From Volume 7, Issue 2 of EIR Online, Published Jan. 8, 2008

Global Economic News

Brits Admit: This Is No 'Sub-Prime' Crisis

Dec. 31 (EIRNS)—The British financial press reveals today that London commercial real estate is about to collapse, and declares that the subprime mortgage problem "is a red herring," according to commercial property agent DTZ, quoted in the London Daily Telegraph.

"Sub-prime is a red herring. It was simply the most stretched segment of an over-stretched debt market. As such, it has to be seen as a catalyst rather than the cause of the recent turmoil," a DTZ spokesman said. The volume of U.K. commercial transactions fell by 25% in 2007 to £48 billion, and since the Summer, prices in certain sectors of the market have fallen by 26%.

The bankrupt banks are pulling out of commercial property fast. The estate agent Savills reported that 8 of the 97 lenders in the United Kingdom are already out of the real estate sector; 11 more are "reluctant" to lend, and almost 30 will only lend on a "qualified" basis for commercial property deals. Which are these banks that have slammed the door? Savills wouldn't say, but according to the Telegraph, "they are believed to include Credit Suisse, Lehman Brothers, Bear Stearns, Deutsche Bank, and Barclays Capital." These have all been dipping into emergency funds to survive.

Hedge Fund High-Flyer Says Banks Are Going Down

Jan. 2 (EIRNS)—The big banks will shrink, and the smaller banks will disappear in the coming financial meltdown, French hedge fund big name Arpad Busson told The Times of London in an interview Dec. 31. Busson is known for warning in 1987 that the financial system was on the way to meltdown, in the crisis forecast by Lyndon LaRouche earlier that year.

Busson told The Times: "This is the first time in my 21 years in the business that I've seen systemic risk. I think we are now one-third of the way through the banking problem.... The big banks can battle against these massive writedowns. They can shrink. What I'm concerned about is the medium-sized and small banks. This is going to create another round of consolidation among banks, which is a pity if you end up with ten banks that control the world."

'The Next Domino' To Fall Is the Biggest: Derivatives

Jan. 2 (EIRNS)—With the impact of the financial crash hitting the real economy in the United States and Europe, it will only take a rise in corporate debt defaults to 5% from the current 1.4%, to blow up a derivatives market far larger than anything that has crashed so far. This is the $45-50 trillion mass of financial derivatives called credit default swaps (CDS), which have ballooned tenfold in three years, and are called "the next domino" in the crash for early 2008 by one New York financial manager, who says it will be "far more severe" than anything that has happened so far.

Banks are in the greatest danger of going under in this potential $45-50 trillion blowup; it is banks—not the "monoline" bond insurance companies already reported to be in big trouble—which have issued 44% of all CDOs (collateralized debt obligations), and hedge funds another 22%. Fitch Ratings Agency is projecting a corporate bond and loan default rate of 4-5% in the first half of 2008—particularly by homebuilders and commercial real estate companies in the United States and Europe—enough to collapse a large chunk of the CDO bubble.

The financial manager compared the CDO bubble to a huge, brand-new insurance industry whose providers reserve nothing for future losses. "Imagine what will happen if $45 trillion ... experiences an actuarial average of 5% losses, and no one [in the banks] has $2.25 trillion sitting around to foot the bill!"

Maglev Endorsed in Canada and Australia

Jan. 4 (EIRNS)—Magnetically levitated rail development has received prominent endorsements in Canada and Australia, and implicitly also in Britain, since the beginning of this year. On the website of the University of British Columbia, Vancouver, Prof. Tae Oum wrote yesterday, that a clean alternative to pollution-creating jet travel is "floating speed trains that can travel 500 km per hour and will help spur a great shift from air to rail travel." He pointed to the Japanese and Chinese maglev plans, advising: "Rail enthusiasts take note."

On the website of the Brisbane Journal in Australia, Chris Hale of the University of Queensland wrote on Jan. 1, that "for too long we have lived with the results of incremental maintenance to what is fundamentally a 19th-century rail system. Many transport pundits and planners are seriously underestimating the viability and implementation-readiness of the Maglev system." Technologies like these would help Australia connect its remote regions from coast to coast, Hale suggested.

In Britain, the former Transport Secretary's call, on Jan. 2, for modern high-speed rail grids connecting the remote north of Scotland with the south of England, are also expected to revitalize the maglev debate, especially in Scotland, which, when it reached its peak before the May 2007 elections for national parliament there, was very much inspired by the debate about maglev systems in Denmark, initiated by the Schiller Institute.

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