European banks were collapsing at a dizzying pace even as Christian Noyer, governor of the Bank of France, declared that “there is no drama in front of us.” Hypo Real Estate was just one of five banks in seven European countries bailed out in three days. Belgium, Luxembourg and the Netherlands carved up Fortis, a big bancassurer; Britain nationalised Bradford & Bingley; Belgium, France and Luxembourg saved Dexia; and Iceland rescued Glitnir. Separately, Ireland took €400 billion of contingent liabilities onto the national balance sheet, when it stood behind the deposits and debts of its six large banks and building societies. You have to wonder what Mr Noyer regards as dramatic.
Why are the non-US banks so worried? Their market exposure is high. Effectively they have been lending more than they have. Roughly $1.40 for each $1 of deposit compared to $0.96 to a $1 in the US. Coupled with the white elephant - junk American securities - they bought, housing busts in their respective countries (UK, Ireland, Spain - to name a few) and lack of oxygen (credit) in the system, have left most banks reeling. Mind you, its not just the west that is feeling the pain. Strong ripples have wafted through Russia, China, Hong Kong and even, here, India.
Short-term cover money is only available at exorbitant rates.
This is leading to everyone hoarding cash: banks and business. New products are being canceled or delayed; jobs are being pruned; credit exposure is highly marginalized and new construction is all, but, happening, and orgs are undertaking cost cutting.
All in all, seems like a depression is imminent - although, most are reluctant to admit this.
Posts
2 comments:
Add Japan to the list ...
TOI - Oct 7, '08 - "The Bank of Japan said it injected on Tuesday 1.0 trillion yen ($9.8 billion) into the money markets as the stock market opened on another
gloomy day.
It was the 15th straight business day that the Japanese central bank has poured money into the short-term money market, part of efforts by the world's central banks to ensure a flow of cash vital to the financial system."
The US budget deficit for next year is expected to be US$700 bln. Which is almost 70% of the annual budget.
Add that to the ongoing 10.3 TRILLION fiscal deficit.
Loose your purse strings - taxpayers!
Post a Comment