It occurs to me that the European banking system is collapsing under the weight of unrealized sovereign debt loss,
and that we know as much. European banks are avoiding write-downs on the sovereign debt they hold, in order to avoid having to recapitalize at a difficult time. The U.S. recognizes the risk in having the market handle the capital write-downs for those banks, having just narrowly avoided a very similar problem in 2008, and has opened a dollar lending window which is helping to keep the European banks’ collective balloon inflated. Now the ECB is stepping away from those same banks in an effort to encourage sovereign responsibility, which may be delivered, but which seems very unlikely to be delivered in a coordinated way, absent some serious policy rewrites in the EU. The risk of shock is high.
At the same time, there are people in the streets. I know because I read the Drudge report. There are people protesting austerity. There are people who feel a connection to the Israel/Palestine issue. There’s the entire Arab Spring to consider. I mean – think about it – there are a lot of people experiencing a deep enough level of personal unrest that they’re walking around somewhere in the night instead of reading this from their couches.
What happens when the capital run really starts in Europe…later this week or early next I’m guessing, because I don’t think the market gives anyone six weeks’ notice…and then people have fear to contend with on top of anger and uncertainty? Nothing good, I think.
If I were more diligent or educated, or conscientious, I would carefully document everything I’ve asserted in this post. As I am not, and as I very probably read all of the same things anyone who would actually consume this whole post does (and then wonder about sources), none of this is probably news to you.
If it is, or if I’m totally wrong on some point or another, please feel free to correct me. My only request is that you be kind, as I am simple and my feelings are easily bruised.
I will happily retract anything and everything, because I have no dog in the fight. I just wanted to pose the question. If it matters, I’ll even try to find the sources for my assertions.
Thanks,
Alex
next day additional – Interesting FT article covering much of European situation. Changed title for clarity. Doubt it worked 
