Inequality all over the world

(Click on the table for a larger image)

The world is such an unfair place. The most recent edition of the ONS social trends had a table that reminds us of that fact.

The table looked at demographic indicators from a series of countries located on the Greenwich meridian, including the UK. Once you leave Europe, the further south a country, the poorer the life chances for their residents.

For example, a French woman can expect to live about 24 years longer than her Ghanian sister. In Spain, only 4 new born babies out of a thousand die, while in Mali, that number is 128.

However, there is one number that puts the UK way out in front - population density. We have 248 people per square kilometre, over double the population density in France, and nearly three times that found in Spain.

The real world

Just in case you haven't seen it....

(click on the image for a sharper picture)

Guarantees and asset purchases - is there a way out?

The UK's financial system has become nothing more than an appendage of the state.

Take, for example, commercial bank debt issuance. Since the government began guaranteeing commercial bank debt back in September last year, virtually all UK bank fixed rate senior debt issuance has received a public guarantee.

As for the Bank of England, it gave away its independence long ago. Its primary role these days is buying up UK government debt. Since the Bank of England to introduce the Asset Purchase Scheme, it has mostly bought UK government paper.

At 26 March, purchases totaled £15 billion, of which just £128 million comprised of corporate bonds; while £1.9 billion was of commercial paper. The rest, some £13 billion comprised of gilts.

How will the UK government wind down this massive state aid for the financial system. How will the commercial banks survive without those guarantees? How will the bond market survive with those massive purchases from the Bank of England?

I very much doubt whether the geniuses that thought up these schemes spent much time thinking about exit strategies.

The housing equity economic cycle

There is something sad about our dependence on home equity withdrawal. When it goes up, the economy booms; when it goes down, the economy dives into a recession. Our economic fortunes have become utterly dependent on whether house prices rise sufficently quickly for home owners to borrow and consume against their imagined increases in housing wealth.

However, under New Labour this dependence on home equity withdrawal reached grotesque proportions. The government and the Bank of England have risked everything on stabilising house prices and re-establishing household sector credit growth. They have forsaken fiscal stability, cut interest rates to almost zero and started to print money. Yet despite every crazy policy gesture, home equity withdrawal has not recovered.

Yet another bank clean up is launched

With each passing bailout, the numbers get larger and more alarming. Is anyone in the US government bothering to add up all these new public sector liabilities?

US Treasury Secretary Timothy Geithner has unveiled a comprehensive bank bail-out plan worth at least $1.5 trillion (£1.02 trillion). Under the plan, the size of a key Federal Reserve lending program will be expanded to $1 trillion from $200bn.

In addition, a public-private investment fund of $500bn will be created to absorb banks' toxic assets and could be expanded to $1 trillion.

It is all starting to fall apart

Item one: Spanish public sector debt has just been downgraded. No more triple AAA.

Item two: UK bond prices fell sharply today, which is equivalent to saying UK interest rates went up. If I read the Bloomberg webpage correctly, 30 year gilt yields are up almost 15 basis points. Markets have just woken up to the fiscal risks of unlimited bank bailouts. Just how far is the UK away from a rating downgrade? Too close for comfort, I'd say.

Item three: There is talk in Ireland of leaving the euro. Irish exports are being crushed by that extremely unfriendly sterling devaluation. There is a whiff of default wafting around Ireland right now.

What do these three economies have in common? Housing bubbles.

G7 bank bailout special weekend bubble wrap

The crash of 2008: now the pain sets in

"The British Chambers of Commerce (BCC), in a survey of 5,000 members, said confidence and business activity had slumped. “The alarming third-quarter results point to worsening dangers of a major economic downturn and rising unemployment,” said David Kern, the BCC’s economic adviser. "

Leaders at wits' end as markets throw one tantrum after another

"For most of the past year, senior bankers have struggled to avert a collapse of faith in modern finance. Tragically, as this month's events show, they have largely lost this fight. Now, however, this war has entered a new, and potentially even more dangerous, phase. "

IMF warns of world financial system 'meltdown'

"Are Central Banks Making Libor WORSE?"

