Europe Goes in to Financial Crisis

Not a good sign – from the AP:

European bank stocks tanked Thursday as fears mounted about their exposure to the region’s debt crisis and weakening economy.

The stock prices of Britain’s Barclays and France’s Societe Generale led the way down, falling 11.5 percent and 12 percent, respectively. Germany’s Commerzbank fell 10 percent.

Analysts said the plunge was partly a reaction to evidence that European banks are being forced to pay more for the short-term loans they need to finance day-to-day operations…

That means that credit is freezing up – no one wants to loan money because no one knows what comes next and better hold on to what you’ve got.  But, meanwhile, without easy access to short term loans, the financial system goes in to acute crisis.  And this financial crisis is starting to spread to US banks.  As Mish puts it:

The global financial system is bankrupt. There is no way loans that have been made can be paid back. That statement applies to the Eurozone, the US, the UK, China, Australia, Canada, and for that matter nearly everywhere one looks.

Perhaps something will be done to loosen things up – some more money printing by the European Central Bank, or the Federal Reserve, or maybe China will dip in to its foreign reserves and bail out the European banks.  But even if they nip it here, it just delays the inevitable.  Mish is right – the global financial system is bankrupt.  Fundamentally, a crash is the only way out – it will kill of that which must economically die and let us know which banks, if any, are solvent.  Once that is done, we can start to rebuild knowing where we stand.