Monday, February 16, 2009
Some NewTrouble Spots
I normally start my morning reading newspapers and online magazines in Europe before the US markets open. The graph to the left shows in percentage to GDP of loans that the Austrian banking knuckleheads made to the developing countries of Eastern Europe. Note that this is as of September 2007. There are no dollar figures and so I will provide them. These figures were obtained from the Austrian national newspaper derStandard in an article describing the frantic efforts of their finance minister Joseph Proll to put together a rescue package for a banking sector which looks like it could blow sky high. There was a similar coverage in the superb German news magazine Der Spiegel. It seems that Austrian Banks recently lent 230 billion Euros to the countries listed to the left. Austria's GNP is about 330 Billion euros and thus they lent a figure equal to 70% of the country's GNP, a gigantic figure. DerStandard said that if only 10% of these loans fail, the Austrian banking system could collapse. They provided no explanation how a seemingly small figure of 23 Billion euros could destroy their banks and why Joseph Proll is trying to raise a rescue package of 150 Billion Euros but something dangerous is clearly afoot. I would expect it might have something to do with leverage. Many other countries have lent to Eastern Europe as well but for reasons unknown, the Austrians went hogwild. These losses could rival the blunders of our own homegrown banking imbeciles on a per capita basis. The financial meltdown is afflicting other countries in the Eurozone as I have noted before and include Iceland, Spain, Greece ,Italy and the UK and Ireland as particularly at risk.Ireland seems to sink almost day by day with businesses like Dell Computer fleeing the country this past month. Now the politicians have pledged sums to the banks equal to 220% of the country's entire GDP and the really worrisome figure in my opinion is not that almost unimaginable number but the shocking jump in CDS quotes for the Irish debt. One year ago it would have cost you 10 cents to insure $100 of Irish debt via a Credit Default Swap(CDS). Last week it had jumped to $3.50 per $100 and that quote had tripled in about a week! I should mention that CDS premiums are soaring for many countries but clearly Irish debt looks really shaky.
The news from Japan is horrible with their GDP falling 12.7% in the most recent Oct to Dec quarter which compares to the US at -3.8% and Eurozone -1.2%. It's hard to decide which region is going to hit the ground first with so many countries in a flat spin death spiral.