Why Wall Street Rescues Are Failing
From MSN's Jon Markman
The fundamental problem in the world economy is that it grew over the past two decades to be incredibly reliant on optimistic risk takers' willingness
to accept increasingly complex IOUs from companies, banks and government institutions as investments instead of real assets.
the problems besetting the market are not solvable by conventional fiscal or monetary policy changes, political gestures or mere tens of billions of dollars in new investments.
experts now believe (a cure) will require hundreds of billions of dollars just as a baseline.
despite the lower cost of money, it's hard for businesses to get loans for expansion because
banks need to keep as many dollars as possible on their balance sheets to meet reserve requirements.
The Nattering One muses...
Markmans derivatives expert estimates banks need at least $250 billion to $400 billion in new capital just to keep reserves above BASEL limits.
There is $1 trillion to $2 trillion in SIVs, leveraged loans, warehoused loans and other assorted junk coming onto banks' books, all of which will tie up liquidity.
Add to that the $150 billion to $250 billion in losses already recorded. Then add the roughly $100 billion that authorities estimate to rescue the monoline guarantors.
At present the global banking system has about $2 trillion in capital in total. This means the banks need to raise 10% to 25% of their current capital in short order.
My sense is the reserve money will come from a combination of: central bank printing presses, a change in reserve requirements, and cooking the books.
The fundamental problem in the world economy is that it grew over the past two decades to be incredibly reliant on optimistic risk takers' willingness
to accept increasingly complex IOUs from companies, banks and government institutions as investments instead of real assets.
the problems besetting the market are not solvable by conventional fiscal or monetary policy changes, political gestures or mere tens of billions of dollars in new investments.
experts now believe (a cure) will require hundreds of billions of dollars just as a baseline.
despite the lower cost of money, it's hard for businesses to get loans for expansion because
banks need to keep as many dollars as possible on their balance sheets to meet reserve requirements.
The Nattering One muses...
Markmans derivatives expert estimates banks need at least $250 billion to $400 billion in new capital just to keep reserves above BASEL limits.
There is $1 trillion to $2 trillion in SIVs, leveraged loans, warehoused loans and other assorted junk coming onto banks' books, all of which will tie up liquidity.
Add to that the $150 billion to $250 billion in losses already recorded. Then add the roughly $100 billion that authorities estimate to rescue the monoline guarantors.
At present the global banking system has about $2 trillion in capital in total. This means the banks need to raise 10% to 25% of their current capital in short order.
My sense is the reserve money will come from a combination of: central bank printing presses, a change in reserve requirements, and cooking the books.
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