Tuesday, April 15, 2008

To summarize it, I would say: "The banks have no reserves other than debt."


  1. Anonymous2:45 AM

    great link.


  2. Anonymous2:53 AM

    Well, central banks are considered the lenders of last resort, and I suspect they are already stretched beyond their imagination as they support all these American and European banks' reserve requirements.

    They are already in panic mode, and I include the ECB, which has been supporting European 'money markets' with enormous liquidity offers since August. Their liquidity injections have only been increasing in magnitude since then, and now they are even giving banks money for up to 6 months.

    Two or three highprofile banking collapses and we could witness a financial cataclysm that people have been predicting for decades.

    Asset values can still go down much more, and we will then know if the current financial setup can handle such stress.

    It's only a matter of time I think until 'supranational' Central Banks such as World Bank and BIS will be called in to rescue the financial system, of course using money from the treasuries of different states.

    The dirty "little" secret is that the financial system is trying to support derivatives with a notional value close or even more than $500 trillion.


  3. Well, central banks are considered the lenders of last resort...

    On Paul Krugman's blog the Fed was described recently as the "pawnbroker of last resort", because it was lending with risky securities as collateral - effectively buying those securities. Nationalization would make more sense.