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2010 Predictions: Run on the Banks

The World is partying like it is 2007 all over again. The reasons are two: the crazy money printed by Helicopter Ben and the moral hazard produced by the universal bailout of everything, everywhere. I still see the traces of sanity in the US consumers’ minds as they are running a pretty decent savings rate but most of the world has gone crazy. The name of the game is the low rate on sovereign debt of most of the major economies, which allowed governments to run unprecedented and unrestricted stimulus packages. The recent troubles in Dubai and then Greece exposed all the debt leverage around the world. It is apparent that the sudden collapse of Greece, had it happened last week, would have triggered the domino effect essentially terminating the World financial system. This is extremely troubling. History knows hundreds of sovereign defaults. It is statistically normal to have several nations to default or involuntarily restructure every few years. It would be normal to have Greece default. After all much bigger Russia defaulted in 1998 and nothing bad happened. But now we have a situation when “if the ball falls on that zero in the roulette wheel” the world will collapse. The ball falls on […]

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