Return of the US Cavalry

So a new bill goes before the senate today in the US to try and get a deal on a banking bail out. IS is inconceivable that it will not pass this time? Who knows after last time, I am not so confident Congress will change its tune tomorrow with an election so close now.

However, markets around the world are cautiously up; at least if it all goes wrong this time there should not be the 8% falls we saw on Tuesday.

However, the US plan is wrong, as is the UK approach at the moment. The plan is to keep pumping in liquidity, but it has achieved nothing to date. So the add-on is to buy toxic assets at more than they are worth. Great, this almost guarantees US taxpayer losses; no wonder so many people are against this plan.

But what is needed is for banks to have enough capital to be able to write-down the bad loans now and not go insolvent. To that end, a better plan is tore-capitalise banks and the Government to take a charge on the money, maybe even in the form of shares. My hunch is that share prices would soar and the Governments could actually profit from this approach in the long-term.

Throw in a UK interest rate cut to help our poorly manufacturers and hey presto, a real recovery plan.

Will they, won't they: US Bail-out up for grabs

Ben Bernanke and Hank Paulson are in front of the US congressmen and Senators today trying to push their emergency rescue package. After huge gains on Friday, the S&P and FTSE are back down heavily as people realise that this is no done deal.

There is a huge dilemma at the centre of this; save the banks and buy off the bankers. or screw the banks and take the Western Economies down too.

Not an easy choice to have to make. Some changes need to be made to the $700 billion package, perhaps enough to get it through the US system.

Meanwhile on planet Brown, he is saying that he is off to Washington to negotiate about the future of the World Financial System! Think he is a day late, the US will be telling him what they already decided to do.

Deluded is not strong enough a word for this....

"US bank to fail"...UK banks too?

Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund

This is the latest news to hit the US markets. Of course Bear Stearns has already been palmed off to JP Morgan. In the UK we have had Northern Rock and Alliance and Leicester has an emergency sale of itself to Santander to prevent collapse - just today it has acknowleged that in effect it cannot survive if the sale falls through.

Bradford and Bingley is also only fit to prepare itself for a fire sale.

This is not a good run of events and clearly the weak are already fallen. Now what is being discussed is some of the larger beasts also succumbing to what is effectively financial gout; Bursting with debt and greed they can only stagger to a final fall.

In the US Lehman Brothers was considered just a few weeks ago as in a serious state. It has just put up a big part of its business for sale, scotching the current view that the driving down of its share price was all just speculation.

In the UK the main banks have fallen again today - but could one of the big ones collapse? It is still a distinct possibility. With no more access to the capital markets, the government spent out on Northern Wreck and high costs for bond issuance the banks are very much stuck.

HBOS, RBS, Barclays and Lloyds in that order are under threat. HSBC seems too big to fail but its frankly unfeasible scale of CDO's and other toxic mess could even hurt the biggest beast of all.

But will it happen - I am not sure. What I can see is a third leg to the credit crunch, with a consequent retrenchment from the gains of recent months and so another 'test' for our financial institutions. More will be found wanting if this occurs.