The Eurozone Crisis: An Easy To Understand Article


(The above video uses satire to explain the mortgage crisis)

Many Americans have no idea how to understand Europe's financial problems because economics is not an easy topic to grasp while they are trying to sort out their own lives. We do hear from time to time how we're linked in a global financial marketplace so what happens in France or Japan effects us too. What Americans have seen on TV are people rioting in the streets over government imposed "austerity" measures that hurt them. Want to be able to explain it to your friends and family members? Just use this article Digby found which puts into terms that are easy to understand: How To Turn A Continent into A Subprime CDO.

Subprime Europe

Why the push to emulate Europe suddenly from the right? Don't you remember when right wing pundits and politicians used Europe as their punching bag, especially France during the Bush years? Anyway Digby found an article that explains what's been happening to the Eurozone in a very easy way to understand.

If you are having trouble unraveling the Eurozone crisis read this. It puts it into a perspective we here in the US can easily understand:

The Eurozone today resembles a 2008 vintage subprime CDO. The Greek, Irish and Portuguese periphery is the riskiest junior tranche, the Italians and the Spanish are, appropriately, the mezzanine tranche, with France and Germany forming the senior tranche. And just like 2007-8, all the liquidity is drying up, as seen in the need for the banks from these sates to keep going to the ECB’s discount window.

So all you need is a part of the junior tranche to default and the losses will rip through the junior into the mezzanine and will end up destroying the senior tranche as each bondholder dumps good to cover bad before the other guy does. Once again the CDO, despite its designer’s intent, stands or falls together, this time through contagion rather than correlation, but the principle is the same.


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What will cause the CDO to implode? Exactly the austerity policies Germany demands of everyone else, which as we now see, has slowed growth in Germany’s main markets and Germany itself, to a standstill. Such sustained slow or negative growth will make bondholders still more nervous. And yet the German response will be the same – more austerity – more rules – more councils of the same people who have kicked the can down the road for a year and a half, and more declarations of ‘unshakable commitments’ to the Euro that no one believes anymore.

Europe has reached a point where its collective bank exposures are bigger than its collective bailout capacity. Like the CDO of legend, the income streams are running dry and correlation is rising to one. You can blame the state all you like, but its banking crisis at its core. The cover that the banks got from their bait and switch on the public is a one-time deal, and it is about to be rudely exposed.

Read the whole thing. It's not long. This old world's in trouble, boys and girls.

We constantly hear GOP politicians and pundits remark that America is broke and compare us to Greece if we don't stop government spending. A nice fear-mongering tactic used by conservatives to try and scare Americans into believing stimulus spending in a time of a recession is akin to sending your grandmother to a death panel (you know, the lie of the year). And the only way we can save the US of A is to take the austerity approach that Europe has adopted even though it's been a complete failure. So they say we must cut federal hiring, slash spending, reduce the federal deficits at all costs, cut taxes even lower than they are. Then we implement their version of a shared sacrifice where by our share is we raise the retirement age of our social safety nets and cutting costs to the programs by other reforms to the system in exchange for (their share) a few meaningless tax reforms (loop holes on corporate jets) that will raise some revenue in return.

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