“..As Madonna and the banks know, when trust is lost it’s time to say your prayers..”
(this piece starts with a scathing review of a madge-gig..which is well worth the read..and then moves to the meltdown of the banking system..)
“..The breakdown of trust within the banking system relates to five factors.
First, the assets which banks have lent against – notably housing – have been falling in value.
Second, many banks have not only lent directly to households but have also purchased so-called asset-backed securities –
- effectively second-hand loans – which they can no longer offload to others.
Third, some banks have bet that these securities, having fallen so far in value, must bounce, forgetting that a 90 per cent drop can still be followed by a further 100 per cent decline from the new, lower, value.
Fourth, banks no longer trust each other, so the loans made within the interbank market have dried up, and interbank interest rates remain high relative to policy rates.
Fifth, governments, fearing the political fall-out, are reluctant to use taxpayers’ money to bail out institutions which have been abusing trust for too long already.
That reluctance, in turn, has made it more difficult to arrange takeovers.
After all, who knows what will be discovered upon the opening of a financial Pandora’s Box?
The result is a financial system which looks increasingly unstable.
Lehmans is the casualty du jour: on Friday, its share price was down 93.6 per cent compared with a year ago.
Merrill Lynch is down 71.3 per cent, Citibank down 60.7 per cent and Morgan Stanley down 63.5 per cent.
Some British bank shares have not done much better, with HBOS and RBS also having experienced dramatic declines over the last 12 months.
As trust has ebbed away, so the banking system as a whole has begun to look remarkably fragile.
No one bank knows for sure what losses other banks are harbouring.
This affects all of us.
Over the past 12 months, banks have been squirrelling away cash and, where possible, quietly nursing their losses.
No longer do they wish to lend with greedy abandon.
Credit availability has dried up, house prices have fallen and, as fears of recession have risen, so too have stock markets.
Things are likely to get quite a bit worse..”
(recommended-read..)
go to source/story>>Stephen King: As Madonna and the banks know, when trust is lost it’s time to say your prayers - Stephen King, Business Comment - The Independent