Economy
In reply to the discussion: Weekend Economists "To Insure Domestic Tranquility" March 23, 2012 [View all]Demeter
(85,373 posts)Europes banking sector holds 2½ times as many assets as the U.S. banking sector. Its huge. And its in big trouble. Europes banking sector needs cash mountains of cash.
As a result, it will have to sell more than $1.8 trillion of assets, which will likely take a decade to work through. For perspective, it sold only $97 billion from 200310. The list of asset sales is the longest Ive seen in 10 years, says Richard Thompson, a partner at PricewaterhouseCoopers in London. Knowing how these things work, the final tally could well be double that. The world has never seen anything this big before.
Where will the cash come from?
...There is no better, more-reliable way to make money than to buy something from someone who has to sell. Bankers are the best people in the world to buy from. Believe me, I know. I was a vice president of corporate banking for 10 years before I started writing newsletters in 2004. I would get at least three or four requests every year from some investor group asking if we had any assets we were looking to unload. Why? Because they know banks are stupid sellers.
....But institutionally, banks cant really hold bad debts for long. As soon as they report a big bad debt on a quarterly financial statement, some annoying things happen. It means they have to put aside more capital for this particular loan, which they hate to do, as it lowers profitability and requires a lot of paperwork. It can raise the attention of regulators, which banks hate. It can raise shareholder suspicions about lending practices, which banks hate. So the usual way to deal with bad debts is to clear em out as fast as possible. (Unless youre swamped with bad debts in a full-blown crisis, in which case you try to bleed them out and buy time to earn your way out, and/or patch them up as best you can to keep up appearances while you pray for a miracle or a bailout.)
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Read more: The Biggest Fire Sale in History http://dailyreckoning.com/the-biggest-fire-sale-in-history/#ixzz1q28tMRZy