U.S. markets back in the danger zone

A Wall Street sign

Jeremy Hobson: Now let's get to our continuing coverage. The Breakdown, our economy one step at a time.

Diane Swonk is chief economist with Mesirow Financial and she's with us from Chicago as she is every Thursday. Good morning.

Diane Swonk: Good morning.

Hobson: So Diane, tell us what's going on in the markets this morning. We're down 347 points on the Dow.

Swonk : Yeah. We're seeing basically the fears about European's debt situation and European's banking stability in particular reach our shores. Not only is there concern about how European banks can handle their own sovereign debt situation and the write-offs that are associated with that, but how stable are they here in the U.S.? Those banks that are in Europe do have U.S. branches and the New York Fed is now looking into the stability of those banks and their ability to continue lending, not only to foreign subsidiaries here in the U.S., but U.S. lenders, U.S. borrowers, as well. And that's reminiscent of -- it's a pre-emptive strike, frankly, by the New York Fed to try to cut off any contagion like we saw in 2008. But, let's face it: Anything reminiscent of 2008 is just not what the financial markets want to hear right now.

Hobson: Well, here's something else that's reminiscent of 2008. The yield on the ten year treasury bond -- this is U.S. government bond -- the ten year yield is at 2.05 percent right now. What does that tell you about where we are?

Swonk :Well you certainly, you hit the nail on the head earlier Jeremy, when you said the "fear factor" is back. People are afraid of what's going on in financial markets, the turbulence that we're seeing in equity markets, and what could happen from European banks. And as a result, they're running to what they see as the safety -- the clear safety -- of the U.S. treasury market, kind of undermining what S&P did in terms of downgrading. And in fact we've seen that more people have thought the safety of the U.S. credit market, the U.S. treasury market in particular, since S&P downgraded a few weeks ago.

Hobson: Diane Swonk, chief economist with Mesirow Financial, thanks as always.

Swonk :Thank you.

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