Oct 06 2008
Here Comes the Flood
So much for the shell game at the Federal Reserve:
For the better part of a year the Fed and Treasury used just about every trick in the book to keep a lid on the credit crisis without actually expanding money supply. The problem with those various attempts was that it did nothing to help the markets clear its problems. On one hand a great many of the major players overextended themselves with leverage into securitized assets that are plummeting in value. Faced with the reality that their balance sheets could not support the assets they’d leveraged into, combined with a fact that many of the assets they’d invested in were theoretically plummeting… Well, the game has has largely been to prevent these institutions from actually having price discover on those toxic assets, thus forcing a mark to market value on the rest of the mess.
This game of playing Ostrich on price discovery, it was hoped, would buy enough time for the crisis to blow over and for the institutions to recapitalize. In the past two weeks time has run out. The markets are slowly coming to accept that this is not merely a crisis in credit, but a crisis of insolvency — from homeowners unable to meet their mortgage and credit card obligations, to banks who were able to hide their fractional reserve inverse pyramid of finance during good times. Banks, we remind you, never have assets sufficient to back their obligations given fractional reserve systems are based entirely on confidence — that depositors will not decide to remove their demand-deposits at the same time.
So now the liquification begins as the chart above indicates plain as day — a 65% increase!
