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Eerie Similarities Surround European, Wall Street Crises

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December 04, 2010 – Comments (3)

You’ll have to excuse many in the markets if it feels like that old Bill Murray movie “Groundhog Day.”

The panic gripping European bond markets in recent weeks is scarily similar to the fears that brought Wall Street to its knees two years ago.

In each case, asset bubbles imploded, financial markets seized up, leaders denied the extent of the problem, markets targeted the weakest link and taxpayers stepped in to save the day with bailouts that failed to address moral hazard.

“It’s eerie how similar that process has been. It just does not instill confidence,” said Peter Kenny, managing director at Knight Capital Group.

Both crises, of course, also share a parallel root cause: too much debt.

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3 Comments – Post Your Own

#1) On December 04, 2010 at 12:29 PM, rd80 (98.26) wrote:

“These bondholders know they are buying a risky asset. Why should they be guaranteed a return?” said Cam Harvey, a finance professor at Duke. “Sometimes you win, sometimes you lose. They should be in the losing situation.”

Professor Harvey gets it. 

As long as risky lending is backed, or perceived as backed, by some 'risk-free' agent -- a gov't, a central bank, etc. -- we'll just keep enabling bubble and crisis after bubble and crisis.

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#2) On December 04, 2010 at 12:30 PM, rd80 (98.26) wrote:

0.00007 ounces of gold (ten cents) for Foolanthropy!

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#3) On December 04, 2010 at 10:26 PM, outoffocus (22.76) wrote:

You forgot to mention that both crises resulted in the bailout of the biggest banks.

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