Gretchen Morgenson continues to sound the alarm on the US economy’s ongoing vulnerability to troubled banks, this time banks in Europe who over-extended in their forced support of that fine experiment of socialism, otherwise known as Greece.
Make no mistake: the troubles of Europe and its debt-weakened banks will imperil the United States. For many, it is no longer a question of whether but when Greece will default on its government debt. How far the sovereign debt crisis might spiral, and its precise ramifications, are unknowable, but some fault lines are evident.
Remember Wall Street “reform”? Me neither. The Dodd-Frank law that Obama signed did virtually nothing to correct the systemic risks inherent in the industry that led to the 2008 calamity, and the world is brewing another, similar crisis as we sit here. Why didn’t Obama do more? (1) He needed to coddle Wall Street money men in order to gain valuable campaign cash for his bid for re-election (obviously far more important than preventing a repeat of 2008’s global crash), and (2) he was busy destroying American health care.
So we have European banks choking on Greek sovereign debt (the sasoc warned against this last year, in this essay: Greece to Germany: “Do You Feel Lucky”? and again in this one: Round 2 of Greek Crisis Was Predictable), but we also have a credit default swap death spiral brewing again (mentioning this makes me chuckle when I think of Shia LaBeouf and the expertise on such instruments he imagined he developed when preparing for his role in “Wall Street: Money Never Sleeps“…what a sad case he is).
First the ominous news:
Billions of dollars in swaps have been written on sovereign debt, guaranteeing that those who bought the insurance will be paid if Greece or other countries default. As of Sept. 9, some $32 billion in net credit insurance exposure was outstanding on debt of Greece, Portugal, Ireland and Spain, according to Markit, a financial data provider. An additional $23.6 billion has been written on Italy’s debt. Billions more in credit insurance have also been written on European banks, many of which hold huge positions in troubled sovereign obligations.
And then a revelation that sounds familiar….
But since these instruments trade in secret, investors don’t know who would be on the hook — as A.I.G. was in its ill-fated mortgage insurance — should a government default or a bank fail.
And finally another juicy bit of evidence of the dereliction of duty of Barack Hussein Obama:
Even after what we went through with A.I.G., the huge market in credit default swaps remains unregulated and still operates in the shadows. You can thank big banks that trade these instruments — and their lobbyists — for that.
Actually, Gretchen, no: we can thank Barack Obama for that. A President who entered office with the messianic expectation that mr. Obama did — plus a Democratic party majority in BOTH houses of Congress — could easily have brought true justice and reform to the financial industry. But Obama chose not to.
PS: I don’t know about you, but I think I’ll be transferring my 401K money away from European exposure….not that it will help, of course, when Obama is busy destroying wealth in as many places as he can.