European Banking System Nearing Collapse

I hate to sound alarmist, but it looks as though the European banking system
and consequently the global banking system is edging its way toward another
epic collapse. That means in just a few short months, stocks could be back at
their 2009 lows while gold prices travel north of $2,500 an ounce. This is the
worst-case scenario thats been bandied about ever since Europes debt problems
first came to light. How do we know that this is whats happening? Because
somebody is having trouble obtaining the money they need and they just borrowed
it from the lender of last resort. The European Central Bank last week lent $500
million dollars to an undisclosed Eurozone bank through a credit mechanism that
had been dormant for the past 12 months, with the exception of one $70 million
draw in February. This comes as no surprise the warning signs have always been
there. In fact, I warned people just a few weeks ago that the eurozone could
have its own American International Group (NYSE: AIG ) or worse, its own Lehman
Bros. (PINK: LEHMQ ) lurking somewhere in the shadows. Still, while this might
not surprise you, it certainly surprised the heck out of the rose-colored
glasses crowd that cant seem to understand the European sovereign debt crisis is
finally about to wash up on our shores. Thats why stocks in the United States
and around the world have taken such a brutal beating recently. Officially, the
story is about the renewed worries over Europes debt crisis and U.S. data that
suggests were once again sliding into a recession. But whats really happening is
that global traders are moving quickly to liquidate holdings and raise cash
while they can. Thats why so-called risk assets like stocks, corporate bonds,
industrial metals, oil and higher-yielding junk instruments are tanking, as
gold, the dollar and the yen are bucking up. The U.S. Federal Reserve already is
engaging in damage control. President of the Federal Reserve Bank of New York
William Dudley has said the risks of a double-dip recession are quite low,
despite anemic growth. And its been rumored that U.S. Federal Reserve Chairman
Ben Bernanke will telegraph new monetary stimulus measures Friday during his
speech in Jackson Hole, Wyo. But really, who are they kidding? This crisis has
nothing to do with liquidity (which is how the central bankers are trying to
fight it) and everything to do with solvency (which is how they should be
fighting it). Not only are the risks of a global recession mounting by the
minute, but I believe the concentration of risks is approaching critical mass.