August 15, 2007 (LPAC)--The world's central banks are pumping liquidity and raising interest rates at the same time, and Fed chief Ben Bernanke is urgently trying to "clean up the incredible mess left by Alan Greenspan," continuing to resist demands to lower rates, a City of London analyst told EIR news service today. Last week, the Norwegian central bank did just that, raising rates and pumping liquidity, and the Bank of Korea also raised rates. The banks are running a two-fold operation, pumping funds to try to keep the monetary markets going, but keeping interest rates up, which is putting a much broader control on credit.

Maintenance by Bernanke of a tight credit policy will have big consequences, the analyst said, but he is aware that if he gives in and lowers interest rates, this will crash the U.S. dollar.

People are very nervous in the City of London, the source said. They know this is a much bigger problem than the so-called crises of February and last May. Everyone who knew that the whole investment-bank, cheap-credit-dominated financial system of the last year's was terribly risky, knows that now this has to come down, since there are no "checks and balances" any more. Things will go a lot deeper than the much-smaller "dot.com" bubble, which took two and a half years to bottom out. The analyst stressed that the credit-rating agencies such as Standard and Poor's "have a lot to answer for" after giving so much worthless paper such high ratings. Basically, these agencies gave anything mortgage-tied a high rating, and pulled a lot of banks, and countries, into this mess.

Private equity-controlled companies are also going to see trouble, although at a slightly slower pace than the hedge funds and investment banks are seeing now, the source said. Private equity has taken over companies which provide 18% of the private sector jobs in the U.K., he said, and control a comparable number of jobs in the United States and western Europe. As the terms of credits used to take over these firms run out over the coming months and years, there will be no more cheap bond financing, and the private equity operations will "shut up shop." A lot of these companies are going to be closed down, and this is going to hit the entire population hard, the analyst said.