French PM says world 'on edge of abyss' | Business News | Reuters: "Prime Minister Fillon, whose country is hosting an emergency summit of Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.
'The world is on the edge of the abyss because of an irresponsible system,' Fillon said, alluding to widespread anger over past lax regulation of financial markets and excessive lending."
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Here in the US the media portray this as an American problem and the political class seems to go along with that, but the fact is that European banks have been doing the same things that drove American banks under. It wasn't just based on risky home loans. All kinds of debt were used to create a bizarre unregulated aftermarket consisting of various forms of derivatives that I don't remotely understand. George Soros has a book out on this. Back in March he was predicting that the crash of the $50 trillion credit default swap market would dwarf the previous bank failures. I'm not a Soros fan but his argument on the failure of the neoclassical economics model is very persuasive.
2 comments:
Outstanding CDS market already down to $50 trillion? it was $62 trillion at the end of last year. A lot of unwinding of positions going on at a frenetic pace.
Forgot to add that the European banks have operated at much riskier asset to debt ratios than the American ones. They really drank the Kool-Aid big time. Banks like RBS and Barclays and even Deutsche Bank have been running ratios more typical of US investment banks than of US retail banks.
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