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alstry (35.46)

How do you fix a banking SOLVENCY crisis????

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September 12, 2008 – Comments (4)

Here is the problem:

If AIG, IndyBank, Lehman Bros, WaMu, Fannie, and Freddie are ALREADY basically insolvent.....applying the law of large numbers......wouldn't most every large financial institution in America be insolvent since they all pretty much own similar assets? 

As Buffett says, once you get to a certain size, the universe of assets you can invest in becomes very limited.

Now, add in the fact that prime mortgages and commercial real estate debt is now defaulting....the outlook looks even worse for the balance sheets of our banking system.  Could this awareness have been the catalyst to prompt Buffett to shut down his banking insurance business this week?

What is the consequences when a large number of the major financial institutions in America are potentially insolvent?

 

4 Comments – Post Your Own

#1) On September 12, 2008 at 10:59 PM, leo744 (< 20) wrote:

You are right on in the questions you are asking, but does anyone in the know(Buffett) have the guts to say what's really going on in the banking system(total insolvency). Are we as a nation going broke??????? If so then what's next?????

These are going to be scary times ahead!!!

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#2) On September 12, 2008 at 11:16 PM, nuf2bdangrus (< 20) wrote:

WE've lived on cheap credit driven phony prosperity that has allowed us to continue to shrink our manufacturing base and expand service and government sector.  THis is not going to end pretty.

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#3) On September 13, 2008 at 1:43 AM, AnomaLee (28.54) wrote:

Are we as a nation going broke??????? If so then what's next?????

The only thing broke is our trade system. What you say is true for the entire OECD and most of the developing world.

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#4) On September 13, 2008 at 2:46 AM, jester112358 (28.74) wrote:

You know,  a lot of these institutions own credit default swaps, CDSs on each others debt.  So, a strategy would be for all to default simultaneously, collect the CDS insurance (I know there is no real capital to pay claims, but this is a thought experiment), and thus recapitalize themselves into solvency-and they don't have to pay CDS premiums anymore!.  Sort of like the government collecting taxes then issuings refunds or post-dating your checks to give the illusion of a positive balance.  Or states issuing long term bonds to service short term debt.  Just an amusing thought.  (See, all the financial genius aren't on wall street, we can all play this game)

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