From Volume 6, Issue 44 of EIR Online, Published Oct. 30, 2007

World Economic News

Agricultural Prices Skyrocket in France

Oct. 26 (EIRNS)—While the French bureau of statistics (INSEE) noted only a minor increase in the price of foods, the price of agricultural products in France soared in September. Cereals were up 20.5% in September over August. Soft wheat, used for bread, doubled in price over a one-year period, rising 23.2% in September alone, showing an exponential increase. Soy went up 24.7% in one month. Since it is used to feed livestock, the price of veal increased by 12% for the year, and poultry 14%. The price of fruit increased by a whopping 23.7% in September over August, while vegetable prices dropped 3.9%. Milk prices are expected to rise by 20% between now and December.

British Vampires Out To Feed on Italian Insurance

Oct. 25 (EIRNS)—"London moves on Generali," "The Lion and the Locusts," "Funds attack Generali," are some of the headlines today in the Italian media, commenting on the newest cannibalization war among the British financial caymans. The story is that the same hedge fund group that took over ABN-Amro is now moving to feed on the Italian insurance giant Generali, which is currently the largest Western insurance group in China. The move is important not only because Generali is the third-largest European insurance group; it also has been an historical stronghold of the Anglo-French-Venetian oligarchies. Generali still represents the Lazard-Mediobanca alliance, which was cemented toward the end of World War II between Mediobanca founder Enrico Cuccia and Lazard founder André Meyer. Mediobanca is the clearing house for Franco-Italian business families, and is the largest shareholder of Generali, with a stake of 14%.

Generali's chairman is Antoine Bernheim, Meyer's successor at Lazard. A recent new entry to Mediobanca was Vincent Bolloré, one of the forces behind French President Nicolas Sarkozy. The hedge funds moving on Generali are Tci and Algebris, which share the same address in London and are connected to the Royal Bank of Scotland; they sent an aggressive letter to Generali's CEO complaining about low returns, the high wages for Bernheim, and most of all, the "conflict of interest" with Mediobanca. "Yesterday evening in Trieste, questions were raised and even suspicions on who are the real players in the game," Corriere della Sera reported.

The Financial Times wrote that Tci and Algebris are worried that the Italian government, through the presence of banker Cesare Geronzi on Mediobanca's board, will have an undesired influence on the Mediobanca-Generali group.

Is the Bank of England Worried or Waiting?

Oct. 25 (EIRNS)—The Bank of England issued a bleak warning that Britain's financial system faces more and bigger shocks after the current turmoil, which has already been the most severe challenge to the financial system for several decades. According to British newspapers, the BoE warned that it would seem that nothing has been learned from the bankruptcy of Northern Rock bank. In its semi-annual Financial Stability Review, the Bank of England said that already there is a return to the risky lending practices, which it blames for the ongoing crisis. No one was prepared for the "speed and ferocity" of the crisis, Sir John Gieve, BoE deputy governor, wrote. "There have been signs of recovery in recent weeks, but some markets are still illiquid and the financial system remains vulnerable to future shocks." There has been "inadequate information about the true credit risk underlying financial instruments; an excessive dependency on rating agencies, opaqueness about the distribution of risks in the financial system; over-reliance on continuous liquidity in financial markets; and inadequate liquidity risk management."

"UK and large international financial institutions, which are at the heart of the global financial system, have been significantly affected.... Confidence in the stability of the financial system, in the UK and internationally, has been dented." The stock markets are "particularly vulnerable," the report says. The Bank says problems could come from a further rise in defaults on U.S. subprime mortgages, from off-balance-sheet special investment vehicles (SIVs), news that losses faced by large global institutions were larger than expected, or a tightening in U.K. credit availability.

U.K. Economic 'Miracle' Is a Debt Bubble

Oct. 23 (EIRNS)—The Daily Telegraph's Ambrose Evans-Pritchard writes a report entitled "More Mirage Than Miracle," published by the free-market think tank Policy Exchange, which shows that the so-called British economic miracle is based on a housing boom that created a false sense of wealth and ever greater debt burden.

"From 2001 to 2006, a total of £256 billion in equity was extracted from UK property values in this way. Dependent as it is on rising house prices, housing equity withdrawal cannot continue to prop up our consumer spending at its current level," said Evans-Prichard. "As a result, the UK savings rate has plummeted from 8.3% of disposable income fifteen years ago to around zero. Personal debt has risen by 137% since June 1993 to £1.343bn, greater than annual GDP for the first time."

Now the Bank of England's top property expert, Kate Barker, who also sits on the Monetary Policy Committee and is an advisor to Prime Minister Gordon Brown, warned that the so-called "buy to let" housing market, where people purchased houses to rent ("let") them out, in anticipation of rising real estate values, could be headed for a trouble, because of high interest rates and "reduced expectations of price appreciation." This sector accounts for 12% of all mortgage lending. This is the first time the Bank of England has commented on this sector.

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