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De-coupling derailed by Fannie and Freddie

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  • De-coupling derailed by Fannie and Freddie

    What do you mean, US influence is waning?

    by Joost de Jong


    If popular opinion if to be believed, US dominion over world financial matters is fading slowly. And why shouldn’t it be. Mortgaged and indebted to the hilt, wide-spread evidence of almost criminally poor financial governance by the banks and the federal reserve alike, not to mention a president slightly less popular abroad than the black plague, one would think US financial affairs would no longer matter quite as much to the world economy as a whole.

    Imagine my surprise then, when upon entering my local bank here in the country-side of Spain the branch director jumps out of her office in celebratory mood to announced the news of the Freddie Mac and Fannie Mae take over (read: nationalization) in the US. "Now we can get back to business!" she exclaimed.

    I wondered what difference that was going to make to financial institutions in Europe. And this right after the European Central Bank had announced last week it’s tightening of capital requirements for lenders. These changes will have far more impact on her ability to business.

    However, as I broadened my poll among my contacts here, it became clear that nobody really had any idea or even cared what the EU central bank authorities were doing. never mind how much more immediate their influence is to my friends' businesses. Instead, the US government’s move was headline news, as if an Alan Greenspan tooth-fairy with paste-on wings had twirled by telling us all is going to be just fine from Bali to London. Sorry, Ben Bernanke, nobody here knows who you are yet.

    So, perhaps we owe these banks so much money that we have become too important to them to fail. It may very well be that with our every economic lurch and mis-step we send chills into hearts of central bankers around the globe as their eyes widen in fear at the prospect their carefully hoarded mountains of US debt evaporate into worthlessness.

    Don’t under-estimate the US’s financial power and influence. When it really comes down to it, and the chips are down, the world still turns its head to the sounds emitted by the US Federal Reserve, looking for guidance and leadership, not to Brussels, London, Tokyo, Dubai, or Beijing. For most of the world it is still good ol’ USA that matters.

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    Last edited by FRED; 09-09-08, 02:07 PM.
    Ed.

  • #2
    Re: De-coupling derailed by Fannie and Freddie

    Originally posted by Joost de Jong View Post
    ...So, perhaps we owe these banks so much money that we have become too important to them to fail. It may very well be that with our every economic lurch and mis-step we send chills into hearts of central bankers around the globe as their eyes widen in fear at the prospect their carefully hoarded mountains of US debt evaporate into worthlessness...
    If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.
    - Jean Paul Getty

    quote is also attributed to Keynes...

    If you owe your banker a thousand pounds, you are at his mercy. If you owe your banker a million pounds, he is at your mercy.
    - John Maynard Keynes

    Comment


    • #3
      Re: De-coupling derailed by Fannie and Freddie

      You can see why most European countries cannot decouple from the US in the following maps from the IMF

      Comment


      • #4
        Re: De-coupling derailed by Fannie and Freddie

        Puppets Rule!

        Comment

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