cryptogon.com

That compares to orders totalling 41,970 in the third quarter of 2007. Global orders for Volvo slumped 55% in the last three months while Scania, of which Volvo has majority control, said its western Europe truck orders collapsed by 69%.

Volvo, which also makes trucks under the Renault and Mack brands, reported a 37% plunge in third-quarter earnings to £230m.

‘The downturn in the economy has been significantly exacerbated by the global financial crisis,’ the company said. ‘The important European market has declined significantly while North America and Japan continue to show weak demand.’

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.

Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world.

Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire.

Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon.

Romania raised its overnight lending to 900pc to stem capital flight, recalling the near-crazed gestures by Scandinavia’s central banks in the final days of the 1992 ERM crisis – political moves that turned the Nordic banking crisis into a disaster.

Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.

The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

Traders are paying close attention as contagion moves from the periphery of the eurozone into the core. They are tracking the yield spreads between Italian and German 10-year bonds, the stress barometer of monetary union.

The spreads reached a post-EMU high of 93 last week. Nobody knows where the snapping point is, but anything above 100 would be viewed as a red alarm. The market took careful note on Friday that Portugal’s biggest banks, Millenium, BPI, and Banco Espirito Santo are preparing to take up the state’s emergency credit guarantees.

Hans Redeker, currency chief at BNP Paribas, says there is an imminent danger that East Europe’s currency pegs will be smashed unless the EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.

“The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states.

Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.

The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.

Now, in the riptide of the worst financial crisis since the Great Depression, WEF officials and delegates say many of the chief executive officers who gathered in Davos, Switzerland, over the last five years didn’t listen to warnings from their peers. Davos organizers also say they failed to play tough with the financial-industry bosses, opting to accept their funding and let them turn Davos into a rave-up for Wall Street excesses.

“The partying crept in,” says Klaus Schwab, the 70-year- old WEF founder and executive chairman. “We let it get out of control, and attention was taken away from the speed and complexity of how the world’s challenges built up.”

The fallout has left the WEF riddled in buyer’s remorse, with officials throughout the organization asking what they have wrought and, like Wall Street, whether they offered too much of a good thing.

Schwab says the delegates treated him like “Cassandra” whenever he questioned the logic of their wisdom on asset-price bubbles in housing, stocks and other financial instruments.

WEF Chief Operating Officer Kevin Steinberg says the vast sums of money that rolled in from Wall Street celebrities for marquee billing in Davos contributed to complacency among forum organizers and often obliged them to publicly massage the viewpoints, wishes and status of their superstar guests.

“We catered to what the financial leaders wanted: solo speaking slots, luxury hotels and VIP treatment we wouldn’t afford anyone else,” Steinberg, 38, says. “We gave them a soapbox. It was all political. We try to minimize the politics, but can’t.”

`Psychological Denial’

In his office outside Geneva, about a three-hour drive from Davos and overlooking the French Alps, Schwab says the WEF began issuing warnings in 2003 to investment banks, insurance companies and hedge funds about the systemic risk gnawing at the foundation of the global economy.

“But the financial community didn’t listen,” Schwab says. “They were told that any serious look at the economic fundamentals showed that we were in an unstable situation. It was denial, total psychological denial.”

For next year, Schwab says his goal is to transform Davos into the “Bretton Woods of the new millennium,” a meeting targeted at establishing a fresh set of global rules for commercial and financial relations, much as the original Bretton Woods conference in New Hampshire did in the summer of 1944.

Ending the Merrymaking

As for the merrymaking, Schwab vows “it won’t happen again.” Unlike Bretton Woods, companies will still pay as much as $750,000 each in annual fees to send executives to Davos.

William Browder, founder of Hermitage Capital Management Ltd. in London and an eight-year WEF veteran, isn’t so sure Schwab can pull it off.

“An exercise in moderation is something the private sector doesn’t do very well,” Browder says.

Each January, global financial titans and their entourages gathered in the Alpine hamlet. A band of fluegelhorns wandered in hotel lobbies, heralding the arrival of delegates such as Lehman Brothers Holdings Inc. CEO Richard Fuld Jr., Freddie Mac CEO Richard Syron and U.S. Treasury Secretary Henry Paulson, along with actresses such as Angelina Jolie and Sharon Stone.

