Too Big to Save? Europe on the Brink

Download 2009-7-17 John Mauldin – Europe on the Brink

And
here's the real issue. They have no Paulson and Bernanke. Now some of my
Austrian-economist friends will say, "Good, they should all be allowed to die;"
but that is a very cavalier attitude when you start talking about actually increasing
the unemployment rate to something like 20%. I agree that management should be
changed (as well as the regulators: 35:1 to 1 – really?
What were they thinking?) and shareholders wiped out, but I do not want the
system to collapse. And this is a global risk, not just localized to Ireland or
Spain or Austria. Sure, the pain might be worse in the local region, but we
will all feel it.

The
European Central Bank, at least as of now, cannot step in and start saving
individual banks. How do you save a Spanish bank and not an Austrian bank?
Austria's banks have made large loans to Eastern Europe, in euros and Swiss
francs, and are going to have large losses, far more than 3%, which would wipe
out their capital. But bank assets in Austria are 4 times GDP. What we have are
banks that are too big to save for relatively small Austria. And for Italy,
Spain, Greece, et al.

MFI = Monetary and Financial Institutions

Picture 10

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