It is clear now that Bailout 1 - has not fixed the banks. I asked John to help me find a graphic for why this is so hard. Here it is in full:
BIGGER THAN A PRESIDENT
I'm not sure most people grasp the sheer scale of the current crisis. This may help.
First, there is the shadow banking system (see the estimate of its size below relative to other big things...).
In
short, it's the massive pile of derivatives accumulated over the past
decades. It's also tightly coupled and extremely complex (worse, not
understood). It isn't regulated, nor is it liquid enough to price
(which is why global banks are still able to "act" like they are
solvent).
This shadow banking system is in the process of melting down/popping/exploding.
Next, there is the global economy.
Finally, there is the US economy.
You can see why global banks are now trading at prices that anticipate insolvency and government bailout ( See this chart from JP Morgan for more). And why the UK looks like Iceland more each day.
They are dead. And in a way - so are we - it will just take a bit more time. We are like Wile Coyote just after he has stepped off the cliff - it's a long way down but when we get there it is going to be painful and there is no safety net nor can there be a God to catch us.
We have to start thinking of a new type of "Plan B". How can we mitigate the effects of the work's banks being frozen?
- What can be done at the customer end?
- What can be done to salvage the wreck?
