The great interest rate rip off part 1

interestrateripoff · February 9, 2010

Why the New American Real Estate Dream Is Renting - WSJ.com

'A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on." America's lesser bards sang of "my old Kentucky Home" and "Home Sweet Home," leading no less than that great critic Herbert Hoover to declaim that their ballads "were not written about tenements or apartments…they never sing about a pile of rent receipts." To own a home is to be American. To rent is to be something less.
Every generation has offered its own version of the claim that owner-occupied homes are the nation's saving grace. During the Cold War, home ownership was moral armor, protecting America from dangerous outside influences. "No man who owns his own house and lot can be a Communist," proclaimed builder William Levitt. With no more reds hiding under the beds, Bill Clinton launched National Homeownership Day in 1995, offering a new rationale about personal responsibility. "You want to reinforce family values in America, encourage two-parent households, get people to stay home?" he said. George W. Bush similarly pledged his commitment to "an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, 'welcome to my house, welcome to my piece of property.'"

More at the link.

Renting making a comeback in the US?

interestrateripoff · February 9, 2010

UK sales fall prompts fears of 'double-dip' recession - Telegraph

Fears that Britain may already be succumbing to a "double-dip" recession materialised as it emerged that 2010 opened with the worst January for the high street since comparable records began 15 years ago.

The VAT increase and unprecedented blizzards last month contributed to a sudden and unexpected collapse in retail sales, according to the British Retail Consortium. Its sales monitor registered a 0.7pc drop in like-for-like sales last month, compared with a year before – the steepest January fall since the survey began in 1995, and in stark contrast to economists' expectations of an increase of 0.5pc.

The figures come amid concern about Britain's capacity to finance itself in the international capital markets, with the spread between interest rates on benchmark UK gilts and German bunds widening, and arrive only days after the Bank of England signalled an end to its Quantitative Easing programme.

January is among the most important retail months, with New Year sales boosting earnings, even throughout most of the crisis. Stephen Robertson, director general of the British Retail Consortium, said the figures represented "An awful start to the year and [a] stark contrast to an upbeat December.

"This is the worst January sales growth in the 15 years we've been running the survey," he added. "The VAT change brought some sales forward to December, but customers are becoming cautious again in the face of economic and political uncertainty. Retailers will be hoping these results are mainly a snow-induced blip, rather than an indication of further difficulties."

However, the figures come alongside a growing tide of disappointing news on the economy. The Office for National Statistics reported late last month that the UK economy grew by a mere 0.1pc in the final quarter of the year, and, in contrast to the BRC, said that retail sales in December remained disappointing. With the temporary VAT tax cut having been withdrawn and the car scrappage scheme finishing at the end of March, economists put a significant probability on Britain dipping back into contraction early this year.

This is totally unpredicted, I mean who could have predicted this. It's truly shocking.

More free funny money looming?

interestrateripoff · February 9, 2010

Shop sales suffer 'worst January for 15 years' Aunties headline.

The High Street has suffered an "awful" start to the year with the slowest January sales growth for 15 years.

The value of goods sold grew 1.2% in January compared with the previous year as bad weather kept shoppers away.

On a like-for-like basis - excluding store expansions and closures - sales fell by 0.7%, according to the British Retail Consortium (BRC).

Food sales held up well in the first half of the month, however, thanks to stocking up during the icy weather.

Online sales continued to rise fast - these were 14.6% higher in January compared with a year ago.

Cold-weather clothing also saw a boost later in the month, although sales were down compared with a very good December.

And all this happening with an election looming...

So where more goods sold or where the prices just 1.2% than January last year?

interestrateripoff · February 9, 2010

BBC News - Snow brings January chill to housing market

Activity in the UK housing market was frozen by the snowy weather, although prices continued to rise, according to surveyors.

Buying and selling activity fell during the month owing to the extreme weather conditions, the Royal Institution of Chartered Surveyors (Rics) said.

However the group expects a "Spring bounce" in the coming months.

Surveys have suggested that the housing market has begun to recover from a sharp slump over the last six months.

'Chaos'

The heavy snowfall and freezing temperatures led to many people working from home at the start of January and, unsurprisingly, led to a slowdown in people viewing homes.

