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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (97177)	12/12/2007 4:04:12 PM
From: Perspective	Read Replies (2) \| Respond to of 306849

< in a forced reliquification, liquidity flows to inflating assets, i.e., commodities> Of course. Herding behavior, or momentum "investing", at its finest. However, when TSHTF I suspect that the most valiant reliquification efforts may fail. Think about this for a minute: one of the greatest lessons of the 1930s - the need for fractional reserve requirements in our banking institutions - was virtually eliminated in 1994 with the allowance of sweeps from almost all checking accounts. That coincided with the start of the bubble. Since then, most big banks pull all their liquid assets into the money markets. Now, as we're finding out, they cleverly bought long-term assets with that cash through these SIVs, to eke out another 10 basis points of yield. We have systematically unlearned and deregulated virtually everything we ever gleaned from the Great Depression. Whatever safety nets were erected, we opted to move the trapeze outside them - by deciding that placing savings in savings accounts was a wasted opportunity when stocks always went up, and faster. I remember now the term was that commonly led to bankruptcy: duration mismatch. Our banking system now has that in spades. Unless (until?) the Fed starts bailing them out, capital will continue to be destroyed. Crumbling balance sheets = reduced liquidity (negative growth, in Newspeak). The silver lining is that asset pricing will finally get a long overdue, necessary reset, and I hope to be one of those left standing to purchase those assets. It's likely to be a tortuous road to that point, however. `BC