The bonds are already issued, so I don't see how this is a loss of capital. Rather, doesn't this mean that the cost of capital for banks will be higher? And wouldn't this be appropriate, given the risk?
I guess you are right. The banks will simply not be able to issue more bonds at an affordable price.
So what are your thoughts on this. I keep hearing the media saying how this money would grease the machinery in the credit markets and free up lending deals. My view on that is that if a bank can trade garbage for cash then banks are going to sit on the cash in order to raise keep there capital position higher. I mean in this environment it would seem stupid for them to do anything else I would think. How do you feel?