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European Debt Crisis

European banks’ overwhelming response to ECB plan

Josh Brown Dec 21, 2011

Jeremy Hobson: The European version of the Federal Reserve this morning offered European banks as much money as they wanted — cheap money — due back in three years. And more than 500 banks responded: yes please.

That’s where we’re going to start now with our regular Wednesday guest Josh Brown of Fusion Analytics. He’s with us live from New York. Good morning, Josh.

Josh Brown: Hey Jeremy, how are you?

Hobson: Very good. So explain exactly what happened this morning in Europe.

Brown: So it was kind of a two-step. The first thing that happened was they made this announcement, 523 banks are going to get the equivalent of $641 billion. The money is expected to be put to work in the short-term, basically supporting intra-bank lending and buying each other’s bonds. But then the second shoe dropped, and people said: wait a minute, this is almost double what the estimates were. And my, my, look how many banks actually came out with their hands out.

There’s this realization that things might be a lot worse than what most people thought. So if you look at how European stock markets are trading now, heading into their own close, they went from being up to almost universally down.

Hobson: And I assume that the fact that the European Central Bank decided to do this meant that they really were worried about a credit crisis like we saw here in 2008.

Brown: You know, throughout the late summer, early fall, the one thing we consistently said was: this is what ultimately has to happen. But things have to get worse before it does. So what was the trigger that forced the ECB to finally to say: OK, fine. We said we weren’t going to be the lender of last resort, but fine, we can’t take it anymore. I don’t know specifically, but whatever it is, they’ve basically capitulated, and today’s announcement is a result.

Hobson: Josh Brown of Fusion Analytics, thanks as always.

Brown: Thank you.

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