Sunday, July 15, 2012

Zombie allusions: They just keep on coming-"Euro" zombies

http://www.marketoracle.co.uk/Article35606.html



Beginning Sovereign Debt Crisis Endgame, Attack of the Zombie Banks and the New Religion of Europe

Stock-Markets / Financial Markets 2012Jul 15, 2012 - 10:36 AM

The Attack of the Zombie Banks

"The second European problem is that its banks were allowed, if not downright encouraged, to leverage their capital by as much as forty to one with sovereign debt. Banks had to post no reserves for government debt, whether Greek, Spanish or German, as everyone "knew" that developed countries could not default. Except now it turns out they can.
Greece was a European banking nightmare. Spain will be a nightmare on steroids. When Italy starts to have problems, it will look like some B-grade horror movie where zombies keep coming and coming at the poor victims. Slash and hack at them as you will, they just seem to keep popping up around every corner.
The problem with Spanish banks was not too much sovereign debt but too many bad real estate loans. But that has morphed into national economic woes. And what did Spanish banks do with their round of ECB money (the recent LTRO)? They were able to borrow from the ECB at 1% and bought Spanish sovereign debt at 4-6%. Which is the only way that Spain was able to fund its recent bond offerings.
A dysfunctional banking sector is a major drag on any nation. And European companies are about twice as dependent as US companies on the banking system. As an aside, I would not be surprised if ECB President Mario Draghi cut the rate at which the ECB takes deposits from banks to zero or even negative interest, to try and force banks to do something with their money. That will be interesting to watch."


Good article.  Read it all.

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