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UK banks nearly collapsed

Sunday, January 25, 2009, 11:32 PM

Every so often an article will shed some light on what was going on while I was busy writing in the gloom of  semi-darkness.  I live out here in the cheap seats relegated to reading tea leaves, and squinting into the mist so it's nice to get confirmation from time to time as to how close to, or far from, the mark I was.

Here's an interesting article that just came out:

Revealed: Day the banks were just three hours from collapse
Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.

The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.

Only frantic behind-the-scenes efforts averted financial meltdown.

If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.

And here's the conclusion of the Martenson Report I wrote and posted on October 9th [Note: I've moved the report out of the subscriber area so that anybody who is registered can read it]:

First, I want you to accept the possibility that the entire banking system could go into a form of financial cardiac arrest and fail to work properly. If this happens, uncertainty and fear will rule the day. Jobs will be lost, goods will grow scarce, and rumors will fly.

The most obvious impacts will be felt locally. Towns, municipalities, and states will have to navigate the loss of significant portions of their budgets. Services will be cut. Some stores and supply channels will not be able to operate, either because their cash flow got pinched and they went out of business as a result, or because their credit facilities dried up and prevented normal operations. Some goods will rapidly become scarce.

[...]

Let me close by saying that I fervently hope that this whole banking crisis blows over and does not result in you needing to draw upon any of the safeguards that I have laid out above. That is my most sincere wish.

But as I see things now, the chance of a banking collapse and/or dollar crisis remains unacceptably high.

Do what you need to do. Do what you believe is right, and tune out the rest.

At the time I was unaware that the entire UK banking system was moments away from collapse, but I strongly suspected that something was badly out of kilter in the entire financial system due to the movements of several key financial stock prices (detailed in the linked report).  

In a strange way, it's nice to know that I was not over-reacting, but was actually pretty close to the truth.  Chalk another one up for intuition and luck!

At the same time, it's a bit unnerving to know how close we came to a systemic melt-down last October.  I doubt the stresses are any less at the moment.

All the best,
Chris

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14 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: UK banks nearly collapsed

I think you are right, this week it could be us (as in the U.S. banks)...

Stephen Lark's picture
Stephen Lark
Status: Bronze Member (Offline)
Joined: Oct 27 2008
Posts: 44
Re: UK banks nearly collapsed

After watching the slide in bank shares on Friday, one cabinet minister did not altogether joke when he said: "The banks are fucked, we're fucked, the country's fucked."
The Guardian, Monday 19 January 2009
Labour stakes its reputation on second gamble

The_Black_Death's picture
The_Black_Death
Status: Bronze Member (Offline)
Joined: Jan 22 2009
Posts: 33
Re: UK banks nearly collapsed

I can't believe I'm alive to see this.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3176
Re: UK banks nearly collapsed

Well, as of this early hour, European bank stocks are up big time.  Barkley's 70+%

TRK29's picture
TRK29
Status: Member (Offline)
Joined: Dec 21 2008
Posts: 17
Re: UK banks nearly collapsed

I have been corresponding with my Member of Parliament in recent weeks on the financial problems. 

Today he came out with a profound comment. Quote: "It all started to go wrong when they changed the name from DEBT  to the more respectable CREDIT."

I replied that maybe we should start calling the "credit crunch" the "debt retribution".

Soulmaster's picture
Soulmaster
Status: Bronze Member (Offline)
Joined: Sep 16 2008
Posts: 27
Re: UK banks nearly collapsed

The thing that really bothers me here is that something like that could happen and very few people would be aware until it was too late.  I only have a few hundred dollars in banks, but to lose even that (even if it were temporarily) would make for some financial difficulty.  At this point it is probably a much better idea to have cash in a shoebox or under the mattress than to have it in any financial institution...

 -Joe

scotttherrien's picture
scotttherrien
Status: Member (Offline)
Joined: Aug 26 2008
Posts: 13
Maybe the $2 Trillion rumor is True?

I heard a rumor a month or so ago that $2 trillion of the $8.5 trillion that the US is on the hook for went to bailout the UK.  Which might help explain why the Treasury wont disclose where the $8.5 trillion went to due to "national security" 

If they were so close to failure, what magic button did they press to make everything OK...the US lending $2 trillion would do the trick.... 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: UK banks nearly collapsed

Scott,

What a fascinating tip. I'll have to do some research on that now.

By the way, you don't live(d) in New Hampshire do you? I had a customer several years back with the same name.

scotttherrien's picture
scotttherrien
Status: Member (Offline)
Joined: Aug 26 2008
Posts: 13
Re: UK banks nearly collapsed

No not me...I live in CT, but Therrien is French-Canadian, my family migrated down from Quebec over the generations, you'll meet a lot of Therrien's between here and there...

Good luck following this thread, it makes a lot of sense and I believe that'll find a lot of speculation on this via a google search...

 

metalmongrel's picture
metalmongrel
Status: Bronze Member (Offline)
Joined: Oct 7 2008
Posts: 38
Re: UK banks nearly collapsed

I'd be very interested in what these "frenzied behind-the-scenes" actions were....

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: UK banks nearly collapsed

Neo-alchemy, I believe.

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: UK banks nearly collapsed

I wouldn't be the least surprised if the Federal Reserve bailed out the UK. Ever since the World War Era, we have had a pretty cozy relationship with Britain. Indeed, our two countries have some of the oldest and most well developed intelligence agencies and we share information all the time. Great Britain is, in a lot of ways, one of the last countries that would desert the United States as an ally. That, in addition with all of the intelligence collusion would make it easy for some goverbankster here to justify bailing out the British.

And of course if we haven't bailed them out, then let's just see what the Fed did with OUR money!

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: UK banks nearly collapsed

Mike,

 I agree with your suspicion.  Based on the once unbelievable actions by the Treasury and other arms of the government in the last few months, I don't believe you can take anything off the table.  From mailing checks home, to taking over private banks, to cloak-room deals pressuring BoA to buy ML, these are just some of things that go to show that the government is in total panic mode.  Having the British economy fail would be worse than any of these other disasters put together, so yeah, I wouldn't put anything past them.  As we on this site all know though, they're just kicking the can down the road (but just barely), and the last bounce is going to land on the land-mine version of the daisy-cutter bomb.  

SamLinder's picture
SamLinder
Status: Diamond Member (Offline)
Joined: Jul 10 2008
Posts: 1499
Re: UK banks nearly collapsed

If you read the rest of the article linked by Chris (repeated below), then read the comments, you will find a batch of Europeans who are just as frustrated, if not more so, than we are!

Revealed: Day the banks were just three hours from collapse

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