hese women had "loose morals" and were rightfully shot by male relatives in honor killings.

TO BE NOTED: From the Hub:

"Chechnya: “Honor killings” defended by President Kadyrov

Download

Violeta_VAW_Honor_Killings.flv (12mb)

By: Violeta Krasnic

Posted: Mar 16 09

In November 2008, bodies of seven young women with gunshot wounds to the head were discovered dumped by roadsides in and around the Chechen capital Gtozny. Chechen human rights commissioner was quoted saying that murdered women "have forgotten the mountain women's code of behavior" and that their male relatives "feel they have been insulted and sometimes take the law into their own hands." While Chechen President Kadyrov initially called the killings "outrageous," the Associated Press reported him saying in February 2009 that these women had "loose morals" and were rightfully shot by male relatives in honor killings.

But as those fighting against misuse of religion and culture to justify violence would tell us: "There is no honor in killing!" This is the interview with Chechen activists Gistam Sakayeva who works to defend rights of women. She describes the culture surrounding killings of women in Checnhya and provides concrete suggestions on how to respond to this type of violence."

it seems increasingly less likely that indebtedness will be serviced and redeemed in a timely manner, in our view

From Alphaville:

"Stress-testing Eastern Europe Posted by Tracy Alloway on Mar 09 18:46.

Well, not Eastern Europe per se, but Western banks’ exposure to the region.

Merrill Lynch’s Global Economics team has done a bit of analysis (emphasis FT Alphaville’s):

A simplistic stress test on Emerging European exposure at listed Western European banks shows the potential for an incremental €13bn of losses. We assume this will be spread over several years. In the context of a sector expected to generate €56bn of 2009 profits, Emerging European losses are not, by themselves, devastating.

What’s that? Good news? Not quite.

What the market giveth with one hand, it taketh away with the other, as Merrill Lynch note:
However, we highlight that Emerging European exposure is simply one of many potential problems facing Western European banks. Taken in combination with deteriorating conditions in Western Europe, incremental capital commitments owing to the pro-cyclicality of Basel II, significant off-balance sheet commitments, and earnings headwinds from de-levering, we continue to think investors should take a cautious approach to Western European bank equity.

As for the stress test criteria, Merrill’s assuming Western banks have €1070bn of exposure to emerging Europe, or roughly 3 per cent of total assets.

However, some banks are more exposed than others. All of Raiffeisen International’s loan book, for instance, is in emerging Europe, while 39 per cent of Erste Bank’s is. Of the 17 banks in Merrill’s analysis, 11 have more than 10 per cent of their loan book in the region.

Here are the test specifics:

We think it is worth noting that our stress test only assumes that Emerging European provisions rise. We make no changes to our forecast of pre-provision profits, nor do we assume that elevated risk in Emerging Europe has a negative impact on profitability in Western Europe. Further, we have not written down equity owing to currency devaluations. In this way, our stress test is admittedly simple and understates losses in a full-blown emerging market crisis.

After estimating an NPL level for each country, based on assumptions about macroeconomic NPLs varying with the degree of crisis, we assume cumulative losses equivalent to 50% of NPLs. We then compare the implied provisions from this stress test with the cumulative provisions already factored into our base-case forecasts for each bank for 2009-2011E. We have made several assumptions in this methodology, and we emphasise that the exercise is intended as a scenario analysis, rather than a base-case forecast for how the current emerging market crisis will unfold. Estimating the appropriate level of NPLs for each scenario is one of the key sensitivities in our analysis.

The results of the stress test are in the first table below. The assumed level of NPLs (non-performing loans) in the second, ranging from an “IMF-scale crisis” to a simple “Macro slowdown”. (Click to enlarge)

On average then, the stress test scenario moves the banks’ core tier 1 ratio, the key regulatory measure of banks’ capital position, from 6.9 per cent to 6.4 per cent — hardly a dire level from a regulatory perspective. But, we should note below Merrill’s own definition of a “well capitalised” bank…

In any case the really interesting thing here, as Merrill says, is the relationship between country risk and bank risk, which may be changing:

We see continued stress for parent banks in the near term as they grapple with significant goodwill write-downs, higher loan loss provisions, and the translation effects of volatile currencies. In addition, it appears that many of the major European banks have been active in making funding available to their pressured CEE subsidiaries (which is generally consolidated so less visible to investors, but exceeds US$400bn to be repaid this year alone), adding to the risk if transfer risks materialise as currencies are frozen and/or debt moratoria are imposed.

As is the case for Western Europe, we are in the process of an unprecedented level of credit substitution in the region, whereby sovereign risk is substituted for individual bank risk, though with parent company credit metrics disintegrating in some cases faster than the CEE subsidiaries, credit markets have needed to look beyond immediate parent credit strength for the ‘second way out’. So far, such has been the virulence of the banking crisis that all credit substitution has achieved is to infect the credit quality of the supporting sovereign, while having little impact on the underlying risk premiums of the supported bank.

