Source: Sovereign Man – Here’s what happens when a central bank goes bust
Over the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency.
It’s not something people really understand… there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys.
Source: Huffington Post – Wall Street Vet Involved In 1998 Long-Term Capital Management Bailout Says Nothing Has Changed
Ten years before this latest crisis, the U.S. government engineered the bailout of a financial firm that had borrowed billions of dollars to make big bets on exotic securities. The firm was a hedge fund called Long-Term Capital Management.
Source: The Guardian – Eurozone fears for Slovenia as bad debt brings economy to a standstill
Notable excerpts:
Slovenia needs at least €900m ($1.15bn) by July to refloat one of its struggling banks. This is a large sum of money for a country with a GDP of only €35bn.
Source: Financial Post – Why 7% is so important for Europe
The market’s view that 7 percent is an unsustainable borrowing cost for euro zone economies has more to do with psychology than mathematics.
After yields in Greece, Portugal and Ireland rose above that level, the cost of issuing new debt quickly spiked and those countries were forced to seek international aid.
Source: Euro Pacific Capital – Cyprus Lifts The Curtain
Notable excerpts:
“This episode (Cyprus) also puts into starker focus the inadequacy of deposit insurance. By offering the illusion of systemic safety in bank deposits, government guarantees encourage recklessness by banks and depositors. They provide the same incentives that federal flood insurance does in convincing homeowners to build on flood zones. Consumer choice and risk aversion are powerful forces that could bring needed discipline to banking. The FDIC in the U.S. is in the same situation as insurance giant AIG before the crash of 2008.”
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