Europe's in Even Worse Shape Than the U.S.

By Jim Wiandt

I am just back from a week in London, and the Europeans seem even more confused than the Americans. And the dollar, despite the U.S. market free fall, is strengthening (click here to get on the convoluted market reasoning as to why that is so).

As bad as things seem in the U.S., the scattershot, get-the-policy-in-Sunday-before-the-markets-open approach of European governments to the credit crisis, makes the U.S. federal government look like the crew of the Starship Enterprise in terms of efficiency. In Europe, it seems a bit more like Dr. Who, with bad special effects and all. Or maybe Hogan's Heroes. The Europeans, remember, have no equivalent of the Federal Reserve with the ability to do anything with funding across the continent.

And the politicians in Europe are betraying obvious, uh, what's the word I'm looking for? Panic. Yes, that's it, panic, as the scramble to insure all bank accounts sometimes at levels wildly beyond their economic means (see Ireland) if there IS a run on the banks. But then, I suppose they can always print a ton of money to make sure they're covered. Oh yeah, maybe not; they're in the EURO, though the European Central Bank is largely feckless and doesn't have the financial wherewithal to back up any sort of bold plan beyond tinkering with interest rates. All that adds up to a whole lot of bad.

I have a lot of things I wanted to put in here, as there has never been a better time in my life for interesting topics in the market to read on. You find out what people (and markets) are made of in times like this. And what brought it all on? An idea circulating in the global economist circles in recent weeks has been that it was all caused by Bill Clinton, that supposed economic genius who with his friend Al Greenspan brought the U.S. though its pleasure-boat era as an economy. Now, the thinking in some circles goes, we can point our fingers at the Clinton administration for pressuring U.S. banks, and in particular Fannie Mae and Freddie Mac to loosen their credit standards. And with that pressure and easy profits merging together, the new policies flowed out as easily as a tax cut in the middle of a major war. The best enunciation of the theory I've seen is in the British magazine Spectator. The New York Times posted a similar thesis here.

If you have any doubt about MY thesis that Europe is in even worse shape than the U.S., check out the headlines in today's FT (at least they were before the Dow busted a move on 9,000):

• Iceland acts to guarantee deposits
• BNP takes control of Fortis in €14.5bn deal
• Germany guarantees savings
• Berlin agrees new Hypo rescue

And the page Lead:

• Government action fails to halt global sell-off

And here is the New York Time's take in a sweeping and very well-written Floyd Norris piece.