Europe’s fast-moving financial situation
JEREMY HOBSON: Let’s find out what’s going on now with our New York bureau chief Heidi Moore who has been talking with her contacts on Wall Street and elsewhere. She’s with us live, Heidi, good morning.
HEIDI MOORE: Good morning.
HOBSON: Well, it’s a fast moving situation in Europe. Bring us up to date on what’s going on there — what are people so concerned about there?
MOORE: You said it best, the problem is France. People are worried that France might lose its AAA credit rating. If that worry sounds familiar, it should, the U.S. lost its, but the U.S. is much bigger and can absorb it,and France cannot. Now, the thing is, this is pure speculation, it’s totally unfounded, but none the less, yesterday it created a panic, and French bank stocks, or at least a huge problem with the French bank stocks — and then today it’s hitting the French markets again. And the icing on the cake is a Reuters story that said that perhaps Asian banks are thinking of pulling their credit lines from French banks. As we know, when banks lose faith in each other, that becomes the beginning of a period of irrationality that some might even call a panic.
HOBSON: Heidi stand-by, I want to bring in our regular Thursday panelist Diane Swonk, chief economist of Mesirow Financial. Diane, is this a panic, a banking crisis — whatever we want to call it — and is it a problem for our banks in the U.S.?
DIANE SWONK: Well, it’s certainly starting to feel like a panic. It is a lot of fear based selling in the market, we’ve seen a lot of volatility and see things that are very reminiscent of 2008. That said, we have an ability to stop that fear from becoming a full-fledged panic and a self-fulfilling prophecy of a double-dip recession. Our banks are in much better shape than the banks in France, we’re better capitalized, and in fact, even in France you’re seeing the leadership start to have meetings — the head of both Germany and France to deal with this issue. I think that’s very important — leaderships trying to do something — to act on something, even though the tools were more limited than they once were.
HOBSON: Well, that’s right. The banks may be better capitalized, but aren’t governments in worse shape financially than they were a few years ago?
SWONK: Absolutely. Governments are in worse shape. That doesn’t mean that there’s nothing we can do. I think — everything we can do now in terms of creating confidence, rather than the lack of confidence we’ve seen over the last weeks in our own political system, and in political systems abroad, some kind of consensus building, some kind of compromise, some kind of movement towards actual legislation in Washington, would certainly help us out at this stage of the game. And certanily the Fed has stepped up to the plate along with the G7 to say we will do whatever is necessary to counter the S&P downgrade in the U.S. I imagine they would do the same for France.
HOBSON: And Heidi, quickly back to you. A few days ago when we saw a sell-off in the markets, no one was even talking about the French banks — is France really the worry here or is this just an excuse to be afraid?
MOORE: I think we’re looking for excuses, and you’ll actually find that there are contradictions to how afraid we are. Take a look at French government bonds — they’re actually more valuable right now, and that’s something to keep in mind. Investors are showing faith.
HOBSON: Marketplace New York Bureau Chief Heidi Moore and Diane Swonk, chief economist with Mesirow Financial. Thanks, to both of you.
MOORE: Thank you.
SWONK: Thank you.
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