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All of the experts are sounding off on the massive Spanish bank bailout announcement.Art Cashin, UBS Financial Services director of floor operations, notes that traders are still haunted by the AIG surprise in the wake of the Lehman Brothers bankruptcy.
Cashin thinks that we should be weary of one aspect of the Lehman/AIG experience.
From this morning’s Cashin’s Comments:
Spanish Banks And The “AIG Syndrome” – Around Wall Street watering holes, there’s a thesis passed around almost nightly. It contends that when world leaders were shocked and stunned by the extensive and virtually instantaneous collateral damaged caused by the Lehman failure, they automatically resolved to prevent anything like it from recurring.
Folklore says that as AIG’s global exposure began to be revealed, the phones at the Fed and at the Treasury began ringing off the hook. The calls were thought to come from Frankfurt, London, Paris, Milan and virtually every financial centre on the planet. The calls purportedly (via rumours) had a similar tone – “if you think Lehman was bad, a failure here could be Lehman on steroids”. Swamped with such calls, a rescue effort was quickly cobbled together.
Most Americans assume that the Spanish banking crisis is due to a lot of local banks loaded down with national debt and some regional real estate exposure.
Not widely discussed is that Spanish banks have been leveraging real estate for over a decade. They compounded that leverage by being among the most aggressive at bundling mortgages in CMOs, CDOs and the like. A failure in Spain could be felt immediately from South America to Asia and around the globe. Beware of the invisible.