How in the world did I miss this one? US banks have a ton of exposure to the European debt crisis:
No wonder the administration is closely monitoring the situation. Speculation about "sabotage" in the markets is a smokescreen to deflect public attention from the administration's real focus: The credit markets may seize up all over again if the TBTF banks are unable to stay solvent, just like September 2008. The only things keeping the banks afloat now are FASB-approved accounting fraud and the FDIC's unwillingness to force mortgage asset writedowns. A sudden bond default from a PIIGS country would absolutely clobber JPM and MS.
French banks aren't the only ones who'll need a bailout if things get worse. On the other hand, the second go-round of the credit crunch could offer us a chance to experiment with something besides bailouts. We could try seizure, equity cramdowns, forced asset selloffs, bank breakups, and prosecutions. If the White House wants my advice, they know where to reach me.
Full disclosure: No position in JPM or MS at this time.
JPMorgan’s exposure to the five so-called PIIGS countries is $36.3 billion, equating to 28 percent of the firm’s Tier-1 capital, a measure of financial strength, Wells Fargo analysts including Matthew Burnell wrote today. Morgan Stanley holds $32.4 billion of debt in the region, which equates to 69 percent of its Tier 1 capital, Burnell wrote.
No wonder the administration is closely monitoring the situation. Speculation about "sabotage" in the markets is a smokescreen to deflect public attention from the administration's real focus: The credit markets may seize up all over again if the TBTF banks are unable to stay solvent, just like September 2008. The only things keeping the banks afloat now are FASB-approved accounting fraud and the FDIC's unwillingness to force mortgage asset writedowns. A sudden bond default from a PIIGS country would absolutely clobber JPM and MS.
French banks aren't the only ones who'll need a bailout if things get worse. On the other hand, the second go-round of the credit crunch could offer us a chance to experiment with something besides bailouts. We could try seizure, equity cramdowns, forced asset selloffs, bank breakups, and prosecutions. If the White House wants my advice, they know where to reach me.
Full disclosure: No position in JPM or MS at this time.
