Robert Reich writes: "Make no mistake. Lurking here is another giant bailout of the Street. The United States wants Europe to bail out its deeply indebted nations so European banks don't implode. And they don't want European banks to implode because they don't want the Street to crash again like it did three years ago. Full circle. In other words, Greece isn't the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system - centered on Wall Street."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Another Giant Bailout of Wall Street?
04 October 11
Follow the Money: Behind Europe's debt crisis lurks another giant bailout of Wall Street.
oday Ben Bernanke added his voice to those who are worried about Europe's debt crisis.
But why exactly should America be so concerned? Yes, we export to Europe - but those exports aren't going to dry up. And in any event, they're tiny compared to the size of the US economy.
If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.
Financial chaos.
Investors are already getting the scent. Stocks slumped to 13-month low on Monday as investors dumped Wall Street bank shares.
The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That's no big deal.
But a default by Greece or any other of Europe's debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.
That's where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.
The Street's total exposure to the euro zone totals about $2.7 trillion. Its exposure to to France and Germany accounts for nearly half the total.
And it's not just Wall Street's loans to German and French banks that are worrisome. Wall Street has also insured or bet on all sorts of derivatives emanating from Europe - on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.
Get it? Follow the money: If Greece goes down, investors start fleeing Ireland, Spain, Italy, and Portugal as well. All of this sends big French and German banks reeling. If one of these banks collapses, or show signs of major strain, Wall Street is in big trouble. Possibly even bigger trouble than it was in after Lehman Brothers went down.
That's why shares of the biggest US banks have been falling for the past month. Morgan Stanley closed Monday at its lowest since December 2008 - and the cost of insuring Morgan's debt has jumped to levels not seen since November 2008.
It's rumored that Morgan could lose as much as $30 billion if some French and German banks fail. (That's from Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks.)
$30 billion is roughly $2 billion more than the assets Morgan owns (in terms of current market capitalization.)
But Morgan says its exposure to French banks is zero. Why the discrepancy? Morgan has probably taken out insurance against its loans to European banks, as well as collateral from them. So Morgan at least feels safe.
Should it? Does anyone remember something spelled AIG? That was the giant insurance firm that went bust when Wall Street began going under. Wall Street thought it had insured its bets with AIG. Turned out, AIG couldn't pay up.
Haven't we been here before?
Republicans and Wall Street executives who continue to yell about Dodd-Frank overkill are dead wrong. The fact no one seems to know Morgan's exposure to European banks or derivatives - or that of most other giant Wall Street banks - shows Dodd-Frank didn't go nearly far enough.
Regulators still don't know what's happening on the Street. They don't know whether Morgan is telling the truth. They have no clear picture of the derivatives exposure of giant US financial institutions.
Which is why Washington officials are terrified - and why Treasury Secretary Tim Geithner keeps begging European officials to bail out Greece and the other deeply-indebted European nations.
Several months ago, when the European debt crisis became apparent, Wall Street banks said not to worry. They had little or no exposure to Europe's problems. The Federal Reserve said the same. In July, Ben Bernanke reassured Congress the exposure of US banks to European nations in trouble was "quite small."
Now we're hearing a different tune.
Make no mistake. Lurking here is another giant bailout of the Street. The United States wants Europe to bail out its deeply indebted nations so European banks don't implode. And they don't want European banks to implode because they don't want the Street to crash again like it did three years ago.
One of the many ironies here is some European nations went deeply into debt bailing out their banks from the last crisis.
Full circle.
In other words, Greece isn't the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system - centered on Wall Street.
