's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious of sovereign default.
The cost of insuring against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123 higher than Iceland's debt before it sought a rescue from the International Monetary Fund.
Moves by Hungary. Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe. Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800 signalling total revulsion by investors.
Rating agency Standard & Poor's issued a downgrade alert on yesterday warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state.
companies must roll over $47bn of foreign loans over the next two months and a further $150bn or so next year a task that has become close to impossible as investors flee Eastern Europe.
"The surge in CDS spreads is paralysing the whole system. The government can offer very little help to the banks at this point because its own sovereign debt is in question," he said.
"This crisis is starting to look like the Black Wednesady in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging this could get out of control and do serious damage to Western Europe. We could see the fall to parity against the by next year," he said. Genius Fails Again
It is fitting that is back in the news because it was the demise of Long Term Capital Management that kicked off a string of moral hazard interventions by the Fed that continues to this day.
Please see Genius Fails Again for a recap of LTCM and the 1997 Bond market collapse that then threatened the financial system. The derivatives mess today is thousands of times greater.
equity funds had a ninth consecutive week of cash outflows amid concerns over property rights. Boston-based fund tracker EPFR Global said on Friday.
Recent harsh criticism from Prime Minister Vladimir Putin against coal company Mechel harassment of non- managers at company TNK-BP the flexing of 's military might in Georgia and its drawn-out removal of forces has left foreign investors shaken.
"No real surprise. If there is any surprise it is that people are not taking their money out faster given the pretty clear evidence of any hopes that (President Dmitry) Medvedev will moderate Putin or do much to protect property rights," said Cameron Brandt global markets analyst at EPFR. It seems like sentence should read "No real surprise. If there is any surprise it is that people are not taking their money out faster given there is no evidence of any hopes that (President Dmitry) Medvedev will moderate Putin or do much to protect property rights".
An exact repeat play percentage wise would take LETRX down to 6.72. I do not think it goes that far but then again I am known for being widely optimistic.
Developing nations' borrowing costs neared a six-year high after Standard & Poor's threatened to cut 's debt ratings as the global credit crisis deepened.
The extra yield investors demand to own emerging-market government instead of U. S. Treasuries rose 27 basis points or 0.27 percentage point to 8.29 percentage points the biggest since November 2002 according to JPMorgan Chase & Co.'s EMBI index. The annual cost to protect 's from default soared as S&P lowered 's ratings outlook to negative on concern the cost of the government's bank rescue will climb.
has committed as much as 15 percent of its gross domestic product to propping up banks including a $50 billion credit line to development bank Vnesheconombank. 's international reserves the world's third largest declined by $14.9 billion last week after the central bank sold currency to support the ruble as investors pulled money out of the country.
"There is now no safe haven globally other than a deeply indebted U. S government," said Jim Reid head of fundamental credit strategy at Deutsche Bank AG in London. No Safe Havens
"There is now no safe haven globally other than a deeply indebted U. S government." That unfortunately appears to be the very sad state of affairs.
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Related article:
http://www.distillingfinance.com/2008/10/24/Russian-Default-Risk-Soars-LTCM-Repeat-Play
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