- Jun 6, 2007
- 852
- 483
- 910
The United States and China have to stop criticizing European Union countries to fix their financial problems and help! These heavy weight countries expect Germany to step to the fore and be some type of hero and save the European Union but the job is too big for even Germany the U.S. and China have to come forward with their checkbooks or in all probability the Eurozone won't survive. The world can learn some valuable lessons for the Eurozone problem from the history of the U.S. economy; the U.S. economy has many shortcomings namely in part that our laws still allow casino capitalism with these big stakes speculative swap contracts that have no public policy value and will eventually result in a financial institution losing large sums of money, nevertheless the U.S. can provde great lessons in how to protect a country's commercial (as opposed to investment) banking industry. The U.S. has accomplished this through the organization called the FDIC which not only creates and maintains and insurance fund that insures bank deposits up to a fairly generous amount (I believe it's $250,000 per account) achieving this by assessing a small fee to every commercial bank based on the amount of their deposits and the size of the bank but this organization also has the extraordinary valuable role of monitoring the financial condition of each and every participating bank and if such a bank starts slipping dangerously toward insolvency the FDIC rushes in and takes over the bank and sells the deposits to a strong bank so that there is no run on the bank and the surviving commercial banking industry is left strong so it can perform its function in extending credit to individuals and businesses. The FDIC's history from a portion of 2008 to 2011 demonstrates this extraordinary value quite clearly, during this time which was in the midst of the Great Recession the FDIC was probably closing down around eight to twelve banks a month because they were in bad financial shape sparing America from suffering any significant run on America's bank and healing the banking industry leaving it strong!
The President of the European Union Central Bank, Mario Draghi, and Tim Geithner as well as many other good economic experts have called for a banking union amongst Eurozone countries to be formed now that has a shared insurance pool for deposits and a single strong regulator that can rein in and shut down troubled banks throughout the Eurozone creating and maintaining a strong Eurozone banking industry! These voices are spot on common sense indicates do it now because otherwise the financial condition of Eurozone banks collectively will continue to deteriorate and the cost to fix this problem in the future will be dramatically costlier. In light of the very ominous appearing future for the Eurozone this is really an opportune time to create this true banking union; the Spanish government has asked for $125 billion of financial assistance to recapitalize its banks from the Eurozone bailout fund. Experts say what will happen is that authorities from the bailout fund will condition the loan to Spain that Spain has to shut down certain banks in really bad financial shape and others in less bad shape will have to sell troubled assets; this shutting down sick banks is the biggest challenge in forming a banking union and since Spain will have to go through this anyway start the union now. Most of Germany's banks could join the union with no material change to their status for the German economy is in good stead and several other like status countries could also readily move their banking industry into this union. The financially distressed Eurozone countries like, Italy, Portugal and Greece will present a challenge good judgment calls for some of these countries' banks to be permanently shut down and others to be recapitalized before being permitted to join the union. This presents the big challenge the world needs a fund with the functional description of Creating a Eurozone Banking Union by providing bank recapitalization where needed; this fund will probably need around a trillion dollars. This is where China and the U.S. need to step up. This job can't be left to Germany for one reason Germany will have its hands full trying to save Eurozone sovereigns like Spain and Italy whose current borrowing costs are too high and are on the brink or in fact shut off from credit markets; Eurozone countries, the IMF and the ECB will be stretched to the maximum trying to solve that problem. The other compelling reason that China, the US and G-20 nations should see this Eurozone bank recapitalization fund created is that there is little risk to them in losing money over this endeavor; this fund would work like the TARP fund the US had since 2008 which from a bank recapitalization standpoint didn't lose any money but actually made money and this is so in part because not only does this type of fund load banks a specific amount of money with a promise to be repaid with interest but it also gets warrants to buy stocks in the bank they lent money to in the future at a low price which can be sold for huge profits when borrowing banks financially recover. To solve these sick Eurozone banks problems this fund should charge low interest rates like 1.5% so as to not burden these banks with large interest expense obligations but take warrants from these banks that will payoff big-time when the banks recover so that the contributing countries can get a fair interest rate return on the money they contributed and factoring in that some Eurozone banks recapitalized will end up ultimately failing where the fund won't get its money back. One nonnegotiable condition should be so as to respect the interests of individual Eurozone countries is that the fund should commit to sell the warrants to an individual(s) or business that is from the same country which the bank is from. To entice participation into this fund Germany should contribute $150 billion to this fund and agree to be paid back last so if the fund loses money Germany will absorb the loss first this is reasonable because if the euro fails Germany stands to lose big-time because the German mark will have an extremely high value compared to other countries so German exports will be hurt dramatically and Germany has a big manufacturing economy and because Germany is taking the biggest risks German authorities should manage the fund. This system should work like this the Eurozone banking union regulator acts as a gatekeeper to banks throughout the Eurozone that want to come into the union they say certain banks need to be shuttered and their deposits sold to other banks to make them stronger and they identify banks that just need additional capital to come into the union and these banks that just need additional capital go see the this G-20 fund managed by the Germans and cut the deal to get the needed capital and if they don't want to cut the deal they can sell themselves.
