CRASH 2 ANALYSIS: Why Britain should be aware of the American strategy, and go neutral.

Give the little lady a Big Hand

The Co-Op Bank, the European Central Bank, the wobbly Eurozone banks, and the Special Relationship.

I need someone to explain to me why the CoOp Bank is running ads with a picture of lovable East German dictator Erich Honneker staring out of them creepily. I know this might seem a somewhat random start to the week, but I’ve been thinking about this odd conundrum for weeks now, and I need to share it out a little.

I’ve put a good dozen different search versions into Google, but the campaign is obviously invisible, as there’s no mention of it. If the campaign is trying to suggest ‘nice’, then it missed. If it is trying to say ‘neo-Stalinist’, then it’s right on the button. If it’s trying to say….well, this is my point, really: WTF is it trying to say? All views gratefully received from within and without Adland.

Meanwhile, back at Eurodisney Piggy Bank, the search for a final guarantor of unrepayable debt has switched to the ECB. Mario Draghi, having undone Trichet’s rate-increase madness, did the right thing the week before last by begging the US for some Dollar liquidity. So be assured, the Italian Stallion is not going to let French banking collapse without a fight. The amount being borrowed by banks from his ECB (desperation) or parked there (distrust) has reached staggering proportions that are way past pre-Lehman. Short of a direct gift from Beijing, there is no way back from this, but of course we mustn’t talk the eurozone down, so let’s look for some bright lights on the horizon.

One bit of good news is that, having been ordered to increase capitalisation by the European Banking Authority (EBA), the eurozone lenders are indeed doing so. They started off cheating by selling assets and then got admonished, so now they are indeed adding to their fragility by borrowing more money to protect them against silly money they lent. As nobody in the private sector would lend money to any of these flakes, most of them are borrowing from their governments.

Just two slight problems so far. One, the Italians – who need to do this more than anyone – have flatly refused. Their banking authorities are at present gainfully employed in suing Brussels for even asking them to do it. Behind the rhetoric, the reason is simple: if neither the banks nor the Government have got any money, it’s a bit hard to recapitalise…although I’m sure Tim Geithner could come up with some ideas, as this is a problem he faces on a daily basis back home. And two, as the main problem all these Governments have is debt overload, using State monies to sandbag the banks is, um, making a sovereign default even more likely.

For the bigger, smarter global banks/lenders/potential bondholders, this is in fact fine and dandy, because they’d far rather have Sovereign defaults (and then run the whole economy) than bank failures (which some cheeky scamp might then ask them to help bail out). But for those stuck in the eurozone, it is simply more insanity on the merry-go-round.  None of the ClubMeds can afford this, and Ireland has already impoverished itself trying. So the entire exercise is pointless unless you’re France or Germany. Just fancy that.

All the more reason why Banco Draghio is now under the spotlight. Geithner, Sarkozy, the ClubMeds and the bondholders would like the ECB to take charge of the ESM (it was officially given this job last week) and start blurring the edges of the ill-defined ESM, thus spraying money all over sovereigns and bankers everywhere. Mario has not intention of doing this (it being illegal and mad) and if he tried, Berlin would have him shot anyway.

For once, Germany is right. Not in the shooting thing, but in the unwise nature of emptying the ECB. The sequence of events would be very simple: money parked at the ECB rapidly outweighs all other funds as the central bank starts spending real cash as well as buying junk assets. ECB Chairman is left with two choices…spend bank funds (embezzlement) or tell eurozoners to get the printing machines out. Result: hyperinflation or prison.

My hunch is that, at long last, it’ll dawn on the lending markets – this week or next – that there isn’t going to be a  final guarantor, or any eurobonds, or an empty ECB. They’ve had the zero haircut gift: that’s it. Then just watch the fun start.

A final word on hypothecation. Like me, you’ve no doubt read stuff/been ‘tipped off’/had the pub landlord tell you that the lack of collateral regulation in the UK is going to be the Big Bang that sets the next stage of Western impoverishment going. I do not doubt that we are easily the most poorly regulated financial centre in the solar system, and the rumour mill might be right. But there are bigger wheels turning in the background to this scare-campaign.

