Were, as The New York Times reports today, Fannie Mae (FNM) and Freddie Mac (FRE), which guarantee about $6 trillion dollars in US home loans, unduly “insulated” by Capitol Hill?

Did Congress make it implicit to the companies that any losses would be guarenteed with taxpayers’ hard-won cash?

The dominant role Fannie and Freddie play today is no accident. The companies, Wall Street, mortgage bankers, real estate agents and Washington lawmakers have built up an unusual and mutually beneficial co-dependency, helped along by robust lobbying efforts and campaign contributions.

In Washington, Fannie and Freddie’s sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.

And as Fannie and Freddie grew, so did the fortunes of Wall Street, which reaped rich fees from issuing debt for the two companies, as well as the mortgage and housing industries, which banked billions of dollars as the housing market boomed.

Even after accounting scandals arose at the two companies a few years ago, attempts to push through stronger oversight were stymied because few politicians, particularly Democrats, wanted to be perceived as hindering the American dream of homeownership for the masses.

Lots of perks came with Fannie and Freddie’s charters and government backing: exemptions from state and federal taxes, relatively meager capital requirements, and an ability to borrow money at rock-bottom rates.

Lots of perks, indeed. One of them being a bailout if anything should go wrong. Reuters reports that “a possible intervention by the Bush administration to help the government-sponsored mortgage enterprises could happen as early as Monday morning. That is around the time Freddie Mac is due to sell $3 billion of short-term debt, in a barometer of market appetite for its securities.”

Last week, Dan Denning in The Daily Reckoning Australia saw the writing on the wall. He said “the whole credit crisis would look like mere child’s play should a genuine crisis unfold in the quality of the debt owned and guaranteed by Fannie Mae and Freddie Mac…”

Fannie and Freddie are surely doomed now. First, U.S. Fed Chairman Ben Bernanke told Congress both are well capitalized. Haven’t we heard this one before?

Isn’t this what Bear Stearns said before it collapsed? Didn’t Citigroup (C) say it was well capitalised, and then ask for more money? Why would anyone believe these investment bankers anymore when they tell the public they are well capitalised? It’s almost like the moment a CEO of a company says it’s “well capitalised” you should be prepared for a nasty shock.

We don’t mean to alarmist about the GSEs. But as we explained to a colleague over the weekend, our job here at the Old Hat Factory is not to tell you what you may already know, or can read in the papers. Our job is to tell you about the low-probability but high magnitude investment events that could affect your money. And just to be clear, the collapse of Bear Stearns and the whole credit crisis would look like mere child’s play should a genuine crisis unfold in the quality of the debt owned and guaranteed by Fannie Mae and Freddie Mac.

It would be the equivalent of that absurd scenario in that global warming movie a few years ago, where the Gulf Stream stops flowing and the entire Northern hemisphere enters a new ice age…in a matter of days. The insolvency of the GSEs is as close as you’re ever going to want to get to Financial Doomsday and live to tell about it.

And Dan, like Bill Bonner, says a government bailout of Fannie and Freddie could ruin the U.S. Treasury market…

The U.S. government can move to stabilise that market by guaranteeing the debt. But we believe that if it does so, it will lead directly to the popping of the other big remaining bubble in the credit markets: the U.S. Treasury market (bonds and notes).

In the sixty three years since the end of World War Two, there hasn’t been a much safer investment on the planet than U.S. Treasury bonds, at least according to conventional wisdom. But the credit rating agencies, for what they’re worth, would have to take a serious look at downgrading the credit quality of sovereign American debt if the U.S. government changed its implied backing of GSE debt to an explicit backing.

The consequences of a (much deserved) lower credit rating for the U.S. government are too long to go into here. Suffice it to say the bond market won’t wait. The trouble is, what do you do with your money if government bonds aren’t safe? Cash is one answer. Owning some form of your wealth in precious metals is another. Gold should regain ground against oil in the second half if the GSE story continues to unfold in nightmare fashion.

