US Unprepared for Post-Brexit Financial Panic

© Photo : Pixabay, CollageBrexit
Brexit - Sputnik International
The US government should consider developing contingency plans in the unlikely event that the United Kingdom decides to leave the European Union because it is ill-prepared to deal with a post-Brexit financial crisis, experts told Sputnik.

WASHINGTON (Sputnik) – On Monday, White House Press Secretary Josh Earnest told reporters that the US government is considering contingencies in the event that the British vote in favor of leaving the EU. UK nationals are set to vote in a referendum on the country's EU membership on Thursday, June 23.

A campaigner wears a T-shirt bearing the slogan Believe In Britain as he attends an Anti-EU (European Union) United Kingdom Independence Party (UKIP) pro-Brexit campaign event, ahead of the forthcoming referendum, in Birmingham, central England, on May 31, 2016. - Sputnik International
Former Scottish First Minister Warns: English Nationalism ‘On The March’

"The biggest contingency they [US government officials] should consider is the fact that such a vote could set off the kind of financial panic we saw with the failure of Lehman [Brothers] in 2008," Harvard Law School Professor Hal Scott told Sputnik on Wednesday.

Lehman Brothers was one of the first US banks to fall during the 2008 financial crisis. The crisis led to stricter US financial regulations like the Dodd-Frank Act, which supporters said would improve transparency.

"The problem is that the weapons we [the United States] would need to respond [to Brexit]… have been diminished, and in some cases taken away, by the Dodd-Frank Act," Scott noted.

The US Federal Reserve, Scott argued, can no longer operate independently in case of a financial crisis given that everything it does must now be approved by the US Secretary of the Treasury.

People hold Union Flags and the EU flag at a kiss chain event organised by pro-Europe 'remain' campaigners seeking to avoid a Brexit in the EU referendum in Parliament Square in front of the Houses of Parliament in central London on June 19, 2016. - Sputnik International
Brexit Diaries: 'Break-Up of Soviet Union Was Bad, So I'm Voting Remain'
The initial development that set off the 2008 panic, Scott explained, was the run on the money market funds.

"The Fed didn’t lend directly to the funds because they couldn’t, but they lent to the banks to lend to the funds."

Unfortunately, in the aftermath of the crisis such lending was characterized as "bailing out Wall Street," Scott added.

"When the White House and Treasury [Department] get together and talk about what they are going to do [about Brexit] they have to take into account those powers have been restricted."

University of British Columbia Sauder School of Business Professor Maurice Levi told Sputnik that Brexit is unlikely.

Map of the world - Sputnik International
Brexit Diaries: Being Part of Europe Means Being a 'World Citizen'

"Even if Britain votes to leave the EU – which I don't think will happen – this will be followed by discussion of new and possibly better terms of membership."

For example, Levi added, Britain after exiting the union might agree with the remaining EU members on trade agreements.

On Wednesday, a member of the European parliament told Sputnik that a high turnout is expected for the referendum because Britons realize how important it is.

According to a new Opinium Research poll, 45 percent of UK citizens said they would vote for Brexit while 44 percent would vote to remain in the EU.

Brexit supporters argue that EU membership has eroded the country’s independence to legislate, direct its economy and control its borders. Opponents warn that leaving the European Union could deeply harm the British economy.

To participate in the discussion
log in or register
Заголовок открываемого материала