"The Fed’s massive and numerous liquidity facilities are making things worse. The problem is more than banks unwilling to lend to each other, they are also unwilling to borrow from each other. Banks can get all the funding they need (and then some) from their central bank so they do not need to seek a loan from another bank."

Ireland's economy ends long winning run

"Davey McKeever was down to his last bet slip of the night, crumpled in a sweaty fist, at the Shelbourne Park greyhound track. The remnants of McKeever's first unemployment check would rise or fall on the ironically named Nest Egg."

Spain rescue fund to buy high-quality assets

Does Spain have any high quality assets? If so, do they need rescuing?

French property prices expected to fall steeply in next 12 months

"The property market in France is beginning to show signs of stress although it has not been exposed to the US sub-prime crisis in the same way that other European markets have."

Gas prices: Down 10 cents in 2 days

Fannie, Freddie Commit to Waste $40 Billion a Month Taxpayer Money

"Not content to waste $700 billion of taxpayer money, Fannie and Freddie are going to waste another $40 Billion a month buying troubled assets."

Alice's bubble wrap

British banks face nationalisation if £400bn bailout fails

"Senior UK sources at the IMF in Washington gave strong hints tonight that if the British Government's £400 billion bailout fails, the only option left to stabilise the economy and financial system could be wholesale nationalisation of the UK banking system."

RBS, European Banks Slide on Concern About Economy

"More than $4 trillion has been erased from global equities this week".

Iceland: Britain's Credit Crunch Scapegoat

"There's nothing like an external enemy to make a country pull together, and Britain, until recently fractious and dissatisfied with its Labour government, has found a fresh foe: Iceland."

Brown Threatens to Freeze Icelandic Assets in U.K.

"The Icelandic banks are unable to finance about $61 billion of debt, 12 times the size of the economy, according to data compiled by Bloomberg."

How could a country of just 300,000 people run up such a large debt stock?

Buy One Spanish Home, Get One Free

Still not interested.

U.K. Pound Has Biggest Weekly Drop Against Dollar in 8 Years

The U.K. currency was also down against the euro and the yen this week.

FTSE loses fifth of its value in a week

"London equities tumbled on Friday extending the FTSE 100’s decline to five-consecutive days during which the senior index lost a fifth of its value."

Initial Lehman CDS Auction: 90 Cents on the Dollar, Worse Than Forecast

"Those who wrote $400 billion plus of protection on Lehman's credit default swaps had been expected to make a substantial payout in the 80% to 85% of face value range, but the preliminary auction showed even worse results."

UK exports slip to create biggest goods trade deficit since 1697

"The Office for National Statistics said yesterday that July's deficit with the rest of the world had been revised upwards to £8.238bn - the biggest gap since records began in 1697. It blamed the revisions on a large number of late returns. The goods trade gap reached £8.198bn in August, well above City forecasts of £7.6bn."

Alice's bubble wrap

UK 'To Be Worst Hit' in Crunch

Its back to being the sick man of Europe:

"High personal and government debt levels were cited by the experts as reasons behind the potentially sharp downturn. Moreover, the banking sector - in which the credit crunch originated and has had its biggest effects - is particularly important to the UK economy, when compared to its European rivals."

FTSE 100 suffers worst drop in history as banking crisis intensifies

And it is down over 30 percent since its peak.

Ireland; still trying to ramp up housing

It is a sickness...

"Should the (Irish government) budget contain measures to boost the property market? Ronan O'Driscoll argues 'Yes', that by encouraging the sale of 30,000 unoccupied homes, the Government could inject €10 billion into the ailing economy,...."

New data on Spain housing market labeled ‘dubious’

Fixing the numbers is another modern illness. If the number doesn't show a crash then the crash hasn't happened....

"Pundits are already mocking a new index of housing prices in Spain, which was supposed to bring some clarity to the market. According to the data released by the National Institute of Statistics, property prices in Spain fell a mere 0.3 percent from June 2007 to June 2008, despite the widespread reports the market is in the midst of a free fall.

