Monday, June 30, 2008

Euro bank chairman predicts U.S. "financial meltdown"

The chairman of Fortis, a major Dutch-Belgian bank, has predicted a "complete collapse" of the U.S. financial markets within weeks.
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As translated from the news article in Dutch by Jesse's Café Américain:
Fortis expects a complete collapse of the US financial markets within a few weeks. That explains, according to Fortis, the series of actions by the bank of last Thursday to raise €8 billion. "We have been saved just in time. The situation in the US is much worse than we had thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also with Citigroup, General Motors, a complete meltdown in the US is beginning."
As Jesse notes, Fortis may have its own reasons for this, er, fortissimo prediction. No one commenting on economics is ever purely disinterested and objective. Still, holy cow! That the board chairman of a big bank would make such an extreme statement for public consumption suggests how far into the danger zone the U.S. economy may have strayed.

Interestingly, today's Wall Street Journal carries an article about Fortis's casting the net for billions of Euros of new capital, but says nothing about the "financial meltdown" statement. A quick check of MarketWatch.com and TheStreet.com finds not a breath of it. What happens in Amsterdam, stays in Amsterdam?

Fear clearly grips the hearts of institutional investors, as shown by last week's market carnage. God alone, other than those involved, knows what is being said behind closed doors at the Fed and in bank boardrooms. With the housing collapse, an oncoming credit collapse, $140 oil, and the unstoppable financial suction pump of Iraq, it would be surprising if there isn't an extra helping of suppressed panic on many plates this morning.

Would you like a taste of pure nausea? Let's call again on financial newsletter writer (yes, he has his own vested interest) Jim Willie:
The stage is set for the next two to four months for a broader banking system deterioration, most likely the bankrupt collapse of a few big banks, and a good chance of lost control of portions of the credit derivative complex. A big broad powerful liquidation sequence is coming soon for the biggest of bloated money center and investment banks. They have tried in vain to sell most of their overpriced mortgage bonds and related financial securities. They cannot find truly stupid parties anymore to buy them. …

Goldman Sachs on Thursday downgraded Citigroup with a short stock recommendation. Why would they do that? They put Citi on their ‘Americas Conviction Sell’ list, which just has to evoke laughter for its name. They expect another gigantic bond loss to be admitted by Citi, more cash to be raised as they sell capital and undermine stock equity value, and even more dividend cuts. Up to May, the total amount of cash they raised by selling off capital to foreign entities was a robust $42 billion, thus undermining US control of the biggest US bank. …

The smart guys out there have figured out the helpless and desperate situation that the USFed finds itself. It cannot raise rates, since that would harm the stock market, further cripple the mortgage and housing markets, and worsen the rapidly advancing USEconomic recession. Sure, it needs to raise rates in order to defend the USDollar, but the US$ is not defensible. It has been totally ruined by three decades of mismanagement, corruption, pork projects, sacred war budgets, socialist programs like Medicare, and reckless creation of bubbles in serial fashion.
I am in no position to know the ratio of truth to hot air in the above, but he is by no means the only commentator in the non-Establishment or "alternative" financial media who is talking like this. It seems like only common sense to get very defensive with your investments — precious metals, commodities, companies with a good secure dividend, perhaps a few strong currencies if you can find any. While the Senile Media are babbling on about the electoral contest between the False Messiah and the Masked Crackpot, the economy is probably far more important at the moment. If you haven't started performing your own due diligence, what are you waiting for?

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7 comments:

David said...

Given the preformance of Mr Lippens own company, I question how much deference should be paid to the astuteness of his analysis:
http://finance.google.com/finance?q=EBR%3AFORB

While everyone is focused on near-term financial issues, I'm much more concerned by some slightly longer-term issues...especially, the crippling of the U.S. electrical infrastructure by those who won't allow generation/transmission to be built in any form whatsoever. This is the kind of thing that, once you get into it, is very difficult to get out of.

Rick Darby said...

David,

Fortis management may be dumb as rocks — but it's striking that they go public with a statement like that and don't worry about being laughed at.

