German Financial regulator BaFin estimates global shakedown of US$600 Bn of which German share is 10%
Ludwig von Mises summed it up like this:
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
In a move contrary to the UK "Tripartite" supervision that the Ballsian / Brownian set in motion to supervise Financial services and Banking in the UK. From 1 May 2002 The Bundesbank and German Financial Supervisory Authority (BaFin)(Bundesanstalt für inanzdienstleistungsaufsicht) combined the previous activities of the Federal Banking Supervisory Office, the Federal Supervisory Office for Insurance Enterprises and the Federal Supervisory Office for Securities Trading.
It is evident that this provides a more focused, central and powerful form of control in which the Deutshes Bundesbank firmly control operations. Which will be essential of a study reportedly made by BaFin is correct.
Spiegel today reports the contents of an internal BaFin study that says that shortfalls at finance institutions worldwide could end up totalling US$600 billion (€380 billion).
This shorthall it is said, results from ill-advised speculation on the US subprime market and resulting jitters in markets worldwide. BaFin says that its prognosis is merely a worst-case scenario. "Given what we know about the current situation on the markets, we presume that a total of $430 billion is more probable," the confidential 16-page report says.
The paper also lists losses that have already been admitted to by various credit institutions: a total of $295 billion. Some 10 % of those shortfalls are accounted for by German banks. Should that share of the damage remain constant, German banks can expect losses to be as high as US$60 billion.
BaFin experts fear that the finance crisis will spread to other sectors of the economy. The turbulence could hit "other financial institutions outside of the banking sector," the paper says. The report lists hedge funds, insurance companies and retirement funds as being at risk.
On Friday Bild quoted banking insiders predicting total losses by German banks from the American subprime mortgage loan crisis could hit the €70-billion (US$111 billion) mark. They also reported that claims that the country's third-largest regional bank, WestLB -- which has been kept alive with injections from the state of North Rhine-Westphalia -- will soon be requiring an additional €2-billion lifeline.
Meanwhile, IKB Deutsche Industriebank AG bank,which has already received a billion-euro bailout will be draining a further billion euros from the public purse, bringing its total rescue package so far to €8 billion.
On the same day Bavarian governor Günther Beckstein said the state's BayernLB bank would announce losses related to the credit crisis of up to €4 billion -- double the €1.9 billion figure the bank had previously disclosed.
Munich based Hypo Real Estate (Mkt Cap €2.2 Bn.) Germany's second-biggest property lender has warnnd of more writedowns and gave more information last week on its 5 billion euro plus exposure to structured debt products.
It said the market for its 1 billion euro (US$1.6 billion) portfolio of U.S. collateralised debt obligations (CDO) had deteriorated and that further writedowns were possible. About a quarter of the portfolio is subprime.
It also said any slip in the value of 3.2 billion euros of real estate-linked investments it owns would hit its revaluation reserve.
Finance Director Markus Fell said "In this crazy world, I don't feel comfortable giving any further outlook,"
Hypo shares HRX:DE rallied on that news and rose from a low of €13 to €16 where they trade today.
John Paulson, a little-known hedge fund manager smelled trouble two years ago. He had found a bubble he could short. He bet against the American Dream and placed heavy bets of other people's money on the ABX an index that tracks the sub prime market (sorry tracked .. there is no sub prime market anymore).
His funds in 2007 made US$17 Bn, of which his personal share was US$3/4 Bn - oddly at one stage in his career he was a mergers-and-acquisitions investment banker at Bear Stearns Cos.