I had lunch with an American friend the week before last, a contact I’ve known nearly forty years. She is a businesswoman, not a nut, and not really even a Democrat any more. “You know,” she said to me, “I’ve given up expecting the US ever to do anything that isn’t malign ever again”. As always, the caveat here is that she’s talking about corporate/Washington/Spook America, not the American people. At the last count, I’d say about 40% of Americans hold the same view….and they’re all disappointed that the Black Guy seems to have gone so native quite so quickly.

But anyway – enough throat-clearing already: check this out. When Tim Geithner flew in for a little more empty-handed encouragement last week, the one place he didn’t even bother visiting was…..London. He didn’t meet either Cameron or Hague. As I posted some months back, the US cares only about Germany now, because that’s where the money and the power is. Most of the strategic Bourse alliances in recent months have been Americo-German; as ever, the US authorities are thinking ahead to how their mighty currency can remain The Big One. When the Franco-German marriage of convenience hammered another nail into the City’s self-made coffin last Thursday, the Special Relationship was well and truly AWOL.

The US is looking for culprits the same as everyone else, and as ODrama has never liked us anyway, this is one suit he’s been happy to have tailor-made for London to wear. The World Crisis, we will be told during 2012, was the fault of dithering Continentals, British sabotage, and an unregulated London causing the hypothecation disaster. In fact, most of the folks accused of buying stupidly into hazy definitions of loan collateral work for……American financial institutions.

The FCO will never work this out, because the FCO is fast asleep in a place where it’s still 1944. Hague certainly hadn’t the last time I looked. The Slog was a very early and vocal critic of William Hague’s decision to turn left to the US rather than right to Brussels when he took over as Foreign Secretary. Everything I wrote back then, in May 2010, has come to pass. We are only now grasping the full extent of just how disastrous Camerlot foreign policy has been.

Either way, hypothecation is a viral campaign funded and engineered by the US State Department and other associated spooks. It may well be accurate, but its high profile now is designed to hand Great Britain as much of the blame as possible for Crash 2.

We don’t have Switzerland’s gold teeth or its mountains to protect us. But we do have water all around us, a powerful financial centre, and an ability to make more than cuckoo clocks. Nick Clegg is wrong to say we are isolated. Switzerland isn’t isolated, it’s neutral. I have long felt that this is what we should be. Ditching the nuclear ‘deterrent’ alone would be a good thing both morally and financially. The stage is set for Britain to gain strength by going its own way. Does our Government have the bottle to do this? No. Does the Opposition even know WTF I’m writing about? Of course not.

But then, that is the real nature of our problem.


63 thoughts on “CRASH 2 ANALYSIS: Why Britain should be aware of the American strategy, and go neutral.

  1. because they’d far rather have Sovereign defaults (and then run the whole economy)

    … and own physical assets, where previously, they owned mere paper, or electronic ‘currency’ conjured from nothing.

    How can the bankers lose?


  2. As to the adverts
    It has got itself noticed and you are talking about it to other people which is surely what advertising is all about


  3. ………”But we do have water all around us, a powerful financial centre, and an ability to make more than cuckoo clocks. Nick Clegg is wrong to say we are isolated……..”

    The tidal water all around us could provide all our fuel needs with plenty left over to export. Foreign companies could be queuing up to manufacture steel, glass, cement and other energy intensive and non intensive industries.
    This is the only future that flies.


  4. As a long-time resident of the USA, I can tell you that few among the 310m inhabitants has more than a stereotypical view of the UK and that the last vestiges of a special relationship vanished about 50 years ago. We have become steadily less significant since then, notwithstanding Blair’s canine imitations.

    While last week’s events were not among the finest of our foreign relations enterprises (and frankly I can’t think of even one that was in that category, sorry FCO) there is a slight hope that one of those silver lining things may be sliding our way.

