by Leandra Bernstein
In the past days there has been an outpouring of articles and commentary on the spread of bank runs throughout Europe, in particular Greece and Spain.
While some have tried to call the Greek bank runs mere “jogs,” the evidence points to a full-on sprint to remove deposits from Greece, Spain, Portugal, Ireland and Italy. Much of this is being discussed as “capital flight,” but since the advent of online banking you’re not going to see the roving hordes of men in suits racing to get their money from the teller--they are panicking and sweating behind closed doors in front of their own laptops.
A bank run is sudden, immediate and spreads quickly. Matt King, analyst with Citi, said last week of bank runs: “A bank run can happen very quickly. You are fine the night before, but on the morning after it’s too late.”
Greece is a particularly acute case already experiencing bank runs partially because of the talk and inevitability of their exit from the euro. The obvious conclusion of both investors and depositors is if Greece goes back to the drachma under present conditions, that money won’t be worth jack.
Recent figures suggest that Greek foreign deposits have decreased by 52% from their peaks. The same goes for Ireland and Portugal. These figures come from Citi analyst Matt King who answered the question: What if the rate of withdrawals (aka bank runs) we saw in Greece are repeated in Spain and Italy? King said:
In Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52 percent, and foreign government bond holdings by an average of 33 percent, from their peaks. The same move in Spain and Italy, taking into account the fall that has taken place already, would imply a further $272.17 billion and $270.9 billion in capital flight respectively, skewed towards deposits in the case of Spain and towards government bonds in the case of Italy.
Of course, the trick with bank runs is that even the utterance of the word can cause a panic--and the word it out.The recognition of the sound of the starting gun for serious bank runs in Europe is widespread.
Martin D. Weiss, Ph.D, chairman of the Weiss Group, wrote earlier today in the Money and Markets blog that bank runs are “the final nail in the coffin of any modern economy,” continuing that “once the stampede strikes more than two or three major countries, you could see bank runs all across Europe”--and beyond.
Weiss’ analysis compares the previous European collapse in 2010 to the collapse today. In 2010, however, foreign investors were pulling their money out of weak nations’ bonds. This time it’s depositors pulling out their deposits.
However, the attempts to compare this crisis to 2008 is not only futile, it’s wishful thinking. While 2008 brought the collapse of an entire class of so-called assets, today brings the collapse of entire nations and currencies. Every attempt to “paper over” the crisis has brought trans-Atlantic governments and international institutions to the point where, frankly, there is no more paper!
In 2008, governments had not yet deployed their ‘big gun’ cures for the debt crisis. So they still had the firing power to squelch the crisis with a series of unprecedented rescues. Today, we have seen the rapidly diminishing returns — or outright failure — of nearly every possible stimulus plan, bailout deal or austerity measures known to man. [Emphasis added]
Furthermore, it was also reported today from a source within the Bank of England that the BOE is prepared for the unraveling of the euro. The source noted that the Bank is prepared to “play their part in mitigating the impact” of Greece, or other countries, exiting the Eurozone.
Again, the panic is currently spreading throughout Europe, and the very nature of such a panic in today’s economy implies that the panic will spread across the Atlantic too. However, that “contagion” can either be allowed to sweep Europe and the United States bringing all the social chaos of a banking collapse, or it can be blocked by the implementation of Glass-Steagall, a firewall separating obligations to investment banks, hedge funds and the like from legitimate banking deposits and obligations.
At this stage of the game no one will argue that governments are in debt, deeply in debt. But how much of that debt is proper to the government itself, and how much is owed to investment banks as a promise to back indefensible private financial obligations? How much is based on governments’ inability to fund the functions of the government and how much is bailout for gambling losses?
In the coming days, it will either be panic and despair, or Glass-Steagall.
As an individual one could always contribute to the panic, putting all investments into gold, withdrawing deposits to the supposed safety of a mattress--but that still assumes a very rosy picture of a global financial collapse. Or, you can call your congressman and tell him or her to call the Glass-Steagall bill, HR 1489 to a vote. Tell your Congressman, “Either implement Glass-Steagall and separate the good debt from the bad, or be prepared to go into deeper debt. Because it’s going to take a whole lot of money to pay private mercenaries to back up the National Guard when riots erupt in the streets of the United States.”
Mind you, that is not a threat to your representative in Washington, but a reasonable ultimatum.
* Please follow the Commenting Guidlines.