Nice clear must-read. Thanks for a spectacular article. Really cuts to the chase...
“These liabilities seem to be as large as the entire American banking system.”
“The American economy now depends upon all the players going along with good news they all know is bogus.”
“Since everyone’s exposure is hidden nobody knows who is holding these worthless securities and is thus essentially broke, so nobody wants to lend any money to anybody.”
“Credit card defaults and car loan defaults are rising almost as fast as mortgage defaults. To repay or not to repay is now seen as a purely business, rather than a moral, decision. This pulls out the supports from all the mathematical models upon which the system is based.”
“The really fun news is that this is only the tip of the iceberg.”
“Nobody knows which banks are already bankrupt, and now even the little guy is no longer finding his obligation to pay all that much of an obligation. In the end the whole credit system depends upon the social convention that debts ought to be repaid, and this social convention seems to be dissolving. When people begin walking away, lower interest rates are not going to help.”
Yes, it’s one of the clearest and most concise articles I’ve run across describing what is going on in the credit markets.
It reminds me of what termites can do to wooden framework. From a distance it all still looks just fine, until you stress it.
OK, now I know I am surrounded by utter morons.
Assets equal liabilities, that is an accounting identity. Of course "these liabilities" are the size of the entire banking system, banking systems are giant piles of liabilities, by definition. Money is the liability of a bank.
If this really is happening you can expect 18% rates when everyone starts covering for anticipated losses. Kinda like russian mortgage rates.