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Can global debt and equity markets collapse because of Turkey's currency demise? I understand a lot of European banks have lent Turkish companies Euros which are now much harder to repay because the Lira/Euro exchange rate has plummeted. Other hard or harder currencies are involved too.
From an investor/saver perspective, is this a sign to get into US government assets, interest rate risk be damned? Or are banks strong enough this time to withstand a weak country's economic problems and won't pull the rest of the economy down with them?
Can global debt and equity markets collapse because of Turkey's currency demise? I understand a lot of European banks have lent Turkish companies Euros which are now much harder to repay because the Lira/Euro exchange rate has plummeted. Other hard or harder currencies are involved too.
From an investor/saver perspective, is this a sign to get into US government assets, interest rate risk be damned? Or are banks strong enough this time to withstand a weak country's economic problems and won't pull the rest of the economy down with them?
Glad you posted this. I'm not really knowledgeable on this stuff, but realize there is a potential for trouble here.
How would we know if the banks are strong enough this time? Do we really know what sort of shape the banks are in? Isn't that information rather opaque?
Instead of depending on information that may or may not be accurate, I think one thing that is a measure of the shape the banks are in is their behavior. Given the recent internal issues with Wells and Bank of America, you have to wonder. I mean, why are customers' safety deposit boxes vanishing and accounts being frozen for no good reason?
If banks were strong, they wouldn't be doing this sort of thing. Just sayin'.
American and European banks both underwent stress tests to evaluate their financial resilience under a number of scenarios. What if counter parties could not complete contracts or transactions?
While the banks passed, how can you simulate a Black Swan event? This could be Turkey. A generally the 1.0 Richter scale economy, minor player by all accounts, yet still creating an exposure on bank balance sheets. If a Deutsche Bank, etc.finds itself holding a lot of nonperforming loans, what other parties might feel secondary effects? What other currencies might get sucked into the vortex?
“The question is whether mass defaults of Turkey’s corporate borrowers, with or without an all-out sovereign debt crisis, will destabilize the eurozone’s already fragile banking sector,” wrote Carl Weinberg, chief international economist at High Frequency Economics, in a Monday note. “Euroland banks are so undercapitalized that if they take a hit, they may have to cut lending to stay within regulatory limits.”
By the time answers were found in 1998 and 2008 it was too late. It would be wonderful to be able to gauge the risk this time.
Can global debt and equity markets collapse because of Turkey's currency demise? I understand a lot of European banks have lent Turkish companies Euros which are now much harder to repay because the Lira/Euro exchange rate has plummeted. Other hard or harder currencies are involved too.
From an investor/saver perspective, is this a sign to get into US government assets, interest rate risk be damned? Or are banks strong enough this time to withstand a weak country's economic problems and won't pull the rest of the economy down with them?
Nah. Turkey is too small and our exposure minimal. It surely will cause more local turmoil, and some short term uncertainty, but that will only create more flight to the safety and security of USD's and USD denominated debt.
American and European banks both underwent stress tests to evaluate their financial resilience under a number of scenarios. What if counter parties could not complete contracts or transactions?
While the banks passed, how can you simulate a Black Swan event? This could be Turkey. A generally the 1.0 Richter scale economy, minor player by all accounts, yet still creating an exposure on bank balance sheets. If a Deutsche Bank, etc.finds itself holding a lot of nonperforming loans, what other parties might feel secondary effects? What other currencies might get sucked into the vortex?
“The question is whether mass defaults of Turkey’s corporate borrowers, with or without an all-out sovereign debt crisis, will destabilize the eurozone’s already fragile banking sector,” wrote Carl Weinberg, chief international economist at High Frequency Economics, in a Monday note. “Euroland banks are so undercapitalized that if they take a hit, they may have to cut lending to stay within regulatory limits.”
By the time answers were found in 1998 and 2008 it was too late. It would be wonderful to be able to gauge the risk this time.
Troy, I just now watched this video. It's a little grim, but tells it like it is, or like it could be. Something to consider. I admire the guy's viewpoint on the human toll.
Things today are so interconnected it is hard to say the effects anymore. The credit default swap markets have turned into huge gambling casinos . More is bet on whether loans are paid back than the loans themselves
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