Monday, January 09, 2012

Uh Oh

Italy's largest bank is Unicredit. As you read this, think of BofA here in the US to get a sense of scale.

Unicredit is in serious trouble. It's way undercapitalized. That is, it doesn't have enough money to cover the proper percentage of deposits. I've done a little research this morning, but I've not been able to uncover the source of their losses, although some articles are pointing at government bonds as the problem. Here's the key tidbit from the WaPo story linked above.
Banks are an integral part of Europe’s debt crisis because they hold government bonds. A default or steep fall in the value of government bonds could inflict heavy losses on banks and choke off credit to the European economy. That’s why the regulatory authorities want Europe’s banks to raise their buffers by $115 billion (149 billion) over the next few months.
This isn't the greedy corporations screwing us all or the banksters stabbing us in the back or even the work of ruthless speculators. This is government borrowing wrecking the country's financial system.

This video is a bit dry, but the payoff for me is at 0:50. Speculation on my part: Selling off assets means selling off loans. The only loans anyone will want to buy will be commerical ones, not government bonds. This will add to the total of commercial loans out there on the market making it harder for businesses to borrow money. This is, quite literally, government borrowing squeezing out the private sector.

1 comment:

Foxfier said...

Funny. My grand-dad worked at BofA when it was BofItaly.