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.

Comments

[Rule Of Law]

I haven't looked in Obama's wallet, but I doubt the cash is there.

[EinChicago]

"Sixty-seven years ago the U.S. stepped up to save Britain from the Nazis. "

Bwah ha ha ha.

You mean "Sixty-seven years ago the U.S. stepped in after the Russians and Britain had already just about beaten the Nazis to take what profits they could while avoiding any of the actual work."

[EinChicago]

Unfortunately teh UK is just the start for the EU. Germany is the atomic bomb waiting to implode. So far the US and the UK have lead the pack in disclosing the depths of the problem while Germany continues to do its best to hide the ball apart from occasional leaks such as the Deutschebank loss. Wait until Germany implodes later this year. As the US recovers later this year and the UK begins the stabilization process we're currently just starting, Germany will make its Wiemar Republic days look tame.

[larry278]

In other words, the world may not 'always' have an England. It means that the world can't afford the luxury of an England any longer. England did have a good run before it fell. This is a matter of money, not nostalgia; England, aka the UK, must go, NOW.

[ApolloSpeaks]

WHY STOP WITH BRITAIN!

Why stop with Britain. Let's bail out the world, with Obama bringing all nations under his sway and transforming himself from U.S. President to First World Citizen of the United States of Humanity. How else can we have justice in this world.

[jsarets]

There's a fairly reasonable chance that this is along the lines of what the global financial elite wants to happen.

[andbobjoseph]

we need a stimulus package like the one i saw on youtube. a 750 billion dollar stimulus at NO cost to taxpayers or the gov't. who pays will amaze!!!!
link
http://www.youtube.com/watch?v=OYqchr2W29M

[tompoe]

Obama needs to bring every Wall Street bank executive into his office, and let them know they either start conducting business on behalf of the country, or they get prosecuted for treason. Period.

[metalpipe]

I was thinking the EXACT same thing for weeks. Amen, someone said it.

[Samalabear]

This works for me.

[000Jade000]

"...They start conducting business on behalf of the country" is a nice thing to say, but you're forgetting that banks are BUSINESSES. They exist to make a profit for themselves, not to work on behalf of the greater good.