As for electrical generation and transmission, I expect that will replace global warming as the cause du jour when the lights start flickering and the home gamers can't log on.

Sebastian said...

Please note that Fortis is likely shorting US banks in their own portfolios. As you may know, many market prdictions are attempts to influence the market in that direction.

Yes, there is a further correction on the way, but I have done very well all year with "alternative" energy stocks. Whatever the merits of the global warming hysteria, the future is clearly not in oil/gas but in cleaner coal, solar, nuclear, wind and - you heard it hear through an anonymous comment first - harnessing volcanic energy, a fascinating topic. My two cents as a Wall Street lawyer who enjoys your site, especially your serious discussions on the less-than material aspects of life.

Rick Darby said...

Sebastian,

I am delighted that there is at least one Wall Street lawyer interested in the less-material aspects of life, and even more delighted that he finds Reflecting Light worth reading.

I am reasonably convinced that it's time to put up the financial storm windows. Nevertheless, I bring up subjects like this from time to time not primarily to offer advice — for which I have no professional qualifications — but to remind my readers who are preoccupied with political and spiritual issues that they need to keep an eye on the economic front as well.

Being poor is no longer a condition that enhances spiritual growth, if it ever was. It takes up too much of your time, as I can testify from experience. And having your savings and investments clobbered can severely damage your ability to work for the good of society.

Sebastian said...

Well, thanks for the site. I was dangerously close to becoming a polisci academic. I studied with the Straussians (and others) at Chicago and later grad school in Boston College before reason overtook me in my late twenties. I still have an interest in those matters, occasionally dust off Homer, but life is elsewhere - for now.

What you say is interesting. My 75 year-old father, who is not American but lived in NYC during the fifties and now lives in FL, recently told me that it takes much greater wealth today to have the kind of decent life among well-mannered people than in his day. The general coarsening of everyday life; the lack of manners and the influx of strange, non-Western folk; the adoption of urban speech and habits by the middle-class; the implicit rejection of trying to be like one's betters - all of it has made life for regular families more difficult. I traveled to Kansas City a few weeks ago and noticed the teen "wiggers" immitating Bronx mannerism. Democracy can be tough on refined souls who can't afford exclusion. I know what you mean - yo, yo.

Flanders Fields said...

You have to wonder whether this is not an attempt on the part of the ECB to influence the policies of either the FRB - or the political policies of the US, as David indicates.

It is not very common for European bankers to interject opinion into discussions that are really financial. It is getting quite a bit of coverage in the European news. If it is not an intentional statement to influence, it could be that it was made more for the internal consumption by Europeans to take their minds off the European problems, which are themselves considerable.

Saying that, I agree, think and diversify. Don't trust a banker any more than you would a politician. After all, a banker is just the politician's boss and of even less character. Statemen and local bankers are so rare that the terms are dying out and are being replaced with Fed and ECB. Financiers are "Progressive", too, especially so in Europe.

Rick Darby said...

Sebastian,

Your father is right on the money (pun intended). A century ago, a middle class person with a modest income could live in reasonable comfort by the standards of the time -- in a single-family house, a safe neighborhood, some space in the form of a front yard and backyard. Population was a third of what it is now, and low density other than in the center of a few big cities. Less entertainment was available, but it was more wholesome: books, band concerts featuring melodic music, and -- if you can imagine it -- conversation with family, friends and neighbors.

Whereas, today if you want to be free from street crime, burglary, yobbish behavior, noise, etc. you need to be able to afford to live in an upscale area with inflated (dropping, but still high) house prices and punishing real estate taxes.

It's not impossible for a person truly dedicated to the spiritual life to transcend the environment today's non-affluent must inhabit, but it's a lot harder to find inner peace or meditate when you're in a tacky modern apartment building with the sound of TVs, stereos and traffic penetrating your space.

Flanders Fields,

I also agree with you that the Fortis statement is calculated to manipulate other market players. A person that highly placed doesn't make such extreme comments idly -- he must have had the prior backing of the board, the bank officers, maybe the ECB as well.