Monday, May 10, 2010

EU Likes to Bail Out Its Bankers Too

If you were checking the headlines all day yesterday in anticipation of the news of Europe's rescue package for its banks, you too might have been amused by the escalation of the size of the rescue package. It went something like this:
  • EU agrees to rescue package. Details to come (Can we get some details please?)
  • How's $500 billion?
  • Ok, we'll try $700 billion?
  • No. No, let's do a trillion. The market should love that.
In an effort to prove that it too loves its bankers, the European Union managed to cobble together a massive bailout package comprised of 440 billion euros in loans from euro-zone governments, 60 billion euros from an EU emergency fund, and 250 billion euros from the IMF. Furthermore, the ECB is buying euro-zone government and private bonds "to ensure depth and liquidity" in markets, a move it recently swore it wouldn't resort to. The US Fed jumped into the foray as well by reopening its swap lines with other central banks to make sure they had enough access to dollars. Nothing like global coordinated government love to juice recently beaten down equity markets around the globe. Yet another transference of risk from the private to the public sector to embolden bankers to take more risk. As for how we're going to pay for all this? Um, we'll figure that one out later.

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