By Heleen Mees
The fourth largest bank in the Netherlands, SNS Reaal NV, finds itself in trouble. The banking and insurance group, with €134bn worth of assets on its balance sheet as of the end of June 2012, has suffered €2.3bn in losses on its foreign – mostly Spanish – property investments. SNS Reaal’s capital reserves have fallen below levels allowed under international banking rules, while it still owes the Dutch treasury €750m from a government bailout it received in 2008.
SNS Reaal has been designated a systematically important financial institution, and therefore deemed not allowed to fail, by the Dutch government, mostly because the Dutch financial sector is already overly concentrated. That is also the reason why the European Commission in January apparently thwarted a rescue plan in which Rabobank, ING and ABN Amro would buy SNS Reaal. Read more
Latest US spending programme could tip country into a recession. Getty Images
By John H. Makin and Daniel Hanson
An abrupt spending sequester at a rate of about $110bn per year ($1.1tn over 10 years) scheduled to begin March 1 could cause a US recession, coming as it does on top of tax increases worth about 1.5 per cent of GDP enacted in January. The April deadline for a continuing resolution to fund federal spending could lead to a fight that shuts down the government, placing a further drag on growth.
These ad hoc measures, aimed at creation of an artificial crisis, will fail to produce prompt, sustainable progress towards reduction of “unsustainable” deficits because deficits have been, and will continue to be for some time, eminently sustainable. The Chicken Little “sky is falling” approach to frightening Congress into significant deficit reduction has failed because the sky has not fallen. Interest rates have not soared as promised and, in fact, interest costs for the federal government have remained steady at a tiny 1.5 per cent of gross domestic product since 2002, having fallen to that level from a 3 per cent average during the decade prior to 1997. Read more
The collpse of Lehman was similiar to a stroke causing neuronal hubs to die. Getty Images
By James Park
With the start of QE3 and indefinite bond buying by the Fed, the financial crisis continues to morph. This idea was promulgated by El-Erian of Pimco who claims that a crisis of bank balance sheets may evolve into a crisis of sovereign balance sheets.
We already see an outline of what a sovereign balance sheet crisis may look like in Greece. Previously, we discussed the metaphor of septic shock and the need for emergent resuscitation with liquidity as a temporary salve, as covered in the first piece – Of Lasix and liquidity. In the last of this three-part series, we look at how a complement metaphor in the form of epileptic activity may forewarn and outline steps to minimize the chances or aftermath of the next possible financial convulsion. Read more