Banks are rarely in the news as much as they are now. There are yet more writedowns from the giants of banking in their end of year reports.

Will that be the end of it? Probably not, but at least a fightback is underway by the bulls, while the bears seem to be temporarily in retreat.

With Ben Bernanke last week promising to cut rates with a scythe instead of the usual nail scissors, America will avoid a real slump and the world will move on.

Anatole Kaletsky in his Economic View column in the Times (London) thinks the U.S. may well avoid a serious recession (two quarters of negative growth) and prognosticates as follows for Britain and Europe :

By the second half of 2008, however, the euro will take over from the pound as the pariah of the global currency markets, since the eurozone will ultimately suffer more than Britain from the slowdown in the global economy because the European Central Bank will resist making the inevitable interest-rate cuts. This intransigence by the ECB will cause serious economic and political disruptions in Europe – and could even raise questions about the euro’s survival as a reserve currency in the long term.

The landscape will be changed though. The behaviour of the banks in recent years has been beyond any pale we might wish to contemplate in a nightmare, but then that’s not exactly new. Who said this, for example? :

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a grand scale.”

That was Thomas Jefferson in 1816.

Plus ca change …

Update : Citigroup has just posted a near $20billion writeoff for Q4 2007. These are spectacular numbers which highlight the immense financial transfer from the West to the Far East that’s now underway thanks to the greed and stupidity of our bankers.

It’s Boxing Day here in England, a day traditionally reserved for giving presents (Christmas boxes) to the extended family and friends. I was going to take a rest from posting on Syntagma and other sites until January 2, but something is jangling away at me : the upcoming downturn/recession/depression/crash, depending on which view you take. The nasty end of that spectrum is now a real and menacing possibility.

The optimistic view says that Sovereign Wealth Funds — vast reserves of cash held by Gulf oil sheiks and “new economy” developing countries like China — will save world stock markets from collapse. Indeed such funds are buying up wagonloads of equity in some of the biggest Western corporations, Citicorp and Merrill Lynch, for example, and great chunks of Britain’s FTSE 100 companies.

Quite how allowing our biggest companies to be owned and run by a small group of Oriental potentates will look in 10 years time is anyone’s guess. I doubt we will think it such a smart move.

The pessimistic view — which I confess I’m now leaning strongly toward, despite my normally sunny nature — comes from the banks. Never mind the stock markets, look at how the bankers are reacting on the ground.

All banks are now hoarding cash like Ebeneezer Scrooge and virtually ceasing to lend. With house price indices slithering down a slope like novice ice skaters, and inter-bank rates running at around 8 percent, this has become a total banking crisis worldwide, and that has the potential for real evil in our economies.

Japan’s decade-long woes in the 1990s were caused by crises in its overprotected banking system, as were the Far-Eastern “Tiger” economies that collapsed at around the same time.

So how are we all reacting to this worldwide financial mess, now a “perfect storm” according to another banking pundit? Are we hoarding cash like the banks, or are we spend, spend, spending in the post-Christmas sales?

The real crunch comes if we all stop spending, as the Japanese did in 1990. Our economies will then spiral out of control as the High Street suffers and all kinds of businesses lay off staff in droves. Do we protect ourselves first by reining in, or do we support the wider economy? Since there will be little money to spend, the economy will suffer whatever anyone does. It’s a no-win situation from whatever angle you view it.

In retrospect it’s now clear that Alan Greenspan left rates too low for too long and spawned the mad rush to lend to the sub-prime market (Ninja mortgages : no income, no job, no assets). But on top of that, it is also now normal to be permanently in debt and to service it by moving it continuously between lenders engaged in a bitter battle for market share and a bigger slice of the easy action. These lenders are no longer willing to cough up, even if they were in a position to do so.

In Britain, the situation is getting dire. From the UK’s Telegraph : “Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending. … ‘How on earth did the Financial Services Authority let this happen?’ he asks. Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. ‘Brown hadn’t got a clue what he was doing,’ he says.”

