This article in the Washington Post reiterates a post that Nobel economist Joseph Stiglitz told Chris and me a few weeks ago during our interview. Wash Post:
Some big European banks are trading at lows not seen since the height of the 2008 financial crisis, with fears growing that bad European government debt could spread through the global financial system in much the same way that bad U.S. subprime mortgages did three years ago. That could lead to another credit crunch.Here's what Stiglitz told us:
After the collapse of Lehman Brothers in 2008, “banks stopped lending to each other out of fear,” said Sebastian Dullien, senior policy fellow at the European Council on Foreign Relations. “Something like that could happen again, and there are signs that the money market is freezing again. If there’s a new problem in the banking sector, we could quickly be where we were three years ago.”
ARAVOSIS: And why should we care as Americans what happens, so the euro doesn't do so well?
STIGLITZ: The breakup in the euro, or even turbulence in the euro, is going to mean that the European economies, one of our major trading partners, will be doing badly.
ARAVOSIS: "Badly" meaning what? Growth drops, banks go bankrupt?
STIGLITZ: Those are all possibilities. Growth will clearly drop, and some banks may face real severe problems. Many American banks are exposed to the risks of European banks. We don't know how much because of the lack of transparency in American banking. And that was one of the failures of the banking regulation, to make greater transparency. There is concern that the banks are under-capitalized, and concern about bad accounting in American banks, a lot of the bad real estate mortgages are still on the books and have not been written down. So financial crises in Europe could translate into financial problems in the United States, just like the financial problems in the United States, an economic downturn in the United States, was exported to Europe a few years ago. They may respond in kind.
