Monday, October 10, 2011

Stocks Jump on European Pledge to Help Banks

The leaders in France and Germany have promised to strengthen the European banks, trying to stop a global debt crisis caused by Greece not having enough money to pay its debt. In response, U.S. and Europe stocks have risen sharply.

Micheal Sansoterra, a portfolio manager for Silvant Capital management in Atlanta, stated "The more we can put our arms around the problem with a little more detail, the better; and time frames usually help."

With the new help from France and Germany, the Euro strengthened against the U.S. dollar, showing improvement after the most recent wave of aid. One bank desperately seeking rescue is the Franco-Belgian bank, Dexia. Dexia owns large amounts of government bonds, which rely on the financial status of Greece. If Greece defaults on its debt, then Greek bonds lose their value, resulting in detrimental losses. U.S. banks would also be affected if Greece defaults on its debt because of their close ties to European banks and ownership in large amounts of Greek bonds.

European banks are so apprehensive that another credit crunch could happen, they are not lending to each other, putting more pressure on overextended banks, like Dexia.  This scenario led to the ECB offering unlimited one-year loans to the regions banks until 2013 so they can still have credit.

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