Friday, February 27, 2009

Over/under on Labor Day 2009

Sheila Blair, FDIC chair, thinks the FDIC will only pay out $22 billion in 2009 to cover failed banks. But what if one of those banks on the FDIC's troubled banks list is Citi? Bank of America? JPMorganChase?

Nouriel Roubini estimates 1400 banks will fail in this crisis. It doesn't sound like the FDIC is getting into position.

Brush up on your Eastern Europe geography, because in a WWI redux, that's the region that will go up in spectacular flames. Probably no later than this summer.

The Romanians, Bulgarians, Hungarians, Serbs, Latvians, Lithuanians, Estonians did a crazy thing during the housing boom: they took out mortgages denominated in foreign currency. As long as everything stayed exactly the same - no currency dislocations, no asset crashes - then everything would be fine. Weirdly, things did NOT stay exactly the same. Worse, everything flipped upside down at the same time. Eastern Europe currencies fell off a cliff AND their housing market crashed.

Swiss, Austrian, and Italian banks dominated the mortgage market in these countries. Austria and Italy, as members of Eurozone, don't have a lender-of-last-resort like say, the U.S. or U.K. Whoops. Can the Eurozone move fast enough when those banks start collapsing?

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