The euro zone financial situation continues to worsen. The latest idea from the euro group of finance ministers is apparently to have the European Central Bank make a huge loan to the International Monetary Fund, which would then turn around and lend to countries like Italy. This is a bizarre notion.
If the monetary fund takes the credit risk of a megaloan to Italy — e.g., an amount around $600 billion, greater than the fund's current lending capacity — this would represent an unprecedented and unacceptable risk to the fund's shareholders, which include the American taxpayer. If the monetary fund does not take this credit risk, what's the point?
Read Full Article »