From Naked Capitalism:
“Over the last two weeks, we have said that central bank liquidity measures had become counterproductive. Throwing more liquidity at banks made it more viable for them to depend on monetary authorities and not rely on private sources for funding, and in turn extend credit to them.”
Ergo, they sit back, protect their own balance sheets and make no loans, exactly the opposite of the intended effect.
“One contributing factor not mentioned in many of today's media reports is that today [Thursday] is the settlement day for Lehman credit default swaps. The auctions are expected to produce losses to protection writers of 80 to 85 cents on every dollar of guarantee provided. Banks are believed to be hanging on to cash both to pay for their own settlement and out of fear that their counterparties may take irreperable damage in the Lehman settlement process. There may be some relief if the financial community passes this test, but with another big settlement, WaMu, later this month, banks are still likely to remain on high alert.” [emphasis added]
This suggests that Treasury’s panicky rush to hit the markets every dawn with a new scheme du jour is backfiring. One wonders how many Roman candles Paulson has left in his quiver.
In any case, it is surely one of the grand ironies of the moment that the keys to survival from the current debacle are credibility and believability—exactly what the Bush regime has systematically set out to destroy in the hubristic belief that the powerful have no need of same.