Gordon Brown Sees 'Unstoppable Runs,'
Pleads for Gigantic Global Bailout
for Eurozone Banks
May 22, 2012 (EIRNS)Former British Chancellor and Prime Minister Gordon Brown's long op-ed in today's New York Times, "Crafting a Global Rescue for Europe," is more frank than the Times headline writer. Brown makes clear he means the Eurozone's big banks, not "Europe." And European megabanks are a subject he knows something about, having labored as Tony Blair's Chancellor to deregulate them and blow them up to as big a bubble-size as possible. And he makes no bones that the situation of those big banks is now desperate.
Forget "growth" and "austerity" says Brown: "Europe faces a crisis in the fundamentals of its banking sector, and another crisis in the failure of economic growth." Spain's banks alone have €260-280 billion in bad loans on their books. The crisis is "on a par with the crash of 2008." "Indeed, Spain's banks now require upwards of £100 billion ($160 billion) of recapitalization even before we deal with similar pressures on banks in Italy and even in France." Since "the banks are now unable to provide good collateral for their loans, the 2012 life raft €1 trillion of European Central Bank support may have to be scuttled."
And finally: "The specter of unstoppable runs on banks will hang over everything until there is decisive action."
This decisive action, Brown says, will have to be a global bailout on an immense scale. "Europe's €1 trillion rescue fund is nowhere near large enough" for the European banks. The whole world, Brown cries, has to contribute to a much larger bailout "firewall".
Tying this to the U.S. taxpayer, the London Financial Times reports today that behind the scenes, "the Bank of England, the [British] Financial Service Authority (FSA) and the American Federal Deposit Insurance Corporation (FDIC) are studying a 'top-down bail-in' mechanism, in which combined authorities take control of a bank in difficulties." Estimates of bank runs waiting to happen in "peripheral" countries go up to €350 billion in mass withdrawals. But in "core" countries too: France is about to nationalize Credit Mobillier de France; and a very large Credit Suisse fund in Germany, Euroreal, just went bust and liquidated.
And don't forget, the largest "purchaser of risk" arising from the so-called "sub-prime funds" which European banks are full of, is JP Morgan Chase. Indeed, it is reportedly the derivatives "insurer" of 40% of the bank risk in the world.