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The Big Picture | Fix the Credit Problem, Not its Symptoms
The primary problem is that banks are refusing to extend credit to each other. Why? Because they do not understand the liabilities of their counterparties. Translated into English, that means they don’t know if the other bank whom they are dealing with will still to be standing tomorrow.
The thing roiling markets today is not the lack of confidence; It is capital, or more accurately, the lack thereof. Thanks to a series of very poor trades—excessively leveraged and absurdly risky to boot—banks are now dramatically undercapitalized.
via The Big Picture | Fix the Credit Problem, Not its Symptoms
That’s probably the most clearly spelled out definition of the problem. It’s not house prices, it’s not a subprime problem.
What do you think?
Tom Vanderwell
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