    I refer to the much needed ‘press the re-set button’ event, in which the UK population finally takes on board that (a) we lost our empire quite a while ago and a change in approach to the rest of the world is well overdue, (b) our opinion is only one among many with equal weight, (c) we have virtually no influence in the EU despite being that unusual thing, a significant financial contributor (FCO: why did you allow this?), (d) the USA does not exist to look after our every need, or to be aware of or even interested in our needs, (e) we do not any longer need to send troops off to any place in the planet where the USA needs some political covering fire, (f) we are 37th in the world ranking of PPP GDP per capita, a very long way behind the USA. That means we are quite poor for a developed country, (g) inhabitants of a quite poor country can’t expect the social benefits that exist in some wealthier countries, especially if they won’t address fundamental errors like seriously wasteful defence spending, NHS waste (IT!!), millions of people not working who could…

    Points (f) and (g) are perhaps the most important. We borrowed at state and personal level for at least a decade to sustain the unsustainable, our living standards. The politicians will never say this, but we are still doing it, having only slightly reduced the rate of increase. It’s crazy and it has to stop. Grossly excessive borrowing followed by deliberate inflation is a dishonest way to run a country. We need some straight politicians (yes, I know), and now is the time for them to throw out this deceitful way of operating and find ways to live within our means. In any case, when the downgrade to AA comes, interest costs will soar and perhaps that will force the issue. Presumably the Treasury is already working on the tax increases it would impose in such a situation. Petrol at £1.50? VAT at 23%? Another intermediate income tax band at 30%?

    Time to press ‘re-set’ on the attitudes panel and think how we can get significantly wealthier within the context of our situation in the world, and within the EU. Otherwise I foresee strife if we continue to try to live beyond our wealth generating capacity.


  5. Sir,

    You make an interesting comment: “The World Crisis, we will be told during 2012, was the fault of dithering Continentals, British sabotage, and an unregulated London causing the hypothecation disaster. In fact, most of the folks accused of buying stupidly into hazy definitions of loan collateral work for……American financial institutions.”

    I agree with this. I wonder just how much the American financial institutions are behind what is happening in the Eurozone – we have various Goldman guys in place already. Is this an attempt to hijack Europe’s last industrial powerhouse? Pushing from the other side from London in this context makes a degree of sense.

    My question is what would America gain from trashing Europe save for a few more years of keeping the dollar as reserve currency before it finally evaporates? To my mind the US have hocked the farm and the family silver – and most of the furniture already, and are eating pizzas on the floor.

    My apols. to KFC (I think it was you), I am having internet problems and have not gotten to translating Frank Schaeffler’s pages for you yet. This page loaded, so I jumped in.


  6. I think your last two paragraphs absolutely nail it.

    At a time when we need statesmen of vision, courage and principle we have Cameron and Hague, with the useless but nevertheless damaging Clegg generally making a nuisance of himself.

    The one rather meagre consolation is that no other country is blessed either in this regard, although they do tend to have less destructive foreign offices


  7. It was always on the cards that Obamarama would look to Europe for comradeship in place of the UK. Britain-The US represent everything he hates. He is a socialist and so is Europe…even those who claim to be centre-right like Sarkozy. Add to that the American people made it clear during his “yes we can” election campaign that after GWB, they were fed up with isolationism and wanted to be the same as the rest of the world ie: progressive mishy-mashy socialists.
    To me, this latter US re-alignment is the most worrying change of all as it will herald a growth in socialism across the world which will do what it knows best: to destroy everything in sight and then walk away.

    I posted here a few weeks back that DC/GO were staying as quiet as possible on the e-zone crises to avoid provoking the ethics-free little man in Paris (him of “mummy mummy”) into blaming us for HIS crises. Well, he’s managed to take a few pops at us anyway so desperate is he to avoid blame/responsibility for anything. Imagine how much worse it would be if DC had pontificated from London…. I feel sure the best way forward for Britain is to prepare ourselves for leaving the EU and doing bi-lateral trade deals etc, but one must never underestimate the bitchy retaliations that will follow from the likes of France and of course the fascists & commies running the Commission.


  8. BT
    “the likes of France and of course the fascists & commies running the Commission.”
    Mmmm, you are right there, much as they would wish us out, I think they would miss our contribution, especially with the ESM coming along where they can demand any sum be paid within 7 days. They could wring us dry!
    Don’t think we will escape that easily!


  9. ‘’The stage is set for Britain to gain strength by going its own way. Does our Government have the bottle to do this? No. Does the Opposition even know WTF I’m writing about? Of course not. ‘’

    Exactly and this is the real problem we have. The current political class, especially the elite, are part of the problem and will never be part of the solution.


