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PaulS's picture

Bank giants collapse

Lehman Brothers, which has been hit by billions of dollars-worth of sub-prime mortgage losses has gone bust.

Rival Merrill Lynch - another casualty of the sub-prime crisis during the past year - also took shelter in a takeover by the Bank of America.

Coming on the heels of the rescue of Bear Stearns in March, the disappearance of Lehman Brothers and Merrill Lynch means the Big Five investment banks have become the Frightened Two.

And Fannie Mae/ Freddie Mac with their $500bn dodgy mortgages are state owned, having got a taxpayer bail-out on the basis they are 'too big to fail'

Add to that AIG (one of world largest insurance groups), who was lured from its tried and trusted business of general and life insurance into providing insurance for the credit default swaps used widely on Wall Street is now begging for $50bn emergency loan. Its losses this year have left its reputation for prudence in tatters. The company is also under investigation over claims it inappropriately accounted for all the derivatives on its books.

Lib Dem Treasury spokesman Vince Cable, a former chief economist with Shell, said the situation was "very grave" and "whole of the international financial system" was at risk.

If AIG collapses then the world wide massive derivatives market may go down the same way as the "sub-prime" mortgage market - except this is much, much bigger.

A total of some $500 trillion derivatives are held by the world financial system, of which by some estimates perhaps 50% may turn out to be worthless. To put the total into perspective, $500 trillion is about 10 years of WORLD GDP ! - Well beyond any possibility of rescue.

Thus the next Great Depression begins ...
and we haven't really felt the impact of Peak Oil yet ...