[TigerLikesRooster]

From the article:

thanks to the gearing effect, a shortfall of bank capital of around $170 billion may reduce the potential supply of credit by $1.7 trillion.

[TigerLikesRooster]

Ping!

[pointsal]

yikes...

[se_ohio_young_conservative]

Looking at that chart.

You notice that whenever the debt starts to climb, we go into a recession. Intresting.

[PGalt]

"What hurts finance affects the rest of the economy in spades."

The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities. - Vladimir Ilyich Lenin

[Oatka]

Key Sentence: The Bush administration’s bail-out plan, even if it gets through Congress, may not be the end of the finance industry’s problems.

Stand by for:
1) Bailout II - The First Salvation Was Too Little
2) Bailout III - This One Is THE Salvation
3) Bailout IV - This One REALLY Is THE Salvation
4) Bailout V - This Is Honest-To-God The Last Salvation
5) Bailout VI - We-Really-Didn't-Know-It-Was-This-Bad Salvation
6) Bailout VII - The China Syndrome Salvation

Maybe we won't get past II before VII kicks in.

[screaminsunshine]

Lets have a recessionNOW I even want a recession. Please GIVE US A RECESSION. We will soon get by it and the crooks will go down. NOT this stupid continue the PONZI scheme at all costs song and dance these crook polititions and banker types are pushing.

[Batrachian]

It has yet to be shown that the $700 billion will go back into circulation in any meaningful way. What's to prevent the recipients of this bailout from simply buying treasury bills with it? Safe, secure, no muss, no fuss.

Is any one so naive as to believe that they'll go back to the buying and selling of CDOs, MBSs, CDSs, SIVs, and all those other funky instruments that pumped so much liquidity into the markets but then caused so much trouble?

They won't, and that's the fatal flaw of this proposal, now a done deal. Besides, the problem is so much bigger. We're talking tens of trillions of dollars of leveraged assets.

[PGalt]

“Bradford Levy, a Goldman Sachs vice president who co-chairs the consortium of 16 broker-dealers that maintains the CDX Index, sees big things for the market but acknowledges that some kinks need to be worked out.”

http://www.cfo.com/article.cfm/5009978/1/c_5038012?f=insidecfo

Not to worry. This has been just a kink. (Are apologies due to Ray Davies? /sarcasm)

[Travis McGee]

“The Bush administration’s bail-out plan, even if it gets through Congress, may not be the end of the finance industry’s problems.”

That’s an understatement!

[decimon]

Financial institutions, desperate to repair the damage inflicted on their balance-sheets by mortgage-related securities, sell assets. In doing so, they exacerbate the problem. Forced sales push down the prices of assets, worsening the balance-sheets of other investors, forcing more asset sales, and so on.

IOW, the current deleveraging is the inverse of the former leveraging.

[AndyJackson]

desperate to repair the damage inflicted on their balance-sheets by mortgage-related securities, sell assets. In doing so, they exacerbate the problem. Forced sales push down the prices of assets, worsening the balance-sheets of other investors, forcing more asset sales, and so on. In the end, the government is the only entity left in the game with a balance-sheet strong enough to keep buying.

This is just the mechanics of the old rules, you cannot get a free lunch and the higher the rise the harder the fall.

The damage is to national balance sheets because of the flagrant profligate ways of the lenders. When easy credit is available, prices rise, and use of credit to purchase goods and services becomes mandatory for the marginal person, to that point debt free. The bankers have undermined the nation, not the other way around.

The premise that governments have the ability to bail out the banks is also wrong. The Federal balance sheet is even worse than private balance sheets. What the governments can do is print money and give it to the banks, but that merely transfers calls on productive output from consumers to banks. At the end of the day that cannot fix the problem since bubbles burst when income cannot cover interest payments on debt without causing other economic dislocations.

Too much interest earning debt is like too many mice eating the seed corn. There isn't enough corn for all the mice, and what is left to plant will sustain even fewer mice and fewer farmers next season.

The wonder is not that this bubble finally burst, but that the magic of Greenspan and Bernanke and the skullduggery of our financial lords and masters managed to keep it going so long.