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Financial Turmoil Deepening In Europe

npr.org — The financial turmoil shaking Wall Street is also taking a toll in Europe, where authorities moved to assure bank depositors that their money was safe, and a bailout was planned for a large German lender. European leaders are struggling to deliver a unified response to the crisis. Today, French bank BNP Paribas had to rescue a major Belgium bank.

Who dugg this? Made popular Oct 7, 2008

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  • datagod, on 10/07/2008, -0/+20Iceland just reported they are on the verge of bankruptcy. Watch out for marauding Vikings along your coastlines...
  • locojones, on 10/07/2008, -0/+16That's what the banks get for getting into the gambling business with all of these derivative investments. Let them burn.
  • overshoot, on 10/07/2008, -1/+13Well, obviously European banks have been doing business with US banks. The credit problem is a matter of trust. Banks worry that other banks and financial institutions might have bought bad sub-prime debt or lent money to someone who did.

    If you don't know whether the other guy is sitting on bad debt or investments, you don't want to give him your money, in case you don't get it back.

    Now even regular businesses have a harder time borrowing money for new investments, like for buying new machinery to expand production. The decreased lending is causing the economy to slow, basically, in a domino effect.

    I think this is why California had to ask for $7 billion the other day - not due to mismanagement or anything - but because their banks don't trust them, or anyone else, anymore.
  • Amnesia10, on 10/07/2008, -3/+13It is not totally his fault. Many of the countries worst affected now, did this to themselves. They encouraged property booms and reckless lending in the name of free market non intervention. While the US was particularly vulnerable to fraud as a result of its NINJA loans. As these asset bubbles are now all deflating and rightly so the banks capital is being wiped out.

    Now the feds and others are trying to re inflate the bubbles which means that the next bubble will be devastating. These bubbles need to be fully deflated then once the assets have stabilised in value then the banks, that are left can re-capitalise.
  • inactive, on 10/07/2008, -10/+20If we go down we take you with. America ***** yeah
  • Alphabet, on 10/07/2008, -1/+10Actually, I did some more research and finally figured it out.

    European banks can get short-termed "borrowed" money with low interest rates from people. They then take this borrowed money and invest it into debt that has a higher return rate. In this case, they've been investing in american subprime mortgage debt for the past 8 years. The housing market bubble burst, and subprime mortgage is losing value. So now the mortgage debt that the european banks invested into are losing value.

    The problem is that the banks used short-term "borrowed" money and they now need to repay it back. Since american subprime housing is losing value, their investment is losing value. Because of this, they have no available cash to repay the borrowed money. Not only that, people aren't "lending" the banks money since they think it's too risky.

    So to recap, european banks are losing money because:
    1) banks borrowed money
    2) banks invested in american mortgage debt to make profit
    3) mortgage debt is losing value because the price of houses are decreasing
    4) banks need to repay borrowed money but have no profits to do so
    5) people are not lending banks money anymore because market is too risky
    6) ???
    7) bankrupt
  • KaiUno, on 10/07/2008, -1/+7.... the world. And we didn't even get to vote for the chimp.
  • writie, on 10/07/2008, -0/+6Not exactly the way it happened, I'm afraid. Some of the banks now going down had limited exposure to the American housing market. They are just more vulnerable and as everybody is dumping finance shares, they are finding themselves without liquidity. In other words, the current problem is no longer about houses, it's about the financial system as a whole.
  • patpl22391, on 10/07/2008, -0/+6"Thanks Bush"
    More like, "Thanks to all our wonderful representatives, Democrat and Republican for working in such a bi-partisan fashion to screw-over the American people!"
  • Nintendesert, on 10/07/2008, -0/+5Your greedy banks did this to you. Hold your own people accountable. But it has always been easier to simply blame America for your problems.
  • anonymiau, on 10/07/2008, -0/+5Iceland is so screwed. Poor country has a banking sector with assets at nine times the annual GDP.

    http://edition.cnn.com/2008/BUSINESS/10/06/iceland ...
  • CrushThemTorg, on 10/07/2008, -0/+5In short: Finance is globally interconnected.
  • nick1971, on 10/07/2008, -1/+6I think a better analogy would be syphilis. The finance crisis is easy to pick up, transmission is based upon 1 party the screwing the other and the doctors are hoping that a really big shot of penicillin will make it go away.
  • Earendil1, on 10/07/2008, -0/+5Hey, thx dude! :-)
  • holzp, on 10/07/2008, -0/+4Remember that when you can't pay your property taxes and the government takes your home anyway.

