Monday, September 29, 2008

What's the German Word for Schadenfreude?

Clink. Clink. Clink.

That sound you hear is the pennies dropping in Europe. While yesterday saw what appears to be an anticlimactic agreement in Congress on the format for the TARP, the real weekend news came from this side of the pond. What's the German word for "schadenfreude"*?

Where to begin? How about with Fortis, which last year decided it was a good idea to issue stock, which traded at a P/E of 9, to help finance its partial purchase of ABN Amro (a virtually identical company), at a P/E of 17. The remainder of the purchase was funded by short-term debt....not exactly the best idea at the beginning of a credit crunch. The outcome? A problem so big that it takes not one, not two, but three governments to bail it out. So after Friday's nasty squeeze higher, Eurostoxx is on the back foot once again. The feel-good factor from the TARP already feels like a long time ago.
Meanwhile in Germany, the country's second-biggest commercial property lender has been supported by a shadowy cabal of other German institutions. It's a very European solution to financial crisis; it seems as if most institutions here don't bother to tell you what the crap they own is worth, so it shouldn't surprise that they don't bother to tell you who is saving their bacon. Hypo Real Estate's losses are being blamed on Ireland-based Depfa Bank; one wonders how the German Finance Minister will manage to blame this one on the Yanks. The market is voting with its feet; the front end of Europe, typified by the Schatz below, appears to be breaking out. And here in the UK, the Gordon and Alistair show has added another property to its portfolio. The demise of Bradford and Bingley as a private sector concern is one of the least-surprising in recent memory. The UK government is acquiring quite a tasty portfolio....one wonders if they are trying to match George and Hank in the "my portfolio of nationalized turds is bigger than yours" competition.

Regardless, last Monday's surge in EUR/USD seems like a long, long time ago. Would it really surprise to see it back near recent lows by the end of the week? (For that matter, would anything surprise in this crazy market?)
Lest readers think that Macro Man is picking on Europe, Sunday's New York Times carries an interesting article on American-style kleptocracy. While the chicanery of AIG FP is unsurprising to those familiar with them, the real talking point in the story was confirmation that Goldman (alone among financial institutions) was at the table when the AIG bailout was crafted. No wonder Warren Buffett is happy to invest in GS; where's your downside when they get to bail themselves out?

Hmmmm. What's the German for "crooked market"?

* This is a joke.

30 comments:

Anonymous said...

Excellent, and sometimes cynical, observations as usual.
Only a week ago Daniel Gross and before him Roubini pointed out that the leverage ratio for European banks were much higher than for US banks (average of 35:1 versus 20:1 - Fortis was at 60:1 due to the ABN take-over)*. To be honest we're jealous, it's about time we Europeans get our role on the financial theather. Gosh we're even behind Kazakstan who has it's own bail-out plan.
Please let us join the company.

Geert

* I beleive there's more than the eye meets because covered loans (Pfandbriefe/cedulas) differ from ABS/MBS in that they remain on the balance sheet of the issuer.

fero said...

mr. market isn't done shaking out the weak hands .. the world looks a lot different then 4 years ago, when i was graduating from school and wall street was in its prime .. yet, i can't help to feel that this is ultimately good news, and dip buyers in equities will be rewarded in the short term

mOOm said...

How risky is Cheltenham and Gloucester. I'm assuming they're one of the safer UK building societies because they're owned by Lloyds which seems to be a stronger UK bank? or does that ownership not make a difference?

Anonymous said...

Credit markets are in total panic mood this morning, and this is here to last. Paulson package still unclear in many particulars including bid prices of the assets, and only 250 bln are available immediately (and plan will take weeks to ake off).
And week end has brought a lot of really bad news, and still we have to see wachovia to find a bid in this madhouse.
Equity mkt have to catch down with credit in my view in terms of panic and levels, and should selloff heavily in next weeks/months.
Succesful dip buying is to be confined to real good timing in front of sporadic good news (like a cut by ECB, or buffet bidding another US/european institution).

Btw €curve is adding rate cuts, still i see room, ECB capitulation won't happen for just 50bp

sick trader

Anonymous said...

All roads lead to gold

Macro Man said...

Moom....my mortgage is with C&G. Judge for yourself what sort of institution that makes C&G....

Anonymous said...

There's word about that another UK bank / building society is on the brink .... so maybe it could be Cheltenham & Gloucester. Perhaps that's why their owners shares Lloyds are taking a hammering today.

I hope they have carried out more in-depth checks on other mortgage applicants, than they did on me last year when I renewed my C&G mortgage (as my financial situation had changed and they didn't seem that concerned), otherwise they could be in trouble.

