From the FINANCIAL TIMES:
Foreign banks and governments are warning that Hungarian moves to help holders of Swiss franc mortgages amount to “expropriation” that could damage the country’s banking system and economy. …
Hungary’s parliament last week passed a law allowing mortgage borrowers in Swiss francs and euros to repay their loans by the year-end at exchange rates about 25 per cent below current market rates. Losses would be borne by the banks, including Hungary’s OTP and foreign lenders such as Erste Bank and Raiffeisen Bank International of Austria, and Bank Austria, a unit of Italy’s UniCredit…
“The banks made Swiss franc loans to very risky population groups,” [Zoltan Kovacs] said. “We consider the practices of the banks, especially in the last couple of years, as unethical.” He suggested there had been elements of mis-selling of loans to customers who did not understand the risks…
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EDITOR: We have mixed feelings about Hungary’s action.
On the one hand, capitalism requires the rule of contract law so long as contracts are wtihin reason.
Yet, as we see with the Greek situation, too often lenders have turned a blind eye to the pit falls inherent in their contracts with unsophisticated borrowers. There is something to be said for making “too big to fail” banks take into consideration the risk of non-payment and even remedial government actions if things go too far awry.
The mortgage borrowers thought they were investing in housing for their families. Most didn’t fully realize they were speculating on currency trends. But the bankers certainly understood the possible consequences.