Thank god we've got the spring bounce looming to boost house prices, I was getting worried there for a minute.

interestrateripoff · February 9, 2010

Cost of insuring European national debts hits new high | World news | guardian.co.uk

The cost of insuring against a potential default on western Europe's debt hit a new record as officials failed for a third consecutive day to reassure investors about the ability of southern European countries to pay their bills.
European Central Bank president Jean-Claude Trichet said at the weekend he was confident Greece was able to cut its deficit below 3% by 2012. But that did not stop the Markit Itraxx SovX index of western European sovereign debt reaching a record of 112.5 basis points – meaning investors have to pay €112,500 (£98,000) to insure €10m of debt.

Greece's credit default swaps, which are used by investors to protect against a default, are now trading at 428 basis points, a level more associated with a small, emerging market than a large European economy, while Spain's rose to a record of 173.

"Many were disappointed that the weekend G7 meeting didn't produce a firm plan on how to tackle the Greece situation," said Gavan Nolan, a credit analyst at Markit. "Fears of a contagion effect haven't abated, and Portugal, Spain and Ireland all gave up ground."

The Spanish government is now on a mission to reassure investors it can cut its budget deficit to 3% by 2013, from more than 11% this year. Governments are keen to convince the markets that they have their deficits under control as the higher the risk perceived by investors, the more it costs in interest payments.

Looming debt crisis? At some point the debt compound problem will take effect.

interestrateripoff · February 9, 2010

Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson' - Telegraph

Yields on Greek debt rose by 14 basis points, as investors digested the fact that G7 and eurozone finance ministers refused at their weekend summit to provide more detail on a rescue package for the troubled economy.
Alongside Portugal, Spain, Italy and Ireland, Greece has been the focus of widespread market selling over the past few weeks, with investors fearing the countries may be unable to repair their balance sheets alone. The interest rate on Greek 10-year benchmark debt is now 6.75pc, compared with fellow euro member Germany’s rate of 3.14pc.

Suspicions that the Greek crisis could give way to a full-blown attack on the euro have been reinforced as it emerged that currency speculators have increased their bets against the currency to the highest level since its creation.

Contracts on the Chicago Mercantile Exchange (CME), a closely-watched speculation barometer, showed that in the past week net short positions against the euro rose from 39,500 contracts to 43,700 – worth €5.5bn ($7.5bn). Greek prime minister George Papandreou has characterised the behaviour of capital markets, which have put a rising premium on interest rates to his government, as part of a broader speculative attack on the currency.

The CME figures will spark fears that, much like George Soros in the early 1990s, hedge funds will lay siege to the single currency. Since Greece, Portugal, Spain and Italy, all of whom are facing similar issues, cannot devalue or inflate their way out of the crisis, economists suspect that they will have to receive assistance from other euro nations to avoid inflicting cuts of unprecedented ferocity on their economies.

More at the link.

interestrateripoff · February 9, 2010

In Toyota Mess, an Economic Lesson for Japan - NYTimes.com

TOKYO — When Toyota’s president, Akio Toyoda, apologized for the recalls that have marred Toyota’s reputation, he talked not just about his company’s fate, but also his nation’s.

“I hope to return Toyota to profit and contribute to the revitalization of Japan,” he said.

Once a leading symbol of Japan’s rise to global economic might, Toyota has become one of the most visible signs of its decline. And even before the recalls, Japan’s rivals from South Korea and China had started overtaking Japan in key industries from semiconductors to flat-panel televisions. And Toyota looks set to issue another damaging recall, this time of its popular Prius hybrid.

“At this rate, Japan will sink into the sea,” said Masatomo Tanaka, a professor at the Institute of Technologists, a university that specializes in training engineers. “If Toyota is not healthy, then Japan is not healthy.”

Many economists and business executives say they hope that Toyota’s trauma will be the unsettling blow that Japan needs to understand that its reliance on manufacturing and industrial exports, which served the country so well after World War II, is no longer wise.