In any event, it hasn’t quite come to that. Congress, Obama, and McCain must all be hoping that the GSE problem just goes away, at least until after the election. But the market will not wait. It could be a brutal summer.

I received an article from Kevin Kerr the other day on our current US agriculture supply.

Here is the link:
http://biz.yahoo.com/rb/080609/markets_grains.html?.v=4

I like this…

“Worries about tight fundamentals, such as low stocks and high demand, was likely to continue feeding the rally in corn, market participants said.”

Gee, do ya think so?

Hey, over the weekend, parts of Indiana got hit with 10 inches of rain. Not exactly corn-weather, if you get my drift. Can’t do much planting in those conditions.

Stand by for an ag disaster this fall….

Also over the weekend, I was listening to a speech by Obama… He said that we’d solve our energy problems over time, “by switching to getting our energy from windmills, solar and biofuels.” No crap. That’s what he said. I almost wrecked the car against a bridge abutment as I listened to that comment.

On the other side, McCain doesn’t want to drill in ANWR because “ANWR is a national treasure like the Grand Canyon.” No crap, that’s what he said. Huh? I’ve been to ANWR and ANWR is no Grand Canyon.

We be doomed…

Really, could the Demos & Repubs have nominated two more energy-illiterate candidates?

Problem is that Big Politics treats energy like “just another issue.” As in, Are you for abortion or against it? For gun control or against it? For estate taxes or against them?

From the “energy” standpoint, you have the faux-environmental movement that says we are doing “the earth” a favor by not developing resources. It’s an issue, and on that issue they vote for Demos or not. (Never vote for a Repub, which makes McCain’s position all the more curious.) It’s just an article of faith within the enviro movement to oppose development. Oppose Uber Alles.

And whenever someone does propose development, that’s called a “fund raising opportunity” for enviros. They put out “oil spill & dying seal” brochures that make a lot of advertisements look tame by comparison.

But the no-grow thinking is premised on the assumption that the US dollar is still supreme. As a nation, we need something with which to “buy it” if we don’t produce it at home. That is, if there are still people who want to sell it to us.

I’d like to put it in terms the enviros can understand. Indeed, I’ve often wondered how the most ardent environmentalists think that without oil & refineries, the airlines can somehow buy the jet fuel it takes to fly from LAX to JFK for the weekend trip to the Big Apple. Really, flight requires jet fuel… Do the enviros really get that?

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: US Agriculture Supply and the Coming Election

I certainly can claim to be one of the early birds in detecting the strength of the movement towards Barack Obama. I am not sure that those early forecasts are of any importance except to the columnist himself, but they do reassure the writer that he, or she, is in touch with some sort of political reality.

On January 28th I wrote a column for the London Times, which started with the question: “Has Barack Obama developed the “Big Mo”, vital momentum that would take him through to the Democratic nomination, very possibly to the Presidency.” I answered my opening question in the last paragraph “Youth, idealism, style are powerful political weapons. On February 5th, we shall see whether they have captivated America. If they do, we shall find that they have captivated Britain as well. Barack Obama could have a message for us all.”

After Super-Tuesday, I went a stage farther. My opening sentence surprised many of my London friends and readers. I wrote that “it is hard to see who can stop Barack Obama becoming the next President of the United States…. Barack Obama has the future of America ahead of him.”

At any rate he has been fully tested by Hillary Clinton’s campaign. That had its own faults, and Bill’s interventions were usually disastrous, but we all came away with a new respect for Hillary’s resilience and endurance, even if many of us felt a great relief that she had lost. Now it is Obama versus McCain. Do I still feel that Obama is almost unstoppable, even though Hillary undoubtedly came closer to stopping him than I had expected?

There are of course inherent risks in being the first black candidate from a major party to be nominated for the Presidency. In 1968, the Vietnam primaries, Bobbie Kennedy, also a candidate of idealism, was assassinated. Separately from the primary struggle, so was Martin Luther King. Barack Obama is both black and idealist, a double challenge to the worst kind of American bigot. Everyone is aware of the risk, and nobody wants to talk about it.

