(email exchange)
>
> On Mon, Oct 13, 2008 at 3:00 PM, Craig wrote:
>
> Since nobody understand the local currency / foreign currency distinction and
> since these obligations are part of the normal financial commerce of these
> countries, is it possible that these loans will allow the markets to normalize,
>
Yes.
>
> Allow the various governmental bodies to remove the guarantees/lending and
> never realize this risk existed?
>
Probably not.
>
> Everybody was perfectly happy with these private sector risks before the
> credit markets seized up. Other than the sudden realization of everything
> you’ve pointed out, what factors will put this over the edge?
>
> All this boils down to this question: Does this necessarily have to end badly?
>
Looks that way to me.
>
> Or can the participants use this as a life rope to deleverage successfully,
> ending the need for the life rope?
>
I think the incentives are now in place for massive fraud.
Eurozone banks will find it hard to resist the demand for USD loans to their ‘friends’ in finance and industry, that will be based on inflated appraisals, inflated income statements, etc.
Just like the subprime issue was here.
It’s open season and my guess is the Fed is about to be in shock at the size of the first auction.
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