Our sense is that the credit market is moving on from concerns with respect to non-payment or non-redemption of bonds (the most obvious form of default) to a consideration of the various forms of debt forgiveness that might be in the offing – for example, debt exchanges or debt-for-equity swaps. We are just beginning to see these emerge in Western Europe as a tool for dealing with banking sector insolvency. Indeed, with cash prices for bonds so distressed, it seems increasingly less likely that indebtedness will be serviced and redeemed in a timely manner, in our view.

In otherwords, moderately good news for Eastern European countries themselves, somewhat more ominous for Western European banks with Eastern exposure.
Related links:
UBS: No Eastern European meltdown - FT Alphaville
CEE’s western exposure - FT Alphaville
UniCredit’s eastern exposure - FT Alphaville

This entry was posted by Tracy Alloway on Monday, March 9th, 2009 at 18:46 and is filed under Capital markets. Tagged with Banks, Eastern europe, Erste Bank, Raiffeisen International."

Me:

Don the libertarian Democrat Mar 10 03:51

"Our sense is that the credit market is moving on from concerns with respect to non-payment or non-redemption of bonds (the most obvious form of default) to a consideration of the various forms of debt forgiveness that might be in the offing – for example, debt exchanges or debt-for-equity swaps. We are just beginning to see these emerge in Western Europe as a tool for dealing with banking sector insolvency. Indeed, with cash prices for bonds so distressed, it seems increasingly less likely that indebtedness will be serviced and redeemed in a timely manner, in our view."

I've suggested on Buiter's blog that we should simply move on and discuss whether a form of default is better or inflation is better. It sounds like default is the choice, which I thought was easier to deal with, if I'm not mistaken. I'd be surprised if we don't have some form of default as a solution to this crisis.

This is looking ugly indeed, and that's before you consider that European banks are on average much more leveraged than their US counterparts.

From Yves Smith:

"Sunday, February 15, 2009

Will Eastern Europe Trigger a Financial Meltdown?

We've commented from time to time that a possible financial flashpoint is countries that got themselves in the same fix as Iceland , of having a banking sector engaged in the generally risky practices that were standard form recently, and was outsized relative to the economy (Willem Buiter also points out that that precarious situation is made worse by having your own teeny currency).

While Ireland is in that fix, a more immediate trigger for trouble is Eastern Europe. We've mentioned in particular the precarious position of Austria, which was a big lender to the region. As Ambrose Evans-Pritchard remarks in the Telegraph:

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said.....

Yves here. Recall we said a few days ago (based on admittedly a small number of conversations, but the Austrian and German businessmen were knowledgeable) that the Austrian banks were widely known to be bankrupt, that Austrians knew they needed to be rescued and would need help. The Austrians were highly confident that Germany would fund a bailout, and the Germans were mystified that the Austrians were so certain. The Germans' doubts appear to have been well founded. Back to the piece:

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut....

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets....

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus....

Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system....

The sums needed are beyond the limits of the IMF, w...We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter...

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.

This is looking ugly indeed, and that's before you consider that European banks are on average much more leveraged than their US counterparts.

More on this topic (What's this?)

Austria: In the Eye of the Storm (The Prudent Investor - Seeing To..., 2/12/09)

Austrian CB Projects Mild Recession In 2009 (The Prudent Investor - Seeing To..., 12/9/08)

Austria: More Than Just A Financial Haven (Contrarian Profits, 11/27/08)

Read more on Investing in Austria at Wikinvest

Me:

Don said...

The important point of Evans-Pritchard's post is that he sees the social disruptions and dislocations that can arise from this crisis. Oddly, many people are assuming that this crisis is business as usual. Had the government's actions been better, that might have been the case, and we still might avert massive unemployment. But we are getting dangerously close to the point in Debt-Deflation that the cure will be nearly as awful as the malady. Employment in that scenario will be much worse than it is now. Then ,all bets are off.

Don the libetarian Democrat and follower of Edmund Burke

February 15, 2009 11:55 AM

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

From the Telegraph:

Failure to save East Europe will lead to worldwide meltdown


The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

By Ambrose Evans-Pritchard
Last Updated: 2:05AM GMT 15 Feb 2009

Comments 0 | Comment on this article

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.

"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.

If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.

The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

So we watch and wait as the lethal brush fires move closer.

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?"

Me:

"This is the sort of level that stokes popular revolt."

I've been saying that we need to read Edmund Burke more than economists. I don't think it has sunk in that if we allow Debt-Deflation to spiral downward, unemployment will be dramatically higher, and will lead to serious social dislocations and disruptions.

As well, people just don't find deflation easy to deal with. It causes serious social problems because people find acting in a deflationary environment disorienting. It never occurred to me that this crisis would be dealt with so poorly and with so little understanding. What a shock.