Banks are pulling back from the industrial securitization of risk that has blown up so spectacularly in their faces.

So called collateralized debt obligations (CDOs) are the supermarket sausages of the financial system — nobody knows what’s in them, and most prefer not to.

In the old days, banks took the risk of lending money on themselves and ensured that borrowers would be able to pay it back over time. Securitization means that they can lend to any Tom, Dick or Harriet, package up the debts into large parcels of small slices from many borrowers, and sell them onto other banks and finance houses.

When house prices are rising fast, and rates are low (thanks to the Iraq war — see yesterday’s post), there will be no problem. How quickly the weather can change.

Now there’s a rush back to caution and traditional virtues — and not before time.

The Private Equity industry is currently holding its global jamboree in Germany. What a difference a year makes. Just months ago (pre-August 9, to be precise) the Private Equity barons were borrowing billions to take over all manner of companies, many blue-chip, and some national strategic giants. Now the sources of funds are drying up and the world has become a much more anxious place.

Not so long ago, securitization of talent was the goal for what HG Wells called “originative intellectual workers” — the kind of people who work from a laptop and a cell phone, hot-desking from place to place. They were advised to raise money on future earnings by selling shares in themselves. Specialized markets were to spring up, something like the London Stock Exchange’s AIM market, to flog these things to admirers with more money than sense.

I suppose if you turned into a Bill Gates or the Google guys your investors would be happy — but how many of us do?

The whole notion of securitization is targeted on bypassing the present reality in favour of an unknown future, using other people’s money — often their pension funds or insurance pots. In essence it’s no different from betting on racehorses.

Now the bubble has burst and cold realism has dawned, even for the godlings of private equity and their blood brothers, venture capitalists.

The beneficiaries will be China, and the sovereign wealth funds of Asia, including the Middle East. Western financial centres have permitted power to pass from settled democracies under the rule of law, to the potentates of totalitarian regimes whose oil deposits or cheap, exploited labour will soon allow to rule over us in many covert ways yet to be revealed.

And why? The abandonment of risk management in the cause of easy pickings.

Who will hold the banks to account?

Nobody — it’s too risky.

The American economy is now in recession. A slew of new data clearly reveals both a marked downturn in activity, combined with a rise in inflation — something not seen since the stubborn “stagflation” period of the 1970s.

Some economists expect a robust return to growth later in the year off the backs of aggressive rate cuts by the Fed, and a financial package from the President that will see cheques delivered to taxpayers — and others on low incomes — by June.

That may not be enough, especially as it’s now emerging that the Iraq war is the principal cause of worldwide recessionary trends from two directions : the rise in the price of oil, and the low interest rates that led to reckless lending to the sub-prime market.

A new book by Nobel prizewinning economist Joseph Stiglitz powerfully demonstrates these effects. The Three Trillion Dollar War — The True Cost Of The Iraq Conflict outlines the immense downside across the globe of what must now be deemed a policy catastrophe.

In terms of the current credit crunch, which arose out of the sub-prime mortgage fiasco, many — including Syntagma — had blamed Alan Greenspan, then Chairman of the U.S. Federal Reserve Bank, for keeping rates too low for too long. Combined with steeply rising house prices this gave the banks a one-way bet for lending to the trailer-park poor.

However, it’s becoming clear that the low-rate regime was engineered to mask the terrifying cost to the American economy of the wars in the Middle East.

We can now begin to assess the extent of the disaster to American interests the war is continuing to inflict. The conflicts have led to a strengthening of Gulf, Chinese and other sovereign wealth funds, which have bought up large chunks of prime U.S. assets, including blue-chip bank stock, while, in some cases, simultaneously enjoying a bonanza from higher and higher oil prices.

In ten years, bank stocks should prove exceptionally rich investments as they recover from current adverse credit conditions. The war has given secretive foreign funds a one-way bet.

It’s hard to estimate the effect all this will have on American power and influence around the world. A war that was meant to eliminate Al Qaeda and secure the world’s oil supplies, has had precisely the opposite effect.

Joseph Stiglitz works out the numbers and they make depressing reading.

The news that stagflation is reappearing on the scene is another blow for the West’s economic stability. Stiglitz’s book is required reading for all who want to understand the future of the global economy over the next two decades and the causes of the misery to come.

This is going to be a long haul.

America’s Presidential election could be decided by which of the three big isms — racism, sexism and ageism — the country is least susceptible to.

The three remaining runners are a woman, a black man, and an oldie of 71. It’s a bit like the cast of characters in a satirical comic strip. Whatever happened to the seven boring dwarfs of recent memory?

The opening salvo of questions, though, is quite simple :

1. Do Americans want the Clintons back in the White House?
I would wager a big cigar that they don’t.

2. Is John McCain too old?
The country that re-elected Ronald Reagan is not going to be put off by a man of 70.

3. Will America go with Obama’s hard-Left internationalist agenda?
Apart from a few white supremacists, I don’t think this election will turn on race. Obama cuts across many traditional boundaries in the population and has an intellectual stature that suggests it will not. But in the campaign proper, his policies will increasingly be examined.

