Europe on the Brink: Bank Failures

Is this the time to start a betting pool on which large European bank fails first or pray for some short-term fix that will delay the inescapable failures?

The horrible truth dawned on Europe’s leaders late last year; the Euro has no future except for the disassembly of the system. Any recent meetings will only stave off the inevitable.

The next leg appears to be failure of multiple banks in Europe. Collectively these institutions need to immediately find €114.7bn of extra capital in order to weather the storm. The banks can no longer depend on the Euro zone governments as a backstop; the major governments are even unable to combine to offer a common bond auction. Individually the recent government bond auctions have been severely under-subscribed; no one wants to purchase European government debt at any type of reasonable price – only at yields effectively implying the entire EU is in default.

Will one of France’s large banks be the first to fail; BNP Paribas, Credit Agricole and Societe Generale. All were downgraded by Moody’s on Friday. Germany’s Commerzbank appears to be teetering on the brink. Do the government coffers in France and Germany still contain enough funding to bail-out these entities with a significant cash infusion, or is the entire Eurozone banking system on the edge of collapse as the banks run out of assets to pledge to keep vital funding lines open.

It appears that the U.K was very wise when they rejected any further involvement with this debacle.

Bond Spreads suggest BoA is going out of business

It is interesting to note the greatly increasing credit default swaps for Bank of America over the past few weeks. When viewed in a traditional context, the acceleration of the increased spreads suggest that BoA will be out of business somewhere in 2012.

The increased spreads for BoA is noted in a recent WSJ article. The article does not take the next step to compare the spread increase to those of other financial institutions that have required re-organization or cash infusion to remain solvent.

"Bank of America credit default swaps have spiked to 4.60 percentage points this morning, up from 4.40 percentage points Monday. The annual cost of protecting a notional $10 million of the bank's senior bonds against default for five years is now $460,000, suggesting banks are under more pressure than ever and banking events overseas are just one negative force weighing down the sector."

The stock price below $6 is not a good sign either, but not as pertinent as the debt spread situation.

The Truth About Multi-Tasking

I always wonder about the value of a meeting when everyone is looking at their laptop or smart phone while ignoring the presenter. Dilbert captures the reality....

Bill introduced to reinstate Glass-Steagull

One of the key points that the recent financial crisis has demonstrated is that there is an need to separate investment and commercial banking. Investment banking is built on risk while commercial banking is built on safety. Allowing the combination of the two starting in the 1980's is the real root cause of our current financial crisis - enabling greedy risk prone practices to run amok in the traditionally prudent mortgage industry.

Glass-Steagull originally separated commercial and investment banking in 1933 after it became obvious that the catastrophic bank failures during the Great Depression were due to the jeopardy created by conflicting purposes.

Finally someone in Congress has come to their senses and introduced a bill to re-introduce the intent of Glass-Steagull. Help support HR.1489

Cisco announces first dividend

Finally! It is great to see. I have been stating for years that Cisco needs to pay a dividend to increase institutional interest and drive the stock price up.

Cisco announces first dividend

Trade Deficit Destroys 3 Million Jobs a Year

Finally an economist steps up and places a "job loss" price on China's currency manipulation. Beijing undervalues the yuan by 40% leading to imbalanced trade, a flood of cheap imports, and loss of American jobs. While it is easy to "blame China" for the entire situation - typical American politics in Washington also deserves an equal share of the blame. It is time for the U.S to address the continuing trade deficit by placing appropriate tariffs on nations that do not freely float and manipulate their currencies. Only these type of measures will restore trade balance and American manufacturing.

Trade Deficit Destroys 3 Million Jobs a Year

A solution is proposed "The United States should impose a tax on dollar-yuan conversions in an amount equal to China's currency market intervention divided by its exports -- about 35%. That would neutralize China's currency subsidies that steal U.S. factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it's self defense."

Greece on the Brink

Default risk in the Euro zone is rising. Rating agencies are regularly behind the curve, the implication being that the default risk is greater than the current debt rating. Credit ratings of other Euro zone countries will be downgraded over the next few months - setting the table for a buffet of defaults in 2012/2013.

Moody's downgrade tips Greece closer to brink

"Moody's Investors Service downgraded Greek debt to B1 from Ba1 - lower than Egypt - and said it may cut further."

An example of personal finance failure

One would think that after all the recent financial turmoil that families would educate themselves regarding the basics of personal finance and stop spending more than they make. Unfortunately example after example shows this is not true. Here is the latest.

After bankruptcy filing, couple's spending continued
http://articles.latimes.com/2011/feb/20/business/la-fi-money-makeover-furry-20110220

Lisa and Stephen Furry splurged on a getaway at a four-star hotel but haven't paid the mortgage on their North Hollywood home since September. A financial planner helps them with a reality check.