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There aren't any solid banks if this continues. Bank of America and JP Morgan have to pay 8% and up, with the Fed funds rate at 2%. They are OK in the short term due to deposit financing at 3% or so, so the pay the higher market rates on only a portion of their required capital. But no financial institution can long survive lending to me, at rates so low I can lend it right back to them and make money. Nor is any bank sound in the face of $160 billion a day runs, as hit the money fund market last week - at least without Fed intervention.

If stockholders in poorly run banks lose money, fine, they should, no problem. They already have to the tune of several trillion, in case nobody noticed. But the bond market shutting down for banks is a different story. The money supply will be cut in half.

Net mortgage issuance in the second quarter was $80 billion, according to the recently released Z.1 flow of funds data from the Fed. That is down 93% from the boom rates, and an order of magnitude under normal. Want to see what rates on mortgages are with record defaults when the banks have to pay 40% to borrow, themselves? What to see what houses are worth without mortgages?

It is just nuts.

Morgan Stanley was one of the best run operations, not a basket case like Wa Mu. But it doesn't matter, if the rates on its bonds are driven high enough, it fails.

The system is only designed to work if the Fed does its job. Ideologues want the Fed to not do its job in the name of killing weak banks. If the Fed didn't exist, banks would make one as a defense for themselves. But you have concocted a preferred policy mix of a Fed in existence but forced to do nothing out of your populist hatred, that cannot function, and ends only in first smash, and second socialism.

Again, it is just nuts. You are trying to wish into existence an unreality, instead of looking at what is actually happening. It is every bit as reckless and irresponsible as the left pretending war is optional and we can just pretend it away.