Hyped Real Estate - Or is that Hypo?

Hypo Update Oct - After the German national election, the German Federal government took over ownership of Hypo Real Estate. The losers were apparently small shareholders. Here is the link to the full story by Zeit.de -

http://www.zeit.de/wirtschaft/unternehmen/2009-10/hypo-real-estate-squeeze-out


Hypo Real Estate Holding AG is a conglomerate of  "real estate financing banks".

What that means to the current German government, and indirectly their taxpayers, is a lot of trouble.

During last years' financial crisis, Hypo would have been kaput if the German taxpayers, i.e. their government, hadn't bailed out the Munich based company. To date it has been several billion Euros < about $8 billion >. With elections just around the strasse, I'm sure Merkel and her party would like to forget Hypo. Regretfully this may not occur. According to Die Zeit zeit.de, internal Budesbank documents indicate Hypo is going to need many billions more, whether dollars or Euros, to stay solvent.

How much is anybody's guess. Figures of 10 billion more, 20 bill more, 26 bill more - do I hear 30 billion?

At  20 billion Euros, the percentage  for German GDP  would be  the equivalent of $100 billion for the United States.

Keep in mind that Germany doesn't have a national bank to print money, like the US. They're under the jurisdiction of the European Central Bank, which controls the money supply for most of the European Common Market sans the United Kingdom. Trichet and his colleagues are going to be very reluctant to help Germany with any liquidity. After all, if they do it for the Germans, you can be sure Italy's Berlusconi and other countries will be screaming for the same treatment.

So that leaves it to the German taxpayer to pay the bill, if more money is needed.

Needless to say the German taxpayer is not  amused by this, if the comments on Zeit.de are anything to judge.

The average German is a very staid and proper individual. The population still has lower debt ratios then most industrial countries. They believe laws should be obeyed, appointments should be on time < Preferably show up a half  hour early. Remember the boos J.Lo got in Berlin for being late? >, and the mystical spirits of the psych < Freud, Adler, Jung, Thomas Mann, etc. >. Why, they're probably asking, should hyped Hypo be in so much trouble if they were being properly financially frugal? Why with Germans losing record numbers of jobs, should these cabbages get special treatment?

Well obviously somebody goofed.

What makes Hypo interesting for the world, is how the German government will handle this. Though nothing will happen until after the national election, it might set an example for  other countries. If the next elected government, for whatever reasons, decides to let them crash, it could  be an excuse for others to do the same.

In particular the United States. As Calculatedriskblog.com , Globaleconomicanalyis. blogspot.com, and others have pointed out in many stories, US commercial real estate is a disaster, with many office complexs and shopping centers de facto bankrupt. Only regional banks still hoping for a rebounding economy, and the reality that many banks themselves would go bust if they foreclosed, is keeping this from being a legal fact.

Well sooner or later, they're going to realize the US economy is getting worse, not better. Then some event < currency crisis, Chinese unrest, Italy saying stuff it on their government loans > will be the tipping point that starts everything unraveling. Just like 1933.

As I've stated before, what makes Germany important, is that it's the largest economy in Western Europe, and one of the largest in the world. What happens there, has some effect on other nations, especially Europe. Especially Eastern Europe??

But the real mega player is still the United States. If America goes into economic / financial freefall, that's it for the rest of the earth. America is still about 1/3 of the world's GDP. One in three dollars, Euros, Yen, etc. is still generated by America.

So much for decoupling in financial markets. In Guido's view, that is a very dangerous assumption.

"The strong do what they can. The weak suffer what they must." - Thucydides

< As usual, this article is for information purposes only. It is not intended as advice or otherwise a recommendation. >