"You just gets a slight dent in your bloated ego."

Hmmm. Do you really believe that ego is bloated anymore after the events of the past two weeks? Or indeed the events of the past decade? Apparently so.

Do you really observe, Joerg, or just use the good old paradigms?

"Apparently some people can't stand having folks on the other side of the Atlantic disagree with them."

Well THAT much is true. But it's true whichever side of the Atlantic one observes it upon. More true (if anything) in Germany than is the US.

"Pride goes before a fall (Hochmut kommt vor dem Fall) and sometimes even after the fall"

which may be the entire point of German foreign policy in the present age. To ensure that pride goeth before a fall, both before and after. And then to rub the nose in the result.

Germany has established that it is the utter master of the word 'Nein', and no other words are needed in any situation. Bravissimo!

"Instead European banks and sovereign wealth funds will have an increased role in a multipolar financial world."

I've been hearing this kind of thing all over, including the Russian government, which seemed to believe that they can survive the global panic with an enhanced position. They may not believe that any more after the Russian stock market took a huge dive.

Pamela noticed a rumor that the European bank named Fortis may be on the edge of bankruptcy. I checked their web site and saw two things: Fortis stoutly denies everything - they are completely stout.

And they just changed CEO's a couple days ago, apparently without previously announcing the change.

This is a "US problem", gentlepersons? Think again.

Congress has to act Monday - but so does the EU and the EU Central bank to shore up their own. You cannot expect the US to save your shakey banks.

The Fortis story is going public now. Realclearpoiltics has a link to a Bloomberg story about Fortis. It souns pretty bad.

Do you think it will make any difference, John?

My sense is that this is gong to be an anti-elite election. But not anti-Obama. Anti the 'Masters of the Universe' specifically and the 'rightsizing', 'outsourcing', cheeseparing, non-managing managerial class generally.

Middle America was already tired unto death of a decade withn no income growth, and to be sent the bill for the banks who piled risk on top of risk - is too much. WAY too much....

Obama has at least an 80% chnce of winning this thing if he doesn't expose his genitls onstage or show some other sign of psychological instability....

Oh, I hav no doubt that people are paying attention to public affairs right now, John. Do you, really?

You are correct that in most elections people don't pay a lot of attention until October, and perhaps that may even be the case this year in the sense that they are not paying attention to the candidats that much.

But I think there are larger forces moving right now, and it is those forces which are going to decide the election as well as a lot of other things.

I've been watching the polls a little. The national tracking polls have moved toward Obama in a pretty big way and the trend does not seem to be flagging. State polls are also moving with Obama widening his lead in states where he was leading while McCain's lead seems to be narrowing in Florida & Ohio. The Intrade election market shows the Obama contract selling above 56 while McCain is about 40 - a week ago it was about even.

I think a lot of people made their decision early this year - and the debate had nothing to do ith it.

I am providing a link to a Bloomberg story which states (tward the bottom) that big European banks are actually MORE severely leveraged on average than their US counterparts. http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=an37HatMCc4s

"Daniel Gros, director of the Brussels-based Center for European Policy Studies, said in a report this month that the largest European banks have a leverage ratio -- which measures shareholders' equity to total assets -- of 35 compared with less than 20 for the biggest U.S. counterparts."

Hmmmm. Of course this is not the entire story - there appear to be many non-banks tied up in this. Obviously there are a lot of weak banks in the US, but obviously some very strong ones also. J.P. Morgan, Morgan Stanley, and Citigroup have been snapping up assets on the cheap and appear to be strong. Wachovia went to Citigroup over the weekend after Morgan bought WUMV last week.

Over the weekend Fortis, a huge Belgian-Dutch-Luxemborg bank was lent 11.2 billion euros by the three governments on the security of 49% of it's common stock, The UK seized Bradford & Bingley, a large mortgage bank, and the German government rescued Hypo Real Estate with a 35 billion euro loan guarantee. Hypo is only Germany's 2nd largest commercial real estate lender - I wonder how much it will cost to bail out #1?

Possibly. On the other hand, apparently European regulation allowed their I-banks to leverage at 40-1, significantly above leverage levels in the US banking sectos. Or so I hear.

The amazing thing to me is that the signs now seem to point to the epicentre of this crisis ahifting to Europe. Many European banks appear to be more heavily leveraged (40-1 vs 20 or 25 -1), European LIBOR rates (the spread between interest rates on government bonds and bank bonds) are about twice as high as in the US.

