The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic. The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely….
Iain Martin Britain at edge of bankruptcy
We cannot recapitalize them through taxpayer donations, for through that path we only delay the inevitable. We do not have the ability to “manufacture” or “borrow” the three to five trillion dollars it would take to cover those losses – a full fifty percent increase in our federal debt, on which we would pay hundreds of billions of dollars a year – forever – being a permanent drag on GDP. Such a path will only lead to more insolvency as the crimp on GDP will inevitably lead to more job losses, more credit losses and more malaise, ultimately resulting in the very collapse that the proponents of this path claim to be trying to avoid. The math demands that we take bold action. We must force a cramdown of debt to equity, which will wipe out all of the existing shareholders, including those holding preferreds while converting the bondholders into new equity holders, pushing down the capital structure however far is necessary in order to return the firm to solvency.
Many people would argue this is “illegal.” It is not. These firms are already bankrupt if anyone bothers to perform a simple dispassionate balance sheet analysis. Their common and preferred stock is worthless. They continue to trade only on the premise that our government would come in and bail them out with an endless supply of taxpayer dollars, mortgaging our nation and its future in order to keep these bankers and their investors from suffering their just desserts as a consequence of their voluntary, irrational and patently unsound lending decisions. None of these investors put their money in with their eyes wide shut – or if they did, they knew better. Nobody was forced to buy a bank stock or bond. Everyone did so expecting a return, and all took a risk. That risk has now become realized – it has gone from hypothetical to actual. President Obama needs direct Treasury and The Fed to immediately go institution-by-institution, write down the assets to “death’s door” levels, determine how far down the capital structure needs to be crammed to restore that institution to a strong capital position with double the Tier Capital ratio required by law, and then forcibly reorganize the debt into equity.
Market Ticker There is only one solution to the banking crisis
and see Ambrose Evans-Pritchard