The one point that bears mentioning here is that this cure will cause current owners of troubled Eurozone banks to take a financial bath and in some cases to get wiped out but everyone needs to remember there is no alternative here if something dramatic isn't done the world will see large scale bank collapses in these financially distressed Eurozone countries; today many Eurozone banks are financial lepers depositors don't want to deposit money with them, lenders don't want to lend to them and investors don't want to invest with them it's only a matter of time before widespread collapse occurrs if the present course of things is maintained. Another important point that bears mentioning is that if there is created a banking union individual eurozone governments will lose control of the banks in their country everyone needs to remember this can't be avoided all Eurozone banks will be backstopping each participating bank so there has to be a single all powerful regulator to protect all participating banks interests plus this system should result in the existence of a stable and strong banking system in each individual eurozone country which should fulfill the needs of indivdual governments in each country in terms of what they need from their banking industry; moreover, a banking regulator shouldn't be changing with the political winds this is why many of the Eurozone troubled banks are in the condition they are in it is the result of them being driven by politics the banking union single regulator should be politically neutral just a good banking industry steward which should be great for every Eurozone country.
Frankly, I think President Barack Obama and Treasury Secretary Tim Geithner have the good sense to recognize all of the above and that the U.S. should come forward with a monetary commitment to fix the Eurozone banks recognizing this problem is causing significantly bad contagion to the U.S. economy with no end in sight. I think the problem these guys have is that the Republican House will never pass a bill providing such help they will view it as a bailout which is against their principles and so why even have the White House pursue this course when there is no real chance of success. I don't hold out any hope for overcoming our narrow minded Republican countryman who choose not to recognize that it is not important the wealthy who benefit from bailout what is important is the ordinary person who is protected and thus benefits from bailouts that is important; in this case if the euro fails several former Eurozone countries who will have weak currencies the citizens of such countries will have a lower standard of living they won't be able to afford certain medicines and medical equipment they will have to spend a higher percentage of their income on food imports, etc. the result will be hundreds of millions of Europeans will experience suffering over the failure of the euro which the U.S. possibly could have helped prevent if we would have come forward with a modest amount of money and this suffering will go on indefinitely. I would like the White House to try to assist such a fund maybe they could just provide a letter of credit to the fund which would allow the fund to borrow money on such a basis; this is a far fetched idea but why couldn't the White House just send some Treasury staff to Fort Knox and remove $150 billion dollars worth of gold bullion and deliver it to the fund and get a commitment from the fund to return the gold when the funds work is complete. One final note the idea that the Euro bond is the answer to the Eurozone is one of the all time dumbest ideas in history it is like the idea that the the Titanic was an unsinkable ship, the only thing the Euro bond would do is ruin the credit worthiness of Eurozone countries that have good credit!
The President of the European Union Central Bank, Mario Draghi, and Tim Geithner as well as many other good economic experts have called for a banking union amongst Eurozone countries to be formed now that has a shared insurance pool for deposits and a single strong regulator that can rein in and shut down troubled banks throughout the Eurozone creating and maintaining a strong Eurozone banking industry! These voices are spot on common sense indicates do it now because otherwise the financial condition of Eurozone banks collectively will continue to deteriorate and the cost to fix this problem in the future will be dramatically costlier. In light of the very ominous appearing future for the Eurozone this is really an opportune time to create this true banking union; the Spanish government has asked for $125 billion of financial assistance to recapitalize its banks from the Eurozone bailout fund. Experts say what will happen is that authorities from the bailout fund will condition the loan to Spain that Spain has to shut down certain banks in really bad financial shape and others in less bad shape will have to sell troubled assets; this shutting down sick banks is the biggest challenge in forming a banking union and since Spain will have to go through this anyway start the union now. Most of Germany's banks could join the union with no material change to their status for the German economy is in good stead and several other like status countries could also readily move their banking industry into this union. The financially distressed Eurozone countries like, Italy, Portugal and Greece will present a challenge good judgment calls for some of these countries' banks to be permanently shut down and others to be recapitalized before being permitted to join the union. This presents the big challenge the world needs a fund with the functional description of Creating a Eurozone Banking Union by providing bank recapitalization where needed; this fund will probably need around a trillion dollars. This is where China and the U.S. need to step up. This job can't be left to Germany for one reason Germany will have its hands full trying to save Eurozone sovereigns like Spain and Italy whose current borrowing costs are too high and are on the brink or in fact shut off from credit markets; Eurozone countries, the IMF and the ECB will be stretched to the maximum trying to solve that problem. The other compelling reason that