The financial fireworks continue. Over the weekend, the Europeans found that they weren’t insulated from the crisis at all:

“Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.

Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.”

More by Ambrose Evans-Pritchard (who seems to be relishing his role as Jeremiah) at the Daily Telegraph.

Comment:

While I agree in general, I think the hysteria is misplaced. Things aren’t good, but we are only making it worse by fanning public hysteria. The essential problem is that banks are fearful of counter-party risk, because the rating agencies weren’t doing their jobs – so much for more regulation). Many of these assets are illiquid because they are marked up too highly. That includes houses. Prices are deflating, but they are still not back at realistic values. Mark them down and you will find buyers in the market. Instead, everyone is trying to keep prices at artificial levels by getting the government to buy them (and here, in the US, we can print money to support any price level). Ergo – confidence grows less and less, as prices and values become even more completely unhinged.

That’s why, this morning, the Dow is down, sinking below 10,000 for the first time in 4 years. I want to say, I told you so, to the entire political, academic, financial, and cultural establishment which has been out in force telling us to sign that bill, or else.

And remember Jim Cramer saying he liked this market just this past June? Well, today Cramer’s telling people who need their money in the next five years to pull it out of the market asap. Almost makes you think we hit a bottom (only half kidding).

Unlike Cramer, Nadeem Walayat, a trader, has been right on the money. We are at 1929, he says, and yet, we’re not – because, today, it’s not a stock market crisis but a banking crisis. Walayat predicts a two-year recession.

Personally, and here, Evans-Pritchard’s use of the phrase shock and awe seems like a bit of a give away, I think there is more to this crisis than meets the eye. Remain skeptical – especially, when anything involves trampling the constitution and creating ever more powerful financial czars….

Just remember – as this piece says – a substantial part of the media shills for Wall Street and the government. They either print outright falsehoods, naively repeat what they are told, or co-opt the arguments of people who are right by appropriating a part of what they say but giving it their own misleading spin.

As for punitive measures for what’s happened, Michael Brush at MSN Money Central has a good piece on how CEO’s made out while their companies were tanking. He doesn’t have much hope that legislation will get the bad guys to cough up their ill-gotten gains but he does have a couple of links for you to get through to the government.

Regulatory overhaul is not the answer (although a few rules do need to be reinstated). Look at what’s happening in Europe? No lack of regulation there. And, the Eurocrats are even turning their backs on a Eurozone rescue modeled after the American.

“I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used,”

says Peer Steinsbruch, Germany’s Minister of Finance…..suddenly, quite the nationalist.