Posted on 10/08/2008 1:45:34 AM PDT by TigerLikesRooster
ECB sees crisis of "enormous proportions" as Spain creates mortgage rescue fund
The European Central Bank has dramatically changed its tune over the last twenty-four hours as the credit freeze worsens, acknowledging for the first time that the world faces the gravest crisis since the Great Depression.
By Ambrose Evans-Pritchard
Last Updated: 8:34PM BST 07 Oct 2008
A string of governors from across the eurozone have today issued grim warnings in what seemed a coordinated move to prepare the markets for interest rate cuts, perhaps within days.
Guy Quaden, Belgium’s ECB member, said the violent storm ravaging Europe’s banking system was far from over. “This is the worst financial crisis since the Thirties,” he told the Belgian parliament.
Miguel Angel Ordonez, Spain’s ECB governor, echoed the warnings in testimony to the Spanish Cortes, acknowledging that the world now faces a crisis of “enormous proportions.”
In a clear rejection of the ECB’s controversial 'go-it-alone’ policy on monetary policy, he called for joint action with the US Federal Reserve to nurse the credit markets back to life.
“We’ve got to get together on both sides of the Atlantic. It is absolutely essential to co-ordinate everything, including monetary policy,” he said.
The Spanish government said that it was setting up a fund of up to €50bn (£39bn) to buy distressed bank assets. It is the first move by an EU state to copy the sort of radical measures being taken in the US, and reflects the severe difficulties now engulfing Spain’s regional lenders as the property crash gathers speed.
Analysts said it was clear that the ECB’s `doves’ now command a majority of votes and have begun to impose their will on the German-led hardliners, who enjoyed their last hurrah by raising rates to 4.25pc in July...
(Excerpt) Read more at telegraph.co.uk ...
Ping!
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
---Ludwig Von Mises
Watching this spread across the Globe is surreal... I’m running out of popcorn.
Interesting times indeed.
I’ve read that the Euro is backed by debt, not by hard assets, since there’s no real EU treasury. Apparently it’s the sum total of some assets (debt assets?) of all the component countires, but actually the individual governments have autonomy and can act in their own local interest (as we saw with Ireland guaranteeing all deposits) to save their local banks. What assets does the ECB have access to that lets it support the value of the Euro?
On top of this, their demographics don’t bode well for the future, with exploding obligations to future retirees. It doesn’t seem like there’d be a good reason to keep money in a European bank right now unless you believe countries like Ireland have enough wealth to back its deposits if the worst happens.
“May you live in interesting times.”
Popcorn or Jack Daniels?
That’s right. The “cajas”, or regional banks owned by the regional governments constitute the biggest part of the Spanish credit problem and a distortion of the free market.
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