Sometimes even when you haven’t seen the stone drop, you know it has because you see the ripples spreading.
A few days ago Hypo Real Estate, the massive and utterly bankrupt German Bank bailed by the German tax payer – their version of AIG – had to be given another €10 billion in loan guarentees. They already had €90 billion in such guarentees. So my question is why, when you already have 90 Billion, do you need another €10 billion? And why now suddenly? What was the stone and from where did it fall?
I think the answer lies in a nexus of related worries: the still largely admitted debts of the Spanish Caja’s, Italy’s municipal debts which have knocked Italian state debt insurance costs, likely undeclared losses in Portuguese municipalities and an as yet still submerged set of probelms in the Balkans, which will emerge as Greece’s economy grinds painfully to a standstill due to its austerity suicide pact withe IMF.
To explain this last point. Believe it or not Greek banks were, and I think possibly still are, some of the biggest investors in the Balkans. The National Bank of Greece (NOT its central bank, just its largest) is a major investor in Macedonia and Bulgaria. Yet the same National Bank of greece was also downgraded to junk or near it, and is involved in the Titlos business with Goldman.
Which means that as Greece in general, and its banks in particular, sink further and further into a debt induced state of toxic shock and torpor, the Balkan countries Greece lent to and invested in, will also grind ot a halt. The Balkans and Greece are mutually imperilled. If ever Greek banks are finally cut off from using their own worthless bonds as collateral, for cheap ECB loans, then Macedonai, Romania and Bulgaria will have their own funding crisis.
Such a crisis would help pull Greece further under. Going the other way if those Balkan countries start to have trouble paying (couldn’t happen could it?) then Greek banks would lose that bit more of their slim chance of seeing profits sometime this decade.
Which talk of absent profits brings me back to AIG. Is this another of the places to trace those ripples back to? The Pru deal has come apart. AIG was counting on this deal to pay back a chunk of the FED bail out. True to their business instincts AIG spent the political capital from this sale months ago. Even their PR is bankrupt.
Lots of people worry how exposed AIG is to European debt. With the Pru sale going down AIG are 25 billion or so short. At the same moment when Hypo, the other big insurer of such debt, all of a sudden needs a fast €10 billion MORE than the €90 B it already had.
Hmm?.
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