After a summer of fear we are heading into an autumn of panic.
The signs are not good this autumn.
Markets, bankers, financiers and politicians are bracing themselves already.
All the indices are starting to replicate the conditions for the last financial collapse.
Whether it's overnight or three-month LIBORs (essentially the rates banks are prepared to lend to each other shortterm), whether its Eurozone countries' bond rates, things are edging towards dj vu all over again.
Whether it's the Credit Default Swap rates on sovereign state debt and bank debt in the UK, the Eurozone or America, things are getting shaky.
Or whether it's the share price of banks and insurance companies on both sides of the Atlantic, we are at the shutting our eyes and gripping our nails into the steering wheel stage.
It is somewhat ironic that the clearest of the indicators is the market which caused the problem in the first place: the insurance of debt market.
Lending money and then insuring against the possibility of default by the borrower - whether it's a business, individual, a sovereign state or a bank - creates the market of Credit Default Swaps. And they're here again to haunt us.
Everyone simply sat back and allowed this market to develop again with a vengeance. Of course everyone - Obama, European leaders, central bankers, the EU - said that they'd do something about this, as it was so clearly the cause of what happened last time.
In the background, though, while the world dithered, the roots set in again and the CDS's strong stems and branches grew like leylandii trees.
After a summer of fear we are ready for an autumn of panic.
Everyone knows they have to make some some difficult decisions, on Greek debt and Eurozone banks and businesses, in particular.
The markets are dumping insurance stock like dodgy nuclear material in readiness. Defaults will actually start to happen all over the place because a world recession beckons.
It's a pretty safe bet (ironically) that there is not enough money in the insurance and banking world to pay out on the insurance policies on debt issued and re-issued in the last three years and those remaining from before.
And contraction of economies across Europe and the US (and consequently now in China and the Far East) is now making old and new debt dodgier. Even that debt issued before the last crisis which just about survived the last three years is about to turn dodgy again.
We keep being told the credit card has to be paid off, that the bills have to be paid. The problem is that they haven't been, because they can't be. Around the world, the public sector has been told it has to pay the bills of the private sector mess-up. In reality the private sector's global debt was never dealt with - that should have been the starting point.
We let the dodgy debt stay on banks' assets from last time in the hope they would eventually come good (instead of allowing the assets and the banks to fall). We then allowed the banks to invest in more dodgy assets (other banks' and European sovereign debt) for the last three years which are about to go bad anyway.
Instead of dealing with the private sector first and bringing reality to bite there, the G8 economies then embarked on economic policies aimed at drastically cutting back the public sector. This turns out to have contracted demand worldwide, making these new assets dodgier than the last lot. And the lurking last lot are now much more likely to go bad in a double-dip recession: double whammy.
The insurance business world piled in to insure all this stuff again with last time's catalyst - Credit Default Swaps. Whoever gets left holding the policy baby will be unable to pay out on them - it's just too much.
And everyone in banking and insurance knows it. The only way out is for the world economy to grow again. Instead the opposite is happening. Banks' and insurance company stocks are in freefall as a result.
Obviously that means the shares we own in RBS/NatWest and Lloyds/HBOS are approaching junk status. The City of London was the main market for all those CDOs, derivatives and CDSes.
The legal stuff is now being served. Barclays and RBS/NatWest are seen as the main culprits over here, but the entire City was involved at some level or another in the great confidence trick. And they were all conning each other.
So our ownership of RBS/NatWest, in particular, is also putting us on the hook for the effects of this legal process finally cranking into action. Even the US Government is effectively now suing the UK taxpayer for the dodgy actions of failed bankers last time round.
So, hold onto your hats, fasten your seatbelts - here we go again.
It's not a new crash that's about to happen - it's the same crash starting all over again after a slow motion rewind.
John Clancy is a director of mediafuturesalert.com and justliteracy.com and a Birmingham City Councillor in Quinton
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|Publication:||The Birmingham Post (England)|
|Date:||Sep 8, 2011|
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