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Major European Banks Blame U.S. Economy

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Major European Banks Blame U.S. Economy

Economy

Major European Banks Blame U.S. Economy

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MADELEINE BRAND, host:

From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.

ALEX CHADWICK, host:

I'm Alex Chadwick. Coming up, we're going to talk to the air traffic controller whose quick action kept a commercial jet liner from slamming into a Montana mountain.

BRAND: We begin today with financial news, and, once again, it is bad news. The fallout from the sub-prime mortgage crises here in the United States is spreading around the globe. Today, we learn that Swiss bank UBS is writing down nearly 20 billion dollars in bad loans, Germany's Deutsche Bank is writing down 4 billion dollars, and the American investment bank Lehman Brothers is trying to convince investors to give it four billion dollars to avoid a collapse. NPR's Adam Davidson covers international finance. He's here now. Again, Adam welcome back to Day to Day.

ADAM DAVIDSON: Thanks, Madeleine

BRAND: First of all, let's just explain, what does writing down mean?

DAVIDSON: It means that UBS or Deutsche Bank are finally admitting that they have lost money. It's a guess as to how much money the've lost. But officially, they are telling the world, this is our best guess as to how much we lost.

BRAND: And this all comes from the foreclosure mess here in the United States? Explain that.

DAVIDSON: It is interesting that people foreclosing on their homes in Nevada or Minnesota or whatever is causing turmoil all over the world, but you have to remember that, over the last five or six years until last year, the U.S. housing market was one of the fastest growing, most exciting markets in the world. It was huge. It was growing. It just seemed like a great way to make money. So everyone from UBS to Deutsche Bank to the Chinese government wanted a piece of it.

BRAND: And Adam, why should we here in the United States care if Swiss Bank UBS and a German bank, Deutsche Bank, are losing billions of dollars.

DAVIDSON: Really, we shouldn't care. It's more of a signifier, and we want to pay really close attention to what it's signifies. There is a good news signification and a bad news signification. The good news is, UBS is a major European - it's actually a major global banking institution, and it was one of the leaders of the "ignore everything" policy. Their leader, Marcel Ospel, was very unpopular, and it was saying, we are going to ignore a lot of these problems. And it was driving people crazy because the only way the global economy is going to get healthy is if all the major banking institutions in the world recognize the problems, admit the problems, and come up with a plan to get out of it. So now we have one of the major players finally saying, we admit there's a problem. They fired the chairman no one likes. They wrote down 20 billion dollars, almost, in assets, and they say they have a plan to get out of it. So that's good news for us. The bad news is that we see, wow, this crisis started in August. It continues to damage banks all over the world. That's scary.

BRAND: It's scary, and there have been proposals floated here in the United States to impose more regulations on the financial industry. Would these banks, though, be exempt from any regulations proposed domestically?

DAVIDSON: This is one of the biggest battles happening now. Who gets to regulate these global institutions? Regulations all over the world come from a time where there really weren't that many global institutions, and a bank really was a local bank. No one knows the answer to that question yet, except that we're going to have tough fights within our own country within Congress and the administration. There is going to be even tougher fights as Europe and Asia and the U.S. battle over how are we going to rule these institutions? That is far from settled.

BRAND: NPR's Adam Davidson, our international finance correspondent in New York, thanks for joining us.

DAVIDSON: Thank you Madeleine.

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