Yukio Noguchi, a professor of finance at Waseda University in Tokyo, said Japan must finally evolve into a postindustrial, service-based economy — a painful transition that the United States and Great Britain underwent in the 1980s. Others said Japan should focus exclusively on high-end, high-profit products, like robots and fuel cells, rather than mass-produced goods subject to quality-control issues.

“Even Toyota can fail. Even Lexus, even Prius,” said Mr. Noguchi. “Our world-leading manufacturing industry may no longer be world-leading. This has a strong impact on the national psyche.”

Toyota looms so large that Japan can seem like a one-company town. Toyota is Japan’s largest company by sales ($230 billion last fiscal year), and in recent years has been its most profitable company and biggest taxpayer.

Toyota has also been Japan’s largest ad buyer, making the major media here afraid to criticize it. In late 2008, the former president of Toyota, Hiroshi Okuda, even threatened to stop buying ad time from what he called overly critical media outlets.

Toyota long enjoyed near hallowed status here as the greatest practitioner of “monozukuri,” a centuries-old ideal of perfection in craftsmanship, seen in pottery and ancient sword-making.

It would appear that Toyota was an accident waiting to happen.

Gotta love the prof saying that Japan should copy us and become a service based economy, because it's be so successful in the US/UK.

interestrateripoff · February 9, 2010

Japanese company admits faking safety reports on seats it made for 32 airlines - Times Online

A Japanese company admitted last night that it had falsified data after its seats, used by dozens of international airlines, failed safety tests. It is understood that about 150,000 suspect seats made by Koito Industries have been installed in 1,000 Boeing and Airbus aircraft owned by 32 carriers in 24 countries.

Singapore Airlines, Continental and All Nippon Airways are thought to have delayed the introduction of new aircraft because of problems with Koito seats.

British Airways, Virgin Atlantic, bmi and easyJet said that they were not affected.

Like all aircraft seats, the Koito products were subjected to a series of tests for strength and fire resistance, but the results of the tests, the company has admitted, were fabricated.

And in the Times we have this.

interestrateripoff · February 9, 2010

“No-one saw this coming?” Balderdash! | Steve Keen's Debtwitch

“No-one saw this coming?” Balderdash!

Published in July 15th, 2009

Posted by Cassander in Debtwitch

The widely believed proposition that this financial crisis was “a tsunami that no-one saw coming”, and that could not have been predicted, has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands.

Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria:

“Only analysts were included who:

provide some account on how they arrived at their conclusions.

went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.

the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.

the prediction had to have some timing attached to it.”

On that basis, Bezemer found eleven researchers who qualified:

Researcher Role Forecast Date Dean Baker, US Co-director, Center for Economic and Policy Research 2006 Wynne Godley, US Distinguished Scholar, Levy Economics Institute of Bard College 2007 Fred Harrison, UK Economic Commentator 2005 Michael Hudson, US Professor, University of Missouri 2006 Eric Janszen, US Investor & iTulip commentator 2007 Stephen Keen, Australia Associate Professor, University of Western Sydney 2006 Jakob Brøchner Madsen & Jens Kjaer Sørensen, Denmark Professor and Graduate Student, Copenhagen University 2006 Kurt Richebächer, US Private consultant and investment newsletter writer 2006 Nouriel Roubini, US Professor, New York University 2006 Peter Schiff, US Stock Broker, investment adviser and commentator 2007 Robert Shiller, US Professor, Yale University 2006

Having identified eleven researchers who did “see it coming”, Bezemer then looked for the common elements in the way that these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.

He identified four common elements:

“a concern with financial assets as distinct from real-sector assets,

with the credit flows that finance both forms of wealth,

with the debt growth accompanying growth in financial wealth, and

with the accounting relation between the financial and real economy.”

A non-economist might look at these elements in puzzlement: surely all economic models include these factors?

Actually, no. Most macroeconomic models lack these features. Bezemer gives the topical example of the OECD’s “small global forecasting” model, which makes forecasts for the global economy that are then disaggregated to generate predictions for individual countries—like the ones touted recently as indicating that Australia will avoid a serious recession.

