“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close”

The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences.

-Winston Churchill, 1936

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My piece from the NY Times is out. My conclusion was “European policy makers need to wake up. Unless European governments quickly agree to the kind of fiscal integration that gives the European Central Bank political cover to backstop the debt of euro zone national governments, which euro area banks use as collateral, European bank failures will begin in earnest and another Great Depression will be upon us. Olli Rehn, the European Union commissioner for economic and monetary affairs, is right, we probably have days, not weeks.”

Check out the whole thing here. Mark Thoma, Dean Baker and Arnold Kling also give their views on the sovereign debt crisis and yesterday’s central bank liquidity action.

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Source: The Churchill Society, London (hat tip Tinman)

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1 Comment
  1. Anonymous says

    We need to separate banks from their customers in terms of liquidity and solvency. Many businesses rely on short term credit from their bank to survive. Banks really should not be dependent on volatile third party funding such as the Interbank market to survive. It might be fine for a short period such as overnight but relying on the interbank markets for permanent funding is disastrous. It was that which killed Northern Rock, and Lehmans. In fact the seizing of interbank markets has happened twice in less than 5 years, so hardly a black swan event. In which case bank regulations should block any banks business model that relies on interbank funding. So bailing out insolvent banks via liquidity instead of letting them crash and taking down solvent banks with them is better than what we have now. Markets need moral hazard, and any regulator who bails out a bank should be fired as failing in his job. Prevention is the purpose of regulation. 

    So yes I also expect an end to the financial aspect of this crisis soon, but the depression that was started in 2008 will carry on for another decade depending on the measures taken. How this crisis will end will depend on what measures are taken. 

  2. Anonymous says

    We need to separate banks from their customers in terms of liquidity and solvency. Many businesses rely on short term credit from their bank to survive. Banks really should not be dependent on volatile third party funding such as the Interbank market to survive. It might be fine for a short period such as overnight but relying on the interbank markets for permanent funding is disastrous. It was that which killed Northern Rock, and Lehmans. In fact the seizing of interbank markets has happened twice in less than 5 years, so hardly a black swan event. In which case bank regulations should block any banks business model that relies on interbank funding. So bailing out insolvent banks via liquidity instead of letting them crash and taking down solvent banks with them is better than what we have now. Markets need moral hazard, and any regulator who bails out a bank should be fired as failing in his job. Prevention is the purpose of regulation. 

    So yes I also expect an end to the financial aspect of this crisis soon, but the depression that was started in 2008 will carry on for another decade depending on the measures taken. How this crisis will end will depend on what measures are taken. 

Comments are closed.

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