Let's Bail Out Europe Now

This is truly incredible. It is 3 years, to the day, of the Lehman Brothers bankruptcy and we get an announcement the Federal Reserve is de facto bailing out Europe through a massive dollar liquidity injection:

Five of the world's top central banks acted jointly Thursday to provide unlimited dollar loans to banks, a move aimed at easing the growing tensions in the eurozone's financial sector and shielding the global economy from its jitters.

The European Central Bank said it will coordinate with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to offer three-month dollar loans to banks through the end of this year.

The Fed didn't even issue a press release on this major move. Dylan Ratigan did a segment, with Barry Ritholtz commenting:

 

 

Earlier Moody's downgraded French Banks Société Générale, Crédit Agricole and put BNP Paribas under review.

Moody’s downgraded its ratings for Société Générale by one notch to Aa3 and for Crédit Agricole to Aa1, citing their exposure to the Greek economy and the fragile state of bank financing markets. It left BNP Paribas at Aa2, saying the bank had “ an adequate cushion to support its Greek, Portuguese and Irish exposure,” but kept it under review.

As expected, even though Greece was on the brink of default, Germany and France came out with promises of more support.

Now we have this, the Federal Reserve getting into the mix.

The Financial Times:

A number of gauges of stress in funding markets for European banks fell off from their highest levels since the 2008-09 financial crisis. The euro, which had fallen sharply against the dollar in recent weeks, rose 0.9 per cent to $1.386. US, German and UK government bond yields all moved away from multi-decade lows.

The move by the central banks, in conjunction with the US Federal Reserve, followed escalating difficulties, especially at continental European banks, in obtaining dollar funding as US investors took fright at the eurozone debt crisis. The Bank of Japan, which had already offered three-month dollar liquidity, also said it would be making additional offers to cover the year-end period.

But it also reflected a desire to be forestall tensions rather than addressing immediate needs – in recent weeks there has been scant or zero use of existing weekly ECB offers of dollar liquidity. The three-month maturity of the loans will increase planning security at banks and avoid them having to return weekly for dollars – at the risk of being stigmatised as weak institutions.

Supposedly swap lines are no risk to U.S. taxpayers, but that sure isn't true in the case of a Euro collapse:

Well, in an extreme case the U.S. taxpayers are on the hook. Now, the way that it works is that Europe’s government enters into agreements with the foreign central bank, in this case the European Central Bank, that we will exchange U.S. dollars for local currency, the Euro, at an agreed-to exchange rate, which is then locked in as of today. The ECB has an obligation to repay those dollars at some point at that exchange rate. So theoretically, the U.S. doesn’t have risk. We’ve gotten rid of the exchange rate risk through that agreement. Even the credit risk, should the collateral that the ECB lends dollars against go bad, then it would be the ECB who would have that credit risk. To that point, no, the Fed doesn’t have any risk. However, given the severity of the crisis in Europe, there remain questions as to whether the European Union might break apart, could see change in membership, and that the ECB could end up in trouble. So if the Euro collapses, the question is, where would we end up getting repaid? And in that extreme example, the U.S. is on the hook it seems.

That’s also an important point to consider, because really, the Fed has thus committed to support the European Union and the Euro through these transactions. And that almost seems to take them out of the role of monetary policy almost into the role of foreign policy. Because it’s now not just a matter of bank stability and international financial market stability, but in fact the Fed inserting itself in support of the stability of the European Union and the Euro itself.

Credit Writedowns sums up what this really means, it's basically prep work for a Greece default, later down the pike.

This latest dollar funding scheme addresses the symptoms but not the illness. The illness is that Greece is insolvent, and one of the symptoms is that banks are afraid to lend to each other and are instead hoarding cash. Today’s actions won't PREVENT a Lehman-type event (Greece is insolvent, period), but they could MITIGATE the dislocations and market turmoil that will likely result from such an event. We fully expect policy-makers are preparing quietly for a Greek default, and would look for more and more preparatory measures in the coming months.

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Comments

The Price of Empire

It seems like it's endless, when you have the US version of Rome, in which we pay tribute to our vassals and they have healthcare, pensions and other social services no one here even dreams of. Now we're going to add to the list by backing up the European banking system. Another self-sacrifice by the US. I only wish we had our own version of Uncle Sam -- but unfortunately, we do not.

Of course we, as a First World nation, end up the beneficiaries of the general transfer of resources from poorer countries to richer countries, so I guess we can't pretend not be exploiters.

