Hungary as Europe’s Lehman Brothers
Thursday, 01 December 2011 16:44
Let’s take a look at what happened to Lehman Brothers (LB) in the not too distant past. First of all, it mismanaged its dealings on the securities market and its leader, Dick Fuld was an extremely arrogant person. For example when the shares of LB dropped and it faced serious difficulties in May 2008, Fuld called then US treasury secretary Henry Paulson and asked him to persuade Warren Buffet, a well-known investor, to buy LB shares. This way LB could obtain fresh capital and escape trouble. Paulson eventually – reaching the borders of his authority – did persuade Buffet who offered $40 per share, but Fuld refused it. Paulson tried to find money elsewhere, but he did not succeed. In the end they let LB go bankrupt because it was not too big and could serve as an example and warning for others.
At the time when Fuld refused Buffet’s offer he argued as follows: “the exchange rate dropped just because of bears (someone who speculates on the fall of prices)” or “we do not actually need the money, it would be just a safety net”. Sounds familiar?
It seems that Hungary is going in the same direction as LB did. A Hungarian breakdown would not shake the foundations of the international financial system (as Italy’s downfall would), the government’s behavior is arrogant, and if they let Hungary go bust, that might affect the European financial discipline in a positive way. Unfortunately, we are just perfect for that goal. I wonder what the Hungarian government will answer if the IMF asks for the abolition of the surtax on banks and the final repayment on a fixed HUF/CHF rate in exchange of the funds they offer.
Péter Szoldán daytrader; mfor.hu; November 25. 2011.