Wednesday, September 24, 2008

Top Heavy

Now, I'm the first to admit that I don't know much (anything) about macroeconomics or even the basic ins and outs of banking, but this:

the total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany. This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact and the German government cannot order (unlike the US Treasury) its central bank to issue more currency. Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK.
just doesn't sound good to me.

If a bank like that fails, who could possibly bail it out?

Given that solutions for the largest institutions can no longer be found at the national level it is apparent that the European Central Bank will need to be put in charge as it is the only institution that can issue unlimited amounts of a global reserve currency. The authorities in the UK and Switzerland – which cannot rely on the ECB – can only pray that no accident happens to the giants they have in their own garden.

What goes up will, inevitably, come down.

More at Open Europe

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