There are other events which could change the ordinary pattern of political events, what the strategic study groups call “low probability, high impact events”. The classic low probability, high impact event was of course 9/11 itself. A crisis in the Middle East, or a terrorist attack on the U.S. itself could change the whole character of the Presidential debate.

However, these are not predictable events, they are merely conceivable possibilities. Outside those possibilities Senator Obama seems to me to be a very strong favourite to win the Presidency in November.

In the first place, he is the candidate of youth, idealism and change. Americans are tired of the Republican Presidency after two terms of George W. Bush. They are tired of the dynastic Presidency which proved a serious handicap to Senator Clinton. If she had won the Presidency that would have been the sixth successive term of the Bush or Clinton dynasties.

Senator McCain has much more experience of defence, and would be an impressive Commander-in-Chief, but he is already in his seventies – he is not a symbol of domestic renewal, because of his age. If the campaign concentrates on the recent Republican record, McCain will be hurt by that; if it concentrates on domestic issues, McCain is less attractive than Obama to the young and radical.

I still see Senator Obama as the candidate of change and vision. That was the appeal of John F. Kennedy. If America is tired of Washington cynicism, Obama is the Kennedy of the present generation.

William Rees-Mogg
The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Barack Obama is a Strong Favourite to Win the Presidency

The bar owner has the right to express his ideas about Obama’s appearance. “This is my marketing tool,” he said. But the copyright holder of ‘Curious George’ has the legal rights to the use of their brand. Curious George’s publisher said, “We find it offensive and obviously utterly out of keeping with the value Curious George represents,” Blake said. “We’re monitoring the situation and weighing our options with respect to legal action.”

As much as Obama may resemble a curious monkey in the eyes of some rednecks, his economic ideas are marginally better than those of his competitors for the Democratic nomiation says Martin Hutchinson. He also dismissed the lame gas-tax holiday endorsed by Clinton and McCain as political pandering. The recent endorsement from John Edwards should give Obama a boost to pull away from Hillary Clinton in her last throes for the Democratic candidacy.

Oil is up because people think the United States will avoid a recession. “Oil tops $120 a barrel as U.S. optimism rises,” says a headline in the Financial Times . And many think the Hillary/McCain summer gas tax holiday concept may be implemented – which would encourage people to use more gasoline!

John…Hillary…good thinking. Get people out on the road…using more fuel. Great idea. Even Thomas L. Friedman can see what vote-pandering imbeciles you are (more below…). Need we say more?

But say more we will…because, on page 1 of the Financial Times is a photo of a mob in Africa… What has stirred them to riot? The latest election result? Someone dissing their religion? No, high food prices!

It is the worst of times for people with big appetites and little money. Many of them will go hungry. And an empty belly is a dangerous thing. First, people develop a “lean and hungry look.” Then, they stab you in back.

Ah yes…predictably…inevitably…the world’s intellectuals, economists, yahoos, and pandering politicians are having trouble following the trail. They ought to look down at their feet. They would see the breadcrumbs…from the door of the Fed’s headquarters in New York…through the deep woods of subprime and leveraged derivatives…and right up the hill of soaring commodity and gold prices. That’s right…the Fed is trying to keep the money and credit moving. But it is going where it wasn’t supposed to go – into commodities, food, oil and gold. Still, the experts can’t see it. Instead, they read the polls, watch the TV, and come to the wrong conclusion. What is the cause of the rise in food prices, they ask? Speculators!

Another lead story today: “India targets food futures.” India imagines that food prices are being driven up by greedy hedge fund managers. It is considering a “blanket ban on food futures trading,” says the FT .

Why not? Nothing is too absurd or too counterproductive to escape the notice of the world improvers. Just look at John McCain’s big idea – a “league of democracies.” More about that coming up soon too… For now, let’s stick with the financial news…

The big story seems to be the idea that, as our chief financial researcher in London, Theo Casey, put it: “doom and gloom has been overplayed.”

