The Collapse Of The Modern Day Banking System

This does not make happy reading, but read it you should.

"One of Britain's leading economists, Peter Spencer, issued a warning on Saturday:

“The Government must suspend a set of key banking regulations at the heart of the current financial crisis or risk seeing the economy spiral towards a future that could make 1929 look like a walk in the park"."

"Spencer said:

"The Bank is staring into the abyss. The Financial Services Authority must go round and check that all banks are solvent, and then it should cut the Basel capital requirement level from 8pc to about 6pc.” (“Call to Relax Basel Banking Rules, UK Telegraph)
Spencer confirms what we already knew; the banks are seriously under-capitalized and will come under growing pressure as hundreds of billions of dollars of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) continue to lose value and have to be propped up with additional capital. The banks simply don't have the resources and there's going to be a day of reckoning.

Pimco's Bill Gross put it like this:

“What we are witnessing is essentially the breakdown of our modern day banking system.” Gross is right, but he only covers a small portion of the problem.

Economist Ludwig von Mises is more succinct in his analysis:

“There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”"


Not a pleasant prospect is it?

But it can't happen in the UK because as we all know, Gordon "No more boom and bust" Brown is a financial genius.