The index said resale prices dropped 4.9 percent in the year, but new home prices actually rose 5.3 percent—a laughable assertion, considering the hundreds of thousands of empty homes on the market."

U.S. to recover in spring, economists' group says

Hope springs eternal.

Bush: Plan to solve credit crunch will take time

But not quick enough to save us from calamity.

FHA Will Take on Subprime Loans Shunned by Lenders

Perhaps, the Paulson bailout was a diversion. The FHA could be the real vehicle for rescuing the bankings system from subprime.

"The Federal Housing Administration has grown so large that by the end of the year it will guarantee mortgages for three in 10 U.S. borrowers, many of whom have bad credit or loans that required no verification of income. Congress wants FHA to do more. The Hope for Homeowners program, unveiled Oct. 1, authorizes the agency, part of the cabinet-level Department of Housing and Urban Development, to guarantee up to $300 billion of 30-year, fixed rate home loans for struggling borrowers over the next three years."

How did it all happen?

Lots of answers explaining why financial markets have just gone mad. a) recency effect: b) bandwagon effect: c) beneffectance: d) confirmation bias: e) hyperbolic discounting: f) optimistic bias: g) overconfidence bias.

Take your pick....

Frosty Times: Why Iceland Matters

This has to be the most unlikely headline of the day.

German News Update......Hypo Real Estate Bailout

From immobilienblasen.

Term Auction Facility Increased to $900 Billion, With No Apparent Success

Oh boy.....

How close to capitulation?

Robert Peston thinks its serious.

For the latest blog posts on the housing crisis check out housingblogwatch.

Fed to pump in $900 billion

From Bloomberg:

Oct. 6 - The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets as the credit crunch deepens.

"The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions," the central bank said in a statement released in Washington today.

Sometimes it is hard to put such huge numbers into perspective. Well, $900 billion is equivalent to 6.5 percent of US GDP; a third of UK GDP, and it is more than the combined GDP of Sweden and Switzerland.

This liquidity operation is unprecedented. There has never been a larger one in human history.

Pray that it succeeds.

Dow Jones falls below 10,000

The Dow is now down 30 percent from its October 2007 peak.

Whatever happened to the Greenspan put?

The crisis moves to Europe

About two weeks ago, the German Finance Minister Peer Steinbrueck gave an arrogant speech about the inevitable decline of the US as a superpower. He placed the blame squarely on the financial excesses of Wall Street.

Rather than meditating on geo-politics, he should have spent more time considering the financial difficulties in his own country. One of Germany's largest banks - Hypo Real Estate - is in serious trouble. More worryingly, the German government's attempts at saving the stricken back are falling apart. The commercial banks, who had agreed to put up the money to save Hypo, have just witdrawn their support.

So what happened? According to Die Welt, the numbers didn't add up. Hypo Real Estate's financing needs exceeded the bailout plan guarantee, The paper also reported that the bank will need 20 billion euros by the end of next week and 50 billion euros by the end of the year. It doesn't get any better after that, the bank will need a further 100 billion euros by the end of 2009.

The Hypo story takes the financial crisis in a different direction. While everyone in Europe was laughing their heads off at the chaos in the congress over the US bail-out, the crisis has migrated to Europe.

It took about two weeks for US politicians to put together a bailout plan. Sure, they produced an unpopular, ugly and expensive package, but it is in place, and US banks now have a dumpter to take away their rubbish.

How long do you think it will take for European politicians to do the same thing? And do you think the inevitable European bailout plan will be an improvement on the Paulson plan? By the time, European banks have a safety net, people will consider Paulson as a genius.

Alice's bubble wrap

First-time buyers welcome crash

"House prices have fallen for 11 months in a row with lender Nationwide warning of "difficult" times ahead, but many first-time buyers are quietly counting their blessings. "

Public spending must be cut and nationalised institutions should be re-privatised

Paulson is coming to town:

"The UK will need to consider all options: whether to put in a similar scheme to the Paulson plan in the US, given particularly, the major interlinkage between UK and US banks as both have a major presence in each other's country. "

Europe economic powers to hold finance crisis summit

Problem solved; the EU are going to have a meeting about the credit crunch.