But within the family of nations, we have to be the world's biggest masochist. We've paid a king's ransom to keep Europe safe since 1940s and 1950s and have stood by while they've dodge their obligations to defend themselves. The situation with Japan and Korea is similar except they put more money into their developing their economies vs social services than Europe did.

In addition to the people who are still "over there", there's the enormous and unfair burden of those "over there" who came over here.

Correct me if I'm wrong, but won't whatever "peace dividend" we get by the end of the wars in Iraq and Afghanistan -- plus trillions more? -- end up getting plowed right into taking care people here due to excessively high immigration levels (both legal and illegal) since the 1980s?

One way or another we'll end up legalizing the illegal, so there's another 10 million plus their citizen descendants to take care of -- forever. Add that to the 1 million plus green cards and work visas handed out each year and the decrease of jobs and wages for the average American and we're on the road to God only knows where.

None of us average folks will get back much of anything for all the money -- our money -- that will be spent to provide education, healthcare and social services to all these former citizens of other countries who came here "to find a better life."

Where do Americans who are losing everything they used to have, in terms of security, jobs and peace of mind, go to find a better life? You know, the life that's no longer obtainable in the US by average people whose families worked and fought to make America what was in 1980?

The idea of us volunteering to take on another burden right now is really upsetting to me. Are we even going to make any interest on what we're lending?

Why are we so good at saying Yes to other countries and No to ourselves?

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Government for the people?

Very well said.

Our government wants to take care of all world problems but our own. It forgets its very own citizens.

Where do American citizens go when their own government forgets them? Will any other nation in the world accept them and provide economic opportunity?

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foreign currency swaps are supposedly a zero sum game

But we've seen this over and over where TARP funds, U.S. Fed is bailing out other countries banks. Right, nationalism, sovereignty and putting U.S. citizens first is a joke to these people, U.S. citizens are dead last in their concerns. I don't think anyone can say a nation which has a GINI index below many African nations is 1st world. The income inequality is so high, the U.S. is really 3rd world, the majority of us anyway.

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Let's Not Bail Out Europe and Say We Did

Anyone other than me get the distinct impression that the world's financial markets are being engineered for a uniform collapse and subsequent introduction of a global currency? You just can't make up stories that are this stupid.

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Bailout

Dem's can't get enough money out of Congress; Republicans stop them so they just spend it in Europe?! Aren't people getting wise? (See "Marxism in America", Boykin's video). Dem's taken over by socialists want worldwide bankruptcy, economic collapse and public anger for a revolution that will let in a Marxist one-world government.

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Leaders with facial hair

"Dem's taken over by socialists want worldwide bankruptcy, economic collapse and public anger for a revolution that will let in a Marxist one-world government." -- 'JCamp'

Conspiracy theory is like that - you can't tell the real thing from the "camp" parody.

"Camp ... regards something as appealing because of its bad taste and ironic value."

--  from Wiki article on "Camp (style)"

Conspiracy theory! Isn't it wonderful in the absence of facts? -- or meaning? -- or context?

"Boykin's video" refers to a retired general officer who draws about $13,000 a month from taxpayer money, plus complete socialized medicine (for himself, if no one else) ... complaining about runaway government expenditures! It doesn't get any better than that!

Pardon me if thinking and criticism upset anyone who has made up their mind to non-think .... but here's a little common sense complete with a sense of humor ....

 

Leader with facial hair (from Leaders with facial hair video)

Left (below) versus Right (right) ?

Clown from Leaders with facial hair

 

 

 

Big showdown in desert (from Leaders with facial hair)

ABOVE: Right (left) versus Left (right)?

 

Check out hilarious video at YouTube --

Leaders with Facial Hair are a Bad Sign II

 

...  and other videos in the "Leaders with Facial Hair are a Bad Sign" series.

 

[All images are from Leaders with Facial Hair are a Bad Sign II, available at YouTube.]

 

Meanwhile, "Be all you can be!"

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re facial hair

You might make sure your images are smaller, all of these increase page load times.

Then you can show youtubes. Click the "embed media" and copy the "embed" code from the site. Alternatively you can click the URL in the flash button or in the plain text editor, paste the embed code directly.

Example done with the embed media button (made the size small for page load and fitting into a comment form):

 

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$13,000/month

Just want to return to this topic briefly to clarify that I don't find $13,000 a month to be excessive for retirement pay of a Lt. General (*three stars"). There has to be a pay differential from private to corporal and on up -- so $13,000/month for next-to-top rank, in comparison with retirement compensation of corporate officers, isn't particularly excessive after 30 years of service. That's barring sweetheart "revolving door" employment of retired officers by military contractors -- which isn't anything to do with Boykin, I don't believe.

