President Obama meets with euro officials on crisis

Heidi Moore Nov 28, 2011

Steve Chiotakis: At this hour, President Obama is hosting some top European Union officials at the White House. The administration of course is concerned about what the debt crisis in Europe could do to the American economy.

Marketplace’s New York bureau chief Heidi Mooore is with us now to talk about the repercussions. Good morning Heidi.

Heidi Moore:Good morning, Steve.

Chiotakis: What’s the biggest worry in the European crisis right now?

Moore: Well, the biggest worry is that it’s no longer a European crisis — it’s worldwide. A lot of analysts are saying today that we’ve entered a new phase, a much darker phase of the crisis, and it could affect us all. Moody’s said today that several countries could end up even leaving the euro. And more people are talking about a break up.

So, I talked to Otis Casey at Markit Research. He said the problem is that we have no idea what it would look like if a country left the euro. It’s not like they’re the Kardashians — this isn’t easy to get out of. Here’s Otis.

Otis Casey: The idea was that it was an enduring, permanent committment. There is no prenuptial agreement to this marriage.

And of course, that makes it hard for banks to know what to do, because they don’t know what’s coming next.

Chiotakis: What’s the biggest problem then, for the banks?

Moore: They got caught in this sick catch-22. After the crisis, you’ll remember, they needed to dump all their mortgage-backed securities that were so toxic; and they needed to find something safer to invest in. So they invested in government bonds, which are supposed to be the safest. Now, of course, that seems like a sick joke — government bonds are the most toxic thing they can possibly own — not U.S. government bonds, but European ones. So the banks now have to find another way to be safe. They already have a lot of cash — they have trillions sitting at the Fed — but no one can really be prepared enough for a eurozone breakup. So a lot of analysts predict the banks might even shrink.

Chiotakis: You mean they won’t be too big to fail anymore?

Moore: That’s a tall order, but at least they’d be getting closer.

Chiotakis: Marketplace’s New York bureau chief Heidi Moore, joining us from the Big Apple. Heidi, thanks.

Moore:Thank you, Steve.

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