Anonymous said...

Citi to buy Wachovia....

Anonymous said...

...ok Wachovia "found" a buyer, this is by far better than WaMu deal as bond holders are safe for now, but looks like shareholders get nothing once more... mmm...


sick trader

Anonymous said...

MM- Posts are much needed ray of sanity in impossible market. Thanks. Good that WB has been taken out but concerned that the list of partners is getting used up. Then Uncle steps in again and we know the consequences of that. What HF shakeouts are being anticipated? Heard much about this two weeks ago in US but chatter then stopped.

Trained Linguist said...

I can say with some certainty that "schadenfreude" has no equivalent in any language other than English.

Frank said...

@trained linquist, obviously Schadenfreude is German, not English (he footnoted it in the article), but there is a relatively close English equivalent, "epicaricacy". Sounds like its derived from Greek, but I'm no linguist.

Anonymous said...

@Trained linguist...you're obviously not, was it some kind of strange joke?

mikarsky said...

Well, I applaud Steinbr├╝ck for his clear language. He was ahead of the time when proposing reforms last year to mitigate systemic risks in financial markets, which the US opposed. SCHADENFREUDE is clearly on his side now.

RE Fortis, the fact that THREE (3) govs were needed to bail out Fortis with 16 bil USD was more a political than financial issue.

RE Hypo Real, it's exposure to the US market made it unable to refinance. Banks agreed to lend after the Bund guaranteed 3/4 of the deal. The Bund agreed because Hypo backed most of the deal with prime government bonds.

Macro Man said...

Mikarsky, Fortis' liabilities are bigger than the combined GDP of the three countries. It wasn't all political convenience- $16 bio is roughly 5% of the combined GDP of Benelux.

Anonymous said...

As the "show" moves to the European scene, we can wonder who in Europe will be chosen in the too big to fail club ... ( by now the us members are known: JP,Citi,BoA,GS,MS...), but what about Europe ? apart from HSBC, nobody for me looks too big...

Steve said...

Take a look at Brevan Howard today, BHMG...

Macro Man said...

Steve, funny enough, I was looking at that very chart earlier today. It appears as if AH and co. (astutely) locked down for a few months, but couldn't resist a market flutter...and were swiftly treated to the same delights that the rest of us have been coping with.

Anonymous said...

next one

BRUSSELS, Sept 29 (Reuters) - Dexia DEXI.BR: * Belgian regional governments agree in principle to participate in action to strengthen capital of Dexia DEXI.BR - Belgian Prime Minister Yves Leterme says * Belgian federal government will take necessary steps to safeguard interests
of Dexia savers - Leterme

what a day for Belgium

Macro Man said...

Anon, as one broker guffawed to me today, visit Dexia's website, or just google "Dexia", and you're greeted with the rather unfortunate slogan : "Dexia- short term has no future."

Anonymous said...

"$16 bio is roughly 5% of the combined GDP of Benelux."

Nominal GDP for Benelux countries is a tad above $1.1 trillion. Which means this is more in the class of 1.5% than 5% of GDP.

Anonymous said...

ohoh that's a close call

RebelEconomist said...

Regarding AIG FP, how ironic that they should blow up AIG when their economist Bernard Connolly was probably the most pessimistic of the technical economists on the outlook for the global economy. I have found his research, while difficult to read, some of the best food for economic thought available. He seems to be have disappeared, leaving "Depression or Bust" as his characteristic last word. Does any reader know what has happened to him?

Anonymous said...

HAHAHAHA

Macro Man said...

Damn, the &^%&%&U^%&* data I saw was quarterly, not annualized....

Anonymous said...

clink clink clink

more like glug glug glug
that sinking sound
cheers, JL

mikarsky said...

MM, the combined GDP of Belgium, Netherlands, Luxembourg is estimated at Euro 979.74 billion for 2008. So the deal amounts to 1% of GDP. Had the Netherlands alone stemmed the deal it would be 1.8% of its GDP. All bailouts in the Eurozone amount to significantly less than 0.5% of its GDP. US bailouts already amount to 7% of its GDP. These are structural not just gradual differences.

Anonymous said...

Trichet last seen sipping a Pernod as Dexia slides into oblivion

mOOm said...

Macroman 1:04pm - thanks not sure what to think - my Mom has a large deposit with them - I told her I thought it was probably OK, but am wondering whether to get her to open some more accounts and split it.

Hank Paulson said...

Commerzbank ,Unicredit , Dresdner ...

3 largest CDS explosions today... , looks like they're in the crosshairs