European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.
Jolted into action by last week’s slide in the currency and soaring bond yields in Portugal and Spain, the 16 euro nations agreed to offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank will counter “severe tensions” in “certain” markets by purchasing government and private debt.
So, instead of bailing out banks, this sounds similar to TARP except it is to bail out European countries.
Meanwhile, the Federal Reserve is opening up currency swaps to loan to foreign central banks. From their press release:
Press Release
Federal Reserve Press Release
Release Date: May 9, 2010
For release at 9:15 p.m. EDT
When the stock market plunged 1,000 point in half of an hour on Thursday, the immediate rumors were of a "fat finger" trader who punched in $16 billion instead of $16 million. It's a disturbing idea, that a single trader could cause such financial destruction, but its better than the alternative - that the stock market plunge happened while the markets were functioning the way they were supposed to.
On The Economic Populist you might have noticed the left column. We try to list other sites and blogs who have exceptional insight and writing on what is happening in the U.S. economy.
Sometimes though, one cannot say it better but miss those who did. These posts are all related to the Greek Crisis.
Must Read Post #1
The New York Times has a fantastic graphic of the interdependence in Europe on Greek Debt with an accompanying article describing the EU dominoes.
(March 10) Wall Streets is headed toward international pariah status thanks to two recent actions by the European Union (EU).
On Tuesday, the EU announced that it was banning Wall Street banks from the lucrative government bond business in Europe. They didn't express official concern or fire off a warning shot. They simply banned Wall Street from financing government bond deals like the one Goldman Sachs sold to Greece. The Guardian pointed out that Wall Street bond business from European governments has gone down over the last two years. Now the business is gone period. In effect, the EU has labeled Wall Streets business tactics as too dangerous for their governments to handle.
A strategist at the Deutsche Bank had something interesting to say last week regarding the economic crisis in southern Europe.
“The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,” Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.
It seems impossible that what is going on in Greece has anything to do with America. After all, Greece has defaulted on its debts so often over the last two centuries that you could almost set your watch to it. It was always contained in the past because Greece's economy is so small, so why would this time be different this time?
And yet, it isn't contained this time. It is spreading and no one knows how far it might go.
There is a concept in economics known as the "snow-ball effect" on debt. It involves the self-reinforcing effect of debt accumulation arising when the growth of the national economy is less than the interest paid on public debt.
In math it looks like this:
Leading Greek economists and bankers yesterday warned George Papandreou, prime minister, that he had to announce bold initiatives to rescue the country's collapsing bond market and avert the possibility of defaulting on a rising public debt.
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