[lbo-talk] The pressure on Russia to settle

Shane Mage shmage at pipeline.com
Sat Mar 15 08:40:55 PDT 2014

On Mar 15, 2014, at 11:10 AM, Marv Gandall wrote:

> On 2014-03-15, at 10:49 AM, Shane Mage wrote:
>> One question being scrupulously unasked by all the MSM: how much
>> Russian debt is on the balance sheets of European--especially
>> German--banks? That censorship seems to be in effect because the
>> likelihood of default is directly--maybe even disproportionally--
>> proportional to the severity of sanctions. One big failure might
>> even have the effect of a nuclear bomb under the Euro-American
>> financial system. Anybody here remember Kreditanstalt Verein? One
>> would hope that there are people in power who do!
> See below. A Russian default could well push the tottering European
> banks over the edge along with the rest of the global financial
> system, which is why proibably most of the talk in Berlin, London,
> Paris, and Washington this weekend is about how to defuse tensions:
Marv, you should have given credit here to Yves Smith and her indispensable "Naked Capitalism" blog.

> "It isn’t just German exporters that are fretting, and lobbying with
> all their might. Russia, with an economy that is already stagnating,
> and dogged by vicious bouts of capital flight, has $732 billion in
> foreign debt. Relatively little of it is sovereign debt, but nearly
> $700 billion is owed by banks and corporations – most of them owned
> or controlled by the Kremlin. Oil major Rosneft and gas mastodon
> Gazprom owe $90 billion combined to foreign entities; the four state
> banks Sberbank, VTB, VEB, and Rosselkhozbank owe $60 billion. Some
> of this debt matures this year and next year.
> "US banks are marginally involved. Between Bank of America,
> Citigroup, JPMorgan, and Wells Fargo, they have only $24 billion on
> the line. But European banks and insurance companies are up to their
> dirty ears in this suddenly iffy and potentially toxic Russian debt.
> "When it comes due, it will have to be rolled over, and some of the
> companies will need to borrow more, simply to stay afloat. Alas, the
> current sanction regime of visa bans for the elite, asset freezes,
> and trade restrictions could make that difficult. Then there’s the
> threat, now more broadly but still unofficially bandied about, that
> Russian companies should simply default on this $700 billion in debt
> in retaliation for the sanctions.
> "Some European banks, including some German banks, might crater.
> Even the possibility of a major loss would further rattle the
> confidence in these banks with their over-leveraged and inscrutable
> balance sheets and their assets that are still exuding whiffs of
> putrefaction. And this sort of fiasco, as the financial crisis has
> made clear, has an unpleasant way of snowballing – and taking down
> the already shaky global economy with it.
> "During the financial crisis, German exports collapsed, banks
> toppled and got bailed out, and the economy experienced its two
> worst quarters in the history of the Federal Republic. No politician
> in Germany has any appetite to re-experience that. And the banking
> industry, with its powerful and long tentacles winding their way
> through the hallways and doors of the German government, has been
> assiduously at work, quietly and behind the scenes, to whittle any
> sanctions down to irrelevance."
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