Global Economic News

Great Britain: The Trillion-Dollar Bailout

Oct. 8 (EIRNS)—The British banking system has imploded as the government announced a £500 billion bailout plan. Within hours, this was followed by the announcement by the Bank of England of a 0.5 percentage point cut in the interest rate to 4.5%. The announcement amounts to an official recognition that the entire British banking system is in trouble, an admission that goes far beyond what every other country, except Iceland, has cared to admit.

Most of the headlines in British dailies talk of a £50 billion rescue, but, according to the official statement of the government, the £050 billion is to buy preferred shares in eight of the biggest banks including Abbey, Barclays, HBOS, HSBC Bank Plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered. These banks have all agreed to become part of the plan, which can be extended to other British banks and foreign banks with large operations in Britain. These eight banks will immediately receive a total of £25 billion for the sale of preferred stock to the government. Another £25 billion will be made available to these banks as needed.

The statement then reads, "At least £200 billion will be made available to banks under the 'Special Liquidity Scheme' ... against extended collateral," i.e., toxic waste. This is four times more than in the past year.

Then, the government will extend a £250 billion guarantee to cover "new short and medium term debt issuance to assist in refinancing maturing, whole fund obligations as they fall due." This will be "issued out of a specifically designated Government-backed English incorporated company."

Fallout from Iceland Bankruptcy Hits Europe

Oct. 8 (EIRNS)—With subsidiaries all over Europe, the collapse of Iceland's banking system could have an effect on the European banking system like a match thrown into a gas-filled room. An Eu150 billion rescue package to the Iceland Central Bank has been put together in Scandinavia: The central banks of Sweden, Denmark, and Norway have each extended a loan of Eu50 million.

Two days ago, government regulators walked into the offices of Landbanki, throwing out the board of directors and taking over management of the bank. Now, Samson Holding, which owned 42% of the bank, has filed for bankruptcy. The collapse of Samson Holding could have further implications, since the Bjorgolfur family holdings in banks and other companies are all over Europe, including Russia.

Zoellick: G7 Is Dead and Should Be Replaced

Oct. 8 (EIRNS)—Attacked by a rare fit of sanity, World Bank chief Robert Zoellick said the global financial crisis was a "wake up call" that required broader cooperation across more countries. "The G7 is not working," and it should be replaced by a steering group that includes emerging economic powers such as China, India, South Africa, Saudi Arabia, Russia, and Brazil. "The new multilateralism, suiting our times, will need to be a flexible network, not a fixed nor a unitary system," Zoellick said. "It needs to maximize the strengths of interconnecting and overlapping actors and institutions, public and private." Zoellick's statement should not be construed as a call for a New Bretton Woods.