IMF: Europe Risks Sovereign Debt and Bank Meltdown

This video is explosive. Dr. Robert Shapiro, an advisor to the International Monetary Fund, is saying in no uncertain terms that the dithering approach that Europe has taken will lead to crisis in a very short period, two to three weeks. (Hat tip Maria)

He’s not saying anything we haven’t said here. It’s good to see someone in officialdom gets it. By tomorrow, I expect a NY Times piece that I wrote yesterday will be released saying exactly the same. I will post a link when it comes out.

  1. Peachey says

    Another way of parsing this is that Dr. Shapiro is saying that banks are dummer than dum for having learned nothing about counter party risk since 2008, and regulators have failed the public by not forcing CDS trading onto exchanges.

  2. David Lazarus says

    Some how I do not see any credible solutions being drawn up. The sums involved that will re-capitalise the banks are huge and in the trillions and that will blow an immense hole in nation budgets. The big French and German universal banks are both big and undercapitalised. That will mean big enough bail outs that save the banks will require trillions. If they succeed the biggest beneficiary will be US banks whose CDS payouts will have been averted.

  3. Paul says

    eCONomists !!!! WE are getting CONNED again ! ! Let them all BANKRUPT ! ! StaRT OVER….DELETE….

    1. David Lazarus says

      While I agree with your sentiment, the collapse of the banks needs to be done in a way that eliminates risks to the ordinary person and the small business. The US has the FDIC which is clearly capable of resolving the US banks. Though I do think that the sale of the bank branches to big banks only exacerbates the TBTF problem. I would prefer to see the break up of any bank failure so that small banks get to expand. Even the creation of new community banks would be good as well.

      There also need to be changes in laws that reduce risks for tax payers, such as unlimited liability for directors of any bank with an investment banking arm. One of the reasons that investment banking was so stable prior to the 1980’s was that directors had their own money at stake. An additional problem in the US is that nationalising banks even as a temporary measure is considered “socialism” and so off the table. Yet “socialising bank losses” is perfectly acceptable. That means even cost effective solutions are excluded.

      Though out the crisis I have wanted the TBTF banks broken up. With out some form of moral hazard they will take reckless risks because the tax payer will bail them out. Maybe any bank that is considered to big to fail should wipe out is directors and senior managers in a rescue. That will eliminate much of the costs of a rescue.

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