16 Jul, 2012
Global Banks Face Domino Risk, “Contrarian” Finance Editors Warn
New York, NY (PRWEB) July 15, 2012 – In a recent Investment Contrarians article, editor Danny Esposito comments how amazing it is that many economists out there continue to hold onto the notion that should a financial crisis take place in Europe, the U.S. will not be affected. Esposito believes the big banks in the U.S. would suffer quite the loss should any of the big banks in Europe go bankrupt, which would trigger big bank bailouts yet again in the U.S.
“Their argument is based on the fact that a total of 17.8% of U.S. exports make their way to Europe, which is very small; this means that, in their estimation, the impact of a European Union financial crisis on us is minor,” explains Esposito. Then why is it that, in his last few testimonies, Ben Bernanke has emphasized the risk that Europe poses to the U.S, he asks.
From Bernanke’s latest testimony, Esposito records this quote that he believes is reflective of Bernanke’s sentiment regarding Europe: “The situation in Europe poses significant risks to the U.S. financial system and economy, and must be monitored closely.”
The Investment Contrarians editor believes the most fascinating part of this quote by Bernanke is when he mentions that Europe is posing significant risks to the U.S. financial system before the economy. Why? Because Europe’s big banks are teetering on bankruptcy, in Esposito’s opinion.
“Credit default swaps (CDSs) are instruments of destruction that should never have been allowed to exist in the first place,” argues Esposito. “The reason big banks created so many exotic CDSs is that they earn such high commissions on them.”
According to the Bank of International Settlements (BIS), there is over $700 trillion in CDSs in the world, reports Esposito. “World GDP is only $65.0 trillion, which gives one the sense of how outrageous this figure is,” he says. “A large portion of these CDSs are underwritten by the big banks in the U.S.”
He goes on to explain that the big banks that underwrite the CDSs on that bankrupt bank have to pay up, triggering more bailout money. “We live in a financially connected world,” notes Esposito. “One domino falls in Europe with one of their big banks, and it will send shockwaves around the world that could destroy the financial system.”
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
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