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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Mon Sep 17, 2007 5:41 am Post subject: Are The Banks In Trouble? |
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By: Mike_Whitney
“ The new capitalist gods must love the poor – they are making so many more of them .” Bill Bonner, “The Daily Reckoning”
“ The hope of every central bank is that the real problem can be kept from public view. The truth is that the public---even professionals on Wall Street---have no clue what the real problem is. They know it has something to do with derivatives, but none of them realize that it's more than a $20 trillion mountain of unfunded, unregulated paper that has just been discovered to not have a market and, therefore, no real value… When the dollar realizes the seriousness of the situation---be that now or sometime soon---the bottom will drop out. ” Jim Sinclair, Investment analyst
About a month ago, I wrote an article “ Stock Market Brushfire: Will there be a run on the banks ? ” which showed how the collapse in the housing market and the deterioration in mortgage-backed bonds (CDOs) in the secondary market was creating difficulties for the banking system. Now these problems are becoming more apparent.
From the Wall Street Journal: “The rising interbank lending rates are a proxy of sorts for the increased risk that some banks, somewhere, may go belly up.” (Editorial; WSJ, 9-6-07)
Ironically, the WSJ editorial staff—-which normally defends deregulation and laissez faire economics---is now calling for regulators to make sure they are “on top of the banks they are supposed to be regulating, so we don't get any surprise bank failures that spook the markets and confirm the worst fears being whispered about.”
“Surprise bank failures?”
Credit standards have tightened and banks are increasingly reluctant to loan money to each other not knowing who may be sitting on billions of dollars in toxic mortgage-backed debt. (Collateralized debt obligations) It makes no difference that the “underlying economy is sound” as Bernanke likes to say. When banks hesitate to loan money to each other; it shows that there is real uncertainty about the solvency of the other banks. That slows down normal commerce and the gears on the economic machine begin to rust in place.
http://www.marketoracle.co.uk/Article2060.html |
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