Banking 101 - huh?(blogging resumes post sinus infection)

back again - I've been reading quite a bit, fascinated and horrified by the country's financial crisis. We've been on a saving spree here, budgeting and staying in (not hard when there's snow everywhere).

The banking crisis is overwhelming to me. I cannot believe there has been no regulation for so long - and the banks are in trouble because THEY gave bad loans to people, and even more will be defaulting on those loans still. Yes, I know it's more complicated than that - but how will this ever resolve without more financial pain and ruin?

Tom Friedman, my hero, sums it up well for me today in the NYT, with his suggestion of what Obama should do:

“Ladies and gentlemen, this crisis started with you, the bankers, engaging in reckless practices, and it will only end when we clean up your mess and start afresh. The banking system is the heart of our economy. It pