What doesn't make sense is why the Swiss Franc is still strong and didn't break down. Eastern Europe mortgage borrowers were using the Swiss Francs as source of funds. The Swiss Franc were the second lowest interest rate after Japan. The exposure of Swiss Franc to Eastern Europe should knock Swiss Franc down but it has held up...why?
Pointers about east european crisis?
- Thread starter mizhael
- Start date
My guess:
The Swiss maybe are involved with 400 billion of that and maybe 80 billion is at risk. That's a relatively small amount for these people. Plus, what currency is any better at this point??
The fact that hundreds of billions in loans were borrowed in CHF from Eastern Europe against their high yield and high interest currencies, in a quasi carry-trade -- real estate loans that are now falling apart.
If you surf around some of the Eastern European real estate sites, many of them dormant today, you will still see those little marketing gimmicks along the lines of "don't worry about expensive mortgages, we can arrange very moderate rates financed in CHF!!! Contact one of our finance specialists today!!! Don't waste more time as these properties are going fast!!!"
These loans will go into foreclosure one by one, and the short CHF exposure will have to be "bought back".
Bloomberg:
If you built an apartment complex in Bulgaria, but took out a mortgage/loan denominated in CHF -- then you owe CHF. This used to be seemingly attractive because local mortgages denominated in Zsloty, Forint, Krona and Lev were "expensive" at 13, 14 or 15 %. CHF mortgages were offered at "cheaper" rates of 6-9%. Of course, they came with a currency risk but most people didn't understand that.
If you as the home owner or development company are being foreclosed upon, you have to "buy back" CHF at the current price to pay off your loan, not unlike blowing up on a carry trade.
If you as the home owner or development company are being foreclosed upon, you have to "buy back" CHF at the current price to pay off your loan, not unlike blowing up on a carry trade.
is this the beginning of new Iron Curtain?....it appears that the european union is rapidly unravelingâ¦
Germany Rejects Bailout Plan for Eastern Europe
By THE ASSOCIATED PRESS
BRUSSELS, Belgium (AP) -- Top European Union officials say at the end of summit talks that eastern European nations don't want a special rescue program for their region.
EU Commission President Jose Manuel Barroso says the ten eastern states of the bloc ''do not want a program just for them'' because different nations had different problems.
Czech Prime Minister Mirek Topolanek says the European Union will not leave any nation ''in the lurch.'' Topolanek chaired Sunday's crisis talks on Europe's troubled economies.
EU nations agreed that governments should make sure that bailouts for banks or car makers should not be protectionist or hurt the economies of other members in the 27-nation bloc.
http://www.nytimes.com/aponline/2009/03/01/world/AP-EU-EU-Summit.html?_r=1&hp
Germany Rejects Bailout Plan for Eastern Europe
By THE ASSOCIATED PRESS
BRUSSELS, Belgium (AP) -- Top European Union officials say at the end of summit talks that eastern European nations don't want a special rescue program for their region.
EU Commission President Jose Manuel Barroso says the ten eastern states of the bloc ''do not want a program just for them'' because different nations had different problems.
Czech Prime Minister Mirek Topolanek says the European Union will not leave any nation ''in the lurch.'' Topolanek chaired Sunday's crisis talks on Europe's troubled economies.
EU nations agreed that governments should make sure that bailouts for banks or car makers should not be protectionist or hurt the economies of other members in the 27-nation bloc.
http://www.nytimes.com/aponline/2009/03/01/world/AP-EU-EU-Summit.html?_r=1&hp