  10. The ESM is one major reason why it’s time Britain quit the EU.
    We should ignore their anger at losing our payments and focus on what retaliatory measures they might take.

    As things have stood for several decades we’ve been progressively sucked into ever closer EU madness – at ever greater cost – despite repeated claims by our successive leaders that our position has been safeguarded over this or that. It simply is not true.
    Europe is once again heading down a road of fascism that most Brits simply find anathema to our culture and way of thinking.


  11. “.…and that the last vestiges of a special relationship vanished about 50 years ago.”

    Could this perchance have something to do with Wilson’s refusal to get involved in the complete cock-up that became known as The Viet-Nam War?

    Tin-foil hat time: Ulster kicked off about September ’69, shortly after Wilson said no. The greater part of the initial funding for the IRA came from the US, which the powers that be in the US categorically refused to seriously interfere with (Gadhaffi’s contributions started a couple of years later) until after 9/11. Were the last lot of ‘Troubles’ in Ulster perhaps “payback” for Wilson’s refusal to join in in Viet-Nam? Which then might in part explain Blair’s keenness on being Bush’s poodle in Iraq and Afghanistan.

    Notwithstanding, a spot-on analysis of the current UK predicament. As for Viet-Nam, if Hollywood make a few more films and TV series the Septics may yet convince themselves they had a resounding victory over there!


  12. @BT
    Yes, I agree with you but, the ESM is the problem, I think they will view us a a “cash cow” to be milked at their hearts content. Certainly from the Toby Jugs point of view.


  13. Your analysis is spot-on. The UK will not change because you cannot change a culture unless it is confronted with catastrophy. The disintigration of the UK may seem like a catastrophy when that comes. As someone who is a signed up member of the Scottish Nationalist Party, of course I want Scotland to throw off the yoke that is England. There is no vision or even self-belief coming from any of our social institutions; Britain is like a floundering stranded whale. As John said, where are the honest leaders who understand what is really happening and have some kind of plan? I think we all had 300 years of benifit from the Union but the time has come to disassemble it now.


  14. @Viking. Here is a little widely unknown nugget of useless information for you, just for fun. Regarding Hollywood making stuff up etc. During the Vietman war, if the Vietcong had laid an ambush for the dozy Americans but a New Zealand Army patrol happened along instead. They would not spring it as they knew their chances of survival,let alone success dramatically reduced. But it wouldnt make such a good film story if the folk in the USA found out their soldiers where incompetent buffons rather than gungho super heroes I guess. Now back to the financial shambles, apologies for the interruption


  15. I suspect that the problem will be taken from the elite, perhaps sometime next year and perhaps starting within the EU itself. There is a groundswell of frustration at the coalface that will erupt unpredictably. My feeling is that something small will trigger it, such as a doubling of the price to see a doctor (€2.50 to €5.00).
    The ‘Arab Spring’ started with one man in Tunisia setting fire to himself because he had been pushed to far by the regime. Does one imagine that Gaddafi thought, on learning of this man’s death (if indeed he was so well informed), ‘s**t this could be the death of me’?
    The British people have not been pushed hard enough yet, but the bales of straw are piling up on our metaphorical camel.


  16. “of course I want Scotland to throw off the yoke that is England.”
    Back at ya, ron… The yoke (and the joke) has always been on England, you Scots always taking the piss out of us.. Away wi, ye, now, today, don’t put it off!!! Go join the FU in Europe…


  17. NYT Sunday, September 28, 2008
    Small Unit In London Pushed AIG Into The Skid That Nearly Destroyed It

    Sorry JW if it is a blame game, then it seems to have started before Obama was even elected.

    It took me 10 seconds to find that with google “aig london trades”,I didn’t even have to go beyond the first page.

    I haven’t got a clue what a hypo repo might be, but I do know that this issue has been raised more than a few times in the MSM over the past 4 years. All that’s happened recently is that people like Slidelock have latched onto it, and its echoed round the blogosphere – but it isn’t a new thing.


  18. @Viking Jack – Re Vietnam, timing is about right – but I think it was more to do with sentiment of one of the occupants of 1600 Pennsylvania Avenue in the early 60’s. His father also didn’t much like us.


