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Tuesday, May 25, 2010

El-Erian Talks 'Contagion'

Reported by Sean Hanna, Editor in Chief

Pimco chief Mohamed El-Erian is warning that slow moving governments may let contagion spreading from Greece infect the banking system. El-Erian made his remarks during an interview with PBS's Susie Gharib, which Bloomberg's Garfield Reynolds and Emma Ross-Thomas picked up on.

El-Erian, whose company runs the world’s biggest bond fund, said strains evident in Spain’s banking system are intensifying concern that the Greek debt crisis may spread. A transcript of his PBS "Nightly Business Report" interview is available here.

"Banks have a way of amplifying shocks in the system because banks are like the oil in your car. They link up so many different parts," El-Erian reportedly told Gharib. "And the minute you introduce strains in the banking system, there's always a fear that governments will be behind the curve and that you can get contagion."

As for the U.S., El-Erian gave warnings for us, too.

"We avoided a major depression by using the spare tires," El-Erian said. "We have used the spare tires and now we have to cope with not only the bumpy journey, but the uncertain destination." 

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