The Crisis Worsens …
This article in today’s New York Times: Europe Tested by Financial Crisis highlights just how bad the situation is now getting. The rot that was the American mortgage market has now spread like a cancer to Europe.
European banks were eager to hold American assets because of the size, liquidity, and reputed safety of the American economy. Too many bought American mortgage backed securities.
Plus the European housing markets are suffering a similar price deflation to that we are living trough here. The worst hit is the UK where the government has already nationalized a couple of banks and has had to increase the limits on deposit insurance.
The European Community has been shown to be disorganized again: many of the worst hit countries have all introduced different deposit insurance plans. This after a soothing meeting of the national leaders over the weekend!
Given the amount of interchange between the various financial systems in Europe the lack of a coordinated approach is mind boggling, but not unusual. I predict that one outcome of this mess will be a much more tightly coupled set of financial regulations for Europe and more power invested in the European Central Bank.
Meanwhile here in America: the stock prices have plunged on the European news, and on fears that the bailout passed last Friday will not have an immediate impact.
The timing of all this could not be worse: the American political system is practically frozen in place for a few months due to the current election and the need for a subsequent ‘transition’ team. So for all intents and purposes we will not have a firm leadership until February. That’s not good!!
The banking system is a hopeless mess. The markets failed us totally. The only functioning part of the system are the commercial banks, and they are getting swamped by bad assets just like the now defunct investment banks.
The bright note?
Anyone with cash will make a killing by buying up the debris and holding onto it while a recovery gets underway. Now is the time fortunes can be made. But who has cash in this country? After all it is the most indebted nation in history. .
Good job Bushie!!
