While Ben Bernanke has deservedly gotten a great deal of attention this week, the European sovereign debt crisis continues to lurk in the shadows for the global economy.
A second “credit crash” similar to that of 2008 is now a distinct possibility, according to Satyait Das. The author of “Extreme Money: Masters of the Universe and the Cult of Risk,” Das discussed his latest thoughts on the crisis in a report to cnbc.com.
“The rapid and marked deterioration in economic and financial conditions means that the risk of a serious disruption is now significant,” he wrote. “If markets seize up again, then ‘this time it will be different.’ There might just not be enough money to bail out everyone and every country that may need rescuing.”
Das went on to say that “Hearing of the ill-advised side deal between Greece and Finland, Austria, the Netherlands and Slovakia also are now demanding collateral, arguing that their banks were less exposed to Greece than their counterparts in Germany and France entitling them to special treatment…Compounding the problem is Greece’s fall in gross domestic production (GDP) was worse than forecast, even before the latest austerity measures become effective.”
As a result, “A disorderly unwind of the Greek debt problem cannot be ruled out.”
He also discussed the significant problems in the global financial system, contending that “Banks globally, especially European banks, are seen as increasingly vulnerable to European debt problems. The total exposure of the global banking system to Greece, Ireland, Portugal, Spain and Italy is over $2 trillion. French and Germany banks have very large exposures.”
“If there are defaults, then these banks will need capital, most likely from their sovereigns,” Das asserted. ”As they are increasingly themselves under pressure, their ability to support the banking system is unclear.”