The private sector has walked away from Europe as sovereign credit erodes in the euro zone and has piled into cash. Fixing the European crisis will take at least five to 10 years, Laurence Fink, chairman and CEO of BlackRock, told CNBC.
To solve Europe's problems, Fink advocates a solution incorporating a combination of a liquidity platform and a TARP program—one that would come with a $800 billion to $1 trillion price tag, he said. He added that his plan is getting "quite a bit of positive response" from upper levels in government.
"It's not going to be a one- to two-year fix," Fink said. "It's a five-, 10-year fix. If external parties impose a one-, two-year fix, we are going to have incredible social unrest, and this is not going to work."
The private sector has walked away into cash and will not buy sovereign credits again until the euro zone finds a long-term solution, Fink said. He added the responsibility of fixing Europe's issues falls to government, specifically Germany because it is the leading country economically, to stabilize the euro zone.
Fink said he does not think the government would have to put that much money into Europe because there is ample private capital sitting on the sidelines.
He cautioned that imposing austerity would be difficult for any government to do in a one to two-year time frame because it would create social unrest and could lead to a breakdown of private capital.
Uncertainty in the US
In addition to the euro-zone problems, uncertainty is running rampant in the U.S. and is impacting the economy, Fisk said.
"If you just look at all the cash that's sitting in corporate balance sheets, that's an example of 'I don't know what to do,'" he said. "It's that uncertainty that is forcing executives to have larger amounts of cash. You know, they're not investing."
Uncertainty is also lowering demand for loans as business leaders fear the future and additional regulation, Fink said.
Although some investors are piling out of equities and into cash and bonds, Fink sees a reversal of this trend in the future.
"What we believe you're going to see over the course of the next year is a major migration out of bonds into equities as you reallocate," Fink said.
As Treasury bonds have been posted historically low yields , Fink said investors have to step away from "shorttermism" and focus instead on the best way to improve the returns on investments.
"So if you could have a portfolio of companies that pay a 4.5 percent dividend, you're earning more than double the 10-year Treasury," he said. "You have protection in inflation by owning equities much more obviously than you do by owning bonds. I just think we’ve got to get out of this shorttermism."
WATCH: Lack of Clarity Fueling Euro Debt Crisis
______________________________
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where's the US Dollar Today?
- Track Treasury Prices Here
______________________________
CNBC's Companies in the News:
Yahoo
- Investor to Yahoo Founder: Fire Chairman, Board Members
Avis , Dollar General , Hertz
- Avis Drops Bid for Dollar Thrifty, Clearing Way for Hertz
- ______________________________
Disclosures:
Disclosure information was not available for Larry Fink or BlackRock.