He notes that this OECD model includes monetary and financial variables, however these are not taken from data, but are instead derived from theoretical assumptions about the relationship between “real” variables—such as “the gap between actual output and potential output”—and financial variables. As Bezemer notes, in the OECD’s model:

“There are no credit flows, asset prices or increasing net worth driving a borrowing boom, nor interest payment indicating growing debt burdens, and no balance sheet stock and flow variables that would reflect all this.”

How come? Because standard “neoclassical” economic models assume that the financial system is like lubricating oil in an engine—it enables the “real economy” to work smoothly, but has no driving effect—and that the real economy is a miracle machine that always returns to a state of steady growth, and never generates any pollution—like a car engine that, once you take your foot off the accelerator or brake, always returns to a steady 3,000 revs per minute, and simply pumps pure water into the atmosphere.

More at the link.

interestrateripoff · February 9, 2010

eBook | Steve Keen's Debtwatch

In the midst of the greatest financial crisis since the Great Depression, have you ever wondered why economists didn’t see it coming, and why they don’t seem to know what to do, now that it’s here?
As one columnist put it, if “economics gurus … are really so smart, why didn’t they predict the GFC [Global Financial Crisis]? In fact, why didn’t they stop it?””

I’m one “economic guru” who did predict the Global Financial Crisis. I went public with warnings that it was imminent in December 2005, established the DebtWatch Report in November 2006, and started this blog in March 2007.

I saw the GFC coming, not because I’m that much smarter than other economists, but because I long ago realised that the standard model of the economy–known as Neoclassical Economics–is utterly unrealistic. Instead of working within this dominant but barren paradigm, I helped developed an alternative approach based on the work of Hyman Minsky. Knowledge of this far more realistic approach to economics is why I saw the crisis coming, while neoclassical economists were rabbiting on about “The Great Moderation”–the belief that their management of the economy had reduced or possibly even eliminated the business cycle.

I wrote Debunking Economics in 2001 to explain to the general public why accepted economic theory is such a poor guide to the way the economy actually works. Over the last fifty years, numerous flaws in the theory have been pointed out by economists, but this unrealistic theory has rolled on–and become even more unrealistic over time–until this crisis hit.

Now, just when the world wants someone, anyone, to show the way out of this crisis, the people who can least be relied upon to find it are the ones that are actually in charge–professional economists. To give you an idea of how little they know, check out this recent OpEd in the New York Times, “That Freshman Course Won’t Be Quite the Same“. Written Gregory Mankiw, author of a widely used introductory economic textbook, and one of Bush’s economic advisers, it shows that he really doesn’t have a clue about how this crisis came about.

interestrateripoff · February 9, 2010

Sky drops ITV court fight as it cuts stake

BSkyB, the pay TV group, yesterday dropped the protracted legal battle over its 17.9 per cent stake in ITV and agreed to sell down to less than 7.5 per cent.

Agile, smaller enterprises are leading a revival in the industry

Excessive focus on big manufacturers is a distraction from the sector’s real innovators

David Prosser: Carbon prices are going the wrong way

Outlook: The sooner the carbon price rises very significantly the better

interestrateripoff · February 9, 2010

Breaking news:

Hector Sants resigns as head of Financial Services Authority

The City regulator has been thrown into chaos by the resignation of its chief executive, as doubts over its future resurface. By Jill Treanor 31 comments
- Profile: Smooth Christian banker turned watchdog
[*] Barclays's John Varley: 'Obama reforms won't prevent banking crisis'

Bank's chief executive tells the Treasury select committee that the plan to stop proprietary trading is 'completely irrelevant' to Barclays
- UBS returns to profit
[*] British Land lifts property sector

Market forces live: British Land and the banks helped leading shares off to a bright start despite Wall Street falling below 10,000 for the first time since November Post your comment
- Housing market suffers January freeze
[*] Guardian Media Group sells regional business to Trinity Mirror

Historic newspaper link to Manchester severed in deal worth £44.8m, £7.4m of it in cash, but excluding Channel M local television. By Steve Busfield 54 comments

Vauxhall announces that jobs will go at its Luton van plant

500 UK jobs will be lost as part of a Europe-wide restructuring of Opel/Vauxhall in an attempt to break even next year
Toyota recalls Prius over brake problems

