European Bank System Insolvent?

[Air&Road]

I'm surprised no one has posted about it. I heard on the radio this morning that yesterday it was announced that the European banking system was determined to be insolvent. I expected to find something on here when I logged in, so I haven't researched it.

NOT a good time for our country to be $15T in debt and spending tons of borrowed money. That's for sure!

[Pavka007]

I am surprised as well that you still here.....but you know.... we have to live with it, not for long I hope.

[Air&Road]

My gosh pav! I was merely trying to hear some details about what I heard on the radio.

All the best

[elchivito]

It wasn't "announced". Who "announces" stuff like that anyhow? Is there some over-arching uber agency that decides the solvency or insolvency of banks worldwide? The World Announcing Board? The International Making Pronouncements Bureau?
Whenever you hear or read "it was announced" your first question ought to be "announced by whom, under what authority?"
All I can find is some guy named Platt who's some big deal director or honcho of some big deal jillion dollar hedge fund who says he thinks the euro-banks are insolvent.

[kerry]

It doesn't make sense. There isn't a centralized European currency system so there aren't 'European Banks', there are just Spanish banks, French banks, German banks etc. That's precisely the problem. Since Spain has no direct control over the value of its currency, and it's having economic hard times, it can't devalue it's currency so is paying out high interest in government bonds to fund its deficits.

[tbomachines]

Originally Posted by kerry

It doesn't make sense. There isn't a centralized European currency system so there aren't 'European Banks', there are just Spanish banks, French banks, German banks etc. That's precisely the problem. Since Spain has no direct control over the value of its currency, and it's having economic hard times, it can't devalue it's currency so is paying out high interest in government bonds to fund its deficits.

Exactly, which is evidence of a lack of foresight withing the EU community. Good summary

[Dudesky]

Originally Posted by kerry

It doesn't make sense. There isn't a centralized European currency system so there aren't 'European Banks', there are just Spanish banks, French banks, German banks etc. That's precisely the problem. Since Spain has no direct control over the value of its currency, and it's having economic hard times, it can't devalue it's currency so is paying out high interest in government bonds to fund its deficits.

I thought they all have the Euro which is valued on the whole of the European states and valued accordingly, right?

[Air&Road]

Originally Posted by Dudesky

I thought they all have the Euro which is valued on the whole of the European states and valued accordingly, right?

I think this is a correct statement, but the banking system is related to that only in the value of the Euro that is used in their accounting.

[padrino]

Originally Posted by Dudesky

I thought they all have the Euro which is valued on the whole of the European states and valued accordingly, right?

The Euro as a currency is with the same value, the issue is that in every country the GDP is different depending on many different things, not to mention that the labour laws, working laws, banks laws are country specific NOT Europe specific. So what you have is one currency and many different cultures with different approach, customs etc. This system was designed to fail from the start. In the beginning the Germans were buying cars from Italy because the same let say Mercedes was 30% cheaper in Italy than in Germany. You can't have different minimum pay, different cost of living and expect all the country to develop the same way. This is just plain stupid. When they changed the Italian lira to Euro effectively we lost about 30% of our net over night. Ever since then Italy is with negative balance. This was the worst thing that happen to my motherland...after this idiot Berlusconi of course.

[Dudesky]

Originally Posted by padrino

The Euro as a currency is with the same value, the issue is that in every country the GDP is different depending on many different things, not to mention that the labour laws, working laws, banks laws are country specific NOT Europe specific. So what you have is one currency and many different cultures with different approach, customs etc. This system was designed to fail from the start. In the beginning the Germans were buying cars from Italy because the same let say Mercedes was 30% cheaper in Italy than in Germany. You can't have different minimum pay, different cost of living and expect all the country to develop the same way. This is just plain stupid. When they changed the Italian lira to Euro effectively we lost about 30% of our net over night. Ever since then Italy is with negative balance. This was the worst thing that happen to my motherland...after this idiot Berlusconi of course.

Got it now, Thanks.

[Dudesky]

Eye opener:

Slide show at page bottom.

