“European leaders meeting in Paris have agreed a plan to tackle the banking crisis, saying no big institution will be allowed to fail” 
 
Welcome to the European version of Peter Schiffs and Jim Rogers US nightmare scenario. 
 
They have to let them fail…there is no other way to avoid a hyper inflationary nightmare…but if politicians stand by and do nothing, as they SHOULD do…they will be kicked out of office. There would be uproar. They are interested primarily in self preservation, even if it blows the economy to smithereens in the process.  
 
Ask yourself honestly, if Gordon Brown sits by and do nothing and lets this process unfold…you would be screaming for his head…right? He KNOWS this…… 
 
Some quick thoughts on the European Bank Bailout. 
 
Lets put European banks market cap at $1tr, and that’s being incredibly generous  
 
Governments inject liquidity of 10% of this in preference shares or $100bn 
 
They guarantee interbank lending…that really doesn’t help because…. 
 
The CDS market is worth $60tr…a big chunk of that is held in Europe and no one knows who is holding the bag. 
 
The banks may lend to each other but they know that Lehman alone cost $400bn in CDS liabilities…so the loans will fly around and around in interbank lending…but for every loan dollar lent outside the banking system, it’s a dollar that they might need if more CDS liabilities spring up, which they will.  
 
It doesn’t help ordinary lending…mortgages, corporate lending…this isn’t covered from what I’ve read. The pressure will remain on households and most firms. Property prices in Europe will continue their decline. Default and repossession rates will continue to rise. We haven’t even gotten to credit card lenders or insurance companies yet…never mind “KEY Local Employer LTD.” 
 
The banks will hoard these interbank loans, if they are smart. Sure, they’re guaranteed against default WITH EACH OTHER, but are the government guaranteeing that they will stump up if Barclays for example has to find $300bn in CDS liabilities? No…not explicitly. The banks are operating now with one goal….to keep their businesses solvent. Their number one priority right now is self preservation…not some imagined altruistic mission for the greater good…they’re banks! 
 
The governments could go as far as to guarantee the CDS liabilities…but even they can’t afford to do that. Ultimately, by stating that they won’t allow any banks to fail…this is EXACTLY what they are signing up for. This is exactly what they will have to do to STOP any bank from failing. 
 
Politicians can say “we tried our best”. By being seen to be trying hard to help, this is their ONLY chance of re-election. It gives them a much better chance of re-election that sitting by and watching this play out naturally.  
 
The only course of action they can take to save the economy is to do nothing…to just stand by and watch it all unfold…but that too gets them kicked out of office by a population that can’t believe that “big daddy” can’t kiss it and make it better this time like he has done before. 
 
Taking away penalties for recklessness and failure (more accurately, moving them onto tax payers, people on fixed incomes and savers) is the problem…not the solution. 
 
The bank rescue package is a few hundred billion into a possible $60tr CDS hole (it will never be a 100% claim rate…but you get the idea). …the fractional reserve nature of the banking system will multiply this new capital by 10, so it’s a few trillion into a potential $60tr hole. 
 
This type of interference will continue until all the affected currencies are substantially inflated…and that my friend is the real problem that is waiting in the wings. That the real scary part. 
 
I’ve got a real comfy chair and am just sitting back and watching the fireworks…it’s not every day you get to watch someone try to put out a house fire with gasoline.

---

For More information on specific Banks use these links

• Alliance & Leicester
• Barclays
• Capital One
• Child Trust Fund
• First Direct
• HSBC
• Post Office
• Tesco Savings

---

For all the best deals on Current bank account, Business bank accounts, Savings and Mortgage deals visit the number one Independent Bank Compassion site Bank—Accounts

Related Websites

• The Treasury Department's New Regulation To Protect Social Security Benefits Recently, the United States Treasury Department put a new rule...
• What is a Bank CD? Before comparing interest rates or buying a CD at the...
• Carnival number 64 is up at Necessary Virtues! Necessary Virtues has posted this week's Carnival of Debt Reduction! ...

Tags: Banking, European Bailout, Gordon Brown, Hyper Inflationary, Jim Rogers, Peter Schiffs

“While I have warned for years that the United States was headed into the eye of an economic hurricane, nearly every other “expert” from Washington, Wall Street, the press and academia saw nothing ahead but sunny skies. Now, suddenly, there is an overwhelming consensus that absent the Federal mortgage bailout, my dire forecast would have come to pass. While I’m glad that rose coloured glasses have finally been removed from so many eyes, the vast majority of these observers are still blind. In truth, the bailout plan substantially increases the threats to the U.S. economy. 
 
When I wrote my book “Crash Proof”, I not only predicted that our consumer/mortgage credit-based economy would fall apart, but that the government would ineptly try to repair it. The magnitude of those potential policies formed the basis of my worst case scenario. My fears have now been confirmed, and the U.S. Government is now set to destroy all hope of economic recovery. 
 
Make no mistake; had the government resisted the political pressure to interfere with the markets, we would now be experiencing a very deep recession. But by refusing to let the markets work, policy makers are resisting the only medicine capable of curing the economic disease that afflicts us. The same mistakes were made in the early 1930’s, causing a severe financial crisis to morph into the decade-long Great Depression. 
 
The government will now attempt to keep bad loans from failing and real estate prices from falling. Rather than allowing market forces to rein in excess borrowing and replenish savings, it will encourage even more borrowing and drain what is left of our savings pool. Rather than allowing our economy to return to one based on legitimate production, it will continue to encourage reckless consumption. 
 
In the end, by refusing to allow market forces to work their cure, our economy will inevitably die from the disease. Our economy will now face death by hyperinflation, which will cause a complete loss of confidence in the dollar and result in prices and interest rates skyrocketing out of sight. The evaporation of our national wealth will lead to civil unrest, food and energy shortages, and the possible imposition of martial law. If such a scenario unfolds, what is left of our Constitution will surely be completely shredded. 
 
Although this reality looms as large as anything I have ever seen, investors still do not see the forest for the trees. Convinced that the bailout will actually work, and that foreign governments are derelict for not launching similar plans, global investors are fleeing other currencies in favour of the dollar. Soon investors will discover that foreign politicians and central bankers have acted responsibly. When they do, the current gains seen by the dollar will reverse violently.”

Related Websites

• Why You're Wrong If You Think Gold at $2000/oz Is Unlikely... or Worse, Just a Bubble A gold tsunami is at our doorstep.  It's not about...
• Peter Schiff's New Book: (3) What You Need to Know About Invisible Inflation and The Stimulus Scandal Well so far, I'm just about halfway through reading Schiff's...
• When Is Enough, Enough? UCLA Alumni, Andrew Lahde, announced last week that after making...

Tags: Bailout, Peter Schiffs, Real Estate, UK Banks, US