But I Thought It Was Just A "Panic"?

Market Ticker ^ | 9/13/2009 | Karl Denninger

[HangnJudge]

Remember, the values at which subprime mortgage bonds were trading at reflected "irrational fear" and "unreasonable expectations of default."

More than a year later, it is clear: There was no panic; this was a JUSTIFIED level of trading and reflects the ugly reality - the investors in those bonds will NEVER get their money back.

They were swindled, to be blunt. "AA" bonds trading at 4 cents and "AAA" at 28? Remember folks, "AAA" credits are supposed to have a probability of default roughly equivalent to that of the Sun colliding with the earth.

There is not now and never was a "liquidity" problem. The problem is, has been, and continues to be a bankruptcy problem. Individuals, corporations and even governments are in fact insolvent. Most banks are and were insolvent.

Governments around the Western World have refused to do what the law demands, at least in the US: Recognize bankruptcies and resolve them. The law in the United States does not permit such hiding of losses, at least in theory, among the banking sector. "Prompt Corrective Action" demands that delinquencies be recognized and corrective actions mandated prior to insolvency occurring.

This was not done, and now we have a massive cover-up engaged in by The Fed, by Congress and by The Executive, pouring trillions of dollars of "new credit" into a black hole in a desperate attempt to avoid recognition of that which I and a handful of others outlined and proved back in 2007: these institutions are in fact bankrupt, investors were swindled, and tens of thousands of people in the "industry" should be sitting behind bars doing hard time for fraud.

[mamelukesabre]

Me too.