The global financial crisis is over (so most seem to think), but some of the WikiLeaks cables at the height of the crisis regarding the Bank of England are quite interesting.
For example the Guardian reports US embassy cables: Mervyn King says in March 2008 bailout fund needed
Monday, 17 March 2008, 18:27
C O N F I D E N T I A L LONDON 000797
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks. END SUMMARY
4. (C/NF) The G-7 is almost dysfunctional on an economic level, said King. Key economies are not included, especially those that have large and growing pools of capital. King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.
6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;
The Daily Bail has more information and links regarding the cables in WikiLeaks Cable: “Systemic Insolvency Is Now The Problem, Global Bank Bailout Needed”.
Nothing Has Changed
The thing is, what was true then is true today. The system is still insolvent in spite of massive amounts of private debt dumped on the backs of taxpayers and now made public.
Not a single structural problem has been fixed in the US, UK, Europe, Japan, China, Australia, Canada or for that matter anywhere.
It is hard to say where the biggest problem is, but the spotlight at the moment is on Europe. Before that it was on the US, and before that it was on Dubai and Greece. Next month the spotlight may be on Japan or a massively overheating China. Don’t forget the property bubbles in Australia or Canada.
Global Banking System Insolvent Then, Still Insolvent Now
US banks are still insolvent. But are Chinese banks any better? Certainly European banks aren’t. Japan is a certainly disaster waiting to happen.
One of these days the spotlight is going to simultaneously be on the Eurozone, the US, China, the UK, and Japan. I do not know when that happens, but I do know the result will not be pretty when it does.
Mike “Mish” Shedlock
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