An earthquake is on the way
It would be hard to imagine a more telling series of events than this one:
Greece suspected of ‘not trying’ when it comes to living up to bailout terms >>> Italian bond yields spiking up to Greek levels >>> Spanish bond yields approaching those of Italy >>> French borrowing costs widening versus Germany >>> German intransigence in the face of changing events >>>the requirement for a solution (controlled debt forgiveness) being the very last thing that any of the players in the drama want >>> America’s top financial bureaucrat orders a tough US bank stress test >>> a German bond auction being woefully undersold.
The vital new elements in the above are (1) German bonds struggling and (2) A US fear of imminent bank collapse. Tim Geithner’s US bank stress-test announcement of yesterday suggests a Fed pulling out all the stops to keep eurocontagion at bay. But can they do so?
While American financial institutions have sought to limit any damage by reducing their loans (and thus lowering their direct exposure to Europe’s problems) the recent rescue of the Belgian-French bank Dexia shows that there are indirect exposures less known and understood — and potentially worrisome. Even today (a month on) Belgium is giving the French a hard time about unsettled liabilities. Sovereign insolvency is a can of worms. The worms per can are much greater when it comes to bank default.
As I posted this morning, we are I believe being distracted by what is really a process of incessant lending-market pressure on governments. The far more unpredictable (and dangerous) element is potential bank failures. This morning, the Bank of England revealed that confidence in the health of the UK financial system had fallen sharply to its lowest level for two years. The biggest single fear, after the eurozone mess, was the failure of a major banking institution.
Two days ago, Credit Suisse told its client base, ‘We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.’
Over in the US, by all accounts, Bank of America seems to be in a parlous state. Unable to sell on all the foreclosed properties on its books, BoA has fallen foul of several local councils. The worrying aspect of this obvious sign of coming catastrophe is the release put out yesterday by BoA’s bollocks department:
‘Bank of America is committed to maintain properties to neighborhood standards. When we learn that a property is not being maintained, we take immediate action to remedy the situation….’
Oh dear: there’s that tell-tale phrase again, ‘Bank of America is committed to’. This is always to the precursor to disaster. The other Newscorpesque phrase in there is ‘we work diligently with [local authorities] to understand and address their concerns’.
I wonder when the PRs will finally realise that the rest of us have caught on to the syntax game? Whatever: Bank of America is surely doomed.
The Slog 