EU: Cracks are appearing in Europe's state-backed lenders

The Telegraph ^ | 5/20/2012 | Harry Wilson and Philip Aldrick

[bruinbirdman]

European taxpayers face having to bankroll a new wave of bailouts amid growing funding problems at state-backed borrowers across the region, according to senior bankers.

Financiers are becoming increasingly concerned that many taxpayer-backed borrowers are losing their ability to access private funding markets. The development raises the prospect of already heavily indebted eurozone national governments being forced to take on hundreds of billions of euros of additional debts.

“Cracks are appearing in the funding markets for these institutions. If you don’t like the sovereign risk, why would you take the risk of buying the debt of the institutions they support,” said one credit banker.

In France, the authorities are racing to avoid having to rescue Caisse Centrale du Credit Immobilier (3CIF) after Moody’s downgraded the mortgage lender last week, warning it could become totally reliant on taxpayer support within months.

The lender is one of France’s largest mortgage providers and is owned by a collection of local authorities and mutuals, giving it implicit government support.

But the troubles at 3CIF are seen as evidence of far wider problems that are likely to face a range of quasi-government borrowers across Europe, as investors become more nervous about exposing themselves to the risk of a break-up of the euro area.

France has been among the biggest users of quasi-state institutions to everything from mortgage borrowing to building infrastructure such as roads and railways. Several other major European countries, including Italy, use similar organisations to fund public projects that would otherwise add to national debt.

The deteriorating situation for these institutions echoes the fate of US mortgage lenders Fannie Mae and Freddie Mac that enjoyed a similar taxpayer guarantee. The two lenders were nationalised by the US government in 2008 in the wake of Lehman Brothers collapse as they were

[DB]

So, in other words, when something isn’t working, do more of it...

Simply insanity.

One way or another world government is going to get smaller. Either through managed reduction or collapse.

[Cowboy Bob]

I know the world has gone insane, but when did it all start? I know the origins were in FDR, and that LBJ put it on steroids (with the Great Society). But at least there were some semblance of sanity.

The last few years have been surreal. Governments in both the US and Europe are tripping over themselves trying to "deficit spend to prosperity." Every time an effort fails, they go back and try again, and again, and again.

There is no expectation of any of these countries ever paying off the debt. What sane person would ever give someone money, knowing that it would never be paid back???

These governments are behaving like crack addicts!

[bruinbirdman]

"but when did it all start?"

Marx. But it seems the Tzars were somewhat less the beneficent princes than the Europeans.

[Mister Da]

It started when the Gold Standard was abandoned.

“What sane person would ever give someone money, knowing that it would never be paid back???”

If it is not your money, it is easy! If you are getting a cut of the money, it is even easier! If the gov’t guarantees the loan, it is a no-brainer!

[Wolfie]

Don’t be too hard on deficit spending. Couldn’t have our wars without it.