But the most amazing thing is what happened in the currency markets today. With all the chaos elsewhere I would expect the dollar to be in free-fall. Not so, the euro dropped 2.5% against the dollar and also against the pound and the yen. The yen also dropped against the dollar but not as much. Flight to safety? Not hardly.

Flight to relative safety, perhaps. Traders seem to believe that the US is farther forward in purging bad assets. There was a wave of bailouts in Europe this weekend, and I think people concluded there was something rotten in the state of Denmark. And Germany, France, Nederlands, Belgium, UK....

Perhaps Paulson is not the best choice to head this kind of effort, but unless Warren Buffett becomes available Paulson is probably the best we can do. Face, almost nobody in the banking sector saw this coming. Buffett did however. In 2002 Buffett spoke of his efforts in unwinding derivatives positions of General Re, a reinsurance company which Berkshire Hathaway had taken over. I encourage you all to read it to understand why things went to hell.

http://www.myprops.org/content/Warren-Buffett-On-Derivatives-derivatives-are-financial-weapons-of-mass-destruction-carrying-dangers-that-while-now-latent-are-potentially-lethal.-2002/

Some salient points:

"When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running."

"When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it."

"History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times."

"In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak."

"Are we using models of uncertainty to produce certainties?"

That certainly seems to be a description of the derivative products which caused the linkages which are causing such turmoil.

Fortunately this is a human-designed system with human-designed rules; those rules can be changed, as the SEC demonstrated with it's recnt 'clarification' of it's 'Mark to Market' rule stating that in the absence of a market expected payment streams could be used to value a security.

SC, I feel the same way. But did I detect a little bit of a smirk there at the thought that the New York literary community had been deemed beneath notice by the Nobel committee? In turn the New Yorkers find people from (Rolla, was it?) similarly beneath notice.

Professors in Rolla may in turn find such as my humble self who do not hold the PhD beneath their notice (I am unnaturally honored that you condescend to notice such as I). And because I live in a better post code (London) I can scorn those from lesser localse - like Chicago. As Dean Swift quoth:

"So nat'ralists observe, a flea
Hath smaller fleas that on him prey,
And these have smaller fleas that bite 'em,
And so proceed ad infinitum."

All of us lesser beings can take comfort from the undoubted fact that the Nobel Committee in it;s Grandness would have overlooked Dean Swift for their Prize (had such been awarded during his mortal coil).....

SC, I know and love the Ozarks. I've even been to Rolla once or twice when I lived in Kansas City working a contract at Sprint in 1990.

I don't sneer at Rolla or it's university; in many ways I find places like Rolla the most perfect expressions of certain American virtues. Close to the land but hubs of culture as well.

People in the Ivies may curl the lip at schools like UM Rolla but the Rolla's more than pull their own weight. The banking crash may well help restore a healthier weight of values to the US. When Investment Banking and other false idols cease to transfix the eye of the young and talented they may come to see the value of careers in the applied sciences and engineering, and you will be there.

The foremost practicioners of the Academic Sneer (tm) tend not to be those in maths or the hard sciences (or even the social sciences) but rather those in the self-conciously rarified aether of certain humanities. Departments specialising in 'Studies' of various kinds are the most notorious of these but the rarifiction seems to have taken firm hold in more traditional specialities to the point where many English scholars have transmuted themselves into Professors of Malcommunication - rather than of clear expresssion. One suspects that Rolla may have resisted this trend rather better than the U of Colorado, which notoriously promoted one Ward Churchill into a department chair despite a few defects in his scholarship.

Indeed, come to think of it, Professor Churchill may have missed his true calling. He could have made FAR more money as an investment banker designing CDO's and other 'investment-grade bonds' with similar characteristics to his scholarly efforts.

But I grow prolix when all I meant to say is that I've never observed you sneer at anyone. I was teasing you as you obviously saw....

Don't take is so personally, franchie. I did not assert that you (or most Europeans) envy Americans. Nor did I assert that certain parts of the Europan literature community envy most Americans.

What I said was that clearly some of the people who influence the awarding of the Nobal Prize for Literature envy the success (and the very large market) of talented American writers like Philip Roth and therefore need to sneer at them. That was made very clear from the statement the Nobel committee chair made. They may also envy French writers - I see no recent laureates writing in french either.

The fact is that people follow the winners (and even nominees) of the Booker Prize and the Pulitzer far more than the Nobel winner. That is probably the case in France as well; the Nobel Prize for Literature seems to be awarded in recent years more frequently for political reasons than for literary achievement.