Watching the market give up its hard earned gains from Tuesday was certainly painful, and most likely due to events in Europe, not the United States.

The ECB’s purchase of Italian and Spanish bonds to stem uncertainty and add liquidity had a number of unintended consequence. For starters, the cost to insure German bonds from default actually increased yesterday, surpassing the cost of similar protection for the British Gilt. Apparently investors have such a dim view of that paper that it has thrown the credit quality of the strongest economy in Europe in doubt.

All the attention on Spanish and Italian debt ended up pressuring the second largest owner of these bonds – large banks. Bank of America (BAC) continued to bleed, as did every other money center bank and most brokerages. Most French banks got hammered, especially Societe Generale, which lost 15% on the day, as fears of credit rating drop in that country are taking hold.

On a positive note, since the U.S. downgrade Treasuries have rallied, and this week’s auctions went off without a hitch. We are far better off today than we were in 2008. There is far more liquidity in the system than three years ago. I know this is scant comfort, but I feel confident that we will NOT see a repeat of the credit crisis.