davelj, from my understanding there are four major sources of bank capital: deposits, equity, bonds, FHLB system. Depending on the bank its asset base is drawn more or less from those four different sources. Depositor money is guaranteed by the FDIC and is the only one so guaranteed.
Now tell me again why it is that its unknowable how much the depositors (as a maximum) must be paid, vs the black hole that is the cds monster? If every depositor must be paid back, up to the 250k limit then a maximum is known. What isn’t known for any of these banks at least reasonably is how much they are on the hook for in terms of CDS bought and sold. If they are put into bankruptcy however that would be a triggering event and we’d very quickly find out how many cds there are.
Seldom is the easiest path the correct one from a long term stability point of view. If we keep doing whats expedient, we are just kicking the can.
I also make no claim that all of the banks have to be taken down at once, merely that severely insolvent banks as zombies will not regrow the trust that a fractional reserve banking model relies on. In that I feel I’m taking the expedient path.
