Quest: Banks' move helps but doesn't address fundamental eurozone problems
A German banner says to "Bring banks back in line" at a recent protest outside the European Central Bank in Frankfurt, Germany.
November 30th, 2011
11:05 AM ET

Quest: Banks' move helps but doesn't address fundamental eurozone problems

Editor's note: The U.S. Federal Reserve, acting with other nations' central banks, took steps Wednesday to support the global financial system with a coordinated plan to lower prices on dollar liquidity swaps beginning on December 5 and extending these swap arrangements to February 1, 2013CNN's international business correspondent Richard Quest takes a look at how big of a help the plan is and what more might need to be done to ease the eurozone crisis.

It is time for a reality check on what was announced Wednesday morning.

In the highly complex world of banking, this move to ease access to dollars is the equivalent of adding oil and grease to the wheels of the system. The banks are lending and borrowing from each other on an hourly basis, frequently in foreign currencies. In recent weeks, it has been more difficult to get hold of currencies as a crisis of confidence takes its toll.

The so-called swap lines (where one central bank borrows foreign currency from another) have been around since May 2010. Today they have eased the price at which that money is lent to banks, and they have made it easier to borrow across the range of currencies. For instance, a bank in Frankfurt, Germany, needing yen can get it more quickly; the Swiss can get dollars; and the Japanese can get euros and so on.

Velshi: Banks' move a coordinated effort to help Europe buy time

This will all make it easier for banks to get on with the daily business of lending between each other - it greases the wheels - but it does not address the fundamental problems of the eurozone.

I don't see any moral hazard issue (a term in economic theory for a situation where there's an incentive to share a risk) in this announcement. They are not saying the banks are too big to fail - they are saying the system is too fragile to seize up. It is a sensible, moderate and proportionate response. What is lacking from the Europeans is a credible, long-term solution to the crisis. And from the Americans, a long-term solution to the debt debacle. Only when these are solved will there be the remote possibility of business as normal.

Olli Rehn, the European commissioner for economic and monetary affairs, said Wednesday that we are entering a critical period of 10 days to complete and conclude the crisis response of the European Union - its very own 10 Days of Christmas.

Business 360: 10 days to solve the euro - but how?

And each day I will write about what the gift or groan is for that day.

Start the clock.

soundoff (25 Responses)
  1. zman

    Yeah...Bla bla bla...another bohica moment for us on the way. They 'lend' funny money, we pay...in more ways than one.

    November 30, 2011 at 11:23 am | Report abuse |
  2. JKulick

    Why is this not collusion to control the market? Let it operate unregulated and get a bath in it's stupid side bets on bad debt! It will all fall soon anyway because the announcement didn't have the immediate affect on interest rates. The LIBOR call rate is unaffected and the 1 month to 1 year averages are moving in the wrong direction. Surprised?

    November 30, 2011 at 11:35 am | Report abuse |
  3. randy

    The fundamentals have not changed and the Dow soars over 400 points. ??? Anything to buy another day

    November 30, 2011 at 11:45 am | Report abuse |
    • mikeinmn

      They're just playing the average Joe like they have been for the last 3 years. Honestly folks, move on, there's nothing to see here!

      November 30, 2011 at 6:59 pm | Report abuse |
  4. Will I AM

    Strongly agree with the author. This solves nothing. It is only a small patch over a huge crack in the dam. The government is getting ready to do a second round of stress tests on the "too big to fail" banks here in the US, that simulate a global economic collapse. Why would they need to do this unless they think that this is something that is inevitable? I am starting to think my mattress may be a safer place than anywhere else.

    November 30, 2011 at 11:45 am | Report abuse |
    • Bill

      Depends on what you plan to put under your mattress. If everything siezes up, the money we hold won't be worth the proverbial paper it's printed upon- Meanwhile, our government can't tackle a deal to adjust one quarter of our debt issue in this country. I'm getting sick of having to be so negative evertime I post something on these blogs!

      November 30, 2011 at 6:09 pm | Report abuse |
  5. Steve

    All we have done with this move is to socialize the worlds losses. Almost every country right now is struggling with debt or monetary issues, making it easier to EXCHANGE money...not creating, or printing any more money (which would be a major fail anyway), merely making it easier for banks to APPEAR as if they are solvent.

    What a joke

    *wiggles hand* Look at the monkey, look at the silly monkey.

    November 30, 2011 at 11:51 am | Report abuse |
  6. WHAT DO YOU EXPECT

    PEOPLE WILL BE PEOPLE THESE ARE TRYING TIMER " SURVIVAL OF THE FITTEST. "

    November 30, 2011 at 11:54 am | Report abuse |
  7. frank

    European bank nearly went under last night:

    http://www.mutualfundobserver.com/discussions-3/#/discussion/1640/european-bank-nearly-went-under-last-night-forbes

    November 30, 2011 at 12:00 pm | Report abuse |
  8. cheers2win

    Today's " rally" is nothing but a fake, and you can see the proof in technical charts right now.
    http://cheers2win.com/blog/2011/11/30/us-markets-today-its-a-fake-rally-and-here-is-the-proof/

    November 30, 2011 at 12:48 pm | Report abuse |
  9. Alan MacDonald

    Crossing the Global Rubicon:

    It is being broadly reported, as we speak, that the Obama administration will NOT allow more US taxpayer money to be used to bail-out European banks, as reported in this very USA Today article:

    "And despite Obama's promise to "do our part," Carney said no U.S. taxpayers' funds are needed, even if the International Monetary Fund is called on to help in any bailout."

