ECONOMIC WARFARE ON THE HORIZON?

In this post last week I wrote that the mess that's going on in Greece could lead to some of the economic ugliness that gripped Old Europe in the past. Specifically, I wrote that "economic nationalism can turn into economic warfare very quickly." Well, guess what? Thanks to the stupidity and greed of Wall Street the pikes and ramparts in Europe are starting to go up. And it's hitting us too.

Via Michael Collins at The Economic Populist, we learn that the European Union is barring Wall Street's financial institutions from the very lucrative government bond (debt) market. It appears that Europe's not too happy about what's happening in Greece, but they're also pointing to Wall Street's role in bringing down financial markets. Arlene McCarthy, vice chair of the European parliament's economic and monetary affairs committee had this to say:

Governments do not have the confidence that the excessive risk-taking culture of the big Wall Street banks has changed and they still cannot be trusted to put the stability of the financial system before profit ...

For now, this should hit U.S. financial institutions hard since "Western European governments need to raise an estimated half a trillion dollars this year" to refinance debts, pay for bank bailouts, and to accommodate the demands of rising unemployment. As this Guardian article points out, because banks typically take a percentage, a 1% fee on a $9.2 billion bond sale means a financial firm will pocket $92m (£61m).

Whether this ban lasts is another issue. U.S. financial firms will no doubt get their paid members in Congress lobbyists to get things back to normal. After years of buying off Washington, the profits Wall Street makes for selling some other country's debt are simply too big for them to be forced out for long.

What seems clear is that the Europeans may be taking an entirely different approach (or at least I hope they are) to the mess caused by Wall Street's stupidity, and Washington's complicity.

What should be especially unsettling for every U.S. citizen is what the market collapse, our growing debt loads, our stagnating economy, and Wall Street's "don't blame me" culture are doing to our standing abroad. Our good name seems to be swirling the drain. Worse, the moral justification of capitalism is slowly being snuffed out.

And Wall Street's executives could care less, as long as they get theirs.

In all cases, one thing's for sure. Even when Wall Street gets back into the European bond game - and it will - their re-entrance won't signal all is well. As I've been pointing out, and as Michael Collins concurs, there's more coming. Why? First, from players standpoint, Wall Street is still clueless as to what happened. Second, from a market standpoint, what's going on isn't a problem of liquidity (getting money into the economy), it's one of insolvency. The banks are broke.

And we've done nothing to get at the root of the problem, let alone regulate it. Rest assured, Europe understands this too.

- Mark