Listen. Do You Want To Know A Secret

A major investment bank conducted a conference call for brokers and clients to discuss the credit crisis and bank exposure to toxic assets. The speaker on the call expressed his opinion is that banks really do have bad paper on their books.

Much of the toxic assets held on bank balance sheets will never be worth anything near par. The collateral has failed or is failing. Not marking their values lower only puts off the pain to a later date. The bottom line is that many banks are in trouble and need to be just plain bailed out or to be seized and have their assets sold to whatever banks survive.

Want to know how bad it is? Just look at the interbank lending market. It has stalled. Bank CEOs know that their balance sheet is full of glow-in-the-dark assets and need to hoard cash. The last thing they want to do is lend money to a bank which may be more troubled than their own. Folks, there are what I call "disaster banks". Some of them are large, same are more modest in size. These cancers must be cut out of the system before it kills our economy.