil and they hate it, there won't be any capital by sundown.]
 
Well gee, comrade Jason, what if we just decide we hate criminals; criminals who abuse the tool of capitalism, instead?
 
Will they be gone by sunrise?
 
What if we tie them up out in the open and keep them from hiding inside their golden sarcophagi; will they explode into flames like vampira do in the movies - when the sunlight hits them?
 
If only it were so easy.
 
 

211 posted on 10/06/2008 7:28:51 PM PDT by LomanBill (A bird flies because the right wing opposes the left.)
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To: GOPJ
What is a responsible bank, when bank debts for the strongest yield 7-9%?

I can borrow from Bank of America at a lower rate than I can lend to it. Why should it exist?

The government is the underwriter of the entire banking system, through the FDIC. The people are the senior creditors, as depositers. They bear all the costs from this point out, by a law of physics. Any attempt to put those costs elsewhere, only increases the overall costs by far more than it collects.

Example - the Washington Mutual bankruptcy avoided a $25 billion hit to the FDIC, by wiping out all the bondholders. All bonds of banks sold off instantly. The Fed has since spent 24 times as much as the FDIC saved trying to restore the state available before that decision, without success. The bond markets remain closed to all but 6 US banks, and those can only borrow at a penalty rate. Consequently, they don't. They borrow from the Fed, and it is on the hook instead. No more bondholders to nuke for you.

When the debt of a bank is a worthless certificate of confiscation because the authorities, under populist pressure, just decide so, then the Fed gets to provide all the bank capital there is going to be.

You *will* pay, and pay in full, for the services of capital. Or you flat will not get them.

212 posted on 10/06/2008 7:33:12 PM PDT by JasonC
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To: LomanBill
Spoken like a true communist.
213 posted on 10/06/2008 7:35:12 PM PDT by JasonC
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To: JasonC; GOPJ

[The government is the underwriter of the entire banking system, through the FDIC]

FDIC was supposed to be a safety net, not a cash cow.


214 posted on 10/06/2008 7:35:42 PM PDT by LomanBill (A bird flies because the right wing opposes the left.)
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To: JasonC
Two words: working capital.

Of course the problem with working capital is that few corporations have it. The retards that are now giving us the Great Credit Bubble Burst of 2008 gave us the Great Leveraged Buyout scams of the late 20th century.

Any well run company that was naive enough to have sufficient working capital on hand to pay its daily bills was a buyout target. Similar scumbags would claim the companies were poorly run so they could buy them out merely to award themselves the working capital as severances as they moved on to the next victims.

I wish it were true that a free market was a stable equilibrium point that the world economy would gravitate to. Unfortunately it appears that corporations purchase government mismanagement in the free market and use it to undermine the economy for their own selfish gains.

215 posted on 10/06/2008 7:37:34 PM PDT by who_would_fardels_bear (The cosmos is about the smallest hole a man can stick his head in. - Chesterton)
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To: Notary Sojac
If I where in charge of the FOMC desk, it would already be fixed. And it wouldn't be by listening to the populist luddites and their finance hating crap.
216 posted on 10/06/2008 7:42:31 PM PDT by JasonC
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To: JasonC
>>Spoken like a true communist.
 
Communists hate criminals just like us (but not you, comrade Jason) Americans do?  Wow, who knew!  The things we learn on FR.  Thanks for sharing that, comrade Jason. 
 
Now, is falsifying FICO scores, is that fraud in the fairy land you live in, comrade Jason - or is it not fraud? 
 
Because here in America, I'm pretty sure it's fraud - and a felony.
 
 

217 posted on 10/06/2008 7:43:12 PM PDT by LomanBill (A bird flies because the right wing opposes the left.)
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To: who_would_fardels_bear
The entire value of all inventories in the US economy comes to less than one month of GDP.

That is all the real side of working capital is. You are living in the 19th century. Even then, overtrading happened and required a lender of last resort.

218 posted on 10/06/2008 7:44:10 PM PDT by JasonC
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To: LomanBill
Whine all you like, commie. No amount of spite, smearing, false allegations, show trials or hatred, will reduce the amount you are going to pay by one penny. Every drip and drop of it will cost you 10 and 20 fold. You are up against not a line or an opinion, but a law of physics, and you pay capital generously for its services or they will evaporate along with said capital. And you can rave about it as mad as Mugabe, and you will be just as poor and stupid as he is.
219 posted on 10/06/2008 7:46:57 PM PDT by JasonC
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To: LomanBill
Actually the FDIC has made the government money, and banks pay for it not the government. When the insurance premiums collected from them all for decades are needed, well no, let's listen to the populists who want bankers nuked, instead. OK fine. Bondholders are on strike and your Fed can be the only provider of bank credit there is. How cheap is that proving for you so far, braintrust? $600 billion cost for $25 billion savings. And counting. Gosh what a wonderful sense of economy! Hey, maybe if you scream and whine and express most vitriol and hatred, you can get the excess cost factor up to 100! Go for it.

But you *WILL* pay.

220 posted on 10/06/2008 7:50:33 PM PDT by JasonC
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