Europe's plight as seen from India

An article in the Business Standard of India, while including items already commented upon on this blog, is worth a read as an updated overview of the ongoing catastrophe which today looks likely to at long last finally consume the Bradford and Bingley in Britain (The Times report is here). The Indian comment is linked here and the following is a quote: Informed opinion in India has it, for instance, that those at the centre of the financial world knew a long time back that this was going to develop into a massive crisis, and deliberately underplayed the problem at every stage in the hope of keeping a lid on the issue. So far, the crisis is confined to the US, and one danger (it is said) is that it could spread to Europe.

Indeed, it turns out European banks escaped by a whisker just a week ago, when AIG got nationalised. Had AIG failed, its $300 billion credit insurance to European banks would have been of questionable value, leaving them with the re-capitalisation problem that, in the end, consumed New York’s investment banks. The amazing thing is that most European banks seem to have leveraged their capital even more than New York’s former investment banks. Deutsche Bank’s leverage, for instance, is said to be 50:1 (Morgan Stanley’s was “only” 30:1).