A 2008 Repeat? Maybe. Maybe Not.

In a shocking surprise announcement one of America’s five largest banks, JP Morgan-Chase rocked the financial markets yesterday and rattled the G-8 governments. $2 billion and possibly as much as $3 billion or more in losses were disclosed in a stockholders briefing timed to occur after the New York markets closed.

The money had been lost in the just the last 6 weeks as a result of derivatives trades in high risk European (Greek and Italian mostly) debt.

The market futures (what people expect stocks to do) plunged 6% on the announcement and more may be in the offing on Friday the 11th as the full story unfolds.

In collateral damage to other banks, shares of Citigroup, Goldman, Bank of America and Morgan Stanley all fell more than 2% in late Thursday trading.

Whether this a repeat of 2008 where first one and then another and another (remember Bear Stearns and Lehman Brothers) announce staggering losses that then get deeper and deeper, followed by similar announcements by other banks that have repurchase and insurance agreements with the first affected bank…..the next few days will tell.

Already, it has been disclosed that Goldman Sachs has similar or greater exposure to Italy’s sovereign debt also acquired in the last 3 months Its short term exposure on Italian government debt has double in that time frame to more than $8.22 billion.

Driving JP Morgan’s disclosure is an accounting rule called “mark to market” meaning they must revalue all holdings every accounting cycle and take losses and gains as they occur on investments……as opposed to waiting until the investment is actually sold.

This is the reason for the concern. That JP Morgan may be only the first of the large banks to reveal their losses in European debt.

With elections turning out of office the French President Sarkozy, the Dutch government that supported the EEC austerity and debt work-outs, and the imminent collapse of the Greek bailout…..the debt markets are increasingly discounting Greek debt.  The new Greek government is even today toying with renouncing their entire indebtedness and exiting the EEC to return to the drachma.

Being pulled along in all this is market confidence and valuation of Italian, Portuguese, French, Spanish, and other European sovereign debt.

At this stage, nobody knows the full extent of the exposure by US Banks to the deteriorating European situation.

Early this morning, European economists are passing judgment and issuing press releases that the European community is in a full recession and predict most of the governments will miss their deficit targets, putting even more pressure on market confidence and the inter-related sovereign debt system.

For advance warning on whether we are on the cusp of another 2008 sleigh ride to a full economic crisis and all the chaos that goes with it…..see what other American banks say in the next week on their individual exposure to European debt.

If the behavior of JP Morgan and Goldman Sachs is any indicator…….more problems will soon surface as auditors pour through major bank books.