And European treaties, like Maastricht, will make matters worse not better, says Ambrose Evans-Pritchard : “Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. … Brown has disarmed us on every front.”

Crucifixion is a powerful word, especially at this time of year. “Brown has disarmed us on every front” is a damning indictment of the UK’s new Prime Minister, more particularly because he has just signed us up to another Euro treaty.

I wish Syntagma could bring you a better box on Boxing Day, but I fear it may be much worse than even the news we’re now getting suggests.

Maybe I should have continued with my holiday. See you on January 2.

I’ve spent a lot of time this week thinking about Energy Analysis, which is a central part of the Superdemocracy project I’m working on.

Energy Analysis is a different way of viewing how organizations work. Instead of seeing people in particular “jobs” — which are ragbags of roles inherited from earlier empire building and power grabs — we examine the energy flows through the whole unit. We also look at the type of energy involved. This method always points up people placement as the main source of rigidities in any large organized group.

It’s a simple enough procedure, but breaks away from our normal worldview in which people are the natural drivers and shakers of all corporate activity. At first sight, it can leave you a bit disorientated, but think of Google. From the outside, the Googleplex looks like a giant energy plasma instead of a normal corporation, like Microsoft or IBM. And yet even Google has still fully to evolve into a true superdemocratic organism.

Then, out of the blue, a perfect example of an energy-driven corpo landed with a thud in my lap : the European Commission.

Basic background
The EU Commission is a board of quasi civil servants, drawn from the political classes of EU member states, and based in Brussels. Unlike normal secretariats it exercises considerable executive powers by proposing new Europe-wide legislation which eventually becomes legal throughout the community.

It has steadily amassed a lot of influence and control, backed by a tame supreme court which almost always supports the central orthodoxy. Its methodology has been “salami-slicing”, taking power in small increments that they think will not be noticed by busy people, but will accumulate over time into a vast control console for the whole of Europe.

The Commission is widely regarded as a political graveyard for national politicians who see it as western Europe’s equivalent to the Siberian salt mines of the old Soviet Union, where out-of-favour opponents were conveniently deposited. Britain’s commissioner, Peter Mandleson, a friend of Tony Blair, was twice forced out of the British Cabinet for alleged dishonesty. He now controls trade negotiations for all 27 countries in the EU.
/Basic Background

Now just imagine what all that negative energy will do if concentrated in one supranational body given the power to use it.

Naturally, that resentment and loss of status back home will fixate on stripping power from national governments and lodging it in Brussels. This will compensate Commissioners psychologically for the assumed shabby treatment these people had received from national politicians.

In short, the Commission will inevitably become a kind of politburo, hoovering power to the centre and spewing out hundreds of thousands of prescriptive “directives” for the folks back home. It will be job justification and revenge politics writ large by a powerful bunch of losers.

And that’s just what has happened over the past 35 years, ever since the UK joined an inoffensive “Common Market” with “no political or sovereignty implications”. The energy map of the institution predicts perfectly how it has evolved over the decades. It’s also a fact that the Commission’s accounts have not been cleared for 13 years by their own court of auditors on the grounds of massive fraud.

This week a constitution was signed by national politicians which paves the way for yet more power grabs and the downgrading of democratic procedures and accountability.

You would rightly guess that most ordinary people are totally against all this. Indeed, two years ago both France and the Netherlands voted it down in referendums, and Britain would have done the same if allowed to have a say by the slippery Blair and Brown. The constitution has now been repackaged and renamed — an amending treaty. This time they’ve walked away with the whole salami.

So the transition from common market to legal jurisdiction is almost complete, with not a referendum of the people in sight. And it’s all been driven by the energies funnelled into the Commission by short-sighted, short-termist national politicians. Stitch-up is too mild a comment for what has taken place.

This week also sees the 350th anniversary of the Flushing Remonstrance which was issued by English settlers in New Holland, now New York, in protest against religious persecutions by the then Dutch rulers. In retrospect it was the model for all the other Declarations and freedom documents that followed.

