TWELVE

The Politics of Banking

“The king is naked!”—but under such splendid robes.

Stanislaw Jerzy Lec (1909–1966), Polish aphorist, Unkempt Thoughts

WE OPENED CHAPTER 1 by quoting French President Nicolas Sarkozy angrily chastising U.S. bankers who had lost their “common sense.” From that quote one might assume that French banks are so tightly supervised that French bankers do not have a chance to lose their common sense.

In fact, French banks have been a major focus of concern in the European crisis. Throughout, they have had very little equity and a lot of short-term funding, in particular from U.S. money market funds. In 2011 the money market funds were worried about the sovereign debt crisis in Europe and withdrew their money. Without liquidity ...

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