MidnightWatcher – Prophecy in Motion

“Sir Mervyn King, the Governor of the Bank of England, this week called the current financial crisis ‘the most serious… since the 1930s, if ever’, in justification for a further £75 billion of ‘quantitative easing’. Since Sir Mervyn cited the chaos of the inter-war years, it seems appropriate to quote Winston Churchill: ‘Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusions of counsel, until the emergency comes, until self-preservation strikes its jarring gong – these are the features that constitute the endless repetition of history.’

We are at just such a moment again. Little more than two years ago, global leaders were happily congratulating themselves on having avoided the mistakes of the 1930s, thereby averting a depression. But now it appears that the difficulties of 2008 were but a foretaste of what was to come. With the European banking system again on the verge of collapse, there is a sense that politicians and economists are out of options, that governments and central banks are powerless before events. The best of the cavalry has been sent into battle, and it has come back in tatters. The fiscal armoury has been exhausted, the support offered by the boom in emerging markets such as China and India over the past two years seems to be on its last legs, and there is but the small rifle fire of the central bank printing presses left to defend us.

If it has been obvious for some time that we are caught up in an extreme financial crisis, the extent of its severity has acquired greater clarity in being described by the Governor of the Bank of England. Never before has the global financial system been so interlinked and integrated, which means that problems in one part of the world are capable of causing severe stress almost everywhere else. We once more face a perfect storm of cascading default, contracting credit and collapsing economic activity.” Read more.

“The ratings agencies are at it again. We have noted that the PIIGS will continue to see downgrades and that is what we are seeing today. Fitch downgraded both Italy and Spain. Shares of iShares MSCI Italy Index (NYSE: EWI) are still up 0.4% at $12.58 on the day but shares were up around $12.80 earlier today. Shares of iShares MSCI Spain Index (NYSE: EWP) are down only $0.02 at $33.65 but shares were above $34.00 earlier this morning.

Italy was cut to ‘A+’ from ‘AA-‘ today noting that the crisis is a significant financial and economic shock for Italy. It also notes that Italy has been hesitant to respond and it has eroded confidence.

Spain was downgraded to ‘AA-‘ with a negative outlook due to risks of fiscal consolidation efforts. It noted that it could go down to the ‘A-‘ range if the FROB costs are more than expected.” Read more.

Moody’s Downgrades Nine Portuguese Banks – “Moody’s Investors Service downgraded its ratings on nine Portuguese banks on Friday, citing the increased asset risk linked to their holdings of Portuguese government debt and the sovereign downgrade of Portugal in July. The ratings agency downgraded by one or two notches the senior debt and deposit ratings of nine banks and the standalone ratings of six of them. In early trading, Portugal’s top listed bank Millennium fell 1.7 percent.” Read more.

“Moody’s on Friday downgraded its ratings for a dozen British banks, including state-owned Royal Bank of Scotland and Lloyds TSB, due to the removal of government financial support.

Moody’s said it chose to downgrade five large banks and seven small lenders as government action had ‘significantly reduced the predictability of support over the medium to long-term.’

The downgrades did not concern HSBC, Barclays or Standard Chartered banks, the agency said. But it added that it believed Britain’s government was in the current climate more likely to allow small lenders to fail if necessary.

The announcement comes as the European Union seeks swift recapitalisation of the region’s banks to avert the spreading across borders of the eurozone debt crisis.

Friday’s downgrades could result in banks facing higher rates of interest when looking to borrow money on markets, further hindering their attempts to return to better health.

Moody’s said it had downgraded Royal Bank of Scotland and Nationwide Building Society each by two notches to A2 from Aa3; Lloyds TSB Bank and Santander UK were cut by one grade to A1 from Aa3; the Co-Operative Bank was downgraded one level to A3 from A2.” Read more.

IMF Advisor: Could See Eurozone ‘Meltdown’ in 2 Or 3 Weeks – “In an interview on the BBC (via ZeroHedge), IMF advisor Robert Shapiro said some incredibly alarmist things. He tells broadcasters that if eurozone leaders don’t address the crisis properly we will see a meltdown as soon as later this month. In his words: ‘If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system.'” Read more.

Bank of England Governor: The World is Facing the Worst Financial Crisis in History, A ‘Titanic’ Disaster for Pensioners, Savers and Workers Approaching Retirement – “‘This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.’ Announcing its decision, the Bank said that the eurozone debt crisis was creating ‘severe strains in bank funding markets and financial markets’… Financial experts said the committee’s actions would be a ‘Titanic’ disaster for pensioners, savers and workers approaching retirement. Sir Mervyn suggested that was a price worth paying to save the economy from recession.” Read more.