So do we need our own Flushing Remonstrance here in western Europe? It would be a good start, but we should also look at the energy makeup of the Brussels Commission and so-called Court of Justice. Then we could get back to free trade and dispense with the futilities of failed politicians.

As Shakespeare put it, we must renounce “the equivocation of the fiend that lies like truth”.

Energy Analysis is a useful tool for that in any organization, especially when aimed at finding the points of maximum competence for the taking of critical decisions. One thing’s for sure, pushing up decisions to Brussels is the worst of all possible worlds — the point of maximum incompetence.

But then we hardly live in a sane universe.

Before you switch off, I don’t mean climate change. That’s a doddle since we have little control over it, despite what the doomsters think. Nor am I writing about nuclear war, surely a distant memory now.

I mean the alarming slide into a 1930s style worldwide Depression.

I’ve written a few times in Syntagma about the constraints of running a business in England, where the pound sterling is the currency, while our income is designated and paid in US dollars. Now one of the world’s major companies, Airbus — which is partly owned by the French state — has announced that its business model is shot through and broken.

Their problem is that the dollar has fallen even more against the euro than the pound. A euro is now worth $1.50. A few years ago there was jubilation when the euro achieved parity with the dollar. Eat your hearts out Eurocrats!

Airbus sells more airliners around the world than Boeing, but since aircraft prices are designated in dollars, they get paid one third less than Boeing compared with the period of parity. In a tight-margin international business that’s fatal. Many other European companies are feeling the pinch too — business confidence has all but collapsed in Germany, and the French are going through one of their periodic episodes of industrial unrest, with workers marching in the streets against Government diktat.

The driving mechanism behind all this is the massive US trade deficit. The Treasury is content to see a steady drop in the dollar as a correction to this deficit. Other countries see it as “beggar my neighbor”.

But more ominous forces are gathering now which will really put pressure on the world’s financial system. The new economies of China, Brazil and India are starting to move their large trade surpluses out of dollar assets into euro assets. The same is happening with the petrodollar states in the Gulf. Apart from setting up a future Wall Street crash, it’s also putting great strains on the eurozone, which is a ragbag club of nations speaking different languages and with very different economies.

The strain is such that Nicolas Sarkozy, President of France, is talking about limiting capital flows into the eurozone. The EU Commission has said this is possible because of a little known clause in an annexe to a policy document dating back to 2003. Europe always reverts to political will over the rule of law.

Since this decision could be taken by majority voting of finance ministers, Britain could be outvoted here. The result of a cap on capital inflows would be devastating to London, which is the world’s leading financial centre. In such circumstances Britain would have no choice but to withdraw from the European Union.

Stateside, the sub-prime mortgage fiasco is feeding into the wider situation and genuine fears of a 1929 crash and 1930s type depression are rife among those who know about these things.

Will it happen? Luckily for Americans, “cometh the hour, cometh the man”. Ben Bernanke, Chairman of the Federal Reserve, has spent his life studying the causes of the 1930s Depression, so is unlikely to allow the same mistakes to be made. He can also call on the advice of wily old Alan Greenspan, now retired, whose new book, The Age of Turbulence should be required reading for anyone interested in the global economy in the 21st century.

Syntagma’s guess is that Western economies are resilient and flexible enough to withstand the shocks that are coming without withering on the vine. The joker in the pack, though, is the eurozone, which lacks the strength of the Common Law countries in dealing with the rest of the world. There’s even wild talk in Brussels about a Fortress Europe, with the euro countries only trading with themselves behind massive tariff walls. Sound familiar? It’s Politburo time again in the Chancelleries of Europe.

I believe the euro currency will collapse within five years. Britain will withdraw from the EU to preserve its international trading position, and America will take a severe knock but will recover strongly to regain its former position.

As for the emerging “superpowers”, they face a collapse in their export trade from which they will struggle to recover — think Japan in the 1990s and the meltdown of the Tiger economies of the Far East.

There’s a lot of water to flow under this bridge yet. It’s a greater immediate threat than climate change, so let’s ease back on all the noise about carbon footprints, offsets and trading.

There’s Armageddon to deal with first.