THANK YOU DARLING

If you strike a king you had better kill him. Or, as a UK Treasury official noted Friday, "The lesson of the US plan is that you only get one shot at this. When you fire the bullet it has to hit its target." Indeed. World citizens must acknowledge a debt to UK Chancellor Alistair Darling for the concept, Bank of England governor Mervyn King for the support and Prime Minister Gordon Brown for the implementation of a (now model) strategy which if adopted by other major nations will first retard, then halt the world’s credit market free fall.

The total shutdown of interbank markets (see earlier posts) has begun to impact the real sector - honest to goodness businesses - and with death-ray speed. This key development, all too clear by late last week, panicked world governments. Earlier, the US team reacted in incremental fashion. Last week the UK team adopted the shock and awe approach.

The G-7, the G-20 - great big clubs; these guys all talk to each other, and all the time, perhaps the 15 or 20 most powerful people in world finance. Instead of many little things they all know one big thing - lending in the money markets must re-start soon or it’s all over (we did not select 1929 as a past headline with a dart throw). If banks do not start lending to each other we are guaranteed a depression. It gags most of us but partial nationalization is the only option left now. If that doesn’t work - full nationalization.

Darling’s rescue package has taxpayers effectively becoming shareholders in troubled banks. The government may even take seats on these banks’ boards. The package makes $340bln available to provide liquidity to the money markets so that banks will lend to each other again. It provides $42.5bln immediately to invest in the 8 biggest banks in the UK; in turn, the taxpayer receives preferred shares, paying anywhere from 8% to 10%. There is $42.5 bln behind that if needed. Originally Darling looked to own minority stakes. Developments at this writing indicate the UK may take majority stakes in some, perhaps RBS, HBOS, Lloyds & Barclays. Finally, the government will guarantee all loans that UK banks make to each other, up to around $425bln; it will charge the banks a fee for the guarantee. This is the biggest peace-time intervention the free world has ever seen. Truly stunning.

This will do the trick, or would except for the minor inconvenience that all the major world credits are linked. To rescue US or UK banks in isolation won’t cut it. Thus, the G-7, then the IMF took Brown’s plan under consideration this weekend. The IMF chief economist, one Olivier Blanchard, claimed yesterday that world equity markets may fall another 20%. This is nonsense; Oliver (there are no "Oliviers" where we come from) doesn’t have a clue, any more than my mule Speedy. However, it might happen if he and the rest of these clowns don’t get off their butts and actually do something for once.

Some countries will nationalize a few banks; some the entire banking system, our view. Within a few days, all major countries have to back taking stakes in their banks or we’re sunk. Next, all must in one form or another guarantee their banks’ loans made in the inter bank market, provided the banks sign up for each government’s recapitalization program and pay for the privilege. It’s a good bet that most will comply.

The US has already changed tack to follow the Brits, Paulson allowing he too will inject capital directly into banks, taking some stakes in return (goodbye Land Of The Free).

Let’s monitor developments with G-20 compliance tomorrow and Monday.

Robert Craven.