A steep sell-off the stocks of the banks of Europe and the United States has led, and greatly exceeded in magnitude, the general stock market mudslide of 2016. Typically, these banks’ stocks have fallen 15% or more so far, as the underlying insolvency of their new credit bubbles has become clear.

In Europe, the threat of the “bank bail-in” policy imposed on Jan. 1 is dragging the banks into the pit. Monday in Italy, national regulators stepped in and suspended trading in bank stocks, after they had dropped by 4-6% for the day. The declines were led by two of the biggest, Monte dei Paschi di Siena (MPS) and Banca Intesa San Paolo. Then, they issued an order banning “short selling” in the stock of those two big banks.

When Chinese authorities did such things in December to deal with a small stock market bubble, European and U.S. financial media leaped to blame the entire ongoing financial crash on China’s actions. But the Italian events showed the real cause: bad debts in European banks, and “bail-in.”

Reuters‘ coverage of the Italian actions noted that “Investors are growing increasingly nervous about how the [banking] sector will cope with lower interest rates and a EU200 billion ($218 billion) pile of loans that are unlikely to be repaid. Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.” Instead, the biggest banks are getting hit.

In addition, as Bloomberg News reported yesterday, “Italy Banks Lose over $82 Billion from Savers” — the policy of expropriating (“bailing in”) the savings of people who were induced to invest them in banks’ senior unsecured bonds, has caused a “bondholders’ run on the banks.” As Bloomberg put it, “Savers are shunning bank bonds as losses at four small lenders in November have made more people aware that the investments are risky.”

The attacks on China — which still has 7% annual economic growth — are absurd and should be dropped; cooperation with China on its policy of building world land-bridges and forming international development banks, is the only way out of the collapse for Europe and America.

The market mudslide and commodity collapse continued Monday despite U.S. markets being closed for the Martin Luther King holiday; the collapse is moving faster, to the point of drawing admissions that “it’s worse than 2008,” as EIR Founding Editor Lyndon LaRouche announced it would be one month ago.

In a sign of the rapidly growing fears of a financial blowout, the habitual Wall Street cheerleading network, CNBC-TV, carried two commentaries, “Oil Credit Crunch Could Be Worse Than The Mortgage Crisis,” and “A Recession Worse than 2008 Is Coming.” The latter, by investment manager and author Michael Pento, is a straightforward forecast that the Federal Reserve will soon be desperately resuming money-printing (quantitative easing) to save the Wall Street and European banks, although its author shows considerable confusion about the cause of the collapse. The former commentary, by 33-year oil industry consultant Mark Harrington, is a much more detailed crash prospectus.

A flood of “hard defaults against bank lenders and bondholders” is coming immediately and throughout 2016, Harrington says, and each will create cross-defaults with other securities. The Economist this week estimates half of all U.S. shale oil/gas production/exploration companies will go bankrupt in 2016, not to mention those in North Sea oil which have already cut 55,000 jobs in the U.K. alone. “Even more importantly, most oil-price hedges, price swaps/derivatives, also have cross-default provisions. Thus, counterparty credit risk [among banks] begins to escalate as those parties are forced to disgorge cash payments on those instruments. Given the ferocity and rapidity surrounding this meltdown, can lenders effectively process this burgeoning inventory of defaulted credit?” His answer is no.

Harrington also notes, using BIS and figures, that at least $2 trillion of high-yield debt for shale oil/gas “capital expenditures” has gone on the asset books of banks, expected to produce three times its value, now worth half its nominal value at best. “The selloff in energy bonds now underway creates general risk avoidance across the board. Ballooning loan write-offs hit the major banks and those smaller banks to whom the loans were syndicated. The manifestation of counterparty credit defaults and its cross defaults hit the banks again and many other firms that began originating swaps. The contagion through the expanding and loosely regulated derivative market is surely destined for surprises. Even with the selloff to date, one cannot gauge the magnitude of the problem and how it might play out. But we know one thing for sure: It will be ugly.”

Oil prices fell toward $28 Monday, but U.S. producers are actually getting as low as $15, or even giving oil away to get it stored and keep pumping. The Dallas Federal Reserve Bank Monday denied the weekend’s Zero Hedge story that it had told banks to keep “marking” oil at $49-59 on the banks’ books, while forcing oil/gas debtors to liquidate assets, pay down debt, and keep pumping with what is left. A Texas source with long knowledge of the industry told EIR that whether or not the Dallas Fed issued such instructions, that is, in fact, what the banks are doing.

Thus bank fraud is being combined with looting and liquidation of companies and employment, until the whole financial speculation blows up — or Wall Street is shut down by orderly, Glass-Steagall bankruptcy reorganization.