Replies to post #174279 on Tornado Alley (PROG)

[StephanieVanbryce]

How to understand the Euromess, in one parable

Posted by Suzy Khimm at 11:00 AM ET, 04/24/2012


Belgian Finance Minister Steven Vanackere, center, EU Commissioner for Economic and Monetary Affairs Olli Rehn,
right, and Spain's finance minister Luis de Guindos. (Keld Navntoft - AFP/Getty Images)

Suzy Khimm at 11:00 AM ET, 04/24/2012

Harvard Professor Kenneth Rogoff offers up an extended analogy to understand the Sturm und Drang behind the Eurozone crisis in the Financial Times today:

Consider a young couple who is contemplating marriage, but unsure whether to take the big step. So instead they decide to test things out by opening a joint bank account. At first things go remarkably smoothly ... the bank will give them an even better deal, if they expand the arrangement. So the siblings persuade a few cousins to join ...

Shortly after joining, a couple other cousins have taken advantage of their new prime customer bank status to buy extravagant apartments with jumbo loans at far lower interest rates than they were ever afforded in the past. ... Despite informal personal imbalance limits, several cousins significantly overdraw their accounts.

The entire family arrangement ultimately collapses, prompting the arrival of an outside financial adviser. Some members want to kick the delinquent members out, but doing so would probably entail “closing the entire account, wreaking havoc with everyone’s finances,” Rogoff explains. Ultimately, he concludes, “A pre-nuptial joint bank account is a very unstable route to marriage.”

http://www.washingtonpost.com/blogs/ezra-klein/post/how-to-understand-the-euromess-in-one-parable/2012/04/24/gIQAvAETeT_blog.html#excerpt

F6 or someone, IF you read this ... is this about it ? ..or is it not so correct ? ...