Comments on: Banking Industry Sinking Faster Than Government Can Bail?

By: GloomBoom

GloomBoom — Wed, 31 Dec 2008 02:25:00 +0000

Our banks are zombies, our auto companies are union-run, and our hedgies are limiting redemptions. Think Obama is having second thoughts?

By: Mario Sanchez

Mario Sanchez — Wed, 31 Dec 2008 00:42:00 +0000

"banks had shifted their business model to be more depended on fee income"

That's the infamous Japanese zombie model, and it's extending out to other industries, starting with automobile financing & manufacturing.

By: Econophile

Econophile — Tue, 30 Dec 2008 20:06:00 +0000

Fine article. This highlights the struggle between the Basel II mark-to-marketers vs. the No-we-can’t-do-that folks. While it seems “logical” that if you don’t m-t-m, lenders would have a larger capital base, could repair their balance sheets, and go forward. Who would do business with a bank whose assets are plumped up on the books? Certainly not other banks. So until we know who is solvent and who isn’t credit will remain stuck.

Thanks again.

By: Anonymous

Anonymous — Tue, 30 Dec 2008 19:56:00 +0000

About price discovery – whether to do it all now (shock and awe) or go slow (downward grind) – which one will result in a more accurate perception in the investing and consumer public’s mind? True, a shock probably will lead to over-reaction and mis-calculation. But a long-term grind will lead to years and years of doubt and continuing mis-calculation. I vote for a quick exit to price-discovery.

By: mmckinl

mmckinl — Tue, 30 Dec 2008 19:05:00 +0000

“Yves here. Repeat after me: you need recapitalization AND price discovery. The near pathological avoidance of the latter by the officialdom would seem to support widespread suspicions that making asset to market, or even a realistic notion of longer-term value, would confirm that the industry is insolvent.”

Exactly … and why we need a nationalization with FDR’s Bank Holiday. We cannot move forward with zombie banks that could implode at any time should their derivatives tank. As the economy cascades into negative growth, derivatives imploding becomes a more and more likely event.

By: Anonymous Monetarist

Anonymous Monetarist — Tue, 30 Dec 2008 18:52:00 +0000

The multi-trillion dollar question is ... how insolvent are they?

Doubt that we will know the truth nor the composition of the 2 trillion the Federales have in 'good collateral' until the demand restoration project concludes.

Methinks eventually this will come down to a HUGE collateral injection.

By: Anonymous

Anonymous — Tue, 30 Dec 2008 18:08:00 +0000

Price discovery?

The theme song of central banks is “Don’t Stop Believin’”. Price discovery would mean the jig is up.

By: joebhed

joebhed — Tue, 30 Dec 2008 17:29:00 +0000

answer:
deyawl coodanode.
and, dey did.

And, like many said here, dey are just squirming and cajoling to keep the whole thing floating - long enough, hopefully, to sock enough away to send the kids to college.
you know, business school.
Where they teach this business model.
And nothing else.
So we can all get ready to do it again.
Soon as regulation becalms, and deregulation emerges.
Ahhh, today's capitalism business model.
We forget at our peril Congressmen Wright Patman and Louis McFadden's warnings, both gentlemen long-term Chairs of the House Banking Committee, about the Federal Reserve System and private debt-money creation.
OK.
Let's pretend that private fractional reserve banking is not the problem.
And move on to next week's surge of failures.
Lots to chat about.

By: wintermute

wintermute — Tue, 30 Dec 2008 17:22:00 +0000

There is one problem with the Swedish model which means it can;t work now.
When their banks went bankrupt -they had “conventional” loans – not securitised loans. That level of indirection means that not only are banks insolvent -but the systemic ramifications of the general insolvency is unmeasurable. There are hundreds of non-banking “shadow-bank” institutions which need to come clean and participate in the price discovery. This is too painful for governments within an electoral sycle – they choose QE, currency weakness and inflation instead.

By: Seer

Seer — Tue, 30 Dec 2008 17:00:00 +0000

hi Yves,

perhaps it is the desired outcome to break the model which banks use to make money, that will leave only the state and the fed standing(private bank) meaning that whoever own the fed and rule the government just have it all.

seeing that it is the fed and gov who caused this problem together and that it is them together presenting the "solution", it doesn't seem improbable, does it?