Around 8,500 British owners affected in recall of almost 500,000 vehicles by troubled carmaker hit by a string of recent safety scares
[*] Nissan returns to profit thanks to China

Nissan predicts a full-year profit of ¥35bn thanks to cost cuts and its focus on emerging markets
- China increases hold over car market
[*] UK's trade deficit widens

Figures from the Office for National Statistics reveal the UK's trade deficit with the rest of the world has widened to its highest level for a year

More business news

interestrateripoff · February 9, 2010

Hector Sants to quit as City watchdog chief

Chief executive of the financial watchdog – earmarked for closure by the Tories – is to stand down after three years 4 Comments

Sants apologises for FSA failure to stop crisis

Darling blueprint to end banks’ casino culture

Toyota recalls 437,000 cars including Lexus

The world's biggest carmaker is to recall 8,500 Prius models in Britain on concerns over the brake system software 7 Comments

ANALYSIS: where is the UK watchdog?

IN DEPTH: the fall of mighty Toyota

Britain's trade deficit widens unexpectedly

Sterling tumbles again as the surprising trade gap in December renews worries about the strength of the recovery 19 Comments

Britain’s trade deficit widens in October

Trade deficit balloons on car and oil imports

Guardian group offloads regional newspaper arm

GMG announces it is selling its regional newspapers to Trinity Mirror, bringing to an end an 85-year relationship

Guardian Media admits The Observer may be closed

Guardian ready to throw cash at Emap

Tracker rates at record low as 90% loans return

Rates on tracker mortgages hit a record low last month, while borrowers with small deposits returned to the market

Office cuts take Vauxhall UK job losses to 500

General Motors is cutting another 154 Vauxhall administrative jobs as well as nearly 400 at its Luton van plant

British Land sees revival 'across the board'

Britain's second biggest developer says the autumn property recovery accelerated in the last three months of the year

British Land fights for every inch

British Land uses £3bn war chest for acquisitions

Rightmove sees surge in home advertising

UK's biggest property website sees a leap in advertising spending by estate agents, as house market stirs into life

Myners says bonuses are bleeding pension funds

The City Minister will tell institutional investors that an excessive bonus culture is hitting British pensions

Coca-Cola profits lifted by China and India

The world's biggest drinks company suffered flagging sales in North America but was boosted by surging trade abroad

UBS fund withdrawals rise amid secrecy row

The Swiss bank suffered a big increase in withdrawals as governments applied pressure to reveal the names of clients

Swiss Justice Minister warns UBS over tax row

US vows to track down suspected UBS tax cheats

Allen & Overy expands to Australia

The firm's arrival in Sydney and Perth will be followed by a recruitment drive aimed at hiring more than 40 junior lawyers

Xstrata chief halts growth through takeovers

Mick Davis says mining company now has a sufficiently attractive internal pipeline for it to concentrate on organic growth

Greek bailout looks increasingly likely

The rest of the eurozone may have to come to the rescue amid a flight to the dollar and dark mutterings about speculators

Miners need perfect timing

Toyota’s boss wears ‘L’ plates

Islamic finance offers a unique opportunity

Islamic financial products offer a strong ethical dimension to non-Muslims seeking an alternative to a financial system

interestrateripoff · February 9, 2010

Toyota in global recall of Prius

Toyota recalls thousands of Prius cars worldwide because of braking problems, in a new blow to the world's largest car maker.

Q&A: Toyota recalls

Toyota crisis reaches new levels

Toyota recall: Your comments

Toyota boss apologises

City regulator to step down

Hector Sants, chief executive of the Financial Services Authority, announces he is to step down as head of the City regulator.

January chill for housing market

Activity in the UK housing market was frozen by the icy weather in January, surveyors say, but prices continued to rise

More at the link.

interestrateripoff · February 10, 2010

http://Storm over bailout of Greece, EU's most ailing economy

Angela Merkel tried to calm fevered speculation in financial markets yesterday that Germany was preparing to lead a bail-out of Greece amid a split in the EU on how to handle its most ailing member.

The German Chancellor denied reports that her Finance Minister was conducting secret talks with Jean-Claude Trichet, head of the European Central Bank, and with other capitals on an EU rescue fund for Athens.

