[OPE] The EU liberals start to get the picture

The leader of the ALDE group in the EU Parliament, Graham Watson, said "we need better regulation of financial markets. We should have never allowed banks to lend up to 30 times their assets." http://www.europarl.europa.eu/news/public/story_page/008-37713-338-12-49-901-20080922STO37698-2008-03-12-2008/default_en.htm

But actually the loan-to-asset ratio for major EU banks is more in the 60-70% region. Non-bank investment vehicles are a bigger challenge. There was no fear when large riches were being creamed off, and everybody was screwing their Slavs in sunny Greece, but now there is fear and regret.

"We have reached a point in this highly disconcerting cycle at which a collapse of the housing market has totally frozen financial markets to a point at which banks are unwilling to lend to each other because they must conserve cash for fear of substantial withdrawals by panicky depositors." http://www.aei.org/publications/pubID.28685/pub_detail.asp

In Holland, Fortis Bank depositors withdrew 11 billion euro from the bank last week, an amount larger than Holland, Belgium and Luxemburg had put into the bank to prop it up. The Dutch government has just bought up all Dutch operations of Fortis, for 16.8 billion euro. Fortis will be merged with ABN-Amro (a quarter of annual Dutch state revenue at circa 133 billion euro is non-tax revenue - out of this, about a third is income from natural gas assets).

Roubini writes with alarm:

It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don't use these words lightly but at this point we have reached the final 12th step of my February paper on "The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster"
http://www.rgemonitor.com/roubini-monitor/253853/financial_and_corporate_system_is_in_cardiac_arrest_the_risk_of_the_mother_of_all_bank_runs

It could be the beginning of the biggest round of financial mergers in the history of the world.

Jurriaan

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Received on Sat Oct 4 09:36:56 2008