Bundled in cashmere coats and goose-down parkas, the WEF’s 2,500 “global leaders” set off to attend a medley of 500 public and private sessions designed to isolate economic problems, clarify disturbing market trends and forge innovative solutions.

The Stunts

In the days leading up to the conference, volunteers in lederhosen draped the village with hundreds of white and blue banners that declared the 38-year-old conclave’s purpose: “Committed to Improving the State of the World.”

WEF organizers often pulled stunts to hoodwink delegates who preferred partying and meeting privately with clients over attending forum sessions.

In the “Why Do Brains Sleep?” meeting in 2007, a cadre of eminent psychologists and psychiatrists explored whether financial leaders got enough rest and “what that tells us about the quality of their decision-making.”

To spur delegates into addressing financial-market alienation, a session in 2004 was held to discuss whether extraterrestrials had taken control of Wall Street: “Have Extraterrestrials Made Contact With Government Leaders?”

The ruse didn’t work.

Steinberg recalls the attitude among some of the delegates at Davos from 2003 through last January.

Didn’t Listen

“It was clear irresponsibility on their part and it’s more damning than anyone can imagine,” says Steinberg, who has been with the WEF for more than a decade. The former McKinsey & Co. management consultant supervises the forum’s finance-industry delegates.

“By 2003, the over-leveraging of the system was a serious topic of conversation, but the some 60 of WEF’s corporate members from the financial world never had an understanding of how big a problem it was,” Steinberg adds. “We had assembled the world’s greatest economic experts to confer with them, and the financial community was not aware of that expertise.”

In 2005, Schwab says WEF’s delegates from Wall Street were eyebrow-deep in booming markets, easy money and intense pressure to take greater risks, borrow more and seek higher returns.

One of WEF’s sessions that year was “Spotting the Next Bubble Before It Bursts.” Goldman Sachs Group Inc. CEO Lloyd Blankfein ran the meeting with Syron, then CEO of Freddie Mac, the now-discredited U.S. government-sponsored mortgage buyer and reseller that along with Fannie Mae in September required a $200 billion U.S. government bailout.

Spotting Bubbles

The Blankfein-Syron mission: “Spotting where and when the next bubbles are likely to occur and how we can get better at spotting and resisting bubbles,” according to the program.

Yet Wall Street ignored the solutions offered at the meeting, says WEF Senior Director W. Lee Howell, 44, whose office created the session.

“I often wonder how many members were actually listening to what was being said,” Howell says. “I know the American financial community didn’t show up in Davos to listen.”

Another “bubble” session the following January looked at real estate and was led by Stephen Roach, then Morgan Stanley’s chief economist, who now is chairman of Morgan Stanley Asia Ltd.

“A sharp decline in housing prices could have a tremendous impact on the global economy; in the U.S. alone, 40 percent of new jobs since 2001 have been related to the housing sector. With low interest rates and excess liquidity, other bubbles may follow,” the program read.

Divide, Conquer

Steinberg says the most-discussed housing issue among some delegates centered on Davos’s Belvedere Hotel, where corporate chieftains and their deputies were “more interested in entering into bidding wars to secure the biggest party room than they were in attending sessions held there.”

As Steinberg tells it, Wall Street arrived in Davos with a “divide-and-conquer strategy” that focused on using WEF to woo new clients and “launch sales campaigns” instead of “collectively taking action to mitigate the evident systemic risk.”

The five-day annual forum, which also attracts scholars and scientists, has always been eclectic. Racing Audis on the ice of a nearby lake and attending snow-polo matches in St. Moritz have been popular diversions. The dress code was casual, and the garb of Wall Street, Schwab says, was perhaps unsuited to the cold and candid camaraderie of Davos. “There is a certain discomfort with snow,” Schwab says.

Storm Flags

Steinberg says there were scores of “intelligent people” raising storm flags in Davos for the last five years.

In 2007, former U.S. Treasury Secretary Lawrence Summers warned of complacency. He returned to the village in 2008 to say “a cascading loss of confidence” threatened to paralyze the global economy, comparing the market mood with the economic sentiment that prevailed just before World War I.

Guidance was offered by monetary-policy makers such as European Central Bank President Jean-Claude Trichet and Bundesbank President Axel Weber as well as economic wise men, including Yale University Professor Robert Shiller, U.S. Congressman Barney Frank and World Bank Director of Governance and Anti-Corruption Daniel Kaufmann. Such advice was swatted away by American confidence salesmen such as Michael Klein, co- president of Citigroup Inc.’s investment-banking unit, and David Rubenstein, managing director at the Carlyle Group buyout firm.

