A former Treasury official said that the US banking crisis is a threat to the whole world.
Paul Craig Roberts says that the disease could spread to Europe and other places.
Paul Craig Roberts, the head of the Institute for Political Economy, thinks that the policies of the US Federal Reserve are to blame for the current banking crisis and could cause more banks to fail.
The official, who worked in the US Treasury in the 1980s, talked to RT about the recent high-profile bank failures that have shaken the US financial system and the possible effects of these events.
The economist said that the five biggest banks in the US (three big banks in New York and two big banks in California) hold derivatives worth trillions of dollars. But they only have billions of dollars in capital.
When Moody’s changed the outlook for the US banking system to negative, Roberts said that if these banks got into trouble because of their derivatives, it would spread to Europe. He said that those banks were just too big and had too many connections.
Roberts says that the problems started in 1999 when the US government made a lot of changes to the rules for banks. He said that before that, commercial banks couldn’t do investment banking, but investment banks could take risks with their own money. But when commercial banks were allowed to join, they started to gamble with people’s savings. The expert said that has made it possible for a lot of risk-taking that wasn’t possible before.
He said that the so-called Glass-Steagall Act had kept panic buying and buying crises from happening for 66 years until it was mostly gotten rid of in 1999.
The former White House official said that the current crisis in the US banking sector could affect the rest of the world. He said that some European banks, like Credit Suisse, are already in danger.
Roberts said that this was why interest rates were so low for the next 12 years, which led to the current financial crisis.