    Nobody really owns their home if they need to pay someone else for the right to stay there.
  • fusuke31, on 10/07/2008, -0/+4It's actually:

    "When the US sneezes, the rest of the world catches a cold"

  • bmonet, on 10/07/2008, -1/+5Thank you lenders and the ignorant buyers. Thank you to the people who want everything both ways.
  • bc289, on 10/07/2008, -0/+4pinning all of this financial mess on one man is pretty immature, especially given that this mess was caused by the collective action of many, including irresponsible borrowers and lenders
  • Deepmist, on 10/07/2008, -0/+3Out of all the stuff i've read on the world's economic state none of it has made more sense than your explanation of this issue Alphabet.
  • anonymiau, on 10/07/2008, -0/+3What the hell are you talking about? Every country in Europe have national central banks. We even have a European Central Bank, that came into existence in 1998.

    http://www.ecb.int/home/html/index.en.html
  • inactive, on 10/07/2008, -1/+4I think the subprime mortgage crisis is more than just a cold.
  • writie, on 10/06/2008, -1/+4I'm not sure BNP had to do anything at all. It picked up the assets of a former large bank in a fire sale.
  • holzp, on 10/07/2008, -0/+3Jeez in that case Iceland will be just fine, they are energy independent.
  • ukfoole, on 10/07/2008, -0/+3Dead on truth right there. Even worse is when you don't pay a bill, get sued, and they sell your house out from under you to pay for that $20 medical bill.

    Although, the best ownership quote I know is:

    "You don't own anything that you can't carry with you running full tilt."
  • Nintendesert, on 10/07/2008, -0/+3You could try doing something about your revolution rather than sitting here on Digg.
  • bc289, on 10/07/2008, -0/+3It's financial contagion. When one area of finance starts to collapse, the trust in other areas begins to get shaky as well. Whether fundamentals are sound or not is irrelevant, panic sets in and people begin to pull their money out because they're afraid. This is why Bernanke and Paulson claimed it was so urgent to pass this bill - something had to restore confidence in the markets.
  • Piontek, on 10/07/2008, -1/+4well thats globalization for ya !
  • Claw787, on 10/07/2008, -9/+11Hold on everyone, Australia is on it's way too.


    Thanks Bush.
  • fusuke31, on 10/07/2008, -0/+2Relax. Every country will be aggressively reinflating their assets by lowering rates and printing money. Gold should remain a good hedge.
  • bc289, on 10/07/2008, -1/+3derivative instruments aren't all exactly gambling. Some are high risk yes, but others are used to hedge risk and actually lower it.
  • patpl22391, on 10/07/2008, -0/+2I'm not saying the banks aren't responsible, but we did have Democrats in government demanding that banks lend to those who normally wouldn't qualify in the interest of "fairness". But yes, banks got greedy, helped themselves to an early grave. Now we are being forced to raise them from the dead, of which I am opposed to.
  • BasBarian, on 10/07/2008, -0/+2A lot of european investers put money into america. And a lot of euro banks bought dollars to help keep americans keep u their expenditure. Now all the investmenst are dropping fast in value, its something like that ........
  • Angostura, on 10/07/2008, -0/+2Well, the FTSE's opened 2% higher this morning, which is nice. Doesn't mean much in the big scheme of things, but still.
  • Alphabet, on 10/07/2008, -0/+2Alright, I have to ask a question here.

    What exactly caused europe's credit problem? For the U.S., it was due to the subprime mortgage lending frenzy. But I'm not sure how a credit problem in america means a credit problem in europe.
  • enantiodromia, on 10/07/2008, -0/+2Speaking of "Here we go again", your profile is very interesting:

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  • HumanNouveau, on 10/07/2008, -0/+2Remember the #1 rule of holes. When you're in one, stop digging.

    I see energy policy as the mot crucial element in resolving the global crisis in which we find ourselves. To me the logic is clear. Energy savings through efficiency and generation through renewable sources that are not subject to market and political fluctuation give private industry a more stable base for production of goods/services at prices even a down market can support. Meanwhile, by spurring the creation of renewable energy jobs (from innovation and manufacturing to installation and operation), we start to stem the tide of unemployment. Make energy inputs the variable in profitability instead of staffing and we will be on our way to digging our way out of this crisis.

