Today a former White House official and Plunge Protection Team member warned King World News that Europe is now in danger of mega-bank runs that will destabilize the entire global financial system. Former presidential adviser and member of the U.S. President's Working Group on Financial Markets, Dr. Philippa Malmgren, also discussed why the bank runs may spread across the Atlantic to the United States, eventually engulfing the entire world in chaos.
Eric
King: “It now appears at this point that the multiple bank runs in
Europe have the ability to spread and create massive contagion.”
Dr. Philippa Malmgren: “We
have seen Banco Santander, which is considered the most important of
the continental banks in Europe, recently announce without any warning
that they didn't have enough cash and they had to do a very sudden and
abrupt cash call of almost $8 billion just to stay alive….
“This
started a bank run at Banco Santander. As much as 30 percent of the
deposits in the U.K. were immediately withdrawn. So this was of course a
very big event and it has contributed to further euro weakness. The
fact is that when the biggest bank in Europe tells you without any
warning that they need $8 billion just to keep the doors open, this is a
big story.”
Increasing Number Of Bank Runs
Eric King: “We are now seeing serious bank runs develop in Europe.”
Dr. Malmgren: “Yes.
Now we have the four biggest Greek banks that have requested emergency
assistance because they are experiencing bank runs. The ECB is already
being asked if they can support them. So the bank runs are spreading.
And I think the worry is that central banks don’t have the resources to
do a bailout. This is another reason why Federal Reserve officials are
saying it’s too early to raise interest rates. It’s because big events
are happening in the background. So yes, there is systemic risk in the
European banking system and now these weaknesses are starting to be
exposed.”
Entire Global Financial System At Risk
Eric
King: “How bad could this situation get? We saw bank runs in Europe
once before and it got pretty dicey. Will we see a repeat of that or
something even worse?”
Dr. Malmgren: “Yes.
All that happened before was they put enough cash into the system so
that it temporarily hid the problem. But the fundamental problems have
been there from the start. All these banks have too much debt, not
enough cash, and they are very vulnerable. In fact they are a source of
vulnerability to the entire global financial system.
When
you add in the debt exposures these banks have to emerging markets,
then the picture gets really ugly. The picture in emerging markets has
been a train wreck with currency devaluations and the commodity prices
collapsing. So any loans these banks have made to an emerging market is
not likely to be repaid. And Banco Santander would be at the forefront
of European banks lending to emerging markets.”
Eric
King: “Dr. Malmgren, do these bank runs have the ability to spread
across the Atlantic into the United States if this situation gets out of
control?”
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