[SUSIE] GHARIB: Let me begin by just asking you what are the risks of all these events, that Spanish bailout, the debt crisis in Greece, the falling euro? What’s the intact and the risk of all of that to American businesses and our economy?
[MOHAMED] EL-ERIAN [CEO of PIMCO]: Susie, we went into the weekend knowing that Europe had a debt issue and Europe had a growth issue. And we come out of the weekend with the news that Europe may also have a banking system issue. The minute you bring in the banking system, it’s like an amplifier, something that we discovered in this country a couple of years ago. Banks have a way of amplifying shocks in the system because banks are like the oil in your car. They link up so many different parts. And the problem for the U.S. is that not only is it going to have to cope with a growth issue out of Europe. Europe is an important export market. We sell a lot to Europe. Europe is going to grow less, but now the strains in the banking system. And the minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion. You can get widespread disruptions. And that’s what we started to price in today.
GHARIB: In terms of American banks that have just been coming out of our own financial crisis, how exposed are U.S. banks to what’s going on in the European banking system?
EL-ERIAN: They are not as exposed to the European banks as they are to each other but we are all exposed to the global banking system. Banks are very inter-linked. And the minute you start having disruptions, the minute the flow through the pipes starts to be interrupted, then everybody suffers. And the concern is that Europe’s banking system may come under pressure.
Read it carefully and read it all.
Mohamed el-Erian on the European Sovereign Debt Crisis and why it Matters
[SUSIE] GHARIB: Let me begin by just asking you what are the risks of all these events, that Spanish bailout, the debt crisis in Greece, the falling euro? What’s the intact and the risk of all of that to American businesses and our economy?
[MOHAMED] EL-ERIAN [CEO of PIMCO]: Susie, we went into the weekend knowing that Europe had a debt issue and Europe had a growth issue. And we come out of the weekend with the news that Europe may also have a banking system issue. The minute you bring in the banking system, it’s like an amplifier, something that we discovered in this country a couple of years ago. Banks have a way of amplifying shocks in the system because banks are like the oil in your car. They link up so many different parts. And the problem for the U.S. is that not only is it going to have to cope with a growth issue out of Europe. Europe is an important export market. We sell a lot to Europe. Europe is going to grow less, but now the strains in the banking system. And the minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion. You can get widespread disruptions. And that’s what we started to price in today.
GHARIB: In terms of American banks that have just been coming out of our own financial crisis, how exposed are U.S. banks to what’s going on in the European banking system?
EL-ERIAN: They are not as exposed to the European banks as they are to each other but we are all exposed to the global banking system. Banks are very inter-linked. And the minute you start having disruptions, the minute the flow through the pipes starts to be interrupted, then everybody suffers. And the concern is that Europe’s banking system may come under pressure.
Read it carefully and read it all.