In case you are living in a coocooned world, you might want to take a look at the Headlines today and read about what is being termed as Meltdown Monday. In the US, Congress rejected a $700 bn rescue package that many think would have just served to save the bigspenders at the expense of taxpayers. “No government ever stepped in to bail out an SME in danger”.
Casualties of the storm include 6 big institutions/banks among which one finds Fortis bank, just bailed out by a combination of the French, Belgian and Luxembourg governments. Bradford & Bingley hit the bottom in the UK and its assets were sold to Santander – the Spanish bank that is receiving praise for its diligent and cautious planning over the past months. The FT hints that Santander’s careful planning could have been emulated around Europe had Jean Claude Trichet’s ECB had more clout in banking regulation.
The same FT’s editorial laments the lack of a pan-European banking market (calling it an admirable aim) but also points out that for now it is the national governments that are writing the (bailout) cheques. Dexia, another troubled bank means that the second bank closer to home has been hit. Iceland has seen its first banking institution go under and is literally rocked by the storm as it’s dependence on wholesale funding exposed it to the brunt of possible effects. The Icelandic government offered to inject €600m of equity for a 75 per cent stake in Glitnir Bank – that represents €2,000 for every inhabitant of the island.
An interesting question is how will small countries with big banks weather the storm. The problem right now is that there seems to be no answer. Prepare for a daily countdown of victims of the crash. It’s not Black Tuesday yet… but for now we’ve had Meltdown Monday. Oh. In case you were wondering how much cash you might need to weather a 1929 kind of crash, economists calculate that having three months worth of liquidity might be a good start.
This has been j’accuse…. reading the Financial Times so you don’t have to.