  19. This from….
    Great Britain is now largely isolated. As a result, it needs to ask itself what role, if any, it still plays in this new Europe.

    Merkel, for her part, wants to prevent Britain and the euro zone from drifting further and further apart. She recently told confidants that it is important to give the British the feeling that they are still part of Europe. But the French see it differently, hoping that they will carry more weight in a union that does not include Britain.

    Despite all their differences, Germany has always seen the EU as a political partner of the United States. The French, however, want to establish Europe as an independent power bloc in competition with the Americans. One reason this has not happened so far is that the British have fought to maintain the EU’s close trans-Atlantic ties. This dispute will now flare up once again.

    Optimists, like former German Foreign Minister Joschka Fischer, believe that Great Britain will eventually join the core group, if only out of self-interest. But many in the UK see Cameron’s veto as the beginning of the end of Britain’s EU membership.

    I thought the French perspective interesting…


  20. @Carys – GDP PPP per capita ranking of 37.

    Where does that comes from, the IMF says 21, World Bank 20, CIA 27

    Apart from that agree with you 100%, I’d also add that the UK is not as popular in its former colonies as is sometimes imagined in the UK.


  21. “But many in the UK see Cameron’s veto as the beginning of the end of Britain’s EU membership.”
    We live in hope and prayer for such a bright day…


  22. The Yoke is the UK, England and Scotland are equally tethered. They both need to break free, or either one needs to break free first, freeing the other.
    Win Win.


  23. No it is new. AIG was all about writing naked CDS for unrealistic premia. It was not illegal but was completely mad. The hypothecation ‘scandal’ has been generated by MG Global’s behaviour in grabbling clients’ assets and illegally roundtripping them on a highly leveraged basis. The common aspect is they both used London for regulatory arbitrage. MF Global’s clients are now screaming blue murder and Corzine is probably headed for the Big House.


  24. Let the Frogs have this one! The EU without us as a counter weight to the US. We should be free to trade and invest where we like as a nuclear armed Switzerland.


  25. I have been wondering about this “lender of last resort” expectation. The financial system and most commentators today simply expect a central bank bailout. The shock is that this has not yet happened in the eurozone.

    In Kindleberger’s historic tome about financial panics it is considered essential that such a last resort should be uncertain until the last possible minute. Literally, a last resort. Without the uncertainty too much moral hazard ensues. Nowadays the bailout has become an expected part of the system, so as such is not a last resort.

    If the ECB failure to print precipitates an endgame, then it may do something unexpected. It may become an actual lender of last resort, possibly outside the current legal framework.


  26. Nothing new in the French position – they weren’t fully signed up to NATO for along time, not sure they are even today. They were feeding NATO mission information to Milosevich during the Kosovo bombing campaign.


  27. The details may be different, and the MF Global matter is probably unlawful, but I don’t think the sentiments have changed,

    I’m sure I can find a US blog with lots of “What are those ****** Limey ****** doing in ***** London, that’s where we need to send in **** Predator drones, they’re stealing all ****** our money just like they did in 2007”.


  28. “I thought the French perspective interesting…”

    Interesting for sure, but not new news. The French position has always been about the EU becoming a power-bloc to challenge US dominance. That’s exactly in line with its stated policy going back 1-2 decades for there to be a multi-polar world. The problem is that whereas the US is a democracy, the EU most definitely is not.


  29. Exactly,Britain is being set up as the evil derivative monster that sucks all the clients money out of New York to No1 Curzon Street and “re-hypothecates”it to other banks who leverage it into the Trillions.Those same residents of Curzon Street are terrified of being extradited to the USA where they will be “interned”.MF Global is an incestuous pot of ex-Goldman Sachites from the judges to the lawyers and defendants-who need a few whipping boys with funny foreign accents,like those people in London.


  30. I think the UK population takes on all those points already; it is our rulers who seem to think that the British Empire still exists (it collapsed in financial terms after the Great War but the ruling class chose not to understand that), that the British people want to “punch above our weight” (what a bloody silly phrase), that the NHS is the “envy of the world” (which is why everyone else has created one-not!) and indeed every other cliche which is used to try to hide the deep sh*t we are in.
    Incidentally by “rulers”, I mean all the politicians, press and bureaucrats-all of whom live off the rest of the people.


