From Green to Red – Is Credit Crunch 2.0 Imminent?
By Satyajit Das
In Crosstown Traffic, Jimi Hendrix sang: “can’t you see my signals turn from green to red / And with you I can see a traffic jam straight up ahead.” In global financial markets, the signals have changed from green to red. But rather than a simple traffic jam, a full scale credit crash may be ahead.
In financial markets, facts never matter until they do but there are worrying indications.
Fact 1 – The European debt crisis has taken a turn for the worse
There is a serious risk that even the half-baked bailout plan announced on 21 July 2011 cannot be implemented.
The sticking point is a demand for collateral for the second bailout package. Finland demanded and got Euro 500 million in cash as security against their Euro 1,400 million share of the second bailout package. Hearing of the ill-advised side deal between Greece and Finland, Austria, the Netherlands and Slovakia also are now demanding collateral, arguing that their banks were less exposed to Greece than their counterparts in Germany and France entitling them to special treatment. At least, one German parliamentarian has also asked the logical question, why Germany is not receiving similar collateral.