Since the drama of Bear Stearns, no other major financial firm has failed. Quick action by the Fed and other central banks seems to have saved the world.

“Has the worst of the financial crisis passed?” asked Le Monde yesterday.

“Yes,” said the world’s richest man over the weekend. Warren Buffett told his shareholders that the “worst of the credit crisis on Wall Street is over.”

Maybe he’s right. But let’s look at the numbers. In 2006, alone, nearly $7 trillion of new debt was issued worldwide. Maybe double that amount in the entire five-year period – 2002-2007. So far, says Bloomberg, since the beginning of 2007, less than $200 billion has been written off. You can do the math yourself, but Fred Y. Jones guesses that total losses so far probably don’t exceed 1% of the debt sold in the last 5 years.

So far, so good, in other words. This is the best of times. The Fed has cut rates 7 times. And it now takes on its balance sheet – as collateral for loans – the very credits that are likely to go bad…credit card debt, student debt, and even car loans. It has only 200 basis points left, before it gets to zero, and there are approximately $10 trillion (just guessing) worth of credits that still could go bad. If just 5% of them went bust…the loss would be $500 billion. Maybe the doom and gloom is underplayed. Moving bad debt from the people who deserve it to the Bank of All the Americans – the Fed – doesn’t turn the bad credits into good ones. It merely allows everyone to keep doing what they’ve been doing…that is, to keep pretending that everything is all right.

But everything isn’t all right. Far from it. And budding out in our brain is a little idea about why the situation can’t be fixed…and why a major breakdown may be on its way…more to come…about how democracy and modern, state-guided capitalism really work.

Interestingly, Buffett is famously pro-America. You bet against American business and you will go broke, he says. But over the last 10 years, betting against American business was the best thing you could do. The dollar sank…and foreign markets – particularly emerging markets – soared.

Buffett hasn’t missed the point. He paid $4 billion for an Israel-based metalworking company in 2006. And now he’s coming to Europe to scout for opportunities. He’ll no doubt want to stop by The Daily Reckoning headquarters in London for our advice.

Warren, look for the building with the golden balls. We’re waiting for you.

*** “He must have hired a new ghost-writer because this is actually good,” writes colleague Byron King. “On energy, Friedman is nailing it exactly.”

Thomas L. Friedman…writing in the New York Times :

“…If you are going to use tax policy to shape energy strategy then you want to raise taxes on the things you want to discourage – gasoline consumption and gas-guzzling cars – and you want to lower taxes on the things you want to encourage – new, renewable energy technologies. We are doing just the opposite.

“The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: ‘Maximize demand, minimize supply and buy the rest from the people who hate us the most.’

“This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks.”

*** Boris Johnson is the new mayor of London. He’s also the former editor of the British magazine, The Spectator , for which we occasionally contribute an article.

And lastly I talked about how the only thing you’d have extra money for are the higher food prices you’ll have to pay.

Well, now the mainstream media is catching on, albeit a few weeks late. Today I saw this Bloomberg article.

Let me take an excerpt, because it looks like these people are reading IDE everyday.

Economists have a different take: They say the oil companies may end up the biggest beneficiaries, while the aid to families wouldn’t be enough to buy a $35 backpack.

The trouble with the plan, they say, is that oil prices are rising because of low supplies, and companies will continue to charge the average $3.60 a gallon and just pocket the money that would have gone to federal taxes.

“That’s $10 billion, and it’s going into the pockets of oil refiners,” said Leonard Burman of the Tax Policy Center in Washington. “The last time I checked, they didn’t need it.”

As it appears now Clinton is joining the gas-tax holiday bandwagon. She thinks that this tax somehow takes excess profits away from oil companies. Um, last time I checked a tax holiday takes money away from government. After all, they’re the ones taxing!

And then McCain thinks this holiday will somehow give parents the money they’ll need to go back to school shopping. What does he think, that parents fill up their tank twice a day? This money won’t be anough for a damn thing!

Oh well, asking the government to be logical is like asking a kid to not eat chocolate.