China, the US and G-20 nations should see this Eurozone bank recapitalization fund created is that there is little risk to them in losing money over this endeavor; this fund would work like the TARP fund the US had since 2008 which from a bank recapitalization standpoint didn't lose any money but actually made money and this is so in part because not only does this type of fund load banks a specific amount of money with a promise to be repaid with interest but it also gets warrants to buy stocks in the bank they lent money to in the future at a low price which can be sold for huge profits when borrowing banks financially recover. To solve these sick Eurozone banks problems this fund should charge low interest rates like 1.5% so as to not burden these banks with large interest expense obligations but take warrants from these banks that will payoff big-time when the banks recover so that the contributing countries can get a fair interest rate return on the money they contributed and factoring in that some Eurozone banks recapitalized will end up ultimately failing where the fund won't get its money back. One nonnegotiable condition should be so as to respect the interests of individual Eurozone countries is that the fund should commit to sell the warrants to an individual(s) or business that is from the same country which the bank is from. To entice participation into this fund Germany should contribute $150 billion to this fund and agree to be paid back last so if the fund loses money Germany will absorb the loss first this is reasonable because if the euro fails Germany stands to lose big-time because the German mark will have an extremely high value compared to other countries so German exports will be hurt dramatically and Germany has a big manufacturing economy and because Germany is taking the biggest risks German authorities should manage the fund. This system should work like this the Eurozone banking union regulator acts as a gatekeeper to banks throughout the Eurozone that want to come into the union they say certain banks need to be shuttered and their deposits sold to other banks to make them stronger and they identify banks that just need additional capital to come into the union and these banks that just need additional capital go see the this G-20 fund managed by the Germans and cut the deal to get the needed capital and if they don't want to cut the deal they can sell themselves.
The one point that bears mentioning here is that this cure will cause current owners of troubled Eurozone banks to take a financial bath and in some cases to get wiped out but everyone needs to remember there is no alternative here if something dramatic isn't done the world will see large scale bank collapses in these financially distressed Eurozone countries; today many Eurozone banks are financial lepers depositors don't want to deposit money with them, lenders don't want to lend to them and investors don't want to invest with them it's only a matter of time before widespread collapse occurrs if the present course of things is maintained. Another important point that bears mentioning is that if there is created a banking union individual eurozone governments will lose control of the banks in their country everyone needs to remember this can't be avoided all Eurozone banks will be backstopping each participating bank so there has to be a single all powerful regulator to protect all participating banks interests plus this system should result in the existence of a stable and strong banking system in each individual eurozone country which should fulfill the needs of indivdual governments in each country in terms of what they need from their banking industry; moreover, a banking regulator shouldn't be changing with the political winds this is why many of the Eurozone troubled banks are in the condition they are in it is the result of them being driven by politics the banking union single regulator should be politically neutral just a good banking industry steward which should be great for every Eurozone country.
Frankly, I think President Barack Obama and Treasury Secretary Tim Geithner have the good sense to recognize all of the above and that the U.S. should come forward with a monetary commitment to fix the Eurozone banks recognizing this problem is causing significantly bad contagion to the U.S. economy with no end in sight. I think the problem these guys have is that the Republican House will never pass a bill providing such help they will view it as a bailout which is against their principles and so why even have the White House pursue this course when there is no real chance of success. I don't hold out any hope for overcoming our narrow minded Republican countryman who choose not to recognize that it is not important the wealthy who benefit from bailout what is important is the ordinary person who is protected and thus benefits from bailouts that is important; in this case if the euro fails several former Eurozone countries who will have weak currencies the citizens of such countries will have a lower standard of living they won't be able to afford certain medicines and medical equipment they will have to spend a higher percentage of their income on food imports, etc. the result will be hundreds of millions of Europeans will experience suffering over the failure of the euro which the U.S. possibly could have helped prevent if we would have come forward with a modest amount of money and this suffering will go on indefinitely. I would like the White House to try to assist such a fund maybe they could just provide a letter of credit to the fund which would allow the fund to borrow money on such a basis; this is a far fetched idea but why couldn't the White House just send some Treasury staff to Fort Knox and remove $150 billion dollars worth of gold bullion and deliver it to the fund and get a commitment from the fund to return the gold when the funds work is complete. One final note the idea that the Euro bond is the answer to the Eurozone is one of the all time dumbest ideas in history it is like the idea that the the Titanic was an unsinkable ship, the only thing the Euro bond would do is ruin the credit worthiness of Eurozone countries that have good credit!
Last edited:
