Guest Post: No Wonder the Eurozone is Imploding

[Joanne98]

You might assume that the reason for the implosion in the Eurozone is a mystery.

But it’s not.

There Wouldn’t Be a Crisis Among Nations If Banks’ Toxic Gambling Debts Hadn’t Been Assumed by the World’s Central Banks

There wouldn’t be a crisis among nations if banks’ toxic gambling debts hadn’t been assumed by the world’s central banks.

As I pointed out in December 2008:

The Bank for International Settlements (BIS) is often called the “central banks’ central bank”, as it coordinates transactions between central banks.

BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.

In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don’t have, central banks have put their countries at risk from default.

No wonder Greece, Portugal, Spain and many other European countries – as well as the U.S. and Japan – are facing serious debt crises.

But They Had No Choice … Did They?

But nations had no choice but to bail out their banks, did they?

Well, actually, they did.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach (as are other central bankers).

Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government’s attempts to prop up the price of toxic assets no one wants is not helpful.

BIS slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, “the use of gimmicks and palliatives”, and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”.

Remember, America wasn’t the only country with a housing bubble. The world’s central bankers let a global housing bubble development. As I noted in December 2008:

http://www.nakedcapitalism.com/2010/04/guest-post-no-wonder-the-eurozone-is-imploding.html

[RandomThoughts]

1. This is the video I played when crises happened.

Even had some cameos, in it.

Healing Rain
http://www.youtube.com/watch?v=nwVRyWtuCEs


But nobody listens...

But then again why would they... so there is that also.

[ixion]

2. another good quote:

and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”.

And we've done everything BUT these 3 things we need to do (with some exception for savings increases) to avoid another crash, and why I am a "gloom and doomer."

We have NOT solved the problem, hence there is no "recovery."

[girl gone mad]

3. "liquidity" crisis >> sovereign debt crisis >> global insolvency crisis..

We rearranged the deck chairs.

[dotymed]

5. Unregulated capitalism

is the problem. FDR proved this with the 'New Deal", STRICT regulations on banksters and an income tax of 90% on the wealthiest individuals and corporations. This would make unfathomable CEO packages unnecessary. It would put people back to work At A Living Wage. Regulate the greed induced outsourcing of jobs and shut down the "tax havens" where they can hide their wealth. Capitalism has become "The Lord of the Flies"-vs-the majority of human beings and humanity. Of course it is a class war, while a great majority of the "under class" (less all of the time) don't realize it. The wealthy know it and are winning by a huge score. Feudalism (indentured servitude) is the reality of everyone except the wealthy. America is the epicenter. Most of the other "top 20 civilized nations", recognized long ago that humans have inherent rights. The USA is leading the charge to usurp humanity and those rights. It will be the end of an empire or of humanity as we knew it.Abundant Strong Unions can help save humanity, first we have to restructure the corporate owned MSM. If Obama was the FDR we believed him to be, real changes would be helping already. A "jobless recovery" is great for the wealthy elites on wall street. It only further entrenches Feudalism.

[jtuck004]

4. Nobody wants to make the call

At what point does the person sitting in the big chair say enough is enough and turn out the lights?

I personally think that we should have let the big firms fail, let their management be replaced, and rebuilt on what we, as a country, had left.
Our leaders, I think, are trying to prop things up in the hope that something will turn around. I think they are hoping against hope, and their ability to prop up those assets is slowing, and a huge debt is going to kill our ability to generate a living in the future. At this point, despite all the talk of recovery, over 20 million Americans (as well as people in other countries) have likely had their lives permanently and irrevocably altered with the loss of their job, with little hope of another, and that number may well increase by another 10 million in the next year. We are likely to live in this malaise for at least another decade, and perhaps longer barring some miracle of technology which provides us with another source of cheap power, and the next big disaster (the well in the Gulf, with the environmental damage and loss to the tourism and fishing industries). The toll of that malaise will continue to weaken us as a country. I heard something the other day on NPR about Theodore Roosevelt, I think. The author's point was that he wanted the U.S. to go to war because he thought we had become soft and it was needed to rejuvenate us as a country. Despite what one thinks of the problems with that theory, I am not completely sure that if we were faced with our economy crashing that it might help us all focus on what really is important, and might stir people to make some necessary adustments in the corporate world.

It's easy to sit back and armchair quarterback what they should do, however. I wonder what they see from that chair...