Today the market looks like it wants to push much higher. The Fed announce an expansion of their term auction facility (now they’re loaning $75 billion instead of $50 billion) and unemployment numbers came in less than expected.

Makes me happy that I got into three recent long positions and they’re all doing well. In fact, the one I bought in my personal account rallied nearly four percent from my buy point!

Hopefully today ends on an up note.

“The baths, the wine, and Venus corrupt our bodies,
But the baths, the wine and Venus are our life…”

-Inscription found on a Roman tomb

Yes, dear reader…we are here in Rome. We have enjoyed the wine. We have
had a bath or two – in our own private bathroom. And Venus? Well…this is
a family publication…

This afternoon, we are going to visit the baths of Caracalla, built at the
beginning of the 3rd century by Caracalla’s father Septimius Severus and
inaugurated by the son after Severus’s death.

‘Overreach’ is not a Latin word. But it was practically invented to
describe what the Romans did to themselves…to their empire…and to
their money. About which, more below…and more about our own overreach,
circa 2008, too.

But first the bare facts, yesterday’s financial news in a nutshell:

The Dow rose slightly. Oil held steady at an all-time high of $118. Gold
dropped another $16 to close at $909.

There is so much ‘noise’ in the financial system, it is hard to think. The
papers are full of distractions and absurdities. You can find almost any
point-of-view you want. Some argue that central banks are winning…that
the stock market hasn’t gone down because it is getting ready to go
up…and soon, the housing market will bottom out too.

“Fears of bank failures recede,” says a headline in the Financial Times
today.

Others argue that the worst is still ahead…that the stock market will
melt down…that housing prices will fall another 20%…and that the whole
world will go into a monumental downturn.

“Housing slump may exceed Depression,” says a San Diego paper.

We take a middle view – that financial assets (including paper money), the
financial industry, the credit cycle, the dollar-standard monetary system
and the U.S.A. itself are in an historic decline…while emerging markets,
gold and commodities are in a once-in-a-lifetime upswing.

We’ve heard about the panic that the doubling of wheat and rice prices is
causing in China, India and other Asian countries. But now, reports the
Washington Times, this panic is beginning to spill over to Americans. The
article goes on to point out that bulk grocery stores, such as Costco, are
having to put a limit on how much rice customers in certain states can
buy. Americans have gotten a whiff of the high prices and fear that the
shortages will spread from overseas, and have begun hoarding necessities
such as oil, rice and flour.

“Commodity prices across the board are at levels not experienced in many
of our lifetimes,” said CFTC Chairman Walter Lukken. “These price levels,
along with record energy costs, have put a strain on consumers as well as
many producers and commercial participants that utilize the futures
markets to manage risks.”

Resource Trader Alert’s Kevin Kerr assets that “this profit parade [in
commodities] isn’t going to end anytime soon.” He’s so certain, in fact,
that he’s offering three month’s of Resource Trader Alert – completely
free of charge. Find out how you can profit from this epic boom in
commodities here.

http://www1.youreletters.com/t/1472707/30712165/846957/0/

But let’s take a look at the headlines and then we’ll come back to our
analysis.

Is the housing market getting worse? Well, you already heard the report
from San Diego; it could be worse than the Great Depression, it says. Up
the coast, the news from the LA Times is that California is suffering a
record level of foreclosures. And in Nevada, the local press tells us that
many erstwhile homeowners are not being very considerate to the new
owners. They’re wrecking the houses before they leave, says the paper,
even putting cement down the plumbing. Of course, they’re upset, continues
the report, because they feel they’ve been roughly handled by the mortgage
industry.

Meanwhile, in Chicago, Jesse Jackson is in the news; he thinks borrowers
have been roughly handled by the mortgage industry too. He’s called for a
moratorium on foreclosures.

And over the on East Coast, the Washington Post says lenders are “being
swamped” by delinquent loans.

