Remember in Teenage Mutant Ninja Turtles II: Secret of the Ooze when the Turtles thought they had thwarted Shredder only to have him come back all hopped up on ooze and ready beat some ass?
If not check it out here.
Why do I bring that up? Because this is a cogent allegory for what’s happening in global banking.
You probably remember the financial crisis. If you don’t, here’s my attempt at an extremely simple explanation: The entire finance industry nearly imploded when a series of insurance products everyone thought were safe turned out to be doomed to fail if housing prices did anything but continue to skyrocket, leaving the US government with no choice but to float the banks approximately a gagillion dollars so that the world did not end as we know it.
Here’s where we pick up the Turtles. Follow along on the video!
0:00 – 0:09 – The TMNT wonder what the hell just happened.
So the US government saves the US financial industry, not to mention a lot of foreign banks, by basically guaranteeing that they will not fail. How do you do that? By promising them lots of money.
See here and here.
Good job! Crisis averted. How do you know the crisis is averted? Because that thing you just fought does not pose a readily apparent problem. Best to assume that neither a Super Shredder or massive amount of indefensible European debt looms to strike.
0:10 – 0:20 – The TMNT celebrate with their classic “cowabunga!”.
Time to celebrate by immediately forgetting what just happened and why it was an issue. Instead, let’s do everything we can to keep the situation the same, because lord knows it can’t get worse.
0:21 – 0:47 – Believe it or not, Shredder is not dead. In fact he just took a bottle of Ooze to the face and is now Super Shredder
Uh oh, the banks that were initially too big to fail (a.k.a. Shredder) are now even bigger and more dangerous because we’re now involving banks and government debt (aka Super Shredder). How’d that happen? Because nothing really changed. In fact, more of the same happened.
0:48 – 1:23 – Like anyone on decent 'roids, Super Shredder has rage problems and begins destroying the dock that him and the Turtles are under.
So our gigantic banks and their European debt are about to sink themselves and everyone around them. Perhaps Germany and/or the ECB can help with another bailout. Because, if they don’t, they’re going to bring us all down….
SOOOO BE IIITTTT!
1:24 – Shredder destroys the dock.
This bring us to about present day. We’re standing under the dock right now, and the US doesn’t have a whole ton of options. They, along with much of the world, have little choice but to sit and wait to see if European leaders can figure out a way out of this.
It is generally accepted that Greece’s debt is unsustainable (and that Italy and Spain are not far off). The banks that hold that debt could collapse if Greece (or other countries) default.
And this time, there’s almost no way out of it without very serious economic consequences. The European Central Bank (ECB) might be able to print money and Germany could help, but so far neither seem willing. Rumors have flown that China or Brazil might be able to pitch in and secure some of the debt, but those plans have also failed. In all honesty, this video does the situation more justice than I can (it's non-Turtle related, sadly).
Ok, so what? It’s Europe. Well, as MF Global pointed out, lots of US banks and investment firms have bet heavily on European debt. And the ones that haven’t are still so weak that they’re probably not going to be able to withstand much of a hit. And as Ezra Klein adeptly points out, the US economy appears to be pretty closely coupled with our European friends.
The point of this article is not to promote scare mongering, but really just to educate. It is surprising how little attention has been paid to this issue outside of business news sources. Even more amazing is that none of the GOP presidential debates have adequately addressed the situation, which is considerably more dire than anything facing the US – yes even more dire than hard-working immigrants.
The lack of accountability of banks on the part of voters across the world may end up becoming the true legacy of this whole fiasco. Even now the Dodd-Frank law that was supposed to be wide-reaching is considered toothless. Not only that, some of the only meaningful discussion of the bill in this election cycle has been about its repeal.
Keep an eye out for more news coming out of the Eurozone in the next few months. And have little doubt, the Super Shredders are quickly removing the pillars of the modern global economy can’t be reasoned with, and neither can their voters.
Update: If you're looking for a slightly more in depth but much more effective explanation of how this crisis evolved, check out this interview of Austan Goolsbee, the former director of President Barack Obama's Council of Economic Advisors.