Sign In
SHARE
The Crisis Goes Global
Europe's woes are clearly the key driver for the big slump in global stock markets today: the credit crunch has moved decisively across the Atlantic, and has engulfed the other great home of leverage. But the biggest losers of all are the BRICs: Brazil's down 15% today, Russia's off 19%. This is what a global crisis looks like: no one has decoupled, nowhere is safe.
We're long past the point at which a global coordinated rate cut -- the dropping of vast amounts of money from helicopters -- will help things. Central bank liquidity injections are powerless in the face of serious worries about the solvency of the global financial system. In order to restore trust, what's needed is massive bank recapitalizations.
The TARP can, in theory, do that, if it pays much more than market rates for toxic securities. The problem is that the mechanism is far from transparent -- and also that the TARP might not be big enough. Let's say that Treasury pays 50% over the odds for distressed debt: that means that the effective recapitalization from the TARP would come to only one third of the fund, or about $230 billion. That's less than the write-downs banks have already taken; it's not the overwhelming force that the markets want to see.
Given the pain involved in getting TARP through Congress, I can't imagine that anybody has any appetite for yet another massive bailout bill, even if such a thing is desperately needed. At the very least, we're going to have to wait for the arrival of a new administration, in January. Which means the next three months could be extremely gruesome indeed. If there's any hope at all, I think it might come from the European Central Bank. There hasn't been a lot of leadership up until now out of Frankfurt and Brussels; maybe it's time for the Eurocrats to step up.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
