Yes I am in a position to know this.

Lyle B: I know what assets I have, and my banker knows too.

People *think* they know what assets they have. A owns B. B owns C. C owns D. D owns E. People just know B, but if E blows up, the dominos go back and will hit A.

Lyle B: He does not refuse to lend to anyone at any interest rate. Bankers who know their customers will, as ReformerRay says, provide the credit that is needed, at least to some people and some companies.

They know their customers well, but if you have just lost a huge amouont of capital, and you are facing a credit crunch, you aren’t in a position to loan out money even if you want to.

Lyle B: Incidentally it is interesting that ReformerRay introduces the idea of new banks – as people get more and more nervous about their current banks, and wonder where to keep their money safely, there is a huge opportunity for somebody to start new banks unencumbered by mortgages and derivatives.

And here is the problem. To deposit money into a new clean bank you have to withdraw money from an old broken bank. If you don’t have enough assets to cover deposits, then you have a problem. Lehman Brothers, WaMu and Wachvoia have already died because people were starting to withdraw their money. This is a good thing. The problem is that after a bank has failed and you still have some huge problsm that you have to deal with. One of which is compensating the depositors.

People bring up FDIC as if it is a magic wand. The money from FDIC has to come from somewhere.

One problem is that people think “let the banks fail” ends the story. It doesn’t.

Lyle B: there is a huge opportunity for somebody to start new banks unencumbered by mortgages and derivatives.

Sure, and someone will think of some innovative financial system that will work for about ten years before it goes too far and creates another crisis, at which point things go crazy and the cycle starts over again.

I’m all for “creative destruction” but you are not going to get any creative destruction if you don’t recapitalize the bad banks. If you recapitalize the bad banks, then depositors can take money out and move them to other uses. If you don’t recapitalize the bad banks, then people will do whatever they can to keep depositors locked into those banks, and you end up with a Japan situation.

Are you in a position to *know* that? It’s a pretty extreme statement.

ReformerRay: These responsible banks and new banks will provide the credit needed – at a higher rate of interest and with better lending standards.

Twofish: No. Now that banks are all in survival mode, they are going to start refusing to lend to anyone at any interest rate. Why should they? No one knows who has bad assets. Even the people who have bad assets generally don’t know that they have bad assets.

I know what assets I have, and my banker knows too. He does not refuse to lend to anyone at any interest rate. Bankers who know their customers will, as ReformerRay says, provide the credit that is needed, at least to some people and some companies. Incidentally it is interesting that ReformerRay introduces the idea of new banks – as people get more and more nervous about their current banks, and wonder where to keep their money safely, there is a huge opportunity for somebody to start new banks unencumbered by mortgages and derivatives.

Together with the old man, hundreds of ordinary citizens, mostly elderly, seeing their lifesavings evaporate along with the collapsed US investment bank, were accusing the banks’ mis-selling, and the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA)’s ineptitude.

There must be a “lessons learned” for this and I assume it’s like an aviation accident — the first mistake happened hours (years) ago, and then a series of other things had to go wrong, be done wrong, or be ignored for the eventual controlled flight into terrain (financial crash).

No black box recorder to be found though.

And I suppose they can’t pick up all the pieces and arrange them carefully in some huge hangar, label them all, and look for the place someone put in a counterfeit bolt that lost its head under stress, or the like.

Pity.

Seriously, for us ordinary folks out here — who wondered at the “awash in liquidity” idea when it was so prominent because it never trickled down — was that the first place there was an illusion relied on??

How do you figure that’s going to fly?

The problem here is that very few companies operate on a cash basis. Shoe factories borrow money to buy leather to make shoes to sell to customers that pay money that repay those loans. Once these commercial paper markets start closing down, then shoe factories or anyone else can’t find short term funding to do anything at all. Once you lay off all of the shoemakers then there is no one left to buy shoes or anything else and the math will never work out.

One misconception here is that you are writing a $700 billion check to pay for new things. It’s not that way at all. What is going on is the same as if you go to your mailbox and see a bill from your credit card companies saying you owe them several hundred billion dollars, and that money has got to be paid one way or another.

Anyway, I should probably now say much more because it is too depressing for me to think too much about. In any case, no one is going to believe me. It may be that I’m totally wrong about this, which is fine by me. However, if I’m not, then people aren’t going to believe me until they themselves see some real pain hitting them, and hopefully it won’t be too late to do anything about it.

Lending has stopped because folks are certain the losses have not hit their final resting place.

This crisis will not be over until someone takes the full Roubini measure of a hit and the all clear sounds.

If future “tax payers” are going to take the hit, you can just hear the whoosh of capital flight coming….

As I said – I have over half a mill I could put to work tomorrow…I could by a second and rent it, whatever….but you want me to just fling it around to save all the spendthrift looters? Homey don’t play that way.

I have over half a million in T bills right now. I’d lend it, or buy a house, if the cash flow made sense. But it doesn’t. The markets will unlock when the math makes sense again. Stop trying to delay the inevitable – this is a large part of the problem.

I’m against the current 106 page bail out.
I’d be behind a new bank with new uncorrupt employees backed by $700B in tax payer capital.

If you want lending to begin again, the looting has to stop.

I’m about to move my money out of dollars as it turns over, if this crap continues.