I don't consider the military retirement pay schedule to be a problem -- any more than I consider funding of Social Security retirement to be a real problem.

Conspiracy theory! Isn't it wonderful in the absence of facts? -- or meaning? -- or context?

"Boykin's video" refers to a retired general officer who draws about $13,000 a month from taxpayer money, plus complete socialized medicine (for himself, if no one else) ... complaining about runaway government expenditures! It doesn't get any better than that!

 

I have just reviewed Boykin's video, and it doesn't seem that the costs of medical care are troublesome to him -- not surprising given his situation. The problems that he sees or imagines are much more brooding and ominous than anything quantifiable. What strikes me is that he exempts the current Communist Party regime in China from his criticism of "the Marxist model" -- even though every point he makes applies today in the People's Republic just as much as it did twenty or thirty or fifty years ago! All of his points also apply, for example, to Singapore. Oh well ... guess he's trying to cope with the changes somehow ...

Whatever else Boykin is saying, at least we are agreed on commitment to the Constitution.

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"Run Like A Business"

Why is the overwhelming mantra of modern US politics that we need to run government "more like a business" when no sane investment body would provide "unlimited dollar loans" to ANYONE, let alone an organization which has shown itself to be unwise or imprudent in investments??! I mean, hell, I have a credit score well over 700 but because I don't own a house (because I'm young and know that the bottom hasn't fallen out of the market yet) my majority student lender won't consolidate its own holdings with a very small loan from another institution. Talk about tight markets for we of lesser gods.

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student loan consolidation

I thought there was a new law where they had to offer student loan consolidation. I'd do some research on that one. On credit scores, it's ridiculous, they are going up to 780 as a threshold for mortgages. The way it's tabulated I believe you can be a perfect little consumer with a fairly high stable income and not hit 780 FICO.

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the Euro bailout by the Feds

As some have already mentioned, this one isn't the first time a good deal of our tax money has bailed out the Euro-zone. Under TARP, Bush/Paulson ended up sending a good deal of our money over there. In all honesty, one reason (not the only one, of course) they are in trouble is because they believed us when our banksters bundled and sold them huge tranches of crappy paper and our rating agencies told them that it was all AAA. So their bankters were drinking the Kool Aid every bit as much as ours did.

Finally, it doesn't behoove us to get all high and mighty on the Europeans. After all, we're hoping that the Chinese bail out all of us, or at least don't unload all our paper on the market.

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Would EU Bail U.S. Out? Who Will Bail Me Out?

Obviously we've made mistakes so I would agree that we shouldn't be "all high and mighty."

But look, we loaned out money to them in 2008 and now again.

Do you think they'd stake their future on us to the tune of billions? Because backing them up at the current time is not without risk. What if 4-5 countries default in the dreaded chain reaction. Then what?

And let us not forget that these supposedly broke European governments are still giving their unemployed and have-nots money that our own people need, too, and yet aren't getting. As a person without healthcare for over a year and no income since last unemployment payment in 2010, this is an ever growing issue in my mind: What we do for other countries, what they do (or don't do) for us, and why we're spending money on people who live better than us.

Where is our Uncle? We need help ourselves.

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I think u miss the problem of

I think u miss the problem of the economy. The Euro is artificially kept HIGH to give u the possibility to keep the dollar low, to cancel ur debts, and to EXPORT. The situation is at the opposite. Europe is HELPING u, not the opposite. And they are paying with the destruction of their economy. Better u study the fundamentals: u can inflationate ur money only because they are in the stranghold of a too strong currency that block their trade.

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Euro vs. dollar - for example, Greece

Back in the days of the drachma, the real currency in Greece was the USD. Especially in Greece's huge underground economy. Of course, that was unpleasant and annoying to Europeans (who like to vacation in Greece) -- so one of the objectives of the Euro was to get Greece out of the $$$ zone. That was accomplished, but at some cost, as it now turns out.

So, the EU and all that, they have to defend the Euro against the USD. And, Anonymous Drive-by is correct -- that's good for the U.S. economy because it's good for exports. (Of course, it may not be so great if there are European products that you like to, or have to, buy.)

On the other hand, the whole IMF interlocking central-bank system (fractional reserve banking, etc.) is problematic. Metaphorically, it's all one great example of political sausage-making -- not pretty if you look at it very closely.

And then "on the third hand," it really seems like it will be a good thing if the Euro zone and the EU somehow come out of the current mess looking good within the next month or so -- which is 'THE PLAN'. That will be good for economic stability here in the USA and globally, furthering a sane investment environment without which there's little hope of going forward toward economic recovery.

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