The Swiss pride themselves in being calm, reserved people. Unlike the Spanish, English, Germans, and French, they have never given the world much trouble.

The trouble, it appears, has been visited upon the Swiss, although they do have some of the blood of the credit crisis on their hands.

For reasons no one can fathom, UBS (UBS) of Switzerland decided that it had a larger appetite for mortgage-related financial instruments than any other bank in the world. Its balance sheet became obese with the junk and forced it to take what seemed like a write-off a week. UBS has fired so many people that it is surprising it still has someone to man the switchboard.

Things have gotten worse at UBS, and it only took a couple of months. The last time the bank reported earnings it did not indicate that it might be found face down in an alley in Zurich.

Matters have gotten so bad that UBS has had to take a $5.3 billion investment from the Swiss government. It is more awful than that. The FT reports that "UBS, one of the largest casualties of the US credit crisis, would also transfer $60bn — the overwhelming majority — of its illiquid US securities to a new entity owned and controlled by the Swiss National Bank."

That $60 billion is nearly 25% of the money Paulson is investing in US banks and UBS is only one firm headquartered in a country best known for making expensive watches for people who work on Wall St.

UBS management did not have the guts to come out and say that the actions taken today by its board and the government would end all of its problems. It probably would be a lie, so why bother? The bank’s customers are making a run on its assets and there is no telling how much cash will walk out the door.

There may be something of a modest lesson in all of this if Treasury and US banks are paying attention. As long as housing prices are falling and bank customers are putting cash into their mattresses, the American banking system is in increasing ill-health.

The purchases of Treasuries is way up. That could be the Chinese government sucking up more of the paper, or hedge funds looking for safe harbors. It is just as likely, however, that a lot of that money is from the barber and gas station attendant who don’t want their money in the Fifth Third Bank.

Increasingly, Americans believe that they have reason not to trust their banks, no matter what the government tells them about FDIC guarantees. Between that skepticism and increasing mortgage defaults, the $700 billion coming from the government may not be nearly enough.

Douglas A. McIntyre

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