Posted on 10/01/2008 10:38:51 PM PDT by bruinbirdman
Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts.
It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status".
By Monday, Mr Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was "staring into the abyss," he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).
Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s.
Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe's dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons.
We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.
It turns out that European regulators have allowed even greater
(Excerpt) Read more at telegraph.co.uk ...
...so the socialist states over there are WORSE off than we are? And the solution to our crisis is to copy the European model? Am I understanding this correctly????
the plan is to have complete control over the economy. have the govt own everything instead of just taxing and redistributing wealth of the free market.
It was interesting to see the US Dollar versus various foreign currencies, from the Euro to the Mexican Peso. You knew something was up when the USD bolted upwards. Capital flew from somewhere into dollars, muy muy rapidamente. I think the Euro was down about 10 percent from recent highs, and the Mexican peso down about 8 percent or so. Eurobanks must be hurting to see their currency depreciate more than Mexico’s. Aye, Carumba.
I hardly ever post mkt predictions here. This one, however, is inescapably true, barring only some absolutely ludicrously stupid action on the part of the US...or some super-dramatic terrorist action against the US but not against Europe (which, frankly, is the more likely target these days for the jihadi bastards).
Suggest buying March Euro 135 puts and selling March Euro 130 puts against them (called a 'bear put spread'). Cost about $1600 apiece. Would expect to profit by not less than $1000 apiece by January (plus get the capital back into pocket), and could be sizeably more, up to $3600 apiece or so.
“The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders”
And they haven’t got the cash, or the GDP to cover it, while expecting the EU to pony up and assure it.
The EU banks are why we see the “urgency” to pass this BAD BAILOUT now. We are going to be FORCED to pay for the results of HORRIBLE Democrat Social Engineering-by-Mortgage, but we should NOT have to pay to bail out Euro and Asian banks bad investments, as well.
Some of these overseas banks are MASSIVELY over-leveraged, like Deutsch Bank.
The dollar sucks, given the last 20 years' maladministration of this nation. However, there are a whole bunch of currencies that suck far worse (S.A. Rand is another one, btw, but it's tough to trade. So are most of the S. American currencies, with the same objection).
Well said! Between Hypo and DeutscheBank, fully 90% of German GDP is at risk...and, guess what, the Wonderlanders (that’s the EU crowd, in my slang) haven’t got NEARLY the mechanisms in place to bail their butts out. Not to mention the huge Belgian outfit Fortis, nor to mention the next half dozen Spanish and Italian banks to go tits up.
yitbos
That’s interesting and very helpful, SAJ. I am waiting to purchase some real estate in a South American country and believe that the dollar is currently significantly undervalued in relation to that country’s currency, the Guarani. Your two interesting posts bolster my plan to hold off for several more months before buying my ranch.
Mismanagement? Heck, I know somebody who can get you a driver’s license in a certain South American country for $50 USD and a bottle of whiskey.
Now that is mismanagement. But it beats the Department of Motor Vehicles in the USA. Trust me.
Which Main Street are they talking about?
TEN years ago, MoDOR (which is the same as other states' DMV departments) decided to write their own licensing software. $30 million dollars and 10 years later -- with their 'system' NEVER completed, and guaranteed to crash on the last 2-3 days of every month (because the stupid buggers don't understand the concept of transaction density and bandwidth) -- they've decided to buy a licensing system from Iowa and retrofit it to their (VERY curious, trust me) standards.
Apparently, among other things, no one ever told them that, if you can't write your own system(s), you can't successfully retrofit anyone else's. Oh well, it's only taxpayers' money, after all, right?
Re: South American currency. I don't follow it as closely as I perhaps should. However, that said, a Euro trainwreck (which we are NOT far away from) will hurt S. Am. currencies considerably...not to mention the intentional damage being wreaked on them by 'La primera Dama de Cuba', aka Hugito Chavez.
You are wise to wait. Events pending, you might be able to pick up your property for a song, a steal, in a year or so.
Best luck to you on that, and FReegards!
Why bother? A E-P is a talented writer, but — just based on having read him for years — it appears he gets about every 1 in 3 of his opinions from surplus boxes of Cracker Jacks.
They own the old Fannie and Freddie mortgage securities.
I think one of them is 10 Downing Street.
Best wishes!
Yes, for two different reasons:
1. Their banks were levered up to higher extents than we were. Our i-banks were levered up between 30:1 to 40:1.
Some of their banks are levered up as high as 48:1.
2. The ECB doesn’t have a record or a plan in place for “open market operations” the way our Fed does. The ECB is worried first and foremost about price stability and defending the value of the Euro. These types of bank failures will be a completely new shock to them.
Dunno if you lesen Deutsche, but I do and from what I’m reading in the German business press.... they’re fairly well screwed.
The thing that most people here in the cave-man like US (as seen from the EU’s eyes) is how sophisticated all these Europeans are. Why, this is why they decided to have the Germans run the banks in the EU, and have the French run the political show.
Now it appears that the Germans have left a few potato mashers laying around in the cupboards in the bank managers’ offices... with the pins pulled.
Whoopsie.
I was reading up on the Fortis/Hypo charlie-foxtrot on Sun/Mon evening. My wife was wondering what I found so funny... I tried to explain it to her, but the humor in the German language doesn’t quite translate to English. I have to explain it to people in terms like a Three Stooges episode: so there’s Curly, walking along and he steps on a garden rake, which pops up and smacks him right in between the eyes.... he falls backwards into Mo, who then falls backwards through a plate glass window into a basement, on top of a housewife who is ironing her laundry.
Larry rushes into the situation, helps the poor lady out of her basement, but neglects to pull the plug on the iron, which then sets the laundry alight, which burns down the house.
All because someone left a garden rake laying on the sidewalk.
Curly is the German banker, the rake is their leverage tied to US swaps, Mo is the Bundesbank banker and Larry is played by whatever German politician you’d like to insert into this comedy of errors...
America might be headed for a recession but it looks like Europe is headed for a very nasty recession. Smart Freepers shouldn't gloat too much, though. It will be interesting to see how this plays out politically everywhere as European institutions start to unravel.
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