It can’t be this simple, can it?
US Banks have been getting gobs of money from the US government but they still don’t want to lend, much to the US Treasury’s and Federal Reserve’s dismay.
It seems to me (remember, BA in econ so I know just enough to be dangerous … so I really don’t think I can be 100% correct on this) that banks don’t want to lend to each other or to anyone else because they can’t tell who has what toxic waste on their hidden around their balance sheets … even after all of the fallout we have already experienced.
In other words, the crisis of confidence in financial companies that was brought to light when subprime mortgages tanked (causing all sorts of additional damage since so much of our financial system is intertwined) continues.
Since most financial companies are invisibily linked (balance-sheet-wise) at the hip via credit default swaps but nobody really knows who is linked to who and then to who, everyone realizes one company that falls is actually carrying a ton of rocks and will drag everyone else they’re roped together with down with them.
No wonder nobody wants to lend to anyone else. Doesn’t it seem like we need to fix the root cause of this mess by fixing accounting standards? Force everyone to reveal all of their credit default swap obligations as well as all of their other toxic crap that can be hidden under current general accounting principles.
There must be something wrong with my line of reasoning … I’ll ask NPR’s Planet Money the question. They’ll hopefully be able to shed some light on this one. =)
3 years ago