Switzerland Near Iceland At Risk

By Author: Alfonso Tuor
Total Articles: 62
Comment this article

In the fall of 2008, Switzerland has taken the risk of ending in Iceland, that is the bother the market exposure of UBS, which represented about four times the Swiss GDP. The problem with banks too big to fail (too big to fail) can not be circumvented by our country. To deal could also be helpful to set up a parliamentary commission of inquiry. This is what he said yesterday afternoon in Lugano Konrad Hummler, managing partner of Wegelin & Co. Private Bankers and president of the Swiss Private Bankers. According to Konrad Hummler "it is necessary that the country is made aware that Switzerland found itself because of the crisis at UBS in an emergency situation very similar to that of Iceland." As known, the failure of banks in Iceland, the country has transferred to the State an enormous amount of debt, such as to force him to almsgiving and the foreign aid would affect the future of the country, as these debts must be honored.
According to Konrad Hummler, the problem of banks too big to fail is particularly acute in Switzerland. So it would be very unfortunate if our country does not draw the necessary lessons from ...
... this crisis. Must therefore have the courage to openly confront the issue. To do this would be useful to constitute a parliamentary commission of inquiry, partly because the accounts of the Confederation and the cantons are excellent, especially when compared to those of other countries, but they bear on the potential risk of explosion because of their need to save the two major Swiss banks.
With regard to banking secrecy, Konrad Hummler no secret that the acceptance of Article 26 of the OECD Switzerland and that the names of 300 U.S. clients of UBS to the U.S. authorities have dented confidence in the banking secrecy. Now according to the socio accomandatorio Bank Wegelin, Switzerland should try to defuse international pressure to change the solution set offering Rubik, which consists in the preservation of bank secrecy, but to undertake their task of tax collector by the Swiss banks. To Konrad Hummler, the outcome of these negotiations is highly uncertain. On the international economic situation, the task of reducing the high level of debt is difficult and full of dangers. Everyone talks about the bonuses and high salaries in the financial sector, but they are, according Hummler, "only a symptom but not the real problem." The real problems are not tackled yet. The main one is now that of a financial system restored from the public purse and operates through the state guarantee. The consolidation of banks has in fact been implemented by the Federal Reserve and the banks now benefit from a very low cost of money, similar to the period between 2002 and 2007, which facilitated the formation of the bubble of debt which is then exploded with the crisis of subprime mortgages. Now in the United States bank loans to the real economy, ie companies, are in sharp decline, while debt is exploding. The same is happening in Europe.
For Konrad Hummler, the implication is obvious: the problem today is no longer constituted by those who have a mortgage on subprime, but resides in the credibility of the States to honor its debts. The situation is critical, but it is mainly the United States. Operating space of the American federal state is very limited. Fact, the U.S. public debt amounted to 12.300 billion dollars and is now funded through interest rates very low due to highly expansionary monetary policy. A rate hike would explode the cost of financing of this mountain of debt. The debt of the American state, that today no one questions, might actually prove to be another chain of St. Ives-Antonio. Indeed 7.800 billion dollars of U.S. public debt is financed by the public (and among this audience are also foreign countries like China, Japan, etc..), The remaining 4.500 billion were around between different batches of parastatal holding company. Most are money in Social Security (the U.S. AVS) that are used without that Washington should pay anything. Others even have the insurance money on bank deposits and others.
For Konrad Hummler, "there are reasonable grounds for doubting that these debts will be repaid." The situation of European countries is no better. Not surprisingly, the cost of credit default swaps (insurance against default) on government securities of major European countries is now higher than on corporate bonds. if this is not surprising - added Hummler - but we must also stress that such a phenomenon has never occurred before. As for Greece, Hummler, its insolvency would not be a fact that would cause serious consequences.
Alfonso Tuor
Photo: Konrad Hummler