    Not all government investment in the economy is equal in impact. Targeted government investment in new energy technologies would be a smart move.
  • kodax, on 10/07/2008, -0/+2I am going to reply to myself to clarify what think Trump means. One of the very first effects of the oil shock was that commuters found themselves unable to go to work by car or finding it extortionately expensive. America, being a suburban sprawl, was rocked by this more than almost every other nation. Many people live in suburbs expecting to be able to drive to work every day and there was considerable media attention given to the drastic changes 4-5 dollar gallon oil would impose on American lifestyle.

    Try to think back to the oil shock just months earlier though it seems a million years away and nothing compared to the crisis we face today.

    One of impact only briefly mentioned early on was on the negative effect of property lying in the suburbs. Just as people stopped buying SUVs, people no longer looked to move into suburbs where there only means of transportation was a car. Note that the real estate drop hit these kinds of houses first. People saw the value of their homes drop dramatically during the oil shock. Conversely, urban real estate and particularly high end real estate have not been hit as hard or at all early on but have started to fall now as the resulting weakness in the markets have effected essentially all sectors.

    I think Trump's point is valid. America is dependent on oil like no other place due to its sprawling residential infrastructure. We now know that it is a house of cards that can call on the whim of an oil cartel should they want to raise prices.

    Ive mentioned what I think of the subprime effect on the financial turmoil elsewhere in this thread.
  • 3rdDay, on 10/07/2008, -0/+2Nah. UN turned our application down.:)
  • writie, on 10/07/2008, -1/+3Nintendesert: Only the US banks are de-regulated to such a degree. Plus, Wall Street used to be the world's finance centre. When there are problems at the nerve centre, it's obvious the other members are affected. So I'm afraid on this one, the fault does lie within the American system.
  • fusuke31, on 10/07/2008, -0/+2Even McCain has admitted his lack of knowledge when it comes to the economy. But let's face it, very few politicians understand how the economy works. That's because even fewer of their constituents understand it either.

    To be fair, the shadow banking system is complicated; the masters of the universe prefer it as such. While CNN and their ilk are playing inane main street politics, the real power players operate in their own murky world.
  • edebolt, on 10/07/2008, -0/+2nobody was complaining when the rest of the world was catching prosperity for the last decade. Is the glass half full or half empty?
  • patpl22391, on 10/07/2008, -1/+2If only McCain was smart he would have voted against the bailout, distanced himself from Bush, boosted his Maverick image, boosted his conservative image, and tie Barack Obama to D.C./Bush all with ONE vote. But no, he failed and caved and voted for this monstrosity.
  • RogueGenius, on 10/07/2008, -0/+1America. Never, ever EVER, elect another bad president!
  • bmonet, on 10/07/2008, -2/+3Everyone bow down to the fallen empire. We are the romans! Man the ramparts.
  • nick1971, on 10/07/2008, -0/+1There is unfortunatelyy a very incestuous relationship between banks and credit rating agencies. Its in the credit rating agencies best interest financially to rate banks or debt to be better than it really is.
    There is regulation http://en.wikipedia.org/wiki/Basel_II_Accord which makes risk more transparent so that the market is better able to understand what it is getting itself into.
    Sadly although the US has agreed in principle to the legislation they are rather lackluster in their speed of implementation.
  • HumanNouveau, on 10/07/2008, -0/+1With all the destabilizing factors in play, I should think that not being tied to the cost of fuel can't hurt. However, energy independence isn't the whole story.

    I don't have information about Iceland's energy independence, so I don't know whether they independently produce the means of that independence. In other words, how much of the geothermal, wind turbine and other equipment do they engineer and produce.

    Vertically integrating that whole cycle from design to manufacuture and installation, which then leads to generation and subsequent stable (and hopefully reduced) energy cost to other industries is a home run for national or regional economies where it happens.
  • inhaler, on 10/07/2008, -3/+4Feeling slightly inspired by the beastie boys...

    "I don't like to brag, and I don't like to boast, but I'm intercontinental when I ***** UP THE AMERICAN ECONOMY."

    Sorry world. Our fault. Again. :(
  • inhaler, on 10/07/2008, -0/+1What do you expect from a team full of mavericks
  • inactive, on 10/07/2008, -0/+1Ron Paul retards' whole line of reasoning is that the American currency system is doomed to leave the dollar weakened against foreign currencies. Thank you for highlighting one of the primary reasons why this argument is deeply flawed.
  • Demener, on 10/07/2008, -0/+1Sadly the people in power are bailing them out.

    Worldwide it seems.
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