Euro Crisis At A Tipping Point?

[Owlet]

While OWS is important, it s also proving - unwittingly - to be a distraction from other problems. It's sort of like watching kids building a sand castle on the beach while the tsunami-warning sirens are going off. No, I'm not trying to minimize the importance of OWS or in any way demeaning the participants. It's just that other stuff is happening that may make everything else irrelevant. To whit, the Euro Crisis.

"The European sovereign debt crisis is rapidly approaching what could be a significant tipping point as it threatens to spread to the heart of Europe.  In recent days Italian 10-year bond yields have soared to 7.22% and today Spain was forced to pay 6.975% at its auction.  Even French 10-year yields have climbed to 3.71%, its widest spread over German bond yields since the Euro Zone was started.  All of this has happened despite large ECB purchases of periphery country bonds over the last few months and the installation of technocratic governments in Greece and Italy.

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The U.S. economy is far from immune.  Yesterday a report from Fitch Ratings warned of the increasing risks facing U.S. banks from the European crisis.   They said U.S. lenders "could be greatly affected if contagion continues to spread beyond the stressed European markets."  Significantly, investors don't have a lot of transparency from U.S banks in terms of the amount of exposure to various entities or the ability of their hedging strategies to hold up under crisis conditions." 

In other words, the banks aren't revealing their exposure in terms of Credit Default Swaps with European banks. Some estimates put the total in the trillions.


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