Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral.
Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations.
If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs....Read the rest at The New York Times
Europe Fears a Credit Squeeze as Investors Sell Bond Holdings
By Nelson D. Schwartz and Eric Dash
Lookin' bad:
Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis.
Bruce Krasting sees capital flight
(h/t Kevin Fathi via email)
1 comment:
Reminiscent of 2008 indeed. Markets are 'breaking' in similar way to that period, which is scary on it's face. I see Krugman is invoking Schleifer-Vishny on this, and I think this is on the money. Securities that would ordinarily be quite solid, many being assets such as those acceptable under Basel bank liquidity ratios, are now getting coughed up like a bad prawn. what makes it worse this time is that it is the sovereigns involved (always an inevitability), and the prospect of collapse of an entire currency system. Further, I'm convinced we'll be seeing bank run-in Europe in the very near future.
Apj
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