As everyone in this country who is at all observant knows, we live in economically depressed times. I see it at the local level in so many shuttered businesses in Lakeport where I live.
We see it at the national level in high unemployment that has not decreased since the financial meltdown in 2007. Finally, we also see at the international level, primarily in the Euro zone of 17 countries in Europe. Many of the countries there imported not just products of the U.S.A., but also our financial ideas.
These ideas include high financial leverage, such as arcane financial derivatives that cannot be properly evaluated, and buying “insurance” against financial losses just in case those complex financial transactions turn south. Remember that AIG, the insurer of last resort, failed in 2007 after it was unable to fulfill its obligation to reimburse those losses. They in turn were reimbursed by the United States government at tax payer expense. Underlying all these problems was the concept that banks were never too big to fail and that deregulation of finance was always good.
Well, guess what? None of those problems that caused the financial meltdown of 2007 have been corrected. The man I voted for to change these things, Barack Obama, hired Lawrence Summers and Tim Geithner, the exact same men who are responsible for the deregulation of financial transactions, to run his economic policy. It is time all of us realized that Democrats, at least at the national level, are no better than Republicans for the average working man or woman. They talk the talk better but they certainly don”t walk the walk.
How is this all connected? The European collection of countries that are bound together by the Euro is disintegrating. The peripheral countries of Greece, Portugal, Spain, Italy and Ireland are all in the financial doldrums and running big account deficits and have high debt. Many of the large, too-big-to-fail banks in Germany and France, the two countries that up until now have done well, hold the debt of the five countries that are not doing well.
It is looking increasingly like those very large banks in France and Germany may lose a lot of money and may even go under if the peripheral countries cannot pay their debts, which just may happen. It is starting to be realized that the United States has exposure to this problem. To be exact, United States financial institutions have exposure of $2.7 trillion that they have lent to large German and French banks, as per a column by Robert Reich, who served as Secretary of Labor under President Clinton.
But up until now they have claimed no exposure at all because those financial institutions purchased financial insurance against losses, just like in the case of now defunct AIG. But who will insure the Insurer when these too-big-to-fail banks on both sides of the Atlantic fail?
It looks very much like a horrible rerun of 2007 is about to happen again. And this time it is Barack Obama and his administration that will be to blame. As Robert Reich said in his recent column “Greece isn”t the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system ? centered on Wall Street. And we still haven”t solved it.”
Eric Habegger
Lakeport