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
|
THE NEW STREAMLINED RSN LOGIN PROCESS: Register once, then login and you are ready to comment. All you need is a Username and a Password of your choosing and you are free to comment whenever you like! Welcome to the Reader Supported News community. |
 19 May 2012
|
 18 May 2012
|
 18 May 2012
|
 19 May 2012
|
 20 May 2012
|
 19 May 2012
|
 19 May 2012
|
 20 May 2012
|
|
21 May 2012
|
Comments
We are concerned about a recent drift towards vitriol in the RSN Reader comments section. There is a fine line between moderation and censorship. No one likes a harsh or confrontational forum atmosphere. At the same time everyone wants to be able to express themselves freely. We'll start by encouraging good judgment. If that doesn't work we'll have to ramp up the moderation.
General guidelines: Avoid personal attacks on other forum members; Avoid remarks that are ethnically derogatory; Do not advocate violence, or any illegal activity.
Remember that making the world better begins with responsible action.
- The RSN Team
http://s6.zetaboards.com/Bill_Still_Reforum/topic/8750462/1/#new
Let "some" firms go down? The reason for the fear everywhere is that it's all tied together. Pull out one or two cards and the whole house of cards goes down; the good with the bad. That's one point of Reich's essay. The other point, implied, is that maybe that is exactly what needs to happen, so we can lay to rest the absurd abstraction known as the "free market."
A lot of people, myself included, can't "get our money out of the stock market." We get a pension and have no control over the pension fund's investments.
Any way you look at it, it's a hard rain that's gonna fall. Maybe that's what needs to happen.
2. Carl Rove has entered the GOP to setup the negative (twisted) ads that he did before the 2000 and 2004 elections (yes, he's already begun - twisting the "job bill" with rhetoric that it's a ploy to raise taxes)
3. Carl Rove & Koch & etc will spend about a Billion (Rachael Maddows gave exact amount)
4. Several MILLION Americans will not be able to vote because of the laws GOP/TP governors have passed (along with not including democratic registered people getting ballots, etc.)
5. J.P. Morgan gave the N.Y. P.D. several hundred $$$ (gift?) NO -- those are the "white shirts" you see at the Brooklyn Bridge etc.
If the USA cannot control our government -- the whole world will be bought up by these pigs (Koch Bro, Rove, etc)
VOTE DEM + VOTE OBAMA + get other dems to go with you to poor, minority, etc dem neighborhoods to insure those people get IDs and mail-in ballots. Our elections are free and so are those IDs -
This is the most important election ever! Do NOT NOT vote DEM
This double negative = VOTE DEM!
or DO NOT vote FOR Dems?
The solution is to split up the too big into nice and small, into human scale sized entities. Then the failure of some of them would be no big deal, no great disaster.
Without this turnaround, this "bailout" of the entire American economy, there's no hope.
And the hedge fund managers at the banks are running with their current license to print money and stash it.
With that investment in our *people*, and the spending that will lead to, worldwide *confidence* will return. And investments in the businesses that still survive, the businesses that employ people.
Is it too late, though?
Put the trillion into jobs, not banks. Then the banks will survive, as a consequential benefit, again, because both bank confidence, and the public's, will return.
Phone your congressperson now and urge passage of the Jobs Bill immediately. Obama isn't kidding around. This is the moment; we are about to plunge off an unimaginable cliff, after which money itself will lose its value. . ,
Reich isn't kidding either.
The banks are in deep sh**, and now is the time to change the system. Just two days ago Dennis Kucinich put forward a bill to do this very thing!! Check out:
http://cromalternativemoney.org/index.php/en/media/news/new-bill-introduced-by-dennis-kucinich-hr6550-end-the-fed.html
kucinich.house.gov/.../NEED_Act_Fact_S heet_09232011.pdf
What's more, there is nothing inherently wrong with diffusing credit risk by using the credit default swap market, provided that, unlike AIG, which insured but retained its mortgage exposure, one appropriately lays off that exposure with another counterparty.
Unfortunately, a vote that is NOT Democrat is automatically FOR Republican. In this age of money-controlled elections, there is no third or Independent candidate who will be able tor raise enough to have even a prayer of winning an election. I do not like it that it's this way, but IT IS. It's the reality we live with currently. Better to hold your nose and vote Democratic than to let the Repugs back into the White House. Let's not forget those god-awful 8 yrs under bushco!
