The West (US,EU, Canada) is in the midst of a gigantic and spreading credit crisis that may well to lead it into a depression, if it is not fixed soon. So far, Central bank infusions (Over $1trillion worth in a few months since July!) have been the only thing that has stopped a massive bank liquidity crisis from shutting down commerce. But the damage to credit markets thus far is so huge, and worsening rapidly, that a very bad outcome seems assured. Gregory Peters of Morgan Stanley said there is a better than 50% chance of a systemic banking crisis that will hammer credit markets at this time.

So far, equity markets have barely reflected this turmoil to the degree it should. That is going to rapidly change. Central banks have been doing backflips to stem the crisis, and I think, things are rapidly spinning out of control. They have barely been able to stem a collapse in interbank lending, which would halt credit markets. The damage a paralyzed credit system will do to our credit dependent economies is going to be staggering. It would appear that much of the crisis is hidden from view, but the way it will inevitably reveal itself will be in falling corporate earnings, and collapsing consumer and business spending. In a few short months, we will see if I am right. So far, stock markets have not priced in falling earnings that we expect to appear in coming months, as contracting credit markets constrain all manner of spending and investment.

Och-Ziff Capital Management Group LLC, the largest U.S. hedge-fund manager to go public, fell in its first trading day, bucking examples set this year by Blackstone Group LP and Fortress Investment Group LLC.

Och-Ziff shares fell $1.35, or 4.2 percent, to $30.65 at 4:30 p.m. in New York Stock Exchange composite trading after opening at $32.75. The New York-based company, run by former Goldman Sachs Group Inc. trader Daniel Och, raised $1.15 billion yesterday by selling 36 million shares at $32 each, above the midpoint of its $30-to-$33 target. It was the year’s fourth- worst first-day drop of 33 companies with a current market value of at least $1 billion, data compiled by Bloomberg show.

HSBC has warned that markets were underestimating the effects of the credit crunch on the wider economy as the bank wrote down $3.4bn (£1.7bn) at its US consumer finance business for the third quarter.

Michael Geoghegan, HSBC’s chief executive, and Stuart Gulliver, the head of investment banking, said there would be a slowdown in the US and UK economies as the credit crunch squeezed banks’ ability to provide credit.

Mr Gulliver said share prices are “trading as if the world is really terrific” and that, excluding the banking sector, the US stock market was at an all-time high. This was “seriously puzzling” and did not take account of the impact on growth from banks limiting credit and charging higher prices for loans, he added.

Mr Geoghegan said he was not forecasting a recession in the US, but that there would be a slowdown caused by lack of confidence in the financial services industry and the housing market. In the UK, a lack of appetite for risk in the wake of the credit crunch would hit growth next year, the HSBC bosses said.

“This credit crunch is most worrisome,” Mr Gulliver said.

The bank said delinquencies at its US consumer finance unit had spread from mortgages to unsecured loans and credit cards as the business wrote down $3.4bn in the three months to the end of September.

The line is already forming outside the US District Court in downtown Manhattan where Judge Colleen McMahon will tomorrow sentence Bayou co-conspirator James G. Marquez for his role in one of history’s largest hedge fund frauds. Prosecutors want a 51-60 month jail sentence. The defense—citing Marquez’s mental illness, the fact that Bayou incurred most of its losses after he left, and “myriad contributions to society”—proposes a non-incarceratory sentence, “perhaps coupled with community service and/or home detention.”

The defense seems to have won at least a moral victory in the pre-sentencing hi-jinks over documents used by the government to support its case that Marquez played a prominent role at Bayou. Assistant US Attorney Margery Feinzig has conceded that several were signed by Dan Marino, Bayou’s chief financial officer, on Marquez’s behalf, either after “contacting Marquez and informing him,” or under authority “in connection with [Marino’s Bayou ] responsibilities.”

The defense, unsurprisingly, disputes that Marino, who was Marquez’s personal accountant in pre-Bayou days, was ever authorized to sign Bayou-related documents on Marquez’s behalf.

Two hedge fund firms that racked up huge gains betting on the subprime mortgage meltdown have begun winding down those trades and looking elsewhere. They’re now betting against corporate debt using derivatives.

Paulson & Co. has generated returns of up to 435% in the first nine months of 2007 thanks to short positions on securities backed by subprime home loans, according to an update the $24 billion hedge fund firm sent to investors recently. Short sales rise in value when the securities in question fall.

Scion Capital LLC, $621 million hedge fund firm run by Michael Burry, reported gains of between 78% and 85%, after fees, during the first nine months of this year from similar bets.

Merrill Lynch has appointed the boss of the New York Stock Exchange, John Thain, to be its new chief executive.

He replaces Stan O’Neal, who left after the bank was forced to admit a $7.9bn exposure to bad mortgage debt.

Merrill Lynch shares rose by as much as 7% as newspapers reported that the appointment was about to be made.

Earlier in the day, the bank said that it had not offered the job to Larry Fink, chief executive of the investment bank BlackRock.

Mr Fink had previously been thought to be the frontrunner for the job, but he was reported to have only been prepared to take the job if the bank could give him full accounting for its exposure to sub-prime mortgage debt.

London prides itself as an international financial centre but some MPs noted “they’re all foreigners” amid other insults as they privately disparaged the three main credit ratings agencies ahead of a parliamentary committee hearing this week.

Representatives of Standard & Poor’s, Moody’s Investors Service and Fitch Ratings came before the Commons Treasury select committee on Tuesday during hearings into financial stability and transparency in the wake of the Northern Rock debacle.

Before the hearing, three Conservative committee members began discussing the upcoming interrogation unaware their remarks were being picked up by the microphones on parliamentary TV. Michael Fallon, a former schools minister and the leading Tory on the committee, turned to Graham Brady and Peter Viggers, and said: “We must be as rude as possible to the credit agencies”, and that “they’re an absolute shower”. One MP said: “They’re all foreigners”.

U.K.-based alternative asset manager RAB Capital is making a push into the Japanese investment marketplace with the acquisition of a 20% stake in Tokyo-based Prestige Asset Management.

The Japanese firm, which was established in 2004 by former Goldman Sachs managing director Makoto Matsuzaki, focuses on investment advisory and distribution of investment products in Japan.

“Makoto Matsuzaki has put together an impressive team that has already been successful in distributing selective RAB products,” said Michael Alen-Buckley, RAB Capital executive chairman. “This strategic shareholding further deepens our relationship, and reflects the goal of establishing broader cooperation with Prestige in promoting the RAB offering in Japan.”

RAB Capital currently boasts $7.1 billion of assets under management. The firm manages 15 absolute return strategies with assets in excess of $100 million (13 single strategy and 2 multi strategy) and also manages the AIM-listed RAB Special Situations Company.