The FT editorial today tells us the world’s financial system’s heart has stopped beating. That is pretty serious. It means that no bank can borrow, and so few can lend. This is impacting on all other markets as a temporary cash crisis has been created, where people are having to sell anything they can to raise cash – often simply to meet margin calls on things they hold futures contracts on. If this machinery continues to grind everyone down, as it surely must, share prices will be driven down to zero, and the real world effects of the financial game will be horrendous.
What can be done? Governments must lend to the key banks and other key selected financial institutions unlimited amounts at 0%. Any margin they make – say 10% even – will be used to rebuild their balance sheets. From a strong core of banks known to be fully funded and secure, making vast short term gains, and profits from being granted the power to buy and to lend at high rates, will a new platform be created – maybe in time to keep life from grinding to a halt.
These financial mega-giants will become enormously powerful and will be able to control markets to their own advantage. They will need to be broken up after a period of time into smaller units. The government should demand 50% ownership now, as its share in the proceeds, and these shareholdings can be sold off a generation later to pay back the debts accumulated by fixing this crisis.
At this stage governments are fantasising that they will be able to reestablish confidence by ‘guaranteeing’ or promising that they will fund all the cracks that will appear in an unfunded system. It’s ludicrous and impossible to do. Only by giving unlimited funds at zero cost can the institutional infrastructure be created that will deal with the current crisis.
Organisations need to borrow urgently to save themselves from bankruptcy. They should be charged 25% per annum possibly to cover the risk of loss to the lender. Lending should be priced now purely at the risk factor of being repaid, until the crisis is over. Governments won’t stand a chance of pricing the risks. Only banks will be able to do such a thing. It would be best for governments to fund all reputable banks with unlimited funds at 0% now while the banks are still in place to carry out the rescue, and deregulate all lending so that lenders can protect themselves from risk by charging high rates.
As soon as the markets are safe, the rates will tumble back down, but right now there is no market. The heart has stopped beating. The only way to bring the beat back is to mainline into the veins zero-cost unlimited finance with no limits set on re-lending rates, until the beat returns. There can be no other solution.
Governments must identify the organisations in the banking sector to use to base the recovery on. There must be no flinching or turning back, once the banks have been selected. They must be made fully secure overnight and allowed to operate at will without restriction, in return for sacrificing equity. If they refuse to cooperate, then they will have to e compelled to save the system that all are dependent upon.
All EU regulations restricting lending by institutions partly or wholly owned by governments, and all other lending restrictions and directives must be ignored instantly and permanently. If the EU refuses to back away and allow the world’s economy to be saved, Britain and any other country that wishes to survive must withdraw, and seize its own sovereignty back, as of right now.
In Britain Peter Mandelson will be quite unable to consider such a solution. George Osborne might have the guts to realise that the current situation will need a completely new start, and propose these changes. Until someone does, the numbers of people threatened and their suffering will only get worse. The size of the problem will also balloon into unmanageable proportions. The longer governments imagine that they can turn around this crisis, the worse and more prolonged it will be.
Only by joining forces with the relevant private sector leaders will anything be able to be done, and as the FT points out, time is running out. See FT leader – Banks at a minute to midnight HERE. The FT using such phrases signifies that the world is indeed in extreme danger, and it must find someone capable of leadership.