In October ’08 European banks looked pretty healthy; they held few toxic US mortgage backed securities. But, this strength was a fiction. European banks met their Waterloo in large holdings of euro-denominated sovereign debt of the PIIGS (Portugal, Ireland, Italy, Greece and Spain). The banks assumed that Germany, France, and other strong European economies would never allow a sovereign default of a Euro denominated bond. Oh well! And, here, once again, the rating agencies were MIA.
Tag Archives: PIIGS
Political Problems Pemeate
A lack of progress over the U.S. debt ceiling and intensifying contagion concerns in Europe (Portugal, Spain and Italy may go the way of Greece and Ireland) have triggered a further flight-to-safety; equity markets are generally in retreat and quality government bonds are rallying. The weak job numbers make the possibility of QE3 more likely; only 18K jobs were created last month as opposed to the usual 180K at this point in the cycle.