  31. @Bob H

    To my mind there can be no backstop. The amounts involved are absurd. It is time for the markets to recognize that the banks made a bad bet and some of them should be allowed to fail. Then the markets might come to their senses over America too …

    Then the markets can make some money speculating on which bank will go down next at their local William Hill. [JW is it okay to advertise? Sorry!]


  32. If we can afford the enormous cost of nuclear weapons, often (with their delivery systems) bought from the USA. Many countries manage quite well without such things. How can the French afford them?


  33. I agree with that. Many of the assets of the banks have little real value, and these bankrupt entities should close. My point about last resort lending was that the phrase was bandied about as though it meant auto-bailout. I think the real last resort will be when the horror of a deflationary collapse is destroying multiple banks, and the German authorities give in and allow a desperate attempt to end the carnage.

    By that time the deflationary destruction of pseudo assets will have made the amount remaining much smaller, possibly even manageable. I would not like to bet on it working, though. Short selling the banks will be illegal by then as well!


  34. I wonder why no UK government has charged for doctors visits, yet. £5 per visit would be a small but welcome fillip for local health finances, chronic sufferers and the very poor exempted, and would hopefully cut down on unnecessary visits. It is, of course, standard on the continent.


  35. RG
    No – advertising is about engaging and persuading. This campaign is just plain daft…a shame because I’m very pro the Coop’s values.


  36. Everyone re Britain’s delusions of grandeur
    Because of this at best eccentric commenting ‘system’ here at WordPress, no idea where this comment will appear. But this is easily the best comment thread we’ve had here – which is saying something.
    Unless somebody objects hugely, I propose to forward it to Inner Camerlot.
    Thanks to all concerned.


  37. Gemz (I am now 85% sure you might be the genuine article)
    Advertising is allowed where irony is obviously intended.
    DO NOT whatever you do mention this idea to any bankers of your acquaintance. They will turn it into a sector worth $45 trillion before you can say Lehman Brothers.


  38. If the collapse of the eurozone is going to be as catastrophic
    as they say, is Merkel merely kicking the can down the road
    until Germany can exit with as little damage as possible?


  39. @maxter: The US has elections, the EU doesn’t.

    [cue some stories of vote rigging in Florida]

    btw: I should have used the term “bi-polar” instead of “multi-polar” in my previous comment. The French desire being: 1) The USA and 2) The USE.


  40. @JW

    Just look at what the Troll said. Look at the character of what was written and you will see a different animal. As to any real confirmation, you will just have to stay wondering, for on the internet there is little you can really do. I presume the other one was using my email address? As mentioned, it is one reason that I chose not to use WordPress/Gravatar for my blog: no security.


  41. @KFC

    My money is still with Beatrice Weder di Mauro. She speaks a lot of sense – in a Germanic style. If you know your Germans, she is the one with her finger on the pulse.


  42. @BT – more like 5-6 decades, de Gaulle pulled France out of NATO command in ’58, I suspect French bipolarity predates that momentous non event ;)

    Multi polarity might actually be better, they did seem to have a soft spot for Soviet Moscow. I have this nagging premonition of a Paris-Berlin-Moscow Alliance, alongside my mental images of 3″ guns on TU34 tanks smashing through bedroom windows in the dead of night.


  43. @Carys thanks for that – someone needs to update WikiP, I tried to add something to it once – failed, tried again – failed – too hard – move on RP

    Maybe someone changed the WikiP data, I’m told its not hard if you have PhD’s in astrophysics & neurosurgery. Pity it doesn’t extract data from source in real time, rather than using hand made replication – Web 23.0 maybe.


  44. @rp: Dunno, you might be right. But I thought the bi-polar idea came to France in the period following the collapse of its dear comrade the USSR. It just couldn’t bear to think of Uncle sam ruling the world.


  45. Gemz – surely you know that Weder de Mauro, de Loverly, de Delightful is a Swiss national – she’s reported as being under the influence Silvio Borner, who has a cubicle at Helvetia Insurance


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