The article may have moved: http://www.telegraph.co.uk/finance/...16.3-trillion-bail-out-EC-dcoument-warns.html European bank bail-out could push EU into crisis A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document. By Bruno Waterfield in Brussels Last Updated: 3:50PM GMT 11 Feb 2009 âEstimates of total expected asset write-downs suggest that the budgetary costs â actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,â the EC document, seen by The Daily Telegraph, cautioned. "It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.â The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday. National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back. The Commission figure is significant because of the role EU officials will play in devising rules to evaluate âtoxicâ bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries. In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart. âSuch considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,â the EC paper warned.
They still definitely took out the 16 trillion EUR figure (about 22 trillion USD). So, what % of toxic assets go bad, stop performing, etc? What is the inherent worth of 22 trillion UDS worth of toxic assets.
When the crisis first hit - it was said the the U.S. had 40-50 trillion in swaps and europe had 2-3 times as many. Anyone paying attention would know Europe is in worse shape than the u.s. I note that some try to blame this crisis on the U.S. and our mortgage lending practices. If it were just a mortgage problem the hit could have been absorbed already. It was the bets on the mortgages and the companies surrounding mortgages that are taking down the system. The reality is - we have not yet seen the endgame.
Does it really matter, 50 trillion or 100 trillion? And how do you see this evolve? If Deutsche bank, ING and UBS fall they will take down their US peers with them surely this whole world of finance is so interconnected globally.
If I've understood this article correctly, it's much worse than just swaps. If it were just swaps (the 22 trillion USD figure the Brussels document cited), then it wouldn't be as big a problem, because specific counter-parties would either get paid or not, but they're sophisticated players in the derivatives markets. I'm reading this as 22 trillion of loans and such that are not conforming or performing, in matters of degrees - things such as residential and commercial real estate-back paper (e.g. mortgages) - not performing in matters of degrees that may get worse. So, it's not just paper dissipation - the underlying, tangible, real assets are getting taken out to the woodshed.
Soon, companies like AIG weren't just insuring houses. They were also insuring the mortgages on those houses by issuing credit default swaps. By the time AIG was bailed out, it held $440 billion of credit default swaps. AIG's fatal flaw appears to have been applying traditional insurance methods to the CDS market. There is no correlation between traditional insurance events; if your neighbor gets into a car wreck, it doesn't necessarily increase your risk of getting into one. But with bonds, it's a different story: when one defaults, it starts a chain reaction that increases the risk of others going bust. Investors get skittish, worrying that the issues plaguing one big player will affect another. So they start to bail, the markets freak out and lenders pull back credit.
no argument. If my post sounded a little U.S. centric - it is because I think the U.S. consumer is being blamed for behaving rationally. Cheap good and cheap debt led to an asset bubble and flat screen t.v.s to fill up their houses. It was the bankers who screwed this up (on purpose) and greed seems to know no borders.
I have to go back and read. that 22 trillion number is bugging me. I have no comment until I understand how it was derived.