On November 21, the world came within a hair’s breath of a colossal financial collapse. The trigger was the Citigroup which only two years ago was America’s largest bank.

The size of the US government’s de facto nationalisation of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be ‘too big to fail.’

The clumsy way in which US Treasury has handled the unfolding crisis displays sheer incompetence. It has turned a grave situation into a globally alarming one.

Consider the details of the latest Citigroup’s de facto nationalisation. Citigroup has more than $2 trillion of assets, dwarfing companies such as AIG Inc. that got some $150 billion in US taxpayer funds in the past two months.

In a matter of hours in the week before the nationalisation was announced, the stock value of Citibank plunged to $3.77 in New York, giving the company a market value of about $21 billion.

In December 2006, the market value was at $247 billion. Two days before the bank nationalisation the CEO, Vikram Pandit had announced a huge 52,000 job slashing plan. It did nothing to stop the slide.

The health of Citigroup is not the only gripping crisis that must be dealt with. At this point, political bickering in the US Congress has so far prevented a simple emergency $25 billion loan extension to General Motors and other of the US Big Three automakers — Ford and Chrysler. The potentially far more damaging issue has been largely ignored.

The advocates of letting GM go bankrupt argue that it can go into Chapter 11 just like other big companies that get themselves in trouble.

That may not happen however for weeks or months since GM urgently needs ‘bridge financing’, known as ‘Debtor-in-Possession’ or DIP financing, to continue operating.

However, access to any form of financing in this climate looks unlikely and GM may be forced into a partial, or even a full liquidation. The ramifications are horrendous.

Aside from loss of 100,000 jobs at GM itself, GM is critical to keep many US auto suppliers in business. If GM failed, possibly many of the US and even foreign auto suppliers may go under.

The Congressional charade conjures up the image of Nero playing his fiddle as Rome goes up in flames.

It should not be surprising that at the recent EU-Asian Summit in Beijing, Chinese officials strongly voiced the idea of trading between the EU and Asian nations such as China in euro, renminbi, yen or other national currencies other than the dollar.

The Citigroup bailout and GM debacle has confirmed the death of the post-1944 Bretton Woods Dollar System.

What neither US Treasury Secretary Paulson nor anyone in Washington is willing to reveal is the real truth behind the Citigroup bailout.

Under the original Paulson Plan, the bailout was be used as an opportunity to consolidate control of the nation’s financial system in the hands of a few large (Wall Street) banks, with government funds subsidising purchases of troubled banks by “healthy” ones.’

But Paulson soon realised the magnitude of scale of crisis, largely triggered by his own inept handling of the Lehman Brothers case.

Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion in asset backed securities off the books of the banks.

The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today — with a black hole of negative net worth that would swallow Paulson’s entire $700 billion in one gulp.’

Paulson was forced to abandon his original TARP plan and opted to use some of his money to buy equity shares in the nine largest banks.

That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalisation scheme underscores.

The dilemma Paulson has created with his inept handling of the crisis is simple: If the US government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ’announce to the world that they are insolvent.’

On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the ‘troubled’ assets.’ That is what the latest nationalisation of Citigroup is about.

It is only the beginning. The 2009 year will bring one of titanic shocks and changes to the global order of an unprecedented scale, signalling the end of the ‘American Century and its Dollar System.’

Waiting for a ‘miracle’ from an Obama presidency (and his Treasury Secretary-elect Tim Geithner who will replace Henry Paulson) is no longer an option for the rest of the world.