On the use of the term “Liquidity Crisis”

[davelj]

I’m tired of hearing those in the media (Jim Cramer, news anchors, WSJ, et al) refer to the current problem in the financial markets as a “Liquidity Crisis.” We do NOT have a Liquidity Crisis. Allow me to explain.

I serve on the board of a couple of banks. We are loaning out money with complete disregard to this purported Liquidity Crisis. Why? Because we want to bank customers that are good credits and we have the capital to do so. And many other banks are in the same situation, to be frank.

We do not have a Liquidity Crisis. What we DO have is a “SH*TTY ASSET CRISIS.” Yes, there are a boatload of bad assets out there, largely in the mortgage arena (for now). And if you’re a party to these bad assets, you probably are having problems financing such assets. This is NOT a Liquidity Crisis, however. This is a “You Have Sh*tty Assets That Aren’t Worth Financing Crisis.” That’s a completely different thing. Believe me, for any individual or business with good credit and collateral the lending spigots are WIDE open. If we were truly having a Liquidity Crisis this would not be the case.

The Fed through its various machinations is trying to convince us (and itself) that if it can remove the clog in the liquidity chain that all will be o.k. The Fed believes that the assets aren’t really that bad, it’s just the liquidity that’s the issue. That’s wrong. The assets are that bad. And they’re levered to the hilt. And depreciating. And all the Fed Funds reductions in the world aren’t going to change this fact.

To give you an idea of how wary the big banks are of lending to each other (because they each know the other has a bunch of Sh*tty Assets on their balance sheets), the current TED Spread (the difference between the three month Treasury and three month LIBOR) is about 85 basis points. Normally this runs between about 10 and 35 basis points. The big banks are scared of each others’ credit risk. As they should be. They each have a good idea of what they’re holding: a bunch of Sh*tty Assets.

So I refuse to call this a “Liquidity Crisis” and I encourage others to follow suit. I will continue to refer to it as a “Sh*tty Asset Crisis” until it’s proven otherwise.

[Fearful]

Hi Dave,

Okay, “shitty asset crisis” it is.

You know a good place to get a chart of the TED spread? Or, maybe more to the point, a chart comparing any interbank rate with its corresponding central bank rate?

Thanks in advance,

Eric

[Fearful]

Hi Dave,

Okay, “shitty asset crisis” it is.

You know a good place to get a chart of the TED spread? Or, maybe more to the point, a chart comparing any interbank rate with its corresponding central bank rate?

Thanks in advance,

Eric

[Fearful]

Hi Dave,

Okay, “shitty asset crisis” it is.

You know a good place to get a chart of the TED spread? Or, maybe more to the point, a chart comparing any interbank rate with its corresponding central bank rate?

Thanks in advance,

Eric

[Fearful]

Hi Dave,

Okay, “shitty asset crisis” it is.

You know a good place to get a chart of the TED spread? Or, maybe more to the point, a chart comparing any interbank rate with its corresponding central bank rate?

Thanks in advance,

Eric

[Fearful]

Hi Dave,

Okay, “shitty asset crisis” it is.

You know a good place to get a chart of the TED spread? Or, maybe more to the point, a chart comparing any interbank rate with its corresponding central bank rate?

Thanks in advance,

Eric

[NeetaT]

davelj,

What you have stated sounds logical and I believe it. As long as someone is holding a fortified asset, why not loan money to them? I think most banks would. The problem cannot be linked to anything else but bad or depreciating assets. I think the rule should be that banks loan at the maximum, 70% of the true appraisal and only at a fixed rate. I don’t borrow money, so I don’t know much about it. I’m just letting common sense guide me.

[NeetaT]

davelj,

What you have stated sounds logical and I believe it. As long as someone is holding a fortified asset, why not loan money to them? I think most banks would. The problem cannot be linked to anything else but bad or depreciating assets. I think the rule should be that banks loan at the maximum, 70% of the true appraisal and only at a fixed rate. I don’t borrow money, so I don’t know much about it. I’m just letting common sense guide me.

[NeetaT]

davelj,

What you have stated sounds logical and I believe it. As long as someone is holding a fortified asset, why not loan money to them? I think most banks would. The problem cannot be linked to anything else but bad or depreciating assets. I think the rule should be that banks loan at the maximum, 70% of the true appraisal and only at a fixed rate. I don’t borrow money, so I don’t know much about it. I’m just letting common sense guide me.

[NeetaT]

davelj,

What you have stated sounds logical and I believe it. As long as someone is holding a fortified asset, why not loan money to them? I think most banks would. The problem cannot be linked to anything else but bad or depreciating assets. I think the rule should be that banks loan at the maximum, 70% of the true appraisal and only at a fixed rate. I don’t borrow money, so I don’t know much about it. I’m just letting common sense guide me.

[NeetaT]

davelj,

What you have stated sounds logical and I believe it. As long as someone is holding a fortified asset, why not loan money to them? I think most banks would. The problem cannot be linked to anything else but bad or depreciating assets. I think the rule should be that banks loan at the maximum, 70% of the true appraisal and only at a fixed rate. I don’t borrow money, so I don’t know much about it. I’m just letting common sense guide me.

[SD Realtor]

Could not agree more Dave.

SD Realtor

[SD Realtor]

Could not agree more Dave.

SD Realtor

[SD Realtor]

Could not agree more Dave.

SD Realtor

[SD Realtor]

Could not agree more Dave.

SD Realtor

[Author]

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