Raoul Pal "The End Game" - Business Insider

[kerry]

Originally Posted by Dudesky

I thought they all have the Euro which is valued on the whole of the European states and valued accordingly, right?

Yes, but it's not a central currency system like you find in other nation states. In other nation states with central banks and a common currency, the value of the currently is in the control of the institutions of that nation as opposed to an external body. In the case of the Euro, the national parliaments and national financial institutions have no direct control over the value of the Euro. So for instance, the Spanish, Greeks and Irish, cannot devalue their own currency to reduce their external debts in a response to declining revenues which make them unable to pay their debts at the current rates.

I don't think the problem is the variety of cultures. The US has a huge variety of cultures within its 50 states, yet it wouldn't face the problems of Spain or Greece because it is in control of its own currency and its value. Some countries like the UK and Denmark are part of the EU, but retained their own currencies. This serves their national interests much better I think.

[padrino]

Originally Posted by kerry

I don't think the problem is the variety of cultures. The US has a huge variety of cultures within its 50 states, yet it wouldn't face the problems of Spain or Greece because it is in control of its own currency and its value. Some countries like the UK and Denmark are part of the EU, but retained their own currencies. This serves their national interests much better I think.

Kerry, since when the US is in control of as you said "own" currency? Correct me if I am wrong but the US dollar it doesn't belong to the US. As everyone knows the Federal Reserve is a privately owned bank. The name is hugely misleading.
According to the Board of Governors, the Federal Reserve is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government."
They can do whatever they want.
In your example of UK, they do have Central Bank institution: Bank of England that is responsible to answer to the government. Here Federal reserve is NOT.

[kerry]

Originally Posted by padrino

Kerry, since when the US is in control of as you said "own" currency? Correct me if I am wrong but the US dollar it doesn't belong to the US. As everyone knows the Federal Reserve is a privately owned bank. The name is hugely misleading.
According to the Board of Governors, the Federal Reserve is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government."
They can do whatever they want.
In your example of UK, they do have Central Bank institution: Bank of England that is responsible to answer to the government. Here Federal reserve is NOT.

They are not under the direct control of the Congress or President but they are an institution within the country which has control over the value of the currency and they are subject to political pressures. The member states of the EU lack such an institution within their own countries except for the ones who refused to go on the Euro.

[jcyuhn]

Originally Posted by kerry

Yes, but it's not a central currency system like you find in other nation states. In other nation states with central banks and a common currency, the value of the currently is in the control of the institutions of that nation as opposed to an external body. In the case of the Euro, the national parliaments and national financial institutions have no direct control over the value of the Euro. So for instance, the Spanish, Greeks and Irish, cannot devalue their own currency to reduce their external debts in a response to declining revenues which make them unable to pay their debts at the current rates.

I don't think the problem is the variety of cultures. The US has a huge variety of cultures within its 50 states, yet it wouldn't face the problems of Spain or Greece because it is in control of its own currency and its value. Some countries like the UK and Denmark are part of the EU, but retained their own currencies. This serves their national interests much better I think.

Not directly cultural, but the various economies within the European currency union vary tremendously in their efficiency and productivity. Perhaps this is a bit cultural? The problem which results is the less efficient state - Greece, Portugal - cannot make their exports competitive with those of more efficient states - Germany in particular. Without the ability to devalue their currency, exports tank and the economy contracts.

Getting back to Larry's original question - I don't think the original statement is fair or accurate. There have been significant withdrawals from banks in countries that might leave the Euro. Not quite a run, but clever Greeks want to retain their savings in Euros rather than risk having them forcibly converted to (nearly worthless) drachma. However, those deposits that leave Greece have simply flowed to banks in the more stable European countries - Germany, Denmark, Netherlands, and Norway are the ones I've read about. These strong countries are awash in deposits. The excess deposits end up at their respective national central banks (Bundesbank, in the case of Germany) and from there flow to the Euopean Central Bank (ECB). From the ECB, Mario Draghi (there he is again!) can use them as loans to recapitalize banks under pressure.

Spain's banks are in some trouble. Spain has a property bubble which is in the process of deflating, hence Spanish banks hold many bad mortgages. Probably sounds a bit familiar, eh?