PM to attend credit crunch summit

Mr. Brooooon is going to turn up too. Success is certain.

Will Euro Bank Woes Take Down the EU?

"The EU lacks a mechanism for rescuing banks; the responsibility falls to national central banks. The rescue over last weekend of Fortis demonstrated that several central banks, shepherded by the EU, can make a coordinated rescue. But will this prove to be a one-off or a model? The biggest banks in Europe, starting with Deutschebank and UBS, are similarly too big for their home country central bank to salvage in case of a meltdown."

Bradford and Bingley: British government nationalises second failing bank

The socialist view on the second UK bank failure.

Inflation, Deflation, Money Velocity and Gold

The deflationist view from the Financial Ninja.

ING eyes new property derivatives drive

If you thought that banks might have learnt something from the current crisis, well here is a story to disabuse you of that idea.

Ireland OKs world-leading bank guarantee

Let's move our money to Dublin.

Casinos weathering economic storm

The gamblers have moved out of housing and back into the casinos.

"Casinos .... are outperforming 2008 projections. In Pennsylvania, Philadelphia Park Casino was projected to earn $297 million annually, but it just completed its first full year with $325 million. The nearby Harrah’s Chester Casino earned $332 million, nearly $100 million more than expected. Likewise, gaming revenues in Iowa have increased throughout 2008. "

Alice's bubble wrap

U.K. Mortgage Approvals Sink to Decade-Low, BBA

I really should have charted this data. Maybe tomorrow.....

"Banks granted 21,086 loans for house purchase, down 64 percent from a year earlier, the London-based BBA, which represents the U.K.'s biggest banks, said today in a statement. The reading is the lowest since records began in September 1997. The value of mortgages for homebuyers fell to 2.8 billion pounds ($5.2 billion), also the lowest on record."

Keith Marsden: The bubble that burst a Chancellor's proud reputation

From the Yorkshire post (my small contribution to reminding everyone that there are regional daily newspapers in the UK.)

Irish stocks fall 8 pct

Wow, that has got to hurt.....

"Shares on the Irish Stock Exchange fell 8 percent Tuesday to an 11 1/2-year low, driven by fears over the profitability of Ireland's property-exposed banks amid a real estate slump — and as troubled U.S. investment banks dump their holdings."

Of Interventions and Conservative Principles

Left is right and right is left:

"What’s a principled conservative to think of the Bush administration’s proposed $700 billion authority to allow the U.S. Treasury buy illiquid securities? On the one hand it would appear to be a necessary step to solve a systemic crisis in the U.S. banking system. On the other, it promises to be an enormous expansion of government power and commitment of taxpayer dollars."

Dubai Real Estate: Beset by Scandals and Uncertainty

After Spain crashed, the really dumb money is moving to Dubai..

"Amid fears of an overheating real estate market in Dubai, a chain of legal and management scandals involving property firms threaten to shake investor confidence and ruin the city state's stellar business reputation."

Sweden offers a lesson for U.S. banking bailout

The banking crisis is the second most famous thing from Sweden; after Abba, of course.

"Hedge funds suffer mass redemptions

One sign the crisis is getting worse; from nakedcapitalism.com

What happened to oil markets on Monday?

Good question; econobrowser tries to answer.

The Innovator, the Imitator, the Idiot

From Big picture

"Buffett once told me there are three 'I's in every cycle. The 'innovator,' that's the first 'I.' After the innovator comes the 'imitator.' And after the imitator in the cycle comes the idiot."

-Theodore Forstmann, quoting Warren Buffett

Lehman pension shortfall is a foreshadowing

"Apparently Lehman not only failed, it left a gaping hole its accounts. The UK pension scheme is missing £100 million. UK regulators certainly need o investigate whether the shortfalls are the result of criminal activity."

Alice's bubble wrap

Banking crisis: Is Britain heading for the worst recession since the 1930s?

Maybe.....

Down and Out in Wall Street

Slate offering a US news round-up on the stock market crash.

50% Retracement of 2002-2007 Rally

The stock market is crawling back those post dot.com bubble gains.

