After a 1200 pt rally in the Dow the market has come to its senses and started bailing again. It’s a year now since Bear Stearns stumped up $3bln plus to bail out one of its funds thereby signalling the start of the crisis.

The news is bad wherever you look but the focus now is on the banks and whether they will be able to shore up their balance sheets which have more holes than a block of Emmental.

The pressure of continued write downs will simply hasten the inevitable collapse of a major institution. The big question is how the banks will be re-capitalised.

The first wave of capital provided by overseas investors has resulted in major losses and burnt fingers. Sovereign funds may be a little more wary this time round even if the price is way cheaper.

The Naked Capitalist reports on discussions the Fed has been having with private equity companies to see if they might be interested in stumping up some cash. However, there are issues of bank ownership and the size of stake any non-bank organisation can take. The word is that the Fed could seek to relax these rules.

This does not fill one with confidence.

Closer to home NZ finance companies are collapsing like a house of cards. It’s hard to know if any will be left. Already prosecutions are underway against accountants who signed off on the books of failed companies. I wonder how bank auditors will be feeling when they come to sign off the books of the major banks and see a long list of assets “uanble to be valued” properly.

There should be caveats galore.

But the question remains as to whether the crisis will spread to the major banks. If it does we could see queues around the corner of all our financial institutions before too long. I’d certainly advise people to have a bit of cash set aside and money spread around various banks. Having said that NZ is one of the only countries in the OECD not have have deposit insurance for banks.

Given the central banks moves so far it’s safe to say the banking system is underwritten to some degree but if you own shares in a bank i would be very uncomfortbale about that.

 

Tags: banking, central banks, credit crunch, financial crisis