Yes, it’s all about the “European Drama”, again.
The Telegraph writes (here) that “a more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.”
Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group’s implosion nearly three years ago. For instance, the cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.
“The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008,” said one senior London-based bank executive. “I think we are heading for a market shock in September or October that will match anything we have ever seen before,” said a senior credit banker at a major European bank.
And the IMF is also worried. In a remarkably gloomy assessment of the world economy, Ms Lagarde warned that urgent action is required to stave off the threat of global recession and another credit crisis. Sounding a stark warning to stronger European countries such as Britain and Germany, the new IMF chief said: “We could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”