So what’s the plan?
Banks are scared silly. They don’t want to lend to one another, because with WAMU and Wachovia going under, they don’t know if they’ll get their money back. And this is a world-wide problem.
The latest proposal is to have the Feds inject capital into the banks, in a way that allows the government to profit somewhat from any upside. Other countries have done this during banking crises, and it can keep the banks from needing to shrink. But we need to get it in place quickly.
Because this crisis has been a high-speed train wreck, stemming from the drop in investor confidence that ensued after Lehman–and especially AIG–failed.
Buying toxic assets is fine, and an important part of the solution. But if the Western governments don’t cooperate soon to shore up banks around the world, that 700 billion will be lost in the sands of time.
Douglas R. Tengdin, CFA
Chief Investment Officer
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