Partly because of the risk of bad payers, mortgage approvals have fallen
to a 10-year low. But not all the delinquents are homeowners. Many former
students, who took out loans to get through college, are finding it hard
to pay the money back. Lenders are tightening up on the scholars too. And
the Bush Administration is so alarmed at the thought of all the college
keg parties that might be canceled; it has proposed to buy student loans
from the lenders.

Where will it get the money, you ask? From taxpayers, of course. Who are
the taxpayers? The parents of the students, obviously. Then, why not let
the parents keep their money and pay for their own children’s education?
Oh, stop being a silly old fuddy duddy…

*** First, we turn to Project Overreach: America’s Imperial Budget, 2008.
George W. Bush et al. have been stretching in all directions. And now
comes his party’s chosen successor, John McCain, with even longer arms.

McCain wants to lock in place Bush’s $350 billion of tax cuts…and then
cut another $300 billion more. Here at The Daily Reckoning headquarters
we’ve never met a tax cut we didn’t like. But it’s the other side of the
ledger than concerns us. If revenues go down, how would McCain pay for all
those spiffy projects – mortgage rescues, student loan bail-outs, the
never-ending war in Iraq, bombing Iran…not to mention all the regular
giveaways to America’s seniors, poor, cripples, veterans, bankers, and
feeble-minded citizens?

The idea, put forward by Arthur Laffer and the Reagan crew, was that lower
tax rates would stimulate economic activity and, ergo, more tax revenue to
the government. But now, McCain’s top economist – Douglas Holtz-Eakin –
says the estimates of increased tax revenue as a result of lower rates
were “overblown.” As director of the Congressional Budget Office, he
admitted to Congress that a “dynamic analysis” of tax cuts (taking into
account the likely positive effect of cuts on economic activity) made
essentially no difference to the outcome. Conclusion: if you cut
taxes…you also must cut spending…or you’ll find yourself in the hole.

The Bush Administration has worked the United States into the biggest hole
ever. Like Diocletian, Septimius Severus and Caracalla, the next president
will face the consequences of overreach…inflation, budget deficits, and
rapidly expanding debt.

*** But mommas still want their babies to grow up to be president…or
even better, to land a job on Wall Street. And to break into finance or
politics, it helps to have a degree from a prestigious university. It is
proof to your employers that you have been indoctrinated with the latest
Efficient Market claptrap…that you believe the hocus pocus of modern
macroeconomics…and that you can do the miracle math required to turn
trashy credits into triple A-rated investments.

But for all those mommas hoping to get their babies a place at Goldman or
Blackrock, we have a suggestion: aim for the legal department. Yesterday
brought word from the Financial Times that “sub-prime produces a tsunami
of lawsuits.” Our guess is that the financial industry has seen its best
days. The wheels are falling off the deal machine. Bonuses are coming
down. Employees are being laid off, cast off, spun off, and blown off in
every department – save where the legal team does its work. The next few
years are likely to produce further trimming in the financial industry
ranks. But the in-house lawyers…and lawyers who work face them from
outside firms…are bound to enjoy a boom. They’ve got to work out,
renegotiate, defend, and deny thousands of claims. Their jobs are safe for
years to come.

*** Poor Caracalla. The man spent his whole life pushing the barbarians
back…or being pushed back by them. And for his thanks…one of his own
men stabbed him to death.

But he had it coming.

He was a good child, say the historians: “sed haec puer.” But he went bad
fairly early. After his father died, he ruled as co-emperor with his
brother, Geta. Then, he murdered Geta in 212 A.D. and fled to the army for
support. After he had solidified his position, he began purging his
brother’s old friends and supporters. More than a 1,000 were killed.

He seemed to want to imitate Alexander the Great…and even began walking
with his head tilted to the right, as he had seen in a depiction of
Alexander. He set out to make his military glory with a series of
campaigns against the Gauls, the Chatti, the Alemanni, and the Getae. He
pillaged Alexandria, after hearing that the citizens spoke of him with
contempt. And he was preparing a war against the Parthians when he was
killed.

