So the 50 bill equity stake is one quarter of the tax base. What kind of bank earnings do they think will pay for this stake? Foreign exchange trading expertise, interest rate swaps, arbitraging US treasuries and mortgage debt? Swaps and flops and plops. (RBS has 2 trillion+ in liabilities, Barclays more than 1 trillion.)

Seems the issue here is the same. It is very difficult to de-leverage while relying to maintain as large a piece of the derivatives pie as possible. If what they call earnings are more or less exclusively tied to derivatives and the fees earned from them it is almost impossible.

So the Telegraph story on Pakistan is kind of relevant pointer for a whole class of middle tier countries with too much debt and too little economy, like the UK.

And while a lot of worry is going into finding the right brand of Drano for the money markets, this one will clear the clog without destroying the pipes, there is a wave of sovereign nation bankruptcies beginning to crest above the surface.

It will be interesting to see this list come together over the next couple of weeks, as we find out whether Brown’s “partial Swedish model” is as good a deal as he thinks, and how adequate the credit lines he’s proposed really are.

. . . This is really about _ideology_, folks, and beliefs die hard, sometimes only when the airwalking body splatters the pavement. Our public financial leadership in the US see themselves as the handmaidens of capital, and just cannot accept that their universal masters have gone cannibal with hemorraghic feaver. Face to face with the ‘Dorian Gray reality’ of their own inner contradictions, these servants of capital can only babble the same tired and increasingly nonsensical lines. This isn’t about rates, liquidity, and confidence: It’s about the bill coming due that we’ve stiffed for thirty years.

In the 30s in the US, the masters of capital mostly never _did_ come to grips with what they had wraught. It was a new kind of politician who took them by the scruff and dragged them into conditions of profitability, mostly by just not letting the raft sink until the weather improved, really. It’ll be tougher this time if the Mad Professor kills our currency first. “Stop that man before he prints again!”

It has been said elsewhere that the UK banks are so deeply enmeshed in the global economy that it is questionable as to whether the UK government can, on their own, truly backstop their _entire_ banking sector in the absence of a global solution. But having a go at it is the right thing to do, so.

And speaking of ‘responsible global citizens,’ it would be a good thing, as mentioned by others here in comments, for the UK to pull in the grossly irresponsible CDS activity which has been so profitable for the City but so profitless for the global economy. So yeah, let’s just see who wants to be a ‘responsible global citizen’ when it’s _their_ winnings which have to be cashed out to buy the title.

We have heard this same crap all year, from way too many buffoons, i.e, last second plans, emergency talks and emergency plans. What a bunch of bloody poppycock — they make this clown crap up on the fly and they have no clue as what they are doing. These career politicians are actors on a stage which plays to a bunch of idiots that are increasingly dazzled by this mult-act soap opera, which has only one theme — this is a $60 Trillion problem caused by financial derivatives that are unregulated and they are causing a global plague that could result in Biblical-like chaos!

Be that as it may be, Global GDP is about $54 Trillion, so, isn’t it just a little weird that we have at least a $6 Trillion deviation between total global gross domestic product and these casino related derivative bets? I’d start swearing right now, but one has to be civil and not act as if the world is coming to an end!

Actually reality has been almost as entertaining as your proposed rumour.

In Monday’s FT, the Tory leader David Cameron announced that he was that day discussing the crisis with ‘Carl Bildt, the Swedish prime minister who 15 years ago showed how a centre-right government can intervene decisively in a financial crisis while protecting the taxpayer.’ Free market dogma goes out of the window, even on the right, which will be of enormous help in making possible sensible responses to the crisis.

(See http://www.ft.com/cms/s/0/7ddd9e02-92fb-11dd-98b5-0000779fd18c.html.)

Cameron had seen Mervyn King on the Friday, who I suspect had put the fear of God — or a total run on the banks and meltdown of the system — into him.

King is a clever and sensible man, who is known to have been concerned about the undercapitalization of British banks for some time. I suspect it will have been as clear to him for some time as it has been to Yves Smith that the most successful approach to a financial crisis has been that of Sweden.

What I hope is that covert contingency planning for an approach based on Swedish lines has been going on in the BoE for some months — and that the authorities are not simply improvising off the cuff, but have clear contingency plans for developing this initial bail-out in more radical directions. If such planning had been going on, we would of course not know about it, as it has to be conducted in deepest secrecy for fear of precipitating the mass exodus of those shareholders whose equity is (rightly) liable to be wiped out.

Be that as it may we shall soon see how much further and how rapidly the British authorities proceed along the Swedish route — and whether other European states follow. I suspect many European central bankers may have been coming over the past weeks to Willem Buiter’s conclusion that the North Atlantic banking system is effectively insolvent — as I do not think Bernanke has.

More of the same: either total incompetence or total dishonesty. I understand the situation is dramatic and therefore the severe problems the banks are having now were perhaps earlier not entirely foreseeable, yet this sort of late stage recognition/acknowledgment has only undermined confidence further and made it all that much worse.

IMHO, London needs to shut down its market and suspend trading in derivatives and then of course, if this was a just world with good people, someone in America would suspend trading of derivatives like CDS:

"Say you can swim; alas, 'tis but a while!
Tread on the sand; why, there you quickly sink:
Bestride the rock; the tide will wash you off,
Or else you famish; that's a threefold death."

>> FYI: CME Group's clearing member, Lehman Brothers Inc., is a subsidiary of
Lehman Brothers Holdings Inc., but is a separate company with its own
accounts, assets and customers.

>>> Shares of futures-exchange operators CME Group Inc. and IntercontinentalExchange Inc. are trading higher on reports the Federal Reserve is holding meetings this week to discuss creating a regulated market for credit default swaps, the derivative instruments at the heart of the financial crisis.

The New York Federal Reserve is hosting a meeting with financial institutions this week to discuss plans to develop a central counterparty for the roughly $60 trillion unregulated CDS market, according to press reports. CME and ICE are seen as the biggest potential beneficiaries and are reportedly in talks with the Fed to create a CDS exchange.