The Heart of the Matter: Why Banking is Broken

Quote of the day, or year, if not the decade, depending on how all this plays out: In any case, Carl Weinberg, chief economist at High Frequency Economics, cuts through the fog and goes right to the heart of the challenge, in a quote from today's New York Times:

The core problem is that the smart people are realizing that the banking system is broken. Nobody knows who is holding the tainted assets, how much they have and how it affects their balance sheets. So nobody is willing to believe that anybody else isn’t insolvent, until it’s proven otherwise.

And until there's some reasonable degree of certainty as to where the bodies are buried -- and not buried -- the pain will go on.

Here's one naive idea for a step in the right direction: All banks and financial institutions publish a list of their holdings on their web sites so everything body can see who holds what. Yes, for some institutions this is going to be a complicated list. Accountants, bloggers and everyone else can then start weighing in. Some of the holdings are already widely known, of course, particuarly among publicly traded institutions. But there's still a fair amount of mystery out there, and mystery is exactly what we don't need at this point. More transparency -- complete transparency is needed. Urgently needed.

Granted, that's just step one in a thousand mile journey, and it's no silver bullet. But it would help. And it won't cost $700 billion either.

Comments

[helplessobs...:]

The core of the solution is to get these tainted assets on the taxpayers balance sheet without causing a revolution where real blood is spilled on the streets.

2008 Oct 10 11:41 AM