This is how it starts. Banning short sales in Europe is the first step in a trans-Atlantic replay of the credit crunch of Sept. 2008. The next vector is a liquidity crunch that will start in Europe as funding sources for European banks dry up. American investors need to pay attention. The first hint of Asian or American banks' unwillingness to lend to European banks will probably spark a run on deposits in France.
The venerable banks that have served as fronts for the remnants of Europe's aristocracy may be about to lose their patina of invincibility. Nobles with their backs against the wall can turn desperate. If they have any remaining levers over the supposedly democratic governments of Europe, they will lean on regulators to initiate financial repression against depositors. Freezes on withdrawals will be the obvious first move, followed by stronger tactics like requirements to deposit paychecks in the least solvent banks at zero interest. The next couple of weeks will reveal whether it really gets that bad over there.
The venerable banks that have served as fronts for the remnants of Europe's aristocracy may be about to lose their patina of invincibility. Nobles with their backs against the wall can turn desperate. If they have any remaining levers over the supposedly democratic governments of Europe, they will lean on regulators to initiate financial repression against depositors. Freezes on withdrawals will be the obvious first move, followed by stronger tactics like requirements to deposit paychecks in the least solvent banks at zero interest. The next couple of weeks will reveal whether it really gets that bad over there.