“I warned them all about global risk and the abusive nature of their actions, but they had no incentive to change,” says Kaufmann, recalling his seven years as a global leader at Davos. “And why should they have listened to us? I see it with my 10- year-old daughter, who scolds me because I don’t put the garbage in the correct bin. Let’s not delude ourselves. It’s impossible to teach old dogs and investment bankers new tricks unless you change the incentive structure.”

The `Animals’

“It was all laid out in Davos,” says WEF delegate Daniel Loeb, 46, owner of Third Point LLC, a New York-based hedge fund. “The investment bankers got so caught up in competing with each other that they used the place to schmooze, instead of actually learning about what was going on in the world.”

Howell describes the Davos attendees in zoological terms:

The new technology, which ultimately may be able to receive pictures of suspects, is likely to be in widespread use within 18 months. Tens of thousands of sets – as compact as BlackBerry smartphones – are expected to be distributed.

The police claim the scheme, called Project Midas, will transform the speed of criminal investigations. A similar, heavier machine has been tested during limited trials with motorway patrols.

To address fears about mass surveillance and random searches, the police insist fingerprints taken by the scanners will not be stored or added to databases.

Liberty, the civil rights group, cautioned that the law required fingerprints taken in such circumstances to be deleted after use. Gareth Crossman, Liberty’s policy director, said: “Saving time with new technology could help police performance but officers must make absolutely certain that they take fingerprints only when they suspect an individual of an offence and can’t establish his identity.”

Details of the type of equipment and the scope of its use have been revealed in a presentation by the National Policing Improvement Agency (NPIA).

The initial phase of the Mobile Identification At Scene (Midas) project, costed at £30m-£40m, will enable officers to perform rapid checks on the fingerprints of people arrested or detained. The marks will be compared against records on Ident1, the national police database which holds information on 7.5 million individuals.

Geoff Whitaker, a senior technology officer with the NPIA, told the Biometrics 2008 conference that Project Midas would save enormous amounts of police time and reduce the number of wrongful arrests.

At present, officers have to take suspects to custody suites if they need to check fingerprints. On average, the agency’s research shows, the procedure takes 67 minutes. “If we scaled this [saving] up to the national level that would equate to 366 additional police officers on the beat,” Whitaker said. “One of the benefits is that it will reduce the number of errors – and we can reduce the number of arrests significantly.

“There’s a huge range of opportunities [for] mobile ID. It could be used on the deceased at the scene of a crime, on suspects for intelligence in the early part of an investigation, [or even] in a mortuary.”

Policing of big public occasions, sporting events, festivals, political conferences – as a well as immigration and border controls – could benefit from the equipment, he suggested.

“Another use is for prisoners in transit; it’s not uncommon for prisoners to swap identities on the way to prison,” he said.

Project Midas, he said, would give the police “a full, mobile national capability” to check identities.

The system is being designed to have the capacity to beam images of suspects back to officers on the streets to help confirm identifications. Some US police forces are already using the technology.

“The return of mugshots [to officers],” Whitaker added, “is something we would like to do.”

The tender document for Midas states: “Bidders’ solutions … should include, but may not be limited to, fingerprint identification capability.” Plans for a police Facial Images National Database (Find) were suspended last year but are being reviewed.

One of the companies bidding for the Midas contract, Northrop Grumman, told the Guardian: “A lot of the hand-held [devices] we are considering have cameras so they can support fingerprint and facial images”.

A limited trial of mobile police fingerprint devices, called Project Lantern, started in 2006. About 200 have been distributed and 30,000 checks performed. They were deployed in police cars using automatic number plate recognition technology – stopping vehicles that were logged as stolen, having no insurance, no MOT or simply unknown.

“The aim was to deny criminals the use of the roads,” said Whitaker. “Around 60% of drivers stopped gave false identification details.”

Fingerprint checks often showed they were carrying falsified documents.

The electronic searches, encrypted and sent over public networks, were usually returned to the mobile devices within two minutes; 97% of searches were completed in five minutes. Responses are graded as “high” or “medium”. If high, it shows the system is confident of a match; if medium, it could display up to three potential identities. The returned data includes the name, age and gender of the suspect if there is a match.

