WSJ: The Markets Have Good Reasons To Be Nervous

Nathan Rothschild famously quipped, "Buy when there is blood in the streets," but he never said anything about firebombs thrown at Greek riot police, a trillion dollar easing of the money supply, or synthetic collateral debt obligations.

And so, after facing turmoil in the sovereign debt markets, the Dow Jones Industrial Average is down 5.7% this week—and slightly down for the year. The FTSE and the DAX are down, while Greece's Athex Composite index is off 12.8% for the week and a whopping 25.5% so far this year.

Is Europe really a problem for the U.S.? Is this a buy signal—or is it more like the bank run of the last two years morphing into a run on debt-laden countries?

We can argue until we are blue in the face what the right level of debt to GDP any country can legitimately carry, but all that matters is that debts get refinanced. I remember in early 1998 sitting across the table from a chain-smoking Korean gentleman who was selling off a portfolio of technology venture investments at pennies on the dollar as the Korean won sank and the International Monetary Fund (IMF) and other sources committed $58 billion to restructure their debts. In times like these, everything is for sale, which is why markets are swooning.

But I doubt it's a buy signal. While $140 billion has been offered the IMF, Germany and other EU members to bail out Greece, the markets are saying that's not enough. Estimates for a bailout of Spain are topping $600 billion. Illinois Congressman Mark Steven Kirk, who is on the committee that oversees the U.S. financing of the IMF, says the fund only has the capacity for maybe $250 billion. So who is going to step up now?