Recently, I was discussing the economy with a lawyer expert in both commercial real estate and taxation, workouts, and bankruptcy. He made a few statements that I felt relevant enough to pass on here.

Share

Today’s links are dedicated to the banking crisis in the U.S. and Western Europe and to posts from my econblogging brethren. Below are my links for the day divided into three sections. Enjoy.

I am skeptical as to the economic benefits of the Eurozone. In my view, the Euro has always been more of a political construct than an economic one. Nevertheless, the Euro has functioned quite well as a leading international currency in the decade since its formation. However, the present financial crisis is revealing tensions within the Eurozone, the consequences of which are not readily apparent.

Recently, I posted a video of Peter Schiff making the argument for small government and resisting stimulus. As I see much to like in Peter Schiff’s views, I sympathisize with the broad themes of his message. However, I do not feel he is realistic about what is politically feasible or understands the negative consequences of a ‘let them eat cake’ approach to governance.

Nevertheless, I would have to admit I sounded a lot like Schiff a few months ago and that I have ‘evolved’ away from his viewpoint. Reader Stephen rightly asks “Does ‘Depression Economics’ Change the Rules?” So, the questions I ask myself in this evolution are the following:

Crunch ‘cost Arabs $2.5 trillion’ – BBC News
Ireland’s financial sector is ‘no Iceland’, says minister – Telegraph
Illinois-based National Bank fails: FDIC – Reuters
Pimco’s Gross Buys U.S. Debt for First Time in Year – Bloomberg.com
Report Sees Rise in Bank Failures and Deals – DealBook Blog – NYTimes.com
U.S. to lend $1.5 billion to Chrysler Financial – Reuters
GE [...]

This just in from the German daily Der Spiegel: German banks are still loaded with risky U.S. assets, only a fraction of which has been written down. If this report is true, it suggests that the entire German banking sector is extremely undercapitalized and vulnerable to further writedowns going forward. However, German Finance Minister Peer Steinbrueck refuses to set up a state-controlled ‘bad bank’ as the UK has done and Sweden did before it.

You should also note that this story reveals that Deutsche Bank is the latest bank to end all proprietary trading activities. The business model of banks risking their own capital through large bets, trading for their own account is over.

I read about ConocoPhillips taking a massive $34 billion writedown and my first reaction was glee. Why? This type of draconian response demonstrates that the glut of oil we now see will soon be a deficit.

The oil patch is notoriously volatile, with massive boom and bust cycles endemic to the industry. But a vertical move to $147 per barrel followed by a crash to $33 is unprecedented — and so is the reaction.

The new $100,000,000,000,000 note is now out in Zimbabwe. It is worth 23 Euros ($30)

The riots on the streets of Vilnius and Riga in the Baltics are not being covered in the least in the U.S. media (Hat tip Ken). I believe they should because, as with Greece, the social unrest we are witnessing in those countries is the likely outcome of failed economic policies and depression. This was certainly the case during the Great Depression, even in the United States. While we are not seeing Argentina-level social unrest, these events are forerunners of a more ominous social climate.