We remember the meltdown in late 2008. Get ready for another one, says MarketWatch’s David Weidner.
First it will hit in Europe. Then here. There is a connection. Americans are “being held hostage by the Angela Merkels, Nicolas Sarkozys, Mario Draghis and Mario Montis.”
Moreover, it’s not just our wealth, it’s our ability to attain credit and earn interest on our assets. Europe has long put a squeeze on the world’s financial markets. Now it’s putting our personal finances at risk.
Simply put, Europe’s banks look to be on the brink of collapse.
Collapse is a frightening word. We do not see it often in the Establishment financial media.Weidner goes on.
Don’t take my word for it. The Bank for International Settlements issued its quarterly report on Monday. And the outlook is more than just gloomy.
“The intensification of the euro-area sovereign-debt crisis went hand in hand with banking-sector weakness,” BIS researchers observed. “While bank funding problems had manifested themselves throughout the year, policy makers and market participants increasingly turned their attention to issues of bank solvency.”
And “participants” did not like what they found. Standard & Poor’s downgraded two French banks, four Spanish banks, seven Italian banks and three Greek banks.
Moody’s Investors Service was more aggressive, slashing the previously “strong” financial systems. It downgraded three German banks, three British banks, and two U.S. banks.
If it had not been for government bailouts, the BIS says, there would have been more downgrades. The ratings would be lower. Germany’s would be BBB, not A. So would U.S. banks.
BIS points out that part of the problem is bank debt, nearly $2 trillion needs to be refinanced before 2014. Some 13% is owed to governments from the last round of bailouts. European central banks have loaned 600 billion euro to banks as inter-bank lending has dried up.
But what has this got to do with Americans? First, The need for more bailouts in Europe. U.S. banks will get in trouble. Morgan Stanley is down 43% this year. MF Global is dead. Belgium’s Dexia was saved only by direct intervention by government.
These failures have been disruptive to the world’s financial system, but it will be nothing compared with what would happen if a bank the size of, say, Italy’s UniCredit Spa (MCI:IT:UCG) or France’s BNP Paribas (EPA:FR:BNP) should require drastic action.
A squeeze is now in force. Margin accounts for stocks and bonds have been tightened.
That’s what’s happening now, but it could get worse very fast. The markets on Monday reacted poorly to another summit of European leaders aiming to fix the crisis. If confidence isn’t restored, banks will soon hit a cash crunch.
What happens next would be a panic. Some banks may not survive. And if you think it will stay contained in Europe, BIS has news for you: we live in an era of “global spillovers,” the bank said.
A European crisis could trigger a global recession, he says. U.S. banks will be stung, as they were in 2008. U.S. banks are tied to Europe. ” If it sounds familiar, that’s because it was the same toxic mix that gave us American International Group Inc. (NYSE:AIG) , Lehman Brothers, and ultimately at $1.2 trillion in government guarantees to the market.”
For the little guy that meant lost jobs, lost credit, foreclosures and a world of economic hurt. That’s why Europe is nearer than you might think. It doesn’t get any closer to home than losing your home.