Spanish Property Prices Continue To Fall

Things are getting really bad on "the costas."

"Propertywire reports that prices on the coasts fell by over 8.3 per cent in the 12 months to the end of August, according to figures by Tinsa, one of Spain's largest appraisal companies. This compares with an average drop of 4.6 per cent for the whole of Spain."

Shares in Irish financials fall as concern deepens

The latest from the other great eurozone housing bubble.

Scary picture of Paulson

He turned out to be a nightmare for Lehmans.

Fed Adds $50 Billion to Banking System After $70 Billion Injection Yesterday

Central banks are pumping in oceans of money into their respective banking systems.

The Wall Street crisis and the failure of American capitalism

"The end of Lehman Brothers and Merrill Lynch, two of the largest Wall Street investment banks, one week after the government takeover of the mortgage finance giants Fannie Mae and Freddie Mac, marks a new stage in the convulsive crisis of American capitalism."

The "convulsive crisis of American capitalism" - I wish I had thought of that.

Alice's bubble wrap

It is difficult to know where to start, but a fashion story might be a good place.

Buyers ignore credit crunch at London Fashion Week

"Turmoil on the financial markets hasn't made small buyers timid at London Fashion Week."

When things get really difficult, there is nothing like a new handbag to calm the nerves.

Fannie, Freddie, Ben, and Alan

Aren't you just sick of hearing Greenspan say it wasn't his fault.

A Crash Course in Economics

"Each week, sometimes daily, we slide by a new warning sign, by another wreck that's already off the road. The new one is Lehman Brothers. Before that Fannie Mae and Freddie Mac. Before that Bear Stearns. In August, "one in every 416 U.S. households entered the foreclosure process."

Wall Street crisis could put Fed rate cut in play

"Wreckage from a massive crisis on Wall Street could prompt the Federal Reserve to do an about face and once again cut a key interest rate this week or possibly later this year, economists said Monday."

Wasn't it excessive rate cuts that put banks into this mess?

Wall St drops but rate cut hopes prevent widespread panic

Even a sniff of rate cut is enought to calm Wall Street down.

Investment Banking Will Survive The Crisis

Gloria Gaynor was signing in the background "I WILL SURVIVE".

AIG Stay of Execution: Holding Company Can Access $20 Billion of Subsidiary Capital

From Naked Capitalism:

"AIG appears to have fended off the immediate threat of a downgrade with the granting of permission by New York State for the parent to gain access to subsidiary capital. While certainly quite a waiver, it is also possible that AIG has overcapitlaized subs and thus this move may be defensible as far as policyholders are concerned."

Pimco, Vanguard Are Biggest Bond Fund Losers in Lehman Collapse

"Pimco Advisors LP, Vanguard Group Inc. and Franklin Advisers Inc. are among the investment companies that will face losses of at least $86 billion stemming from the collapse of Lehman Brothers Holdings Inc., the biggest bankruptcy in history."

The losses had to fall somewhere.

US bank crisis alarms Europeans

"The deepening crisis in the US banking system is causing alarm in Europe. There are worries that if a huge European bank, equivalent in importance to Lehman Brothers, faced failure, there would be no way to rescue it. "

Then European Banks should be a little more careful than their American counterparts.

Obsession with property must end, says Cable

No more housing bubbles? What would we Brits talk about?

Financial chaos does not rule out economic recovery

The dumbest headline of the day from Kaletsky of the Times. Just take a look at this paragraph:

"Last Monday I wrote on this page that the US Government's rescue of Fannie Mae and Freddie Mac probably marked the low-point of the global credit crisis and was “unqualified good news for the US economy”. Four days later, I wrote that this very same rescue “signalled the complete failure of the biggest, most dynamic, most innovative markets that have ever existed in the history of capitalism — the Wall Street stock market and the market for US bonds”.
Are these statements absurdly contradictory? Or did something change dramatically in those four days? Or was I just talking rubbish?"

I think you answered your own question, Anatole.

Alice's bubble wrap

Too Late For Me

Renter girl is moving out and moving on.

