SW Richmond

Will the Market Crash?

'Actually, even under the previous "mark to market" rule, commercial banks were allowed to mark assets that they were allegedly keeping "for investment" and "not for sale" to imaginary values.

This was a huge hole in the rules, through which a great deal of mischief was wrought.'


Everyone's gonna hate me for this, but this situation is an inescapable consequence of fractional reserve banking. Leverage is how bubbles are blown. Asset values can only be so grossly inflated over such a short time frame (a few years) where credit is being created out of thin air. Fractional-reserve acolytes say that it's not fraud, since the 'loan' is balanced on the books by the value of the 'asset', yet anyone can clearly see how, when lending stops, asset values fall to more realistic levels. This is the reason for the Fed's obsession to 'reignite lending'. Reinflating asset prices via phony leveraged credit is the only way to make the banks look solvent.

FDIC is out of money, and Sheila Bair is quaking in her panties. I apologize for the visual.

The phrase 'reignite lending' means the same thing as 'reblow the bubble.' Reblow the bubble or bye bye banks. Re-leveraging our way out of a de-leveraging has always worked for the Fed in the past. This time the systemic losses ($4 Trillion) are just too great.

The only way to keep the system inflated is with newly printed FRN's. Now that Bernanke has failed to extend QE, that program will end in September. The markets are already interpreting that as a withdrawal of liquidity, and thus the next leg down.

www.youtube.com/watch?...