The panic continued today with the British Government finally giving a guarantee to savers in Northern Rock this evening. Shareholders in Northern Rock will be left with huge losses. The 1.4 million savers with Northern Rock will have had their confidence shaken in the banking system. Late today the Alliance and Leicester lost around a third of its value on the British Stock Exchange. Bradford and Bingley were also hit hard. It looks as if we are at the beginning of a banking crisis and not at its end.
James Sinclair (America's "Mr Gold") thinks that the authorities in both the US and in Britain have not been forthright in informing the public about the extent of the problems in CDOs. Banks are not lending to one another for fear of exchanging toxic packages of loans. Liquidity is now at a premium. Sinclair added yesterday in a radio interview that what is happening in financial markets is the result of the paper mountain "shaking" in CDOs. What will happen when this mountain of unregulated debt falls will be catastrophic for everyone who has savings or are in debt.
Subprime loans for the car industry in the US is now in trouble and house prices are beginning to go into a tailspin on both sides of the Atlantic. It hardly needs adding that the many trillions of dollars in CDOs are based on home loans. No one knows how to value the CDOs. Even those packages that have value are now falling in value because the home loans on which they are based are becoming riskier every day!
So much for Anglo-Saxon models of finance that was recommended to anyone who would listen in Europe and the rest of the world.
Most people have yet to figure that gold is the safest place of refuge from the coming storm. Silver is a good bet, too. Shares in good equities of both can still be had for next to nothing. Soon, like gold, they will be unaffordable. "The Perfect Storm" has arrived and it will be somewhat like the tsunami that swept onto the beaches of Thailand just a few years ago.
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