This link has been bookmarked by 2 people . It was first bookmarked on 06 Oct 2008, by harry palmer.
WHY won't the banks lend to each other? That is the questions that needs an answer.
They won't because each knows the others are insolvent. they're not 'having liquidity' problems, their INSOLVENT.
If they were having 'liquidity' problems then the crisis would be over because more than enough hundreds of billions has ALREADY been put into the system. It hasn't solved the crisis.
The banks aren't lending because they all know they are insolvent and therefore all know any one of them could be the next to go. Taking with them anything another bank had been foolish enough to lend them. Hence, no one will lend.
How can they possibly be really insolvent? After all they have all those 'assets' that are just waiting for the market to re-value, right. That's certainly the official line. But it is actually the fiction that lies at the heart of the crisis. And it's not hard to understand.
The essence of this crisis is that a few years ago the banks got fed up being limited by the government controlled flow of money ( euro's pounds, dollars etc) They came up with a simple money making plan. Invent a new currency that was not regulated at all. They called variously, Mortgage backed securities and debt backed paper. It is just like real money. It has a promise to pay the bearer on it. Only it's not the government of a country promising to pay the bearer based on future tax revenue, its some blokes in America who promise to pay their mortgage.
Sounds dodgy now, but back then it was literally a license to print money. Which they did. They got carried away. At the start the 'paper' was backed by solid gold AAA rated mortgages. People who would absolutely be able to pay. But soon the bankers did what very greedy idiot in history has done, they decided to debase the currency so as to be able to print more. They started writing mortgages to people who would not be able to pay. Think of these mortgages as the equivalent of tin. They mixed these tin mortgages into the solid gold ones (that is, they sliced up the mortgages, slici
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