His greatest achievement was the “Constitutio Antoniniana,” which made all
inhabitants of the empire equal citizens. He is also remembered for a new
coin – the Antoninianus – which replaced the denarius. It was a way of
dealing with the inflation that was troubling the empire. Wars were
expensive then, as they are now. But back then, were sometimes profitable
enterprises, as a victorious army usually captured enough booty to pay its
way – and then some. But the larger the empire became, the more neighbors
it had, the longer its borders grew, and the more garrisons it needed to
protect them. The people at home needed bread and circuses too – or they
would go turn on an emperor…and shift power to a rival.

Pretty soon, Rome ran out of money, which was then calibrated in gold
and/or silver. The Antoninianus was a way to depreciate the currency. It
had a face value of 3 times the denarius, but with the same silver
content.

Hmmm…

Until tomorrow,

Bill Bonner
The Daily Reckoning

Now another homegrown superstar is hoping to break
America – a plucky young performer from Kircaldy by the
name of Gordon Brown. Brown’s hobbies include rugby,
selling gold and being the Prime Minister of Britain.

Brown, as you’ll be aware, is currently holed up in
Washington, eating hamburgers lovingly prepared for him
by Chef George Bush, who also does a sideline as the
43rd President of the United States.

When not sampling Pennsylvania Avenue’s finest cuisine,
Brown has been doing a passable impression of an
important man. He’s had meetings with Bush, and he’s
played the beauty contest judge, glad handing and eyeing
up the three Presidential hopefuls, McCain, Obama and
Clinton 2.

Back home his own party doesn’t appear to particularly
miss him. Labour peer Lord Desai has made unfavourable
comparisons between Brown and his predecessor, saying
Tony Blair was like “champagne and caviar”, while Gordon
“is more like porridge or Haggis. Very solid, very
nourishing but not exciting.”

Small wonder, then, that Brown plundered the Blair
lexicon when asked about the state of the “special
relationship”. Brown says he stands “shoulder to
shoulder” with Bush, in an alliance that is “stronger
than ever”.

But the “special relationship” has looked one-way for a
long time now. And something tells me PM Brown is
unlikely to be the man to reverse this trend.

Of course, I could be wrong. In two years’ time,
bedrooms across America could be adorned with Gordon
Brown posters, while fans queue overnight to get their
hands on gig tickets, where they’ll hear Brown, and his
equally charismatic support act Alistair Darling, bang
out classic hits like “Financial Stability”, “How The
Government Has Ensured Financial Stability”, and “The
Need For Financial Stability”.

Or maybe we should just put Leona Lewis in charge.

———————————-

RBS prepares for rights issue, but
shares not affected… for now
———————————-

Skint bank the Royal Bank of Scotland (RBS) is going on
the scrounge. Like most banks right now, RBS is a bit
strapped for cash. So it’s preparing a rights issue.

The credit crunch aside, RBS’s capital reserves took a
battering last year when, after a drawn out tussle with
Barclays, it paid top whack for Dutch firm ABN-Amro.
Now UBS (more on them in just a sec) reckons it needs
about £9 billion to bring its capital ratios in line
with other banks. Estimates of how much RBS is after
range from £5 billion to £12 billion.

But RBS won’t be going bust – and the market has
recognised this, with RBS shares, at the time of
writing, trading around where they opened.

“What will be interesting,” says colleague Garry White,
“is how heavily they discount the rights issue – which
could be a third of the bank’s market cap”.

So, it’s ‘Watch this space’ for now.

Meanwhile there are fresh fears of job losses in the
Square Mile. Merrill Lynch has announced 4,000 jobs
will go worldwide – up to 400 of those could go in
London. Citigroup has said it’s on a cost-cutting
mission (that means jobs), while UBS are preparing to
eliminate 900 positions in London.

Our sister publication, the Fleet Street Letter, has
compiled a report on how these City job losses will hit
the wider economy. It makes for very interesting
reading – and identifies three defensive shares that
could protect your portfolio. I urge you to read it
here:

http://click.fspeletters.com/t/16624/1632470/156673/0/

Your capital is at risk when you invest in shares, never
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