Mrs Merkel has staunchly resisted suggestions that the EU must swallow its pride and turn to the Washington-based IMF for a solution to the growing economic turmoil in Greece, with fears that its troubles in international finance markets will trigger a domino effect, toppling other weak members of the eurozone such as Ireland, Portugal, Spain and Italy.

But last night there were signs of a developing European split over calling in the International Monetary Fund, a move also strongly opposed by Brussels, with suggestions from Sweden’s Finance Minister and other officials that this might be better than the EU programme outlined last week.

Greece looks like it's going to get interesting. If they get a bailout the Irish will be very upset.

interestrateripoff · February 10, 2010

Trade deficit leap sparks fear over credit rating - Times Online

Britain’s trade deficit soared unexpectedly in December, official figures showed yesterday, as new fears emerged about the country’s credit rating.
The trade-in-goods gap ballooned to £7.3 billion, up from £6.8 billion in November, as imports outstripped exports, despite the boost provided to exporters by the weaker pound. Economists had forecast that the deficit would fall to about £6.6 billion.

This came as Fitch, the credit rating agency, said that the UK was among the countries most vulnerable to losing its coveted AAA rating. Brian Coulton, head of EMEA sovereign ratings at Fitch, said: “The UK, among the AAAs, is one of the most vulnerable, with Spain and France.”

Fitch has warned previously that if the Government does not pursue an aggressive programme of fiscal tightening after the election, Britain’s AAA credit status would be threatened. Standard & Poor’s, another credit ratings agency, has already downgraded the outlook for Britain’s credit rating from “stable” to “negative”.

Not looking good is it?

interestrateripoff · February 10, 2010

Myhttp://www.nytimes.com/2010/02/10/business/economy/10fed.html?ref=business

WASHINGTON — Ben S. Bernanke, having survived a surprising challenge to his second term as Federal Reserve chairman, now faces the delicate task of beginning to pull the central bank out of its extraordinary effort to prop up the economy.

The main question is when and how the Fed should start raising short-term interest rates, which have been at a record low for more than a year. Related is the issue of how to manage, and eventually shrink, the record $2.2 trillion balance sheet that the Fed amassed as it pumped vast sums of money into the economy, starting in 2008. On Wednesday morning, the Fed will release a statement outlining Mr. Bernanke’s views on moving away from its exceptionally easy monetary policy.

As a policy tool, Mr. Bernanke is expected to consider a little-known mechanism — referred to as the interest rate on excess reserves — that gives the Fed leverage over $1.1 trillion in bank deposits.

Most of those deposits were created as the Fed gobbled up mortgage-backed securities and Treasury notes and bonds during the financial crisis. The banks in turn parked the funds at the Fed as reserves. In the months and years ahead, the Fed wants to make sure that banks do not reduce their reserves too quickly, because it could create inflationary pressures as banks step up their lending.

To achieve its goal, according to Fed officials and speeches, the central bank will raise the interest rate on excess reserves, now 0.25 percent. It also plans to lift its target for the fed funds rate — what banks charge one another for overnight loans and the centerpiece of its policy statements since 1994. But officials stress that rates will remain quite low for months to come.

“We’re in a different situation than ever before, and the tools we are using are entirely new,” said Lyle E. Gramley, a former Fed governor who now works at the Potomac Research Group, an investment advisory firm.

Mr. Gramley predicted that Mr. Bernanke would try to reassure the markets that the new tools would work. “There’s an awful lot of talk that we’re going to have inflation down the road,” he said. “But this Fed is determined to maintain price stability. They’ve said that over and over again, and they want to communicate that to the markets.”

Mr. Bernanke has used the term “exit strategy” to describe his task. Much like the American military’s withdrawal from Iraq, the Fed’s plan has few precedents and carries much uncertainty. At a minimum, officials have signaled, it will have to be carried out delicately, be flexible when circumstances change, and, most likely, be gradual.

And if they dump this $2.2tr of mortgage back securities into the system is there the liquidity in the system for them to be bought?

interestrateripoff · February 10, 2010

Is That A Bailout Or A Lit Fuse? - The Market Ticker

The rumors came fast and furious - first Greece was going to get "help" from Germany, then it was denied, and then maybe it was again. The latest?

