The global crisis-transmission belt (AKA, the interconnected, nontransparent global financial system) is working overtime right now, although most policy makers are pretending it isn’t.  That’s why Jesse Eisinger’s Dealbook/New York Times piece “Between the Lines, Wall St. Banks Face a Deficit of Trust” is so important.

Read the entire article, but here’s the money quotes: 

“Surely no bank would be so reckless as to accept dodgy collateral these days. It would hold out for something unassailable, like, say, Triple A mortgages on American homes. Wait, scratch that. It would accept sovereign debt, perhaps from some European realm that has been around for centuries. Whoops, no, no. Well, O.K., maybe United States Treasuries — and we’ll agree to ignore that one of the country’s two major political parties was willing to plunge the United States into default to achieve its aims.”

“So there’s concern about the collateral. But what about the hedges? Of course, they wouldn’t hedge with some bank like [the recently collapsed and nationalized Belgium bank] Dexia, which at year-end had $700 billion worth of loans, undrawn commitments, financial guarantees and the like. Some financial institutions have to be on the other side of Dexia’s commitments. Some might even be those supposedly strong and prudent [US] banks that were supposed to have learned so much from the financial crisis.”

Scary, huh?  Well, no.  That’s not what’s scary.  That’s one bank and just $700 billion.  That’s just the proverbial tip of the iceberg. 

Think about the fact that there are trillions of dollars “of loans, undrawn commitments, financial guarantees and the like” with ALL the European banks and “[s]ome financial institutions have to be on the other side of [all those] commitments” and you can be sure that ALL the big, systemically significant US banks are.  That much is known.  What remains unknown is which ones, for how much and exactly how much trouble are they in?