Banking crash hits Europe as ECB loses traction in money markets

September 30, 2008 by · Leave a Comment
Filed under: Economic News 

This is getting more serious by the day.  Looks the like European Central Bank or ECB is really seeing their banking freeze up as well.  In the article they mention the five failed banks that have been rescued because of the massive strain in the system.  Europe will need to de-leverage as well.   UK especially, had a very over heated real estate market that was fueled by securitization of mortgages and hedging strategies against different bonds for default with insurance products such as credit default swaps or CDS.  They mention the inter-bank lending market has collapsed and “The ECB is no longer able to inject liquidity because the money is just coming back to them again. This is extremely serious. If monetary policy is no longer working, there is a risk that the whole system will blow up in days.”  At this moment is when people need to not panic and let these bad institutions fail so we can clean the system of all this excess and set the right precedent so future banks will understand what happens when you conduct such reckless lending operations.  I have read basic banking and lending theory and everything that has been pasted down in that area was ignored in all cases in this industry from making subprime loans to not carrying adequate reserves against losses on debt insurance contracts.  We should never forget the basics and fundamentals.

News Article:

The Dutch-Belgian bank Fortis, Britain’s Bradford and Bingley, and Iceland’s Glitnir, were all partially or fully nationalized after failing to roll-over debts in the short-term money markets, while the French state pledged support for the Franco-Belgian lender Dexia after the share price collapsed on reports of a capital shortage.

“The European financial sector is on trial: we have to support our banks.” said French President Nicolas Sarkozy. He has reportedly ordered the state investment arm Caisse Des Depots to shore up Dexia, even though the bank is based in Belgium.

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