The British govt. bailed out the East India Company in 1773 by cutting taxes on its overflowing surplus of tea and putting all the American colonists at a huge price disadvantage. Thus ensued the Boston Tea Party.
Every teapot dictator over the last two or three centuries has bailed out his buddies with favors and preferences.
Every dynasty and monarch from the pharaohs to the Mings to the Ceasars, Khans, Tudors, Borbons, Hohenzollerns, Hapsburgs, etc. supported/bailed out their court allies whenever possible.
Sanford Rose
the first step is to reinstate FDR's Glass-Steagall Act with which he saved America in 1933, separating the world's big bank system from our own local banks. Ask your representatives to pass the Glass-Steagall Act that the Bush Adminstration got rid of.
We have to deal with the systematic theft of worker productivity and its diversion into coprporate CEOs' hands over the past 35+ years. We have to deal with the deindustrializa tion of the American economy through the hoax of "free trade". We have to deal with the systematic starvation and privatization of the commons. We have to deal with the expansion of corporate personhood into the rights of citizens. We have to deal with the glorification and deification of militarism and war profiteering. We have to deal with the monopolization of the US economy.
The list could go on for pages. But we have to start and we have to look beyond simple, one shot answers that are insufficient to solve the underlying problems.
While George W Bush was an unmitigated disaster, war criminal, domestic law breaker, deserter and all around evil and corrupt dude, he was not the only recent president whose administration did bad things for corporate cronies and did genuinely stupid things to round out his failures.
Never, likely, because I think (at least I HOPE) the Dems do realize that a primary challenge would just split the Dem vote and give the election to the Repug -- a fate worse than death IMO.
Things need to change, but we need to do it in a controlled way. The problem is we've elected too many people who are invested in trying to save the system (the Street) and who don't care what happens to the other 90%+ of us struggling to make a living.
Carolyn, much to my dismay, it was the Clinton Administration that got rid of Glass-Stegal, to appease the republican majority in the House.
Wonder why there is no respect on any level for the Law, not I. Bush's should have been made an example of not voted into Government Positions. Never thought people were as stupid as they are.
I am off to an Occupy Wall Street Afternoon How about You?
In other words -- though it seems he still dare not say it outright -- the problem is capitalism and the capitalist mode of governance.
What is capitalism? It is infinite greed elevated to maximum virtue.
And what is capitalist governance? Absolute power and unlimited bail-outs for the Ruling Class, total subjugation and ever-worsening poverty for all the rest of us: the slave-state tyranny earlier generations knew as fascism.
But maybe -- just maybe -- we are beginning to awaken.
http://www.huffingtonpost.com/dylan-ratigan/get-money-out-join-100000_b_983427.html
VOTE DEM VOTE OBAMA - a non-vote = support for TP/GOP.
Go to your Dem headquarters + find others to go out with you to the poor, minority, etc neighborhoods. Get them and u registered and get mail-in ballots.
Our elections are FREE -- thus the IDs required are free = even though Walker (WI Gov) wants to charge $28.
If u're in a GOP/TP governed state, make sure you get registered and if rejected - then go to ur REP (It is their duty to deal with FED matters - elections are a FED matter - and outlined in constitution)
VOTE DEM VOTE OBAMA.
2012 is the most important election we have ever had. VOTE or you give the GOP/TP th power to take us worse than u can imagine
"The Obama administration appears to have delayed (deferred, suspended, or slowed) prosecution and civil litigation against executives of banks, mortgage companies, and other financial entities presumably until the economy recovers sufficiently so as not to interfere with that recovery.
"Do you, sir, plan to reinstitute and/or reinvigorate these deferred investigations, prosecutions, and civil litigations against financial executives and entities implicated in causing the economic collapse when the economy recovers?"
Martha Luehrmann
RSS feed for comments to this post.