We are bailing our European banks. Well, not exactly, we are actually loaning them money in a currency swap from one Central bank to another to remove one of the three major risks they are facing – a failure of their credit machine.
U.S. dollars will be sent to European banks that need the currency to fund loans and repay debt. Offering aid to European banks enables them to continue their U.S. dealings here.
The European Central Bank, the Fed, the Bank of England, the Bank of Japan and the Swiss National Bank are the major banks that will pump dollars into Europe’s financial system.These banks are forming a consortium in which each bank floats each other’s loans in a coordinated manner so no one bank is exposed at any given time. The ECB (European Central Bank) can’t print money so they get money from the Feds using toxic assets as collateral.
U.S. dollars and U.S. financial institutions have withdrawn money as a Greek default appears imminent so now the U.S. taxpayer will become the investor in their place.
It’s a boondoggle which will eventually self-destruct.
This action bolsters the EU credit machine, but does nothing for EU bank solvency or EU debt issues. Until they do something about their toxic assets and their unsustainable, big government society, those two dangerous threats remain. Read here: Bailing out the EU