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That just adds to the picture. Either defend Ireland, or Ireland, Spain and Italy will go. High stakes for the eurozone.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Oct 1st, 2008 at 02:09:55 PM EST
[ Parent ]
I guess I should point out that Spanish or Italian banks are yet to fail, unlike British, French, German, Danish, Belgian....

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 07:19:43 PM EST
[ Parent ]
Part of the reason is that their problems where easy to foresee, and the ECB has put the cajas on life support immediately, almost a year ago, by allowing them to securitize and repo' dozens of billion euros in non-performing spanish mortgages (same for Ireland: back in Q2, they already had something like 30k€ in repo at the ECB for every man, woman and child in Ireland).

The ECB knew that other banks would get into troubles via other, more complicated ways (derivative couplings, off-balance sheet investments that where not as obvious to spot as those domestic loans...), but there was no other way to handle those troubles than to "wait and see" which would go wrong first.

Pierre

by Pierre on Thu Oct 2nd, 2008 at 04:56:39 AM EST
[ Parent ]
I'll PN you on the Danish bank failures.

I think the Danish bank failures are a separate beast from all the other ones we've seen so far. As far as I have been able to tell, all the banks that failed were strictly local ones, who failed not because of exposure to foreign hot money (they didn't have much, if any at all), but because they issued bad loans to local, Danish costumers. To use your own term of art, they accumulated a purely Danish Shitpile(TM), without needing any help from abroad.

But the flip side of this is that even if the international markets go into a tailspin, it wouldn't directly cause Danish banks to fail. A nasty recession probably, which may combine with a popping of the Danish housing bubble to push banks over the edge, but I see very little direct effect so far.

I like to point this out, because the Danish press is in full denial that this had anything at all to do with the fact that the Danish economy has been run like a pyramid scam for at least seven years. It's being played as a crisis that was caused by Wall Street having a hiccough - one of those things that just happen to happen from time to time - despite the first two Danish bank failures happening long before the big bust.

Let's play narrative bingo: How many outright lies have been packed into Danish Conventional Wisdom? I spot two: That the crisis is caused by Wall Street and that the meltdown on Wall Street was a fluke, not the predictable consequence of the (American) casino economy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Oct 2nd, 2008 at 03:13:16 PM EST
[ Parent ]
purely Danish Shitpile(TM)

I suggest Royal Danish Shitpile as an alternative.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Oct 2nd, 2008 at 03:16:24 PM EST
[ Parent ]
So, will we get a Royal Swedish Shitpile(TM) too?

That is, a domestic subprime crisis?

I don't think so. Sure there has been some stupidity in giving out loans to people who shouldn't have been given them, but we had this shit 15 years ago, and memories are not that short.

On the other hand, the Swedish banks have been doing their best to exactly repeat their old mistakes in Estonia, Latvia and Lithuania, where Swedbank and SEB dominate so completely they can probably affect those nations economies more than the local central banks can, especially as they have pegged their currencies to the Euro.

And when Swebank denies having given bad loans on the other side of the Baltic pond by saying "we have had the same high levels of lending scrutiny over there as we have in Sweden", that makes a lot of people go uh-oh... over their Swedish loans.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 6th, 2008 at 11:31:40 AM EST
[ Parent ]
So, will we get a Royal Swedish Shitpile(TM) too?

That is, a domestic subprime crisis?

I don't think it'll be a subprime crisis as such, no. Too much regulation and oversight for that. And we'll probably not see any derivatives scams blow up too messily either, judging by the bank failures in Denmark so far.

But Sweden does have a liberalist government that's giving handouts to homeowners and blowing hot air into a housing bubble (or at least were before the summer break - things might be a tiny bit different now).

In Denmark (recall that we've had a liberalist government for the last seven years instead of the last two, so the process is far more advanced here than in Sweden), it's the commercial borrowers that have killed the bankrupt banks.

The logic goes something like this: Liberalist governments downsize property taxes and deregulate casino loans. That creates a bubble on the real estate market. Various and sundry real estate developers base their business model on the bubble continuing (in some cases by mistake, in others by deliberately engineering outright Ponzi scams). Banks see the huge growth in these firms during the bubble years. Banks lend huge sums to dodgy firms. Bubble bursts. Banks go belly-up.

This is, I think, a somewhat different beast from what happened in the US and UK. As far as understand, in Anglo-land, the story goes: Governments remove the rules forbidding banks from engaging in pyramid scams (or just systematically fail to enforce them). Banks engage in pyramid scams. Bust happens. Banks go belly-up.

So the Shitpile(TM) appears to be at one remove from the Scandinavian banks themselves, whereas it's been injected intravenously into the Anglo banking system. Which would explain why it's only the small and poorly run banks who go belly-up in Denmark at the moment.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 6th, 2008 at 04:57:54 PM EST
[ Parent ]

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