Many people make predictions Andy, on the net, in magazines/newspapers, on TV. Many, including the pundits on TV, have been wrong to date. So tell us WHY we should put any stock in your prediction above? Are you just shilling or do you have some actual logic to back up your pronouncement with?

If you read what AEP said, it was that US debt had “lifted” to the level of AA- Italy. It would have been nice if he had said what ratio he was using. I’m assuming debt to GDP. It seemed clear that he was looking at the US’s real debt level, now that the government is moving towards standing behind Fannie and Freddie while trying to pretend that any support will be limited, on a comparative basis.

I seem to recall Yves sharing a factoid from a year or so ago that indicated less than 20% of capital was provided by banks and other financial institutions within the Fed’s orbit. That is, more than 80% was beyond the reach of either the Fed or other government regulation.

So, if we’re headed now to even more — as per BW article — then, we need to ask, what relevance does the Fed actually retain?

Actually isn’t ‘larger and fewer’ more likely at this point?

It has been a year since the global credit markets first seized up, and four months since the dismantling of Bear Stearns. Yet bad things keep happening, from the failure of IndyMac and the stock routs of Lehman Brothers (LEH) and others to the market’s collective yawn at the Treasury Dept.’s plan to bolster mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Once again, the optimists who thought the crisis was over have been proven wrong. “People underestimated how bad things were last summer,” says Frank Partnoy, a former Wall Street derivatives trader turned professor at the University of San Diego Law School.

Did they ever. July’s rat-a-tat-tat of dismal news suggests that the scope of the credit crunch is much broader than most people thought. Traders, investors, bankers, and economists are waking up to the possibility that Wall Street’s recovery from the worst financial disaster since the Great Depression could grind on for years. And they’re realizing that while the debacle was of Wall Street’s making, its aftermath will weigh on banks, other companies, and consumers alike.

One thing is for sure: The new normal won’t be as fun as the recent past. Banks will be smaller and fewer. Capital will be harder to get for some consumers and companies. And more of that capital will be parceled out by lightly regulated hedge funds and private equity firms, for better or worse, as the balance of power on Wall Street shifts.

Why hasn’t the healing begun? The answer lies in the mechanics of leverage, or borrowed money, which banks not only provide to customers but also use themselves.

Full article:
http://www.businessweek.com/magazine/content/08_30/b4093023467572.htm