02/21/2009 05:12 am ET Updated May 25, 2011

Will Obama Have To Bail Out Britain?

Barak Obama had a fine day on his Inauguration Day. The British economy? Not so much.

CNBC was focused on U.S. banks stocks today, and rightly so. Citicorp dropped below $3. JP Morgan was down 21% and Bank of America down 29%. It was a bloodbath.

But in Britain it was worse. The day started with a pummeling in the British Pound, which ended at its lowest level in 7 years, and ended with the Royal Bank of Scotland's stock collapsing 70%. In one day. Why did RBS get hit so bad? Because investors realized that the bank will be nationalized, and shareholder equity will be wiped out.

According to the Financial Times, RBS has a balance sheet of around $2.7 trillion, much of it toxic. The GDP of the entire British economy is $2 trillion. Not only is RBS too big to fail, it's bigger than the entire annual British economy. RBS fails, Britain might as well.

But it gets worse. The balance sheets of the largest British banks total nearly $9 trillion, or 4.4 times the size of the British economy. That $9 trillion is also about 65% the size of our own U.S. economy. It might take the U.S. $3 trillion or so to fix our banks, my best guess is it would take about $750 billion to bail out Britain.

Famed investor Jim Rogers, one of the smartest investors I've ever talked to, said today: "I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK."

The Financial Times states "we are witnessing the socialization of all balance sheet risk of the UK banks by the UK government."

Combined with the destruction of the pound's value, Britain's banking crisis may force it outside its borders for financial help. But to whom? The EU is up to its ears with financial problems in member states, notably Italy, Latvia and Greece. The IMF? Possibly, Britain got similar help from them in the 70's, but the problem may be too big for them this time.

Britain is in deep trouble, which may grow into a cluster foxtrot on a scale witnessed recently in Iceland, where the country, and I mean the entire country, went completely broke. Only one country may be left to rescue Britain.

Sixty-seven years ago the U.S. stepped up to save Britain from the Nazis. In short order Obama may have to step up to save Britain from the bankers.