Cracks Form in Europe's Bailout Dike

It's taking increasingly fat fingers to plug the hole in Europe's bailout breach with every day that passes! Note these two stories tonight from the website of the Wall St Journal:

BRUSSELS—"Short on options and shorter on time, euro-zone finance ministers sought at a meeting here Monday to revitalize their sagging plans for a big bailout fund, even as the bloc's debt crisis reached new levels of panic in Italy.

"Ministers laid out two options for the fund Monday, and said they would present them soon to possible investors. They said talks on another option—to use the International Monetary Fund to provide greater assistance—were continuing, but gave little indication of progress.

"Europe's political and financial leaders are looking for ways to keep Greece's crisis from spiraling into other countries.

"The euro zone's most pressing task is to assemble a bailout fund with sufficient capacity to forestall a potentially lethal cutoff of market financing to Italy, whose government-bond yields are climbing rapidly"

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"Europe's bailout fund is starting to look more like a lead life jacket than a credible defense against financial contagion. For all the talk by euro-zone leaders in October about boosting the European Financial Stability Facility's firepower to €1 trillion ($1.37 trillion), both the complex schemes proposed for maximizing its resources remain stuck on the drawing board. With the crisis deepening and no solution in sight, it is hardly surprising investors are losing confidence.

"Euro-zone ministers made little headway Monday in their attempts to put flesh on the bones of the two leverage schemes. The first plan was to offer investors insurance against the first 20% of losses on sovereign bonds. But it is becoming clear that the insurance would need to cover a much bigger loss to regain investor confidence; that will inevitably reduce the EFSF's firepower."

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My thoughts: But stocks were up another 100 points today. There's no worry on Wall St.! Their reasoning escapes me! They're too busy having a Pollyanna Party to recognize that Europe and the global economy is once again on the brink. Even China's economy and especially the manufacturing sector are contracting now! There is no way that 2 collapsed governments (Italy and Greece) and two replaced Prime Ministers can fix a black hole of debt! But that news is precisely what sent stocks surging to fresh highs once again today. When reality finally sets in, there will be blood on Wall St as everyone rushes in a stampede for the exits. I'm sitting very close to the exit sign; I don't intend to be the last one out the door!

Note these excerpts from analysts at Barclay's tonight. Stunning candor:

1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
7) ...decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
13) ...frankly will have hand forced by market given massive systemic risk