Risk aversion coming back (update 6) - Ireland bailout/PIIGS tumoil just begining (update 2) - Interbank CDS fear gauge blows out

This is so similar (regarding fear 'contagion') to what happened in 2008 when US banks started writing down, a contagion of write-downs of other banks (overseas or otherwise) started to write-down assets/derivatives connected with the US suprime housing meltdown, when Lehman Brothers went bankrupt; the whole banking system was crunched: CDS spreads, TED spreads and LIBOR/interbank spreads all blew out.

Ireland is looking like a 'Lehman' style epicenter, of course the Irish government has not only handled the situation appallingly, they have also treated the Irish people like imbeciles. This is going to backfire, as the Irish are now ready to protest and kick out the government that caused this mess by recklessly allowing over speculating through banking/mortgages. Thus creating a housing bubble that went bust.

The fear is to what extend will the ECB/IMF/EU able to provide adequate liquidity to Ireland (through the bailout), if the whole Euro Zone starts to buckle under the fear that the EU may break up, or a country is kicked out and restructured with out ECB/EU assistance. The costs to insure and purchase/hold EU debt will skyrocket and if senior bond holders are asked to write-down or take a 'haircut' on bond values. You'll see liquidity completely dry up for Ireland, which will effect the whole European sovereign markets i.e EU banks

This can now be seen via fears of a sovereign/bank contagion from Ireland is spreading, effecting the whole EU banking system. RE: CDS's on Senior Financials

"LONDON (Dow Jones)--The iTraxx Senior Financials index traded wider Wednesday as concerns around sovereigns spread into the financials' sector.

The index widened "quite aggressively" early Wednesday to spike at 163.5 basis points, according to a trader, before coming back in slightly to trade at 156/158 basis points by 1540 GMT.

The widening reflects a flow-on effect from sovereign concerns into the financials sector, an analyst said.

The financial sector is strongly correlated to sovereigns because of the "implicit support" expected from government, he noted. The widening reflected concerns around the financial situation of Portugal and Spain, following Ireland's admission it needed financial support, he said.

Ireland's government Wednesday outlined EUR15 billion in spending cuts and tax increases over four years that are intended to reduce the budget deficit to 9.1% of gross domestic product in 2011.

Irish Prime Minister Brian Cowen said Ireland has discussed a financial aid package of EUR85 billion with the European Union and International Monetary Fund. A final figure is still under discussion."