You may have noticed that I have blamed both Bill Clinton and the EU for the present utter debacle.
In fact, everyone is running round blaming everyone else, and trying to exonerate themselves.
I think it's worth noting though, that despite being connected, Clinton and the EU bear different reponsibility.
Clinton's administration put in place the problem with the mortgages. In itself, even $1 trillion of mortages being in bother wouldn't normally be the end of the world. Just write off $500 billion ( which the banks have done) and you have something remaining which quite possibly might make you a fortune.
What has created the present disaster is the requirement to mark to market. So if you have say $10billion in mortgages in whatever guise, and the underlying assets are say 41% DOWN as they are in California in the last year, then in practice you have to write off $4billion odd.
The problem is these are unsellable at the moment - so their value is effectively zero. So instead of a $4billion write off you have a $10 billion write off.
Even very very big banks can't write off many billions without eroding their capital bases enormously. And they have to do it every day by close of business.
Unless there is a suspension of the mark to market requirement, not only won't there be any banking system left, there won't be any banks left.
Don't want to worry you or anything.....
2 comments:
Clearing house prices would be beneficial, if painful, in my view. Let's see what happens in the Freddie & Fanny auctions today.
ww - yes that will be a real test......BTW I am being bid by all and sundry for cash...
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