Reports tonight surfaced that the federal government is offering to buy tens of billions of Citigroup's worst holdings. A bailout is impossible, because Citigroup is just too big, with $3 trillion in inflated "assets" on the "books." Maybe we could nationalize Citigroup, but what about, uh, the nation of Switzerland? Its two largest banks hold about 10 times the nation's total GDP on their balance sheets, which means writedowns could require an Iceland-style bailout by other counties. Once that happens, it may only be a matter of time before the kingdom of Great Britain and Northern Ireland declares bankruptcy.
Economist Willem Buiter recently wrote in the Financial Times that Britain faced "sovereign default," which almost sounds like a classy cocktail but which really means the whole empire goes broke, because Britain spent trillions of dollars bailing out its stupid banks (sound familiar?).
Business journalist Will Hutton noted in the Guardian that Britain's heavy dependence on financial services left the country looking like "a gigantic hedge fund" whose "fall could get out of hand." But the indomitable British spirit compelled Hutton to add, triumphantly, "we may muddle through."
As John Quiggan writes, these impending national failures signal a reprise of the 1930s, which is probably why President Hope is running around manically assembling his cabinet as fast as possible: pretty soon all the money is going to be gone, forever, so if president-elect Obama is going to puts dibs on anything or stanch the flow, now is the time to act.
The U.S. press has been so slammed covering the more-than-daily financial crises that it hasn't had any time to look even a few months down the road, which is just as well because the holidays will soon be upon us and who wants to ruin that with talk of rationing and revolution?
But the British media (FT especially) was ahead of the curve in highlighting warning signs about the liquidity crisis, so it's a good bet the term "sovereign insolvency" will eventually saturate the U.S. pundit class like so much cheap hobo moonshine. Maybe just in time for Christmas!