I understand that Obama has refused to pledge allegiance to his country. The American President is not just a head of government, like the British Prime Minister, but a Head of State, like the Queen. How can a man who refuses to pledge allegiance to his country become Head of State?

His wife seems to have given the game away when she claimed she has never been proud of her country — until now, that is, when she has a chance of living in the White House. In an American context, that could open up a chasm of resentment.

Obama’s policies remind me of New Labour in Britain : high public spending on social services, an internationalism that puts one’s country second, and a creepy social Marxism. As we have discovered, that’s a lethal mixture that progressively destroys the social and economic fabric of the nation.

Policywise, Obama seems to be like all the other Democrat losers of recent times — McGovern, Dukakis, Kerry, etc. In the end, he may well conjure up the same fate.

In a year that’s made for the Democrats, their two, admittedly impressive, candidates are likely to eliminate themselves by recent memories of past imperfections on the one hand, and an excessive zeal for the lost world of the sub-Marx master plan on the other.

This may just leave the field open for the galloping oldie. I must say, McCain would be my first choice if I had a vote. He’s a world away from the Neocon head-bangers who have dominated the White House in recent years, and his policy agenda is one of measured consideration rather than overturning the tables of the temple.

McCain is a genuine war hero. He spent six years in the Hanoi Hilton in Vietnam under extremes of torture. He won’t send American boys into battle unless it’s absolutely necessary. And, having a simple pride in his country, he won’t precipitately withdraw them either.

Oil was the real story of Iraq, and that essential commodity is still to be fought for. McCain is not going to leave the Middle East to Al Qaeda.

As for his economic policies, they can’t possibly be worse than Obama’s or Clinton’s — or even the strange excesses of George W Bush.

His master stroke would be to declare that he expects only to stand for one term because of his age — but will consider his options toward the end of a first term. He might also pick a genuine Presidential figure as his running mate in case of accidents.

My guess is that he will win in a tight finish. But not so tight that we again become absorbed by the hanging chads of Florida.

In recent months seventeen teenagers have hanged themselves in the area around the small borough of Bridgend in South Wales, UK. Why they did it remains unanswered and is baffling the nation.

In America the phenomenon of high school kids shooting up their campuses, then turning the guns on themselves, probably comes from the same root cause.

The police say they were not all members of any web-based suicide cult, although a few of them may have used the chatrooms. They didn’t all know each other either, and didn’t constitute a group or gang. So what is happening here?

Bridgend is a rather nice area, surrounded by glorious countryside, including the Vale of Ogmore and Merthyr Mawr, a wild place of sand dunes and beaches. It’s also near to the upmarket Vale of Glamorgan, a wealthy patch of rolling, green hills and country pubs. There are many worse places to live.

They did all have one thing in common though. Like all modern teenagers they were immersed in social networking sites — Facebook, MySpace and Bebo. Their inner space was formed by the anarchistic conversations of mainly unknown “friends” made on these addictive sites. No settled discourse this, but a 24/7 babble of wildly differing opinions, rants and life objectives, generously sprinkled with bizarre fantasies incapable of fulfilment in the real world.

And there’s the crunch — “the real world”. It really is a second life on these sites, bearing little resemblance to the day to day concerns of older people. That, of course, is their attraction.

The sites’ main competitor is “the real world”, that space of dismal state schooling; urgent demands on climate change of which we are ingenuously presented as the main cause; the breakdown of our ethical system and its replacement with social Marxism (political correctness and obsessive equality) and the bureaucratic autism of the governing class.

The world they look out on is one of cynical politicians on the make, advertisements that make them crave objects they know they don’t really need, and an adult generation that has allowed chaos to reign. The idealism of youth is quickly spent.

Add to all that, mass immigration and the introduction of cruel medieval practices, gang culture, knife crime and drug-based gun law, and the Britain they live in no longer has the moral or physical authority to demand their loyalty.

Teenagers today like nothing better than to “get wrecked” — hopelessly drunk — most nights of the week. Without boundaries to make sense of their lives, or any compelling lodestar to guide them, modern youth sinks into the apparent benign world of social networking.

The outer world gives them nothing but information-overload characterized by countless pressure groups competing for their attention with contradictory messages and injunctions. Good parents get drowned out, as do decent teachers. Even the government is now just one voice among many, chopping and changing its empty slogans on a daily basis. Thought anarchy rules the lives of young people, an unpleasant environment for mental development to take place.

So, social networking they go. The problem is, it has a very thin actuality. Quickly they discover it hasn’t the substance to satisfy their need for experience and the challenges that promote growth of character and individuality. They are trapped in a no-man’s land between a wafer-thin second life and an unbearable jungle of squabbling claim and counter-claim in the world itself. No wonder many are taking their own lives.

Social networks can be dangerous places to be if you are immature and seeking experiences that should come from life itself.