A spokeswoman for the NPIA added: “It will be up to each police authority to assess the benefits and see how many they want. Early indications are that the benefits will be huge.”

Thomas Smith, an officer from the Los Angeles police department, also briefed the Biometrics 2008 conference on the success of his force’s mobile ID devices which send images and fingerprint matches back to officers on the street. He said they had become so powerful that once the machines were produced some suspects admitted they were lying about their identity.

Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.

The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.

These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.

The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.

Lobbying efforts are intensifying.

The Financial Services Roundtable wrote Treasury officials on Friday requesting that the initiative to buy $250 billion in bank stock grow to cover insurers, auto companies, securities dealers and U.S. subsidiaries of foreign companies, including banks. The Treasury’s plan is intended to bolster banks’ tattered balance sheets and get them to resume making loans.

As the Treasury now interprets it, these additional groups would not participate in the bank stock program. They could receive help from a separate part of the $700 billion rescue that will buy bad assets from financial institutions.

Steve Bartlett, the president of the Roundtable, urged the Treasury to broaden the definition of those eligible for the stock purchase program.

“The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market,” Bartlett wrote Neel Kashkari, the Treasury Department official running the bailout program.

Investors were scared to wade back into equities, worried a stream of economic data from the U.S. this week could bring more bearish news about the world’s largest economy and trigger another round of selling, analysts said. Selling by investment managers, bracing for another wave of redemptions, also fed the declines, they said.

“We’re seeing a lot of panic selling,” said Peter Lai, investment manager at DBS Vickers in Hong Kong. “People are just liquidating … No body can predict where the bottom is.”

Tokyo’s Nikkei 225 index, after trading higher in the morning, closed down 6.4 percent to 7,162.90 — the lowest since October 1982. Hong Kong’s Hang Seng Index tumbled more than 12 percent to 11,099 points.

The sharp declines across most of Asia came amid another round of government measures to boost their markets. In South Korea, the central bank slashed its key interest rate Monday by three-quarters of a percentage point — its biggest cut ever — to prevent Asia’s fourth-largest economy from lurching into recession.

The rare intervention by the central bank was aimed at adding liquidity “in an illiquid market”, a Reserve Bank of Australia (RBA) spokesman said.

The Aussie was trading at 0.6194 to the greenback at midday (0100 GMT), down nearly two US cents from Friday’s domestic close of 0.6388, after hitting a five-year low of 0.6060 in US weekend trade, its weakest since April 15, 2003.

Traders could not estimate how much the central bank purchased to support the local unit, but said that relatively small amounts would have sufficed given the very tight liquidity in the market.

“The RBA has essentially shown their hand in the low 0.60s to the US dollar for the Australian dollar, and one might presume they are in a mind to install a sense of stability for the currency at least for the near term,” said Greg Gibbs, senior currency strategist at ABN AMRO.

As the gloom darkens over the global economy, the frenzied sell-off on world sharemarkets has spread to currency markets, and the Australian dollar reached a five-year low of 60.57 cents against the US dollar and a record low against the Japanese yen.

The big fall in the Australian dollar prompted London’s Financial Times to dub the currency the “whipping boy” of foreign exchange markets.

The dollar closed in US trade at US61.78 cents, down US4.5 cents on Friday night and 37 per cent from the high of US98.49 cents it reached three months ago.

The slump in the currency has confounded even the most seasoned of market commentators. The dollar has even been strongly outperformed by Iceland’s hapless krona and Brazil’s real over the weekend.

“It’s just strange. It’s just weird,” said the chief economist of BT Financial Group, Chris Caton. Dr Caton said about one-third of the fall in the dollar could be explained by the recent surge in the US dollar, which has risen against major currencies such as the euro and the British pound.

“There’s no rational reason for us to be at 62 cents,” he said.

The chief equities economist with CommSec, Craig James, said the recent fall in the dollar could be a blessing for the slowing domestic economy because it would provide a boost to exports.

“It’s something we shouldn’t fear here in Australia.”

Like the fall in the currency in 1997 that helped buffer Australia against the ravages of the Asian economic crisis, Mr James said, the weekend’s slump could offer protection against the current global financial turmoil.

Importers, especially retailers, face the challenge of paying more for goods that will be increasingly difficult to sell in a slowing economy.