Contagion from Italy’s Bank Meltdown Spreads
- Contagion from Italy’s Bank Meltdown Spreads
by Don Quijones, http://wolfstreet.com/
There’s a pervasive sense of inevitability to Italy’s banking crisis.
Without a taxpayer-funded bailout that directly contravenes the Eurozone’s new bail-in rules, the world’s oldest surviving bank, Monte Dei Paschi, could soon be out of business. Shares of the decrepit financial entity have long been reduced to a penny stock. So far this year, they’ve lost 78% to close on Tuesday at an inconsequential €0.28.
The closer it comes to its end, the louder the calls for its rescue. Last week saw two out of three of the members of the institutional triad formerly known as the Troika — the ECB and the IMF — lend their support to a taxpayer funded bailout of Italy’s banking system. So, too, did the biggest U.S. bank by assets, JP Morgan Chase.
All that was needed was for Europe’s most influential bank, New York-based Goldman Sachs, to give its blessing. That came on Monday in a report whose conclusion is fittingly Goldman-esque: saving Italy’s banks is not just necessary; it would be a bargain for all concerned. The authors breezily point out that the €210 billion euros of non-performing loans (ha, the ECB says €360 billion and growing every time someone looks at it) on the books of the banks could all be wiped out with the equivalent of just nine months of ECB President (and former Goldmanite) Mario Draghi’s bond purchases.
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