UK: Banks Were Just Three Hours From Collapse

Interesting…

Since then Royal Bank of Scotland (RBS) and Barclays (BCS) have started the toilet bowl death spiral…

Helmet time?

Revealed: Day the banks were just three hours from collapse: “Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.

The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.

Only frantic behind-the-scenes efforts averted financial meltdown.

If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.”

Like I said, UK and Iceland: Not So Different and the UK is Similar to Iceland: Has Ambrose Evans Prichard Seriously Concerned.

Economic Freedom Correlates with Peace

[ Hat Tip Toro’s Running of the Bulls ]

Speaking of economic freedom and global unrest, an excellent post over at Division of Labour nails it: Economic Freedom Correlates with Peace.

Related Posts:
Global Violence, Gold: But Not Yet

Global Violence, Gold: But Not Yet

In Angry Jobless Indians: Social Contracts I warned of the pending social unrest that will sweep the globe as the economic situation continues to deteriorate:

“10 million unemployed you men make for a 'volatile' political environment in the world's largest, messiest democracy where an election goes well if only a few small bombs go off.

Other major export economies are in just as much trouble. In China: “The figures are horrifying.” I wrote:

“The social contract is that the government creates widespread economic prosperity. In return, the plebs won’t make trouble for the ruling patricians. They also won’t demand political liberty. Export jobs in China are disappearing as fast as in India and the social contract is about to be severely stressed.”

In Hyperinflation Then Global War I discussed the book The War of the World by Nial Ferguson:

“Ferguson develops a theory to explain the brutal violence of the 20th century. He postulates that ethnic unrest is prone to break out during periods of economic volatility and uncertainty. Severe economic distress has the tendency to suddenly unravel even advanced processes of ethnic assimilation which then rapidly escalate into full-scale conflict. The catalyst for catastrophe is always the decline of great economic and political powers and more importantly the emergence of new powers.”

Protests are popping up all over the world now. They’re small and they’re being ‘managed’. However, the global economy will continue to deteriorate and somewhere some government will fail under the stress. If the governments that fall are in an ethnically homogenous country, any transition will be fairly uneventful. If the governments that fall are in an ethnically diverse country, expect trouble.

The trade is to go long violence and short tranquility some how. Despite my deflationary stance, gold springs to mind… but not quite yet.

Gold is still making lower highs and the down trend holds. Watch the $900 level and watch the news. Real geopolitical developments will occur quickly.

FACTBOX-European governments face protests over economy: “Protests against governments and banks have increased in some European countries as the global economy has deteriorated.

Here are details of some of the protests around Europe:

* ICELAND:

-- Police used teargas against anti-government protesters when a demonstration outside parliament turned violent on Thursday.

-- The parliament building has become the focus of anger against Prime Minister Geir Haarde's coalition government's handling of the financial crisis. Demonstrators have called for the prime minister and other senior officials to resign and his limousine was pelted with eggs by demonstrators on Wednesday.

* BULGARIA:

-- Hundreds of Bulgarians demanded economic and social reforms in the face of a global slowdown on Wednesday in a second week of anti-government protests.

-- Students, teachers, green activists, doctors and public servants took part in the rally in front of parliament in Sofia, calling on the Socialist-led government to take action or step down. Many shouted "Mafia" and "Resign".

-- Last week hundreds of protesters clashed with police, smashed windows and damaged cars in Sofia when a rally against corruption and slow reforms in the face of the economic crisis turned into a riot.

* GREECE:

-- High youth unemployment was a main driver for unrest in Greece, initially sparked by the police shooting of a youth in an Athens suburb. General unemployment runs just above the EU average at 7.4 percent but the figure is 21.2 percent for the 15-24 age group and 10.5 percent for those aged 25-34. The protest forced a government reshuffle.

* LATVIA:

-- Last week, a 10,000-strong protest in Latvia descended into a riot, some protesters trying to storm parliament before going on the rampage. Government steps to cut wages, as part of an austerity plan to win international aid, have angered people.

* LITHUANIA:

-- Police fired teargas last week to disperse demonstrators who pelted parliament with stones in protest at government cuts in social spending to offset an economic slowdown. Police said 80 people were detained and 20 injured during the violence.

-- Prime Minister Andrius Kubilius, who was only sworn in in December, said the violence would not stop an austerity plan launched after a slide in output and revenues.

Barclays: Death Spiral Fun

This is called Death Spiral Finance… and it always ends in tears. Stupid Barclays (BCS) got themselves into a death spiral situation.

For nimble traders of the intraday variety, BCS can be great fun, but don’t hold overnight… long or short. Gaps of 20% in either direction will be the norm.

Barclays May Have to Give More Control to Gulf Group (Update2): “Barclays Plc may have to give up more control to Middle East investors if the U.K. bank is forced to seek additional capital.

Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after London-based Barclays decided against accepting funds from the British government. Barclays fell 10 percent today in London to the lowest in two decades after the bank said its agreements stipulate it must offer additional shares at a discount to the Middle East group before accepting any money from the U.K.

The provisions, intended to prevent the dilution of the 32 percent stake, wouldn’t stop the company from taking up assistance from the U.K. government, Barclays spokesman Alistair Smith said by telephone today. Other investors who bought Barclays convertible notes have similar protection, he said.

The anti-dilution clauses “have no bearing on Barclays’s ability to participate in the package of measures announced by the tripartite authorities,” Smith said.

Barclays raised 5.3 billion pounds ($7.4 billion) on Oct. 31, selling securities including convertible notes to Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal Ltd. and Qatar Holding. Barclays has plummeted since then in London trading on speculation it will need more capital to cover credit writedowns and may be taken over by the British government.

“This means that it’s going to be tricky for them to raise capital in the next five months,” said Bruno Paulson, an analyst at Sanford C. Bernstein in London who has an “outperform” rating on the stock. “The clause didn’t really matter when the stock price was healthy. It only kicked in severely this week.”

The stock is down 61 percent this month and 67 percent since Barclays announced plans to sell the convertible notes. They pay interest of 9.75 percent until they are converted to stock at 153.3 pence apiece on June 30.

Qatar Holding and Sheikh Mansour also bought 3 billion pounds of securities known as reserve capital instruments. These require Barclays to pay annual interest of 14 percent and give the investors warrants to buy more than 1.5 billion Barclays shares at about 198 pence apiece. Barclays fell to 59.2 pence in London today, valuing it at 5 billion pounds, less than it raised from the Gulf funds last year.

The contracts with the investors would prevent the U.K. government from taking a majority stake in the bank, the Times and Telegraph in London reported earlier today.”

Barclays Prefers to Pay Cash for U.K. Guarantee, Varley Says: “Barclays Plc would prefer to pay for the government’s toxic asset guarantee plan in cash rather than equity, Chief Executive Officer John Varley said in a video broadcast on the Web site of Cantos Communications Ltd.

“Our predisposition would be to pay in cash,” Varley said. “The government was very clear it’s not looking for ordinary equity as a means of satisfying that payment.”

The U.K. government announced plans, Jan. 19, to guarantee toxic assets for a fee and gave the Bank of England power to buy 50 billion pounds ($69 billion) of securities in the second effort in three months to underpin confidence in the banking system. Barclays has declined 55 percent in the past week on speculation it may take more writedowns and could be nationalized.

“There is no truth” in speculation the government is unhappy with how Barclays has valued some of its assets, Varley said. “We have a real-time obligation to ensure that the numbers that we publish are reliable and our numbers are reliable. We take that obligation with deadly seriousness.””

Geithner: Immediately Puts Foot in Mouth, Markets Tank

Knocking on 800 pre-market. There really is no reason for that support to hold. 740 here we come! There ain't nothing Obama can do...

800... then 740, then 600 something... should be fun. Strap on those helmets.

The catalyst for this round of selling were the comments yesterday (which are now being debated vigorously) from Timothy Geithner that sounded very protectionist. He accused the Chinese of currency manipulation. The guy gets sworn in and immediately sticks his entire foot in his mouth. Brilliant.

Upsetting the only people with enough buying power to absorb the massive amount of treasuries that are now being issued is one of the most asshat things anybody could do, especially on their first day at work.

Geithner Warning on Yuan May Renew U.S.-China Tension (Update3): “Timothy Geithner’s warning that President Barack Obama believes China is “manipulating” its currency may trigger renewed tensions between two of the world’s three biggest economies.

Geithner, Obama’s nominee for Treasury secretary, also told senators the administration will press China to “adopt a more aggressive stimulus package” to boost its domestic economy. The remarks on manipulation were a shift from President George W. Bush’s team, which stopped short of using the term in criticizing China’s exchange-rate management.

“The signal this sends is not good” for ties between the two nations, said Charles Freeman, a fellow at the Center for Strategic and International Studies and former top trade negotiator for China at the U.S. Trade Representative’s office. “It opens a Pandora’s box. We need the Chinese to hold onto their Treasury and agency debt.”

Geithner’s comments triggered a drop in Treasuries on concern that demand from China, the largest foreign investor in U.S. government debt, may wane. They may also reignite calls among some U.S. lawmakers for measures to punish trading partners perceived to have undervalued exchange rates.

“What they can’t work out diplomatically we can work out legislatively,” said Representative Charles Rangel of New York, who chairs the House Ways and Means Committee, which has jurisdiction over trade issues, in an interview. “The committee has been saying for years” that China has manipulated the yuan’s value, he said.”