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Banks: A Bottomless Pit?


No one can say how much capital is needed to shore up the system.

Mervyn King, the Governor of the Bank of England, seems to be singing one of Perry Como's greatest hits: that wonderful old chestnut, "It's Impossible."

It's impossible, tell the sun to leave the sky, it's just impossible
It's impossible, ask a baby not to cry, it's just impossible
Can the ocean keep from rushin' to the shore? It's just impossible

Please sing along while reading Mervyn King's commens: It's 'impossible to say' how much capital will be needed to shore up the British banking system.

Mr. King went on to say it would take "many months" to establish the scale of toxic assets held by banks, and the scale of problems would change depending on the international economic outlook.

"That is not something that is easy to do or can be done quickly," he told the MPs. "It will require a much longer and more detailed assessment contract by contract."

But he also suggested public borrowing was too high as the UK entered the crisis, which affected the government's response. "I do think public debt matters, " he said.

But, he added, that was a "million miles" away from the idea that Britain in any way resembled somewhere like Zimbabwe.

I happen to agree with King: It's impossible to say precisely how much capital is needed to shore up banks - not just in the UK, but the Eurozone, US, China, Ireland, and Australia as well.

Meanwhile, back in the US, a different tune is playing. That tune is called "Yes We Can." My rebuttal: Mr. President, with all due respect - maybe we can't.

Looking ahead, Mervyn King thinks it's impossible, yet Bernanke rejects "anything like" bank nationalization before the results of the much-ballyhooed "stress tests" are even complete. This is like building a bridge without knowing what the bearing load needs to be. And the bridge may not collapse - but I wouldn't want to be the first to cross it in a cement truck.

And let's be honest: There's a lot of cement on the balance sheets of banks. How much? It's impossible to say with any degree of certainty - which is why mistrust of banks is so high, and Bernanke and Geithner's plans are so misguided.
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