"My landlord is going bankrupt, and so I must leave. Somehow, he’s accumulated twelve buy-to-let mortgages, you see, and nine are in negative equity.Good job I packed, really."

Twelve buy-to-lets, with nine underwater? Who gave him the credit to create such a mess?

Do Fannie and Freddie hold the key to UK’s housing crisis?

First prize for dumbest question of the day.

UK going into recession, says EC

The Eurocrats must have enjoyed making this forecast.

Housing slide hits Barratt profit

Profit warning? I'm amazed that Barratt is still around.

Stagnation in Welsh economy continues

I haven't heard much about the Welsh property bubble.

Lehman shake-up as losses mount

"Troubled US bank Lehman Brothers has reported a massive third quarter net loss and outlined radical plans to strengthen its finances. Lehman said it made a loss of of $3.9bn (£2.2bn) between June and August, taking its losses this year to $6.6bn. To shore up its weak financial position, it has slashed its dividend and will sell a stake in its lucrative fund management arm. "

It doesn't look like a long term growth strategy; it is more like "can we last till the weekend" strategy.

Lehman Death Watch: Will Paulson Let Lehman Fail?

Naked capitalism thinks that the Fed and the Treasury might let Lehman sink. Not so about this one.

Lehman Brothers: Wall Street atom smasher set in motion

"The world’s most powerful balance sheet smasher was set in motion for the first time Wednesday morning at the start of an experiment designed to unlock the secrets of the investment bank accounting universe."

Lehman losses hit world stocks

Al-Jazeera's take on the Lehman crash.

Irish Nationwide disagrees with downgrades

"Irish Nationwide Building Society says it 'fundamentally disagrees' with recent rating downgrades from credit rating agencies Fitch and Moody's. Fitch said today that the downgrade reflects concerns about the uncertain outlook for commercial and residential property lending in Ireland and the UK. It said this has deteriorated further and faster than was anticipated in early 2008."

Pimco fund makes $1.7 billion in a day after bailout

The real reason behind the Freddie and Fannie nationalization.

Bill Gross Finds Communism

It is as if the Berlin Wall had never fallen.

Spanish PM unveils housing credit to combat slump

More state aid for the housing market.

Economic Breakdown: Result of Moral Breakdown?

"Today, people don’t seem to care so much about things like their reputation, honesty and character. The pursuit of money reigns supreme."

Judgement day is upon us; we had it coming.

Alice's bubble wrap

State of the nation

"The shortlist for the Mercury Prize is a reliable indicator of the national mood. This year Britain sounds like a lonely place fixated with bygone glories".

MPC dove Blanchflower to vote for rate cut

Blanchflower is an enemy of the people.

Standard and Poor’s warns of UK’s greater recession risk

These jokers are normally the last to know; so the recession must have started.

Deepening recession may throw Britain into full-year GDP fall

Yes, it will be deep and dirty.

Indecision on Stamp Duty impacting property market: NAEA

Darling's incompetent attempt to revive the housing market has probably helped prices fall faster. Perhaps, I have judged Darling too harshly. He seems more friend than foe. So, lets hope he keeps screwing up.

UK retail sales 'at record low'

I could believe that.

Credit Crunch Good For Relationships, cahoot Reveals

This, I do not believe....

US economy grew at 3.3 percent in q2

I couldn't help laughing when I read this post. Most of the US growth improvement comes from a lower price deflator. In other words, the inflation rate of US output was very low, but when this output was put before consumers in the shopping malls, the corresponding inflation rate shot up a couple of percentage points. It is all the more strange, when we consider that US input prices are rising at double digit rates.

The implications are hilarious. If the US economy is indeed growing at 3.3 percent with an inflation rate approaching 6 percent, wouldn't it be sensible to push interest rates a little higher than 2 percent?

In reality, this growth rate stretches credibility. All the problems appear to be in the measurement of inflation.

Lehman Said to Be Poised to Eliminate as Many as 1,000 Jobs

I don't understand; isn't the US economy booming?

Nikkei: EU, Japan, US Discussed Coordinated Intervention to Support Dollar

Does this explain the dollar rally?

