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