Germany is considering assistance for Greece after the country’s deficit threatened the stability of financial markets, two lawmakers from Chancellor Angela Merkel’s governing coalition said. Olli Rehn, who takes over as European Union economic affairs commissioner tomorrow, said EU support for Greece will be discussed in coming days.

Let's not forget what we're dealing with here.

The EU is a loose confederation with a common currency. They lack common laws, they lack the ability to bind each other's economic policies, and they lack the ability to play "print money." To mount any sort of concerted rescue based on the ECB all nations must agree - that you can forget about.

Bilateral - that is, single-nation - support is another matter. Of course any nation can choose to support any other in any way it chooses.

But let's look at the underlying realities that are in play here.

The EU in totality must roll over or issue somewhat more than EUR 1.5 trillion in debt this year. The German Bund got pounded when the rumors started circulating that they were planning on bailing out Greece, and that of course will impact borrowing costs, which simply fuels a spiral (the wrong way) when it comes to interest expense and thus budget deficits.

The truly bad news, however, is that Greece (even with our banks more than $100 billion of exposure to them) isn't the worst of it. Their economy is tiny compared to those of Spain and Portugal, both of which are much larger - and bigger problems.

One would hope that Merkel and friends in Germany aren't really stupid enough to implement such a transfer of a peripheral nation's problem to the EU's core, but then again we have seen time and time again that "can-kicking" is the mantra of the world since this crisis began. Rather than deal with the underlying problems - excessive leverage, naked swaps that the seller can't possibly pay, various forms of fraud and gamesmanship in securities issue and similar - governments have instead decided to lift up the corner of the carpet and sweep, time and time again.

Should the EU implement this with Greece they may indeed set a precedent that could easily destroy the European Union over the next couple of years. Faced with Spain, Portugal, Italy and Ireland, all of which are huge problems compared to Greece both in terms of the debt outstanding and the size of their economies Germany will find itself unable to backstop all four nations - yet it will have to, once the die is cast with Greece.

Yet unlike Greece, which has a GDP of EUR $261 billion, Spain's is EUR 1.134 trillion and Italy's EUR 1.406 trillion. Portugal and Ireland's economies are smaller, but they belie big problems, with the "best" indication being the external debt to GDP ratio.

Italy's is 127% (the US is running close to 100% at present), while Greece's is 161%. Spain's, on the other hand, is 171%. Germany, for all of its vaunted "strength", runs 178% of GDP, Portugal is at 214% and Ireland is running an unbelievable 1267%.

That's right - tiny Ireland with EUR 144 billion in GDP has well north of a trillion Euros outstanding in external debt. This, by the way, makes clear that debt service is likely compounding upon itself even now, which is a death spiral from which one cannot escape - whether it is being recognized or not.

Oh, and don't look at Great Britain as a bastion of "fiscal responsibility" - they're over 400% - nor the Swiss, at 423%.

The lesson here? We have not only fixed nothing the so-called "coordinated actions" of so-called "world leaders" have set up a potential catastrophe originating in Europe.

More than two years ago I predicted that Europe was the most likely place where the second leg - the real "Oh.... My...... God" moment - would originate in this economic mess. These ratios were the reason for my prediction, and all that has happened over the last two years is that they've gotten worse.

Neither Germany or the rest of the EU can fix this without massive reform - read that as restructuring and/or default - of the external debt in these nations, including Germany itself.

Go ahead and believe this won't blow up if you want to. I look at today's action, and indeed that of the last couple of weeks, as a clarion call and a warning that when we had the opportunity in the depths of 2008 and early 2009 to take the CDS monster out and shoot him - to lock up the fraudsters - to change the way banking works worldwide - we instead refused and let the "wise guys" off the hook.

As a consequence we have fixed nothing and the fuse has not only been lit, it is now much shorter than it was two years ago and may have gone inside beyond the reach of a pair of scissors.

The United States, ironically, is one of the better-positioned nations to survive what is coming. No, it won't be easy for us, but of the developed world there are few who have the internal capacity to pull in the horns and make it - not comfortably, but to survive.

"Here it comes"