Credit Maven Sean Egan: All Of Europe Is Like One Big Lehman

Sean Egan, the head of independent credit analysis firm Egan Jones, was on CNBC this morning.

He’s particularly terrified by Europe.

Here’s the partial quote via Noah Rosenblatt:

KERNAN: “you think that the fed is ultimately the lender of last resort to europe. how does that even work?”

EGAN: “’s working right now. in a couple of different ways. one is a swap line. OK. i broaden it from the fed to the u.s. government because you have the imf support, swap lines and then you have some back stopping. cds. really the u.s. government is the only one that can move quickly and enforce to solve this problem. the EU has 3% or 3.5% capital, OK. that’s scary. lehman brothers was at that level. ECB can get additional capital but not quickly. they get it from the central banks. but it takes time to replenish the capital and if you take a reasonable hair cut on their back stopping all the deposits of these, what is it three or four countries buying the debt. buying the debt of italy and other countries. normal hair cuts you look at the capital and say it probably isn’t enough.

CARUSO-CABRERA: “ there anything — so many plans. let’s get them down to 90%, gdp ratio. numerous plans have been put out most of them politically untenable. anything the European union could do right now to stop this?

EGAN: “…yes. but they don’t have the political will to do it. what would it be. backstop the ECB. in other words, get about another 100 billion euros of additional capital. it probably isn’t enough. it would help. the ECB says we’ll backstop the deposits of all the periphery countries. we don’t think thats the right way to go, by the way, because there’s no market discipline if they do that, but that would help. basically to stop this problem u-need to have a currency print being entity guaranteeing it.

Here’s the whole video:

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