By Mike Whitney
The EU banking system is in big trouble. Many of the Union's largest banks are sitting on hundreds of billions of euros in dodgy sovereign bonds and non performing real estate loans. But writing down their losses will deplete their capital and force them to restructure their debt. So the banks are concealing their losses through accounting sleight-of-hand and by borrowing money from the European Central Bank. This has helped to hide the rot at the heart of the system.
Presently, 170 banks are having difficulty accessing the wholesale markets where they get their funding,. Financial institutions are wary of lending to each other because they're not sure who is solvent or not. It's a question of trust.
ECB chief Jean-Claude Trichet has tried to keep the problems under wraps, but markets aren't easily fooled. Stress gauges, like euribor, have been rising for the last two months. Investors smell a rat. They know the banks are playing hide-n-seek with downgraded assets and they know that Trichet is helping them out.Full article here