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Agorism
12-16-2010, 02:54 PM
Europe in Crisis: "There's a Lot of Potential Dominoes Over There," Mauldin Says

Link to video (http://finance.yahoo.com/tech-ticker/europe-in-crisis-%22there's-a-lot-of-potential-dominoes-over-there%22-mauldin-says-535722.html;_ylt=AmrfHnB.OvuIITC_e__I2a9k7ot4;_ylu =X3oDMTE4NXZncjhyBHBvcwMxNTIEc2VjA2FydGljbGVMaXN0B HNsawNldXJvcGVpbmNyaXM-?tickers=FXE,DB,XLF,FAZ,UBS,CS,FAZ)



Europe's debt crisis returned to center stage Wednesday after Germany again balked at expanding the size of the EU bailout package and Moody's warned it may downgrade Spain's debt.
Looking out into 2011, the potential for a European banking crisis is "the one thing that makes me nervous," says John Mauldin, president of Millennium Wave Securities and author of the Thoughts from the Frontline e-letter.

EU banks, led by those in Germany and France, have $2.28 trillion of exposure to the debts of Greece, Ireland, Portugal and Spain, according to the Bank for International Settlements. Add in the exposure of European banks to the debts of other European banks - likely in the trillions when the nominal value derivatives are included -- and "there's a lot of potential dominoes over there," he says.

Those "dominoes" would very much include big U.S. banks, says Mauldin, who in early 2009 declared Europe's crisis would be bigger than subprime. While the absolute level of the U.S. banks' exposure to Europe is manageable, he warns that a European debt crisis could spark another liquidity risk that will revive fears of "counterparty risk" as occurred in 2008.

The End of the Road

Policymakers, including ECB President Jean Claude Trichet, have resolved to tackle the crisis and "they will do something to patch it up and kick it down the road," Mauldin predicts. "But at some point they'll come to the end of the road."

What the "end of the road" looks like is debt repudiation, he says.

"Irish taxpayers aren't going to [accept] some multiple of GPD in extra taxes to pay off German and French banks on Irish bank debt," Mauldin speculates, suggesting the citizens of Greece, Portugal and Spain may come to similar conclusions (once they stop rioting over austerity measures, that is.)

As Dan Gross recently detailed, German banks have been the primary beneficiary of the EU-IMF bailouts of Greece and Ireland, making the anti-bailout rhetoric of Angela Merkel and other German policymakers ironic...if not downright hypocritical.

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

ZanZibar
10-06-2011, 03:11 PM
http://www.youtube.com/watch?v=thSTpGnWEAs