Swiss Banks in Trouble?

I found this very interesting post on the Swiss Banking sector in the comment section of Mish’s Global Economic Trend Analysis Blog

Definitely worth a read:

What people are not talking about is how close Switzerland came to collapsing. After Iceland, no other country has a greater share of its GDP dependent on banking. Remember what happened to huge production companies, Ford, GM and GE, when their finance arms took over for the production sectors of their businesses as the generators of profit. When the securitized paper market crashed, these once strong industrial production companies crashed with them. Well, on a much larger scale, that’s what is happenning to Switzerland.

Banking had become the main engine of profit generation as the country’s industrial production shrank. International banking is now collapsing, so a country that lives by the bank, will die by the bank.

What’s really scary is that Switzerland is said to be holding over a third of the world’s private bank deposits. Just this week, Switzerland, seeing its yields rising to dangerous levels, was forced to engage in currency swaps with the ECB. A collapse of the Swiss banking system, once the safest place in the world to deposit money, will spell big trouble. If one believes in the domino theory, a Swiss banking collapse is going to be one bigass domino to fall. The falling of smaller dominos, like Argentina, Iceland, Hungrey, and Lituania, are, or may be, a foregone conclusion.

One cancerous problem the Swiss banking system has is Phil Gramm. Senator Gramm, as you remember, had the Glass-Steagall Act repealed while his wife sat on the board of ENRON, He opened the doors of US banks so that they were able to engage in risky derivative products, like “enhanced yield” money market SIVs and CDOs. Seventy-percent of those CDOs were exported abroad, where Gramm, now the Vice Chairman of UBS, could use them to destroy his own Swiss bank.

— blackswan



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