[Bodah]

andyt andyt:

Our economy doesn't exist in isolation.

Yeah, I figure that one out some time ago. If Europes dire economical situation is now the concern de jour, we should probably focus on China right after we shovel billions into Europe. The Chinese have been artificially keeping their dollar low which has/is fucking with the global market for decades.

We all up for fixing that as well ?

[andyt]

Well we've created a global economy, so we probably all sink or swim together. Letting some small fry drown is one thing, but if one of the big blocs goes, bada bing. And we're a small fry trying to swim with the big boys.

[redhatmamma]

Agreed, and if Europe falls it will trickle down to us. Having said that I don't think we should bail them out, especially as they don't seem inclined to change their ways, France has just reduced it's retirement age.

[Dee2012]

Now Spain wants a bailout? This is all a gig sham. Where is all this so called money coming from? People seem to be blind to the fact that we as taxpayers were just added more debt without seeing any benefits.What happened to the money that Canada borrowed to help our banks? We were told our banks did not need help.

[andyt]

Dee2012 Dee2012:

What happened to the money that Canada borrowed to help our banks? We were told our banks did not need help.

It got repaid. The US certainly did see benefits from the bailout - they, and us, would have been much worse off without it. The bailout was poorly done, but the alternative was a total freeze up of the world's economic system.

The only thing Spain did wrong was have a housing bubble. They were in good shape otherwise. We could still get caught by a housing bubble ourselves, and then we won't be talking so big.

[Brenda]

Dee2012 Dee2012:

Now Spain wants a bailout?

EU history 101: Since the day Spain joined the EU, they have gotten more out of it than paid into it. That's a little over 25 years now. Nothing new.

[Lemmy]

Dee2012 Dee2012:

What happened to the money that Canada borrowed to help our banks? We were told our banks did not need help.

Huh? You should check your facts before clicking "submit".

[PublicAnimalNo9]

Lemmy Lemmy:

Dee2012 Dee2012:

What happened to the money that Canada borrowed to help our banks? We were told our banks did not need help.

Huh? You should check your facts before clicking "submit".

$1:

"At some point during the crisis, three of Canada's banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company," Macdonald said.

http://www.cbc.ca/news/business/story/2 ... -ccpa.html

[Lemmy]

Incorrect. The banks were given liquidity support, not a bailout. A bailout means the government taking an equity position, which never happened and, at no time, were any banks in danger of failure, despite the conspiracy theories to the contrary. All loans given to the banks were paid back. No bailout.

[PublicAnimalNo9]

Lemmy Lemmy:

Incorrect. The banks were given liquidity support, not a bailout. A bailout means the government taking an equity position, which never happened and, at no time, were any banks in danger of failure, despite the conspiracy theories to the contrary. All loans given to the banks were paid back. No bailout.

Ugh, sometimes I gotta pay better attention.
Yer right, it was a liquidity problem, not a solvency issue.

[andyt]

The banks paid back the money, so what's the problem?

But, if they did not get this liquidity support, what would have happened to those banks? Seems about the same thing as when the govt gives a company a loan guarantee.

[Lemmy]

They woulnd't have been able to provide loans to businesses and the public (at least not without raising their interest rates) or, if things got tight enough, they'd have had to call in some of the loans and mortgages they'd given, That's all French for fucking consumers, which is why the government stepped in with some cash. The banks were never in danger; consumers and small businesses were.

[andyt]

Unless those bank customers started a run on the banks because instead of getting credit they started emptying their bank accounts. Or just because they thought a bank that can't lend is in trouble. Seems to me banks are always vulnerable to some degree.

[Lemmy]

Read the agreement you signed when you opened your account. Bank runs are a thing of the past.

[andyt]

I found this. Presumably it applies to Canada as well:

$1:

The new complication is that bank deposits are no longer the dominant form of modern short-term finance. The modern bank run means a rush to withdraw from money market funds, the disappearance of reliable collateral for overnight loans between banks or the sudden pulling of short-term credit to a troubled financial institution. But these new versions are in some ways still similar to the old: both reflect the desire to pull money out of an endeavor — and to be the first out the door. And both can set off a crash.

These newer forms occur in the so-called shadow banking system, involving short-term financial credit not guaranteed by the deposit insurance umbrella. According to the Federal Reserve Bank of New York, shadow banking accounts for about $15 trillion in assets — more than the traditional banking system. But as recently as 1990, the shadow-banking total was much lower, at less than $4 trillion. The core problem is that the growth of short-term credit has been outracing our ability to protect it, and since 2008 most investors have realized that these shadow-banking transactions are not risk-free.

On top of this problem is the market for derivatives. The quantity of open derivatives amounts to trillions, and these positions are another source of short-term credit risk. So a need for sudden payouts could also prompt a run on a financial institution.

It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions, perhaps followed by deflationary collapses. In the euro zone, these problems have plagued banks and entire countries, like Greece and Portugal. The “country as bank” is a new and not entirely reassuring catch phrase, and it shows that the problem goes beyond the private sector.

If a central bank is deft enough, it can avoid deflation by using loans and monetary policy to guarantee the liabilities of run-prone institutions. That worked reasonably well in 2008, but in the long term such a policy sets up the system for even more danger, by subsidizing bank risk-taking and precarious financial structures.

Another problem is that ending those central bank guarantees isn’t always easy. The European Central Bank has stemmed a financial collapse for now, but only by lending large amounts to banks at 1 percent for a three-year window. And yet the euro zone has entered a recession, so it’s unclear when troubled European banks can return to private capital markets. The central bank may end up taking over much of the allocation of capital.

The arrangement also assumes that economic growth will pick up fairly quickly in the euro zone — hardly a certainty. And there is little market discipline to force European banks to clean up their balance sheets or to exercise caution for the future. So the system remains extremely vulnerable.

Another feature of this new order is that more and more financial transactions will be collateralized with the safest securities possible: United States Treasuries. Demand for them will remain high, and low borrowing costs will ease our fiscal problems. Still, the resulting low rates of return serve as a tax on safe savings, encourage a risky quest for yield and redistribute resources to government borrowing and spending. It isn’t healthy for the private sector when investors are so obsessed with holding wealth in the form of safe governmental guarantees.

THIS entire package of problems seems to be part of “the new normal” — it’s not going away anytime soon.

Some economists, like Ricardo J. Caballero of the Massachusetts Institute of Technology , have called for extending governmental guarantees well beyond traditional bank deposits. That would check the problem, but at what cost? In a larger financial crisis based on insolvency, our government would face intolerable financial burdens, as happened in Ireland when its government guaranteed bank debts.

A broader government guarantee would also spread the moral-hazard problem to an even larger class of financial transactions, raising the odds that the guarantee will someday have to be paid out. In any case, bailouts for creditors are already politically unpopular, and are unlikely to be expanded.

In short, no promising financial path is before us. It’s good that the American economy seems to be recovering, and this may shove some problems into the future. But banking and finance remain a mess at their core. Welcome to the 21st century

.