Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
I haven't seen anyone mention this yet, but events in Eastern Europe and on Wall Street seem to be converging.

The cluster** that was the Hungarian (and other countries) mortgage markets have laid a little bomb.

Because so many of these mortgages were denominated in currencies other than that the forint, the collapse of the currency relative to the euro, etc.... laid the conditions for a large number of mortgage defaults, as the decline of the forint against the currencies mortgages were denominated in has lead to a massive increase in the monthly payment in forint terms.

In turn, this cluster** in the mortgage markets is pulling down the entire economy, as ever greater amounts of cash leave the country to settle the debt.  Meaning that now problems with Hungarian homebuyers being able to pay of loans made in Euros by Austrian banks infects the foreign exchange market.

And as we saw with the collapse of the mortgage markets, the collapse of the underlying asset brought down a whole series of derivatives attached to it.  There's a similar situation with CDS on to control currency fluctuations.  If we see systematic shifts in the value of currencies, so that the holders of currency swap derivatives have to pay up.....

Then we are going to see a round II to this financial crisis that dwarfs the damage done by the collapse of home prices in the US, and the subprime mortgage mess.......

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 2nd, 2009 at 12:45:02 PM EST
[ Parent ]
Didn't see anyone mention what? The Hungarian mortgage cluster**?

See Fran:

SPECIAL FOCUS - EU Summit
yesterday.

Melanchthon:

Bloomberg.com: Hungary Seeks $230 Billion Package for Eastern Europe
and Fran:
Hungary Seeks a Speedy Switch to the Euro | Europe | Deutsche Welle | 25.02.2009
in the Salon for February 26.

This thread in the February 24 Salon.

DoDo:

On Roubini and the CEE menace, see this sub-thread in the currency crash diary.
A comment in the diary The Cusp Of History by afew on February 4th, 2009.


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Mar 2nd, 2009 at 12:58:38 PM EST
[ Parent ]
True enough.....

I've been otherwise occupied, so I haven't been spending as much time here as I used to.

But, my comment, half of my point got out, was the currency crash.  I don't know if the ECB has an equivalent office, but the stats from the US Office of the Comptroller of the Currency on derivatives  are very interesting.

We've dealt with credit based derivatives collapsing, thus far, but these are a fraction of the total US derivative pie.



And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 2nd, 2009 at 01:14:28 PM EST
[ Parent ]
because the absolute numbers are so much smaller. We're talking a few million mortages at central European prices vs several tens of millions at wildly inflated US prices.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 2nd, 2009 at 01:38:51 PM EST
[ Parent ]
If we are talking about the underlying asset, yes.

But what I'm talking about is the exposure that comes through a a currency default situation, or a severe decline.

The saving grace, I think, is that most of this currency swap deals are probably on a short term basis, which means, I think (correct me if I'm off), that while the number over the year is large, that at any one time, the exposure is relatively small.

I do think that there's a real problem brewing in Eastern Europe with these mortgages that were denominated in euro, swiss francs,or my favorite yen.

Interdependence has typically been presented as benign by the media, but now that these derivatives have been introduced into the situation, manageable declines in an underlying asset spread like a contagion through all the instruments linked to them,

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 2nd, 2009 at 03:34:53 PM EST
[ Parent ]

Display:

Top Diaries

Occasional Series