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The ‘Minsky moment’ continues

Financial Events, Leverage

More banks disappeared in Europe and the USA over the weekend:

Bradford and Bingley, one of the UK’s largest mortgage lenders was nationalised. The government will now pay $18bn to Spanish bank Santander to enable a transfer of retail deposits to take place
Fortis, Belgian’s biggest bank, has been partly nationalised by the Belgian, Dutch and Luxembourg governments at a cost of $11bn
Wachovia, the leading US bank, will be rescued by Citigroup with the assistance of the Federal Deposit Insurance Corporation.

As the blog noted earlier this month, the deleveraging process is now unstoppable, and we have reached the ‘Minsky moment’. Investors have recognised they overpaid for assets over the past few years, and a ‘rush for the exits’ is underway, causing ‘distress sales’ to take place due to an absence of new buyers.

Currently, this process is focused on the financial sector. The blog’s fear is that investors’ attention may soon turn to other areas, including chemicals and key customer industries.