British Bank Exposures Threaten Stability

Shares moving in lockstep with the index is a sign that a nasty bump might be approaching. The political fall-out will be immense.

A lot has been written about the troubles of the Eurozone. Less has been heard recently of the mess that Britain is in. Yet the liabilities if Britain’s banks, many of them nationalised by Gordon Brown, are on the vast scale.

Never mind about the government’s borrowing requirement to fund state spending. Try to fathom the fact British banks have exposed themselves with foreign liabilities valued at two times the country’s GDP. Many of these liabilities are collateralised on property, a market which is crashing all over the world. This exposure has not gone away. If anything it is getting progressively worse, as the liabilities stay the same value, or grow as interest payments are not made, and the debt, assumed to covered by asset values, is no longer covered by the assets the money was lent against.

If the liabilities were once fully covered, where are they now? Maybe they are exposed to the tune of $1 trillion. But if the banks called in the debts and put the properties onto the market, the true values currently might be far lower. Real estate that had value two or three years ago, might be almost valueless now. Some developments in the USA have sold for 10-20% of their original values, once they are repossessed by the lenders and auctioned.

Imagine if the real loss the banks are exposed to is in fact $3 trillion. This is not an impossible figure. It could take the country up to 100 years to pay off the loss in full.

This extract from Elliott Wave International, the doomsters of financial forecasting, gives the picture –

Then there’s the world’s sixth largest national economy. In January 2009, Robert Prechter wrote this in the Elliott Wave Theorist:

“. . .British banks have amassed $4.4 trillion worth of foreign liabilities, twice Britain’s annual GDP. . .England, moreover, ‘has not defaulted since the Middle Ages.’ The possibility that it may do so again is yet another indication that the bear market is of. . .(larger) degree, exactly as Elliott wave analysts have predicted all along. . .”.

You can see why the bankers are paid such huge bonuses. If they are keeping a $4 trillion exposure from crashing around the government’s neck, the guys are worth paying. But what if, in reality, their million pound bonuses are only buying the bankers’ silence?

OK. Property prices might recover to their former glory one day. But that might be thirty years away, in a non-inflationary period as appears to be coming into existence.

Cameron and Clegg’s Coalition are doing their best to get to grips with the situation. But the sheer scale of the problem might well be more than even the most capable government can deal with. They might cut government spending back to the level of revenues over time. But dealing with the capital account of debts accumulated during Labour’s years of uncontrolled profligacy could still smash confidence, and send the economy reeling.

The thing that surprises me is the total arrogance of people like Brown and Loadof, who seem to have not even a beginning of an understanding of the scale of the mess they have created. The funny thing is that it helps the current coalition to some extent, if a state of denial perpetuates. Let the little darlings such as Loadof and Mandelson parade their egos around the media. It’s kind of reassuring that things just carry on as they were, in a way. If a real crisis strikes, their reputations will all be blown to Kingdom Come. We will then hanker after the days when we could afford total idiots in government, and their every word was given pride of place by a fawning media. The moment of realisation of where we really are, will be painful to live through, and even harder to move it all into the past.

This is for no other reason is why the Coalition will survive. Necessity.

USUAL CHEER UP MESSAGE. Don’t get depressed. The world always survives. We are lucky to have got rid of Brown, and to have Cameron and Clegg at the helm. Our chances of getting through a crisis are much higher thanks to this changeover with people able to face reality, and who don’t live in a fantasy world of money-grows-on trees.


The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

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