Sunday, October 12, 2008

Markets Braced For A Manic Monday

Markets are bracing themselves for manic Monday, as Brown plans another big bank bail-out. Black Monday, Black Friday, Black Wednesday. Soon there will be not enough days of the week left to feel black about. 

Bush and then Brown handed over billions of taxpayers cash to prop up the banks, which sailed off into Galbraith's "wild blue yonder" without any risk or accountability, leaving the markets wide-open for another Minsky moment.

The head of the International Monetary Fund (IMF) has warned the world financial system is on the "brink of systemic meltdown". What is clear is that Brown's £500 billion bank bail-out package was doomed from the start. Just throwing more taxpayers cash at the problem without full accountability and proper safeguards won't help.

Brown's plan cannot work in its current form, because he is trying to find a solution within a flawed economic model of his own making, strung along by a bunch of sharp Ponzi operators. A point made here earlier in the week.

The cut in interest rates did nothing for the inter bank lending rate which went up. But then it would. Banks got the guarantees of cash. So after screwing gullible investors with Ponzi schemes, they'll screw each other for every penny. 

Traders and investors were put on this earth for money-making in the good times and damage limitation in the bad. Politicians, to bank-roll the banks and utter a few words of comfort for confidence. 

It is confidence which lies at the heart of the matter. Bush's bail-out couldn't work and didn't. There was no Plan B. But what did Brown do? The same, only bigger. Confidence? Throwing billions to the sharks in the banking system smacks of desperation. 

Bush is on his way out. Brown, when the dust settles, not too far behind. Together they've been responsible for creating the 'illusion of wealth' on the back of a decade of debt, living in cloud cuckoo land. If there was an economic war crimes tribunal they'd be brought to book. 

Some politicians and economists are coming round to nationalisation of the banks as the only possible solution. 

Labour grandee, Tony Benn, has used the issue of accountability as the main reason for public ownership along with the disturbing fact that power has been transferred from parliament to the City. 

LSE economics professor and former Monetary Policy Committee member, Willem Buiter, has made a similar case for nationalisation but as a temporary measure to restore confidence.

G7 finance ministers have paved the way for part-nationalisation. Now Brown is planning more bank bail-outs before markets open, with HBOS and RBS likely suspects, hiding behind the spin of "recapitalisation" with few checks and little accountability for taxpayers.

As screens turned red around the world on Friday, the money men took one look at the money markets and each other and decided to sell. Lock, stock and barrel. 

The selling frenzy turned into a stampede, as everyone realised their 'assets' were not worth the paper they were written on. They got out while they could, with what they could.

Cash from the sales has been hoarded away for the next rainy day. That Minsky moment, predicted for so long, the mad rush for the exit, had finally arrived. 

There will have been a lot of hard-nosed thinking by hard-boiled money men over the weekend. If stock markets do ever stabalise, then it will be only because they've milked the system dry. 

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