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Did You Miss It: Another Bailout For The Banks



June 29, 2011 – Comments (1)

The financial stocks are soaring today on yet another bailout. Europe just bailed out Greece and by doing so, saved the world from yet another global financial crisis. Many will not understand how this was a bank bailout, yet again. Let me explain. If Greece did not get their bailout, they would default. European banks would take large losses if that happened because of credit default swaps and derivatives, among other things. U.S. banks have less exposure but still some.

While this event would not cause the collapse of the global banking system, it would most likely start a chain reaction, domino effect, spreading to Spain, Portugal, Italy and so on. If each one was allowed to fail, the banks would take huge losses and most likely become insolvent once again. In essence, the bailout of Greece now means the banks will not take losses. Ultimately, the leaders in Europe made a decision to bailout Greece instead of having to bailout the banks directly in a year. Either way, it is the same thing. It just sounds prettier and more worldly to bailout a country.

This can clearly be seen in U.S. bank stocks, which have been trading at their 52 week lows for the last couple weeks. Today however, on the back of the Greek austerity vote which solidified the aid package, they are surging. Bank stocks like Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC) are all up two to three percent.

Gareth Soloway

1 Comments – Post Your Own

#1) On June 29, 2011 at 1:27 PM, davejh23 (< 20) wrote:

It's interesting that the banks are climbing on the Greek vote, which isn't even the final vote, on the same day that we get news of huge potential put-back risk for the big banks.  I suppose their exposure to Greece is far greater than the 10's of billions in put-backs they could face. 

In any case, the vote in Greece is over what?...12 billion Euros?...about two months of funding?  We're going to be looking at the same exact crisis again early this Fall. 

In my opinion, tomorrow's vote will be a sell the news event and this week's market action will look similar to last week's...stocks fading this afternoon and a gap lower tomorrow. 

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