NCPA - National Center for Policy Analysis

FINANCIAL CRISIS: SO MUCH FOR TIRADES AGAINST AMERICAN GREED

October 3, 2008

It took a weekend to shatter the complacency of German finance minister Peer Steinbrück, says the Daily Telegraph.  Last Thursday he told us that the financial crisis was an "American problem," the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status."  Pleas from U.S. Treasury Secretary Hank Paulson for a joint U.S.-European rescue plan to halt the downward spiral were rebuffed as unnecessary.

However:

  • By Monday, Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion (about U.S. $48.4 billion) loan package to save Hypo Real Estate; by then Europe was "staring into the abyss," he admitted.
  • Belgium faced worse; it had to nationalize Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).
  • Within hours they were all trumped by Dublin; the Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s.
  • Then France upped the ante with a €300 billion (about U.S. $415 billion) pan-European lifeboat for the banks.

The drama has exposed Europe's dark secret for all to see, says the Daily Telegraph.  EU banks took on even more debt leverage than their U.S. counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons.

We now know that it was French finance minister Christine Lagarde who begged Paulson to save the U.S. insurer AIG last week, says the Daily Telegraph:

  • AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation."
  • In other words, it was underpinning a disguised extension of credit leverage.
  • Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans.  Paulson may have saved Europe, says the Daily Telegraph.

Source: Ambrose Evans-Pritchard, "Financial Crisis: So much for tirades against American greed," Daily Telegraph, October 2, 2008.

 

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