Defaulting banks - where will it stop?

[Jan Klimkowski]

Amusing but accurate take on the Dubai meltdown from Market Ticker's Karl Denninger, comparing the financial ethics of Arab governments with those of the west:

My God, There Is A Wise Govermment
It just happens to be in the Middle East:

Nov. 30 (Bloomberg) -- Dubai’s government said it hasn’t guaranteed the debt of Dubai World, the state-controlled holding company struggling with $59 billion in liabilities, and that creditors must help it restructure.

“The company received financing based on its project schedule, not a government guarantee,” Abdulrahman Al Saleh, director general of the emirate’s Department of Finance, said in an interview with Dubai TV, when asked whether the government was backing the debt. “Lenders should bear part of the responsibility.”

Ding ding ding ding ding ding.

You make a bad loan predicated on a bunch of pump-monkey nonsense instead of sound underwriting, and it goes bad, you are going to take a big fat loss!

How come we can't get this right? Why is it that we protect creditors while slamming debtors? Are you going to tell me that the only place there is a "free market" left in lending is in the freaking middle east?!

“The times of implicit support are clearly over,” said Philipp Lotter, vice-president of Moody’s Investors Service in Dubai. “In the past entities such as Dubai World certainly represented themselves as quasi-government entities, whereas there was no legal obligation on behalf of the government to support, and that has certainly shifted with last week’s announcement.”

Where have we heard that before? Oh yeah...

(Fannie Mae letter at url.)

Of course in this case, even though there is a black-letter disclaimer - a disclaimer repeated in the 10Qs up to and including the most-current one, both The Fed and Government have dumped close to $100 billion into this insolvent trashpile along with its red-headed cousin, Phoney.

Nor are they alone. GM and Chrysler anyone? AIG?

Lenders “have deemed Dubai World as part of the government and that is not true,” al-Saleh said.

Lenders deemed Fraudie and Phoney part of the government too, and rather than force those who made bad loans to eat them the government shifted the cost to you and I.

And by the way, those who try to claim that this was "impossible to foresee" are lying. Fraudie and Phoney were running with leverage ratios of anywhere from 80:1 to 200:1, depending on how you computed it. At 80:1 you need just a bit over a 1% loss to go bankrupt, and at 200:1 you need only a 0.5% loss.

There is no business in this land that is safe to lend to at these leverage ratios, nor is there any reasonable expectation in any business that you will never suffer a loss of JUST ONE PERCENT - yet such a loss was and is sufficient to bankrupt the firm long before they were taken into conservatorship.

http://market-ticker.org/archives/1677-M...mment.html