[lbo-talk] bail out: four "european" questions

moominek at aol.com moominek at aol.com
Wed Oct 1 04:14:35 PDT 2008


Thanks for the answers and comments. I want to add a further question and a remark:

1) The question: The change in the asset side of the FED may seem huge, because it is a change from "sure" public securities to not-so-sure private ones. But with german financial history in mind, this is not so new at all: Fore quite a long time the monetary policy of the Bundesbank was focused on discounting "good" private drafts. (Taking aside all the problems of foreign exchange.) The background is a historical one, the political use of the central bank

by german governments in two world wars, the following bankrupts of the sovereign and resulting mistrust to the public authorities. So central bank notes based on privat-to-privat credit have been quite normal for a long time, in other countries - Britain – too. Only step by step the Bundesbank changed this in the last twenty-five years or so towards a open market policy, based on treasuries. Is there any expertise about a similar change to open market policy in the US, the prerequisites and consequences?

2) Doug wrote:


>Several European banks and insurance companies are in trouble - and
Europe doesn't have the institutional
>capacity to deal with the problem. (There's no real central authority,
and system stabilization on a grand scale is
>beyond the ECB's mandate.)

Yes, there is no "real central authority". But up to now the European system

of central banks under the dominance of the german current account surplus and the Bundesbank-political tradition worked quite well – in capitalist terms c, and the division of labour with the national authorities in their attempts to hedge problems in the financial sector too. We should be aware, that in the core of the EU and the Euro-Zone, the French-German-Coalition together with the Benelux, the bourgeoisie never gave up the bank-centred financial system. There was no Glass- Steagall-Act with the following necessity of market-based refinancing for investment banks. There was no heritage of a world wide financial position like in the City of London. Stock markets have a different, compared to the US and UK minor role. And the structure of the credit system is very different: net private savings of the households financing net corporate and public debt with little – taken the whole of the Eurozone – foreign indebtedness. There is no guaranty, that things will continue to go this way. But throughout the nineties the european financial system managed the complete changing of tide with Germany – the former exchequer – going heavily into foreign debt after the unification but still dominating the process towards the Euro. Germany came back with current account surplus only after the first years of the Euro, in 2002. I would say, there are a lot of buffers in this system. I see the demands b y the ECB-president Trichet and others, that the US should clean up their financial mess as part of regaining strength of european capitalims, not in first line propaganda. The test will come soon.

Sebastian

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