And So It Begins – The First Major European Bank Has Been Bailed Out

[HeartofShadows]

Quote:And so it begins. The first major European bank bailout of 2011 has now happened. French/Belgian banking giant Dexia has failed and both governments have pledged to participate in a rescue plan. But Dexia will not be the last major European bank to fail. Even now, governments all over Europe are feverishly developing plans to bail out major national banks in the event that the current financial crisis goes from bad to worse. Instead of learning the lessons of 2008, most major European banks have continued to pile up huge mountains of debt, leverage and risk. Now the bill for that stupidity is about to be passed on to the taxpayers of those nations. But with most nations in Europe already drowning in debt, are bank bailouts really the right course of action? What is it going to happen to Europe if dozens of major banks start failing and trillions of euros are needed to bail them all out?

Dexia is the first victim of the new credit crunch. It got to the point where Dexia simply could not get access to the funding that it needed in the credit markets.

We are starting to see this all over Europe. Nobody wants to loan much money to European banks right now because it is unclear what is going to happen next in Europe and it is uncertain which banks are stable and which are on the verge of collapse.

This is so similar to what happened back in 2008.

But Dexia is not going to be "the next Lehman Brothers" because the governments of France and Belgium are stepping in to save Dexia from collapse.

A recent article in the Financial Post described how the rescue of Dexia is likely to proceed....

Quote:Dexia will effectively be broken up, with the sale of healthier operations while toxic assets, including Greek and other peripheral euro zone government bonds, will be placed in a state-supported “bad bank.”

The details of the plan will be negotiated over the coming days, but authorities are making it clear that Dexia is not going to be allowed to collapse. Bank of France Governor Christian Noyer is assuring everyone that Dexia is going to have access to plenty of liquidity....

It appears that the "too big to fail" doctrine is alive and well in Europe.

Sadly, this is not the first time that Dexia has been bailed out. France and Belgium also bailed out Dexia back in 2008.

But this was not supposed to happen.

Just three months ago, Dexia received "a clean bill of health" from regulators during European Union bank stress testing.

It just shows how credible those "stress tests" really are.

So are more European bank bailouts coming?

It certainly looks that way.

An article in the Financial Post on Tuesday stated the following....

Quote:European finance ministers agreed on Tuesday to prepare action to safeguard their banks as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.

Of course when they talk about the need "to safeguard their banks" they are talking about those that are deemed "too big to fail". Just like in the United States, banks that are "too small" don't get bailed out at all.

But western governments are very protective of the big banks. The big banks are allowed to take gigantic risks, and if they succeed they make tons of money and if they fail then the taxpayers bail them out.

With big trouble on the horizon in Europe, authorities are already getting ready to bail out the major banks. A Bloomberg article from last month acknowledged that the German government has been very busy getting ready to bail out their major banks in the event that a Greek default becomes a reality....

As you read this, there are already signs of trouble at major German banks. For example, Deutsche Bank has just announced that it is eliminating 500 more jobs.

The fundamental problems that Europe is facing are not being solved and the financial crisis is getting progressively worse. With each passing day, more bad financial news comes pouring in.

For example, Moody’s slashed Italy’s bond ratings by three levels on Tuesday.

A reduction of just one level is very serious business. For Moody's to hit Italy that hard is a really big deal.

Italian banks have also been targeted by the credit rating agencies. The other day, S&P slashed the credit ratings of seven different Italian banks.

If Italy goes down, it is going to be an absolute nightmare. The Italian economy absolutely dwarfs the Greek economy. The EU has been really struggling to bail out Greece, and there is no way in the world that they would be able to bail out Italy.

So if nations such as Italy or Spain start collapsing, will the U.S. Federal Reserve step in to help bail them out?

You never know.

the Federal Reserve has agreed to join with other major central banks to lend hundreds of billions of dollars to major European banks in October, November and December.

As the past few years have shown, wherever big, global banks are in trouble, the Federal Reserve is sure to step in and help.

And many big banks in Europe are definitely headed for trouble. Right now, European banks are holding more than $4 trillion in European sovereign debt.

Quote:http://theeconomiccollapseblog.com/archi...are-coming

[SoulRiser]

I'm all for giving people back the money they lost, but I kinda get the impression "bailing out" means keeping the bank running... or am I missing something?

Also, this kinda shit is why I keep my money spread out across 2 bank accounts... I'd get more but that'd probably just be too much of an annoyance to keep track of.

[UnschoolShqiponjë]

You'd think the Europeans would learn from us. The government should not be bailing out companies. It is interfering with the market. Sucks for the people who put their money in the bank and sucks for the bank and it's workers.

[HeartofShadows]

(10-10-2011 03:48 AM)UnschoolShqiponjë Wrote:  You'd think the Europeans would learn from us. The government should not be bailing out companies. It is interfering with the market. Sucks for the people who put their money in the bank and sucks for the bank and it's workers.

Very much agreed.

[UnschoolShqiponjë]

(10-10-2011 05:17 AM)HeartofShadows Wrote:  

(10-10-2011 03:48 AM)UnschoolShqiponjë Wrote:  You'd think the Europeans would learn from us. The government should not be bailing out companies. It is interfering with the market. Sucks for the people who put their money in the bank and sucks for the bank and it's workers.

Very much agreed.

Also I don't want people to think I have no empathy for those who had their money in the banks that failed. My dad's business went down the drain and our house was almost lost and he almost had to sell his business. The government did not care and continued to threaten to take action for unpaid taxes. Luckily my dad pulled himself out of the hole. Still teetering on the edge but better than being in it. To be honest the government was right not to involve itself in my dad's business. Just like they should have let the banks die.

[HeartofShadows]

(10-10-2011 03:48 AM)UnschoolShqiponjë Wrote:  

Also I don't want people to think I have no empathy for those who had their money in the banks that failed. My dad's business went down the drain and our house was almost lost and he almost had to sell his business. The government did not care and continued to threaten to take action for unpaid taxes. Luckily my dad pulled himself out of the hole. Still teetering on the edge but better than being in it. To be honest the government was right not to involve itself in my dad's business. Just like they should have let the banks die.

I understand but if people want to preach about the free market then let the big boys fail too and deal with the negatives. Though nowadays big business and the government aren't so different anymore so I use free market lightly and I had a dad who works for general motors and I didn't like it when they bailed them out either to make more cars people will not buy.

[Liquid]

It's not a free market if bank aren't free to fail. The money in the banks is insured by the government anyway.

If big business fails it should die and allow newer, healthier business to take it's place. Bailing them out is bad for the economy in the long-term. It's just corrupt politicians using the People's money to save the corps that give their campaigns money so they can stay in power. It's the People's money, and it should be used for the welfare of the People. The Government does not have the right to hand out the People's Money to corporations.

[SoulRiser]

If a business doesn't provide enough value and goes bankrupt, that's their own fault and they should not be bailed out... because nothing of value was lost. Same with banks I guess, except people can get kinda screwed over in the process there...

[Absnt]

Not really, most banks are FDIC insured... Meaning each individual bank account is backed up by the government in case of failure. The bank should be allowed to fail, and the insurance money should go to those who lost their savings/account balances...