    And YET, this key NYT front-business-page article this morning, says that the US FED WILL contribute millions/billions in 'no interest' money from the US FED window to European Banks:

    http://www.nytimes.com/2011/12/01/business/central-banks-move-together-to-ease-debt-crisis.html?_r=1&hp

    Soooooo, "what we have here is a failure to communicate" ... OBAMA's BIG LIE.

    Here's my comment to the NYT and USA Today:

    Obama promised just yesterday that U.S. citizens could be sure that he would not allow any American funds (that might further peonize them) to be diverted to Europe.

    Oh well, another Obama promise made AND BROKEN, but this time in real-time - so fast was the lie that it makes one's head spin.

    Best luck and love to Occupy Empire.

    Liberty, democracy, justice, and equality
    over
    violent/global/'Vichy'
    empire,

    Alan MacDonald

    PS. Oh, I know what the confusion is in Obama's apparent bold-faced lie to American citizens. He's actually speaking honestly, but as the faux-Emperor of the world, rather than just the president of our former country -- since what we still consider 'our' country is now the nominal HQ of the disguised corporate/financial/militarist Global EMPIRE, which hides behind the facade of its modernized TWO-Party 'Vichy' sham of faux-democratic and totally illegitimate government - just as an earlier Nazi Empire tried to hide behind its crude and single-party 'Vichy' regime in France c. 1940.

    It is now necessary for the global corporatist media to clearly articulate anything Obama says as either coming from the nominal president of the country previously called America, or from the mouth of the First faux-Emperor of the 21st century Global Empire - the real and accomplished Fourth Reich.

    November 30, 2011 at 1:13 pm | Report abuse |
    • lps

      Great post Alan.

      November 30, 2011 at 2:40 pm | Report abuse |
    • fittobetied

      This is all part of the illusion. The US Federal Reserve is not a governmental agency. It is a privatized organization, that uses the acronym "U.S." to throw people off. In reality, the US Federal Reserve loans the US money with interest attached to do so. Go watch "The secret of oz" – http://www.youtube.com/watch?v=swkq2E8mswI Will open your eyes even more O-O

      November 30, 2011 at 3:36 pm | Report abuse |
    • Someone

      Alan MacDonald – Multiple sources have said that American taxpayer money will not be used. They will print new money to fund ECB. Printing money raises the risk of inflation. However, with current economic conditions, the risk of inflation is pretty low.

      November 30, 2011 at 3:41 pm | Report abuse |
    • TnMuse

      The way I understand it, the FED controls the money supply and doesn't need Obama's approval. Maybe the FED and the big banks are not worried about inflation...but it sure hurts us little people. The online calculators say that 1.00 in 2001 has the same buying power as 1.28 in 2011, however the prices seem to be going up faster than that at grocery store. We need a better economic philosophy and to rein in control of our finances and government.

      November 30, 2011 at 7:44 pm | Report abuse |
  10. Swedish Cook Muppet

    Banken in die Schranken

    November 30, 2011 at 2:20 pm | Report abuse |
  11. Voltairine

    "Fundamental problems remain": Like the fact that Capitalism is, by nature, exploitative; that nobody should ever have central banks, but banks have perverted governments into using them; that corporations are not persons; that no corporation should be able to influence the government in any way; that there must be a cap on how much political candidates can accept and use for their campaigns that is relatively tiny compared to now, etc.

    November 30, 2011 at 4:08 pm | Report abuse |
  12. Robert from Canada

    This sounds to me like nothing more than rearranging the deck chairs as the ship sinks. People/countries want workable solutions to correct the present situation so it does not happen again.

    November 30, 2011 at 4:08 pm | Report abuse |
  13. Ryan

    END THE FED! Just get ready for another bust followed by this boom. Ron Paul was right and he will be right this time.

    November 30, 2011 at 4:36 pm | Report abuse |
  14. HeavymetalBANKING

    JUST 5 years ago the AMERICAN BOY and his girls shouted to the entire world in the internet – "if you are
    not FREE like us in roadway OIL splurges, then you are nothing".... AND NOW? They pretend to be "poor".

    Sing us some somgs of authentic ANGST.. make it convincing for the laughter of those you attempted to "convert".

    November 30, 2011 at 4:45 pm | Report abuse |
  15. daveinla

    And this stops China how? More internal love for the wealthy investor class.

    November 30, 2011 at 6:13 pm | Report abuse |
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