Iceland Krone Meltdown.

ianmr65

Mr_Mumble wrote: »

FT Alphaville on the interest rate hike:

Emergency action for Iceland’s banks?

"Quite a few eyes on the Icelandic krona as the central bank in Reykjavik hiked interest rates from 13.75 per cent to 15 per cent, halting the fall of the krona against the Euro in its tracks. The stated intention is to tame inflation, which recently hit 6.8 per cent."

Here are a few more numbers on this.

http://uk.biz.yahoo.com/25032008/323/iceland-lifts-key-interest-rate-1-25-points-15-pct.html

Growth in Iceland is 4% a year. So overheating, (as opposed to recession, in the states, eu, and here) is the problem they are trying to fix

ianmr65

And this from the Wall-st Journal on the 22nd

Don't Bank on Iceland Woes
Healthy Capital Bases, Little Subprime Exposure

......Risk premiums on it's banks are at records, while the Icelandic krona has fallen 30% against the euro this year.

Iceland has vulnerabilities. Its biggest banks have most of their assets overseas, following a debt-fueled expansion of the banking sector over the past five years.

Global investors may be worried. But what is probably driving the market chaos is a group of 40 or so hedge funds that have placed bets in credit-default-swap markets that will pay off if Icelandic companies go bust

Iceland's banks aren't defenseless. Each has a healthy ratio of tier-one capital to assets that approaches 10%, against a U.S. regulatory minimum of 6%, and none is greatly exposed to subprime-mortgage-backed securities. For the most part, foreign-currency assets and liabilities are balanced, too.

Central-bank head David Oddsson, formerly Iceland's prime minister, is talking tough about bringing inflation down toward his 2.5% target. That could mean raising interest rates above their current 13.75% -- worrying for Icelanders, but reassuring for investors.

He also has an arrangement dating back to 2003 with other Nordic Central Banks whereby if one gets into difficulty, the others will provide emergency funding. This should ensure Icelandic banks have fallback options if they run into trouble. .

ianmr65

Sorry to reply to my own post. But a few points worthy of note.

Reading between the lines of it's announcements it looks like the Icelandic central bank is positioning itself to join the Euro. As the banks all have branches in the ECB countries, and have been calling for this for a while. This makes sense.
This means Iceland will have the ECB, as well as the Scand central banks to support it, and will go a long way to solving the current difficulties.

Barclays and other UK banks have a poor tier-one capital to assets ratio. This is a factor explaining why shares dropped so sharply recently.

The Wall street journal article, also puts meat on the bones of the point that
the toxic CDS market is being hijacked by speculators.

I repeat in no uncertain terms. In my opinion $50 trillion CDS MARKET is about to implode. We are looking at a $500bn+ hole in global balance sheets if it does. This will effect every bank, and financial institution in the world, and will make the credit crunch and subprime look tame.

No one wants to face this possibillity. Which is why no one, including the heavy weight financial papers is talking about it.

Killahertz

ianmr65 wrote: »

I repeat in no uncertain terms. In my opinion $500 trillion CDS MARKET is about to implode. We are looking at a $500bn+ hole in global balance sheets if it does. This will effect every bank, and financial institution in the world, and will make the credit crunch and subprime look tame.

Sorry to pester for what may be pretty simple information for those in the know, but what does that above mean in general, and also for the 'man on the street' (savings and banking-wise).

ianmr65

Killahertz wrote: »

Sorry to pester for what may be pretty simple information for those in the know, but what does that above mean in general, and also for the 'man on the street' (savings and banking-wise).

Killahertz The CDS market problem is not simple, for anyone, and the implications of what will happen to it are unclear.

I've posted about it here

http://forums.moneysavingexpert.com/showthread.html?t=807411.

Have a read and feel free to ask any questions that arise.

Killahertz

Thanks for that.

I've actually just been randomly surfing, trying to get a simple explanation of CDS. I think I get the drift, but the terminology is immense. Still, there is some amusement to be had as I chased definition after definition - after all these years I finally understand the final part of 'Trading Places'

ianmr65

Today's bloomberg:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aP_9lyHK6A3k

Lavendyr

ianmr65 wrote: »

Global investors may be worried. But what is probably driving the market chaos is a group of 40 or so hedge funds that have placed bets in credit-default-swap markets that will pay off if Icelandic companies go bust

It makes me feel pretty sick that people can actually want - and actively try - to make other companies go bust and can be willing to profit from their misery. It's really disgusting and I don't understand why it is allowed to occur. That's not just a company they're trying to destroy, it's peoples' livelihoods. Is there nothing in place to prevent such tactics?

Meltdown_2

Lavendyr wrote: »

It makes me feel pretty sick that people can actually want - and actively try - to make other companies go bust and can be willing to profit from their misery. It's really disgusting and I don't understand why it is allowed to occur.

I blame it on them playing the board-game "Monopoly" when they were little.

Stompa

http://www.ft.com/cms/s/5f9301dc-fa51-11dc-aa46-000077b07658.html