Thursday, August 19, 2010

Too interconnected and too indebted to fail?

Finally, there is some words without the typical economic clichés that many cannot understand..!!

Too interconnected and too indebted to fail?

(From the blog: M.G. in Progress - The Unbearable Lightness of Being an economist)

Looking at the picture below, inquiring minds should wonder if it makes sense and what and who are being bailed out.

I still contend that in the EU there is some creation of money out of thin air made by banks allowed to have 40-60 leverage ratios investing in assets (sovereign debt) considered "too safe to fail". We are not bailing out any of the PIGS countries, we are just and again bailing out those banks which lent to governments. The latter are just allowing them to manage their assets and liabilities with such high ratios and make bigger profits. In this way the Ponzi scheme goes on.


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