Busted: Bankers and The Global Economy

July 24, 2008

Europe Uneasy about Market Collapse

Europe has been suffering from a loss of confidence while forecasting downright dismal news on the banking and economic front. Investors are buggy about the European stock market folding up as they watch the region’s pension funds and insurers uneasily. Stock indexes all over the world have fallen more than 20 percent from recent peaks, creating a bunker mentality.

The prospect of forced selling by European insurers prompted the last stock market collapse in 2003. Pension fund fears loom large, both in Europe and the U.S. However, Europe fears that the plight of EU pension funds could worsen the situation by extending their move out of equities. Insurance companies could be forced into selling stocks because they hold a lot of equities as capital and as prices fall they need reduce stock holdings to protect the solvency margin set by industry regulators. In the meantime, insurers are tied into an unstable European stock market with questionable consumer/investor confidence.

The banking and mortgage sector has been the worst casualty for the one-year-old credit crisis throughout the world. Many investors, hungry for profit, are looking at banking as an inviting investment once again. The bottom line is that investors seek an advantage in all kinds of markets, even when the news seems to be very bad. It would seem that there is always money to be made, although risk is always an issue. Putting money under the mattress simply isn’t an option. Even when banking blood runs in the streets, there is someone with a taste for that blood, as they play the odds to win.

Back in the States, banks stepped up their borrowing over the past week from the Federal Reserve’s emergency lending program, while Wall Street bankers stayed continued to stay away from the Fed. Apparently, the solvency crisis on Wall Street is over until a new economic wrinkle settles in. Still, that is very good news in that arena.

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