Fears over Spanish market prompt security link-up

Here is an example of some really lazy journalism. To me, it looks like a cut and paste job from a company press release.

Alice's bubble wrap

Northern Rock defaults leave taxpayers facing bill

No surprise here. There was only ever was one serious question; how much?

Trade-weighted sterling hits 12-yr low

The consequences of keeping interest rates low. A depreciated sterling today means more inflation tomorrow.

Bank of England May Cut Rates as U.K. Economy Slumps

Something which should turn recent sterling weakness into an uncontrollable rout.

The housing turnaround

Prices are still crashing, and estate agents are talking up a recovery.

What Global Rebalancing (aka The End of Foreign Funding Spree) Looks Like

The dollar will soon resume its journey downwards. It will take sterling along for the ride.

Not Only Homeowners Are Having Refinancing Problems.......

"U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt."

I am not sure that this is such a big problem. When the time comes, everyone will have an incentive to roll these debts over.

Housing crash in Spain

It is ugly, fugly, and just plain nasty. When I look at Spain and Ireland, I sometimes wonder how much worse our housing bubble would have been if the UK had adopted the euro.

"U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due."

Lending Over Backward

Freddie and Fannie are not the only quasi-state financial institutions in America. There is also the FHA. ...

"Heralded as a savior in reversing the mortgage market’s woes, risks to the (FHA) agency could cost taxpayers dearly, says one mortgage expert, as Washington morphs the FHA from a helping hand for low-income home buyers into a back door bailout for the imploding mortgage industry. Trouble is, there's little choice at this point."

How to shore up America’s crumbling housing market?

This question could be better phrases. How to keep US house prices high when supply and demand are forcing them lower? Martin Feldstein thinks he has the answer; mortgage replacement loans. The scam is simple enough. Transfer around 20 percent of mortgage debt into loans from the government.

Can anyone answer this question; why does every scheme concocted to save the housing market have the government taking on a debt, offering a subsidy or reducing a tax? Why are there no private sector solutions to this problem?

Feldstein, who was previously a Republican, has a few other communist ideas to offer, such as reneging on contracts, and a "default on your debt, but keep your house" scam.

There is only one solution to this problem. Prices need to adjust to equate housing supply with housing demand.

The big three and the big five

Here are the three largest current account deficits in the world; the US, Spain and the UK. Taken together, over the last 12 months, these three countries have imported $972 billion more than they have exported.

The numbers in white represent the current account deficits of each country in percent of GDP. The deficits in the UK and the US are certainly large, but the Spanish deficit is just shocking. Currently, it stands at 9.5 percent of GDP. No country can accumulate deficits of that magnitude without risking a major crisis.

If these economies are running up huge deficits, there must be other countries running up huge surpluses. Here are the countries with the five largest external surpluses.

Three of the top five are manufacturers, while the remaining two are oil producers. At least two of the three manufacturers - Japan and Germany - are not low wage economies, dispelling the myth that cheap labour is the essential requirement for maintaining a vibrant industrial base.

Comparing the deficit countries with the surplus ones produces an extraordinary observation. The combined deficit of the big three is almost the same order of magnitude of the big five surplus countries. Is that a statistical fluke, or is there something quite fundamental going on here?

There is nothing random about this observation. The big five surplus countries are selling huge amounts of goods and services to the deficit countries, who pay for these goods in cash. The surplus countries return this cash back to the big three deficit countries by either extending loans to deficit country governments and firms; depositing the money in deficit country banks, or buying assets in deficit countries. The deficit countries then use this recycled cash to buy ever more imports.

Let us illustrate this monetary recycling with some real world examples. It could be the Chinese government buying a US treasury bill, a Russian oligarch buying a house in Chelsea or a German factory manager depositing money in a Spanish Bank. However, the key takeaway from this process is that behind this circle lies a mountain of debt and asset transfers.

As any pawn broker will tell you, spending beyond your means through borrowing or selling your possessions is not something that can go on forever. Sooner or later, you have to stop spending and start paying back.

I think that point is now very close for the big three spenders.