A run on a bank by its depositors? That’s the sort of thing that hasn’t happened since the Great Depression, right? Well, it’s happening right now in the United Kingdom to a bank, Northern Rock, whose business is centered around mortgage lending:
People with accounts at the Northern Rock have withdrawn almost £2bn since Friday, the BBC’s business editor Robert Peston has learned.
And the firm is bracing itself for more withdrawals in the coming days. […]
Mr Peston said the two interested [buyers for Northern Rock] sought guarantees from the Bank of England that it would supply facilities to fund Northern Rock’s assets – valued at about £113bn – if that money was impossible to obtain on the market – but that these were refused.
“The Bank did not want to be seen to be bailing out Northern Rock’s shareholders and bondholders,” he said.
“It feels they need to feel the pain and suffer the losses of their mistake in backing a bank, Northern Rock, whose strategy was flawed.
“It is the banking Catch 22 of our time: Northern Rock can’t be sold without a guarantee of funding from the Bank of England, but the Bank is refusing to provide such funding to facilitate a sale.”
I don’t know if the Bank of England (equivalent to the US Federal Reserve Bank System) is cutting off its nose to spite its face, or if their “no pain, no gain” approach to punishing Northern Rock’s investors is a sound policy, but one thing is clear. The consequences of the US mortgage crisis is not limited to American mortgage lenders such as Countrywide. Indeed, it is also affecting ordinary investors in Japan who speculated in currencies:
TOKYO, Sept. 15 — Since the credit crisis started shaking the world financial markets this summer, many professional traders have taken big losses. Another, less likely group of investors has, too: middle-class Japanese homemakers who moonlight as amateur currency speculators. […]
Tens of thousands of married Japanese women ventured into online currency trading in the last year and a half, playing the markets between household chores or after tucking the children into bed. While the overwhelmingly male world of traders and investors here mocked them as kimono-clad “Mrs. Watanabes,” these women collectively emerged as a powerful force, using Japan’s vast wealth to sway prices and confound economists.
Many bought and sold stakes worth into the millions of dollars through margin trading, a potentially lucrative but risky form of trading that uses borrowed money.
Until the credit crisis, which began with troubles in the American mortgage market, the value of foreign currencies traded online by private Japanese citizens, including women, averaged $9.1 billion a day — almost a fifth of all foreign exchange trading worldwide during trading hours in Tokyo, said Kazuhiro Shirakura, an analyst at the Yano Research Institute in Tokyo.
Now Japan’s homemaker-traders may become yet another casualty of the shakeout hitting the debt, credit and stock markets worldwide. If so, these married women could lose more than just an investment opportunity. They could also lose the newfound economic freedom that drew many to currency trading in the first place.
Most analysts estimate that Japanese online investors lost $2.5 billion trading currency last month….
Need I remind anyone, but it was unregulated margin trading (borrowing money to invest in stocks, bonds and other speculative investments) which fueled the stock market crash of 1929 and greatly contributed to the onset of the Great Depression. That’s why America’s Congress in the 1930’s passed all those banking and securities laws and regulations: to insure that nothing like that could ever happen again. The same laws and regulations that Republicans (and a few DLC Democrats), supported by the “sunny side up” prognostications of ultra free market economic theorists, have been hard at work dismantling over the last two decades.
These signs of turmoil in the foreign markets are very bad omens. We are growing ever closer to a worldwide financial panic, one that could destroy not only our economy, but the economies of most of the rest of the world, and send us all tumbling into the black hole of another Depression, one likely far worse than the last “Great Depression.” And you all know what that led to: the rise of fascism, numerous wars and misery for untold millions of people. What will be the final grain of economic bad news that will cause this global house of financial sand to collapse? Who can say? But right now, I don’t like our chances of avoiding the avalanche.
Ps. I imagine a war with Iran might very well be the trigger that collapses globalization’s house of cards, don’t you?
