Defaulting banks - where will it stop?

[Jan Klimkowski]

The Swiss just destroyed traders with leverage on the "wrong" side of FX speculation.

The comments at Market Ticker are worth perusing, since some of the posters are active traders:

Swiss Central Bank Detonates FX Traders

In what may well be the single largest one-day move in the FX markets ever (I can't find a larger one among "major" currencies with material representation in FX) the Swiss National Bank decided to "peg" (via printing) the CHF to 1.2 Euro.

The result was an essentially-instantaneous move in the CHF against everything of almost 10%.

(Chart at url)

For the uninitiated FX trades are often done with rather extreme amounts of leverage. This sort of move has a very high probability of utterly destroying many traders - anyone on the wrong side of it, basically.

But what's worse is that it also effectively steals about 10% of the purchasing power of everyone holding Swiss Francs all at once!

Sure, if you're a manufacturer and exporter in Switzerland you just became "more competitive." But you got more competitive by stealing the value from everyone else in the economy who just lost the same 10% change you enjoy.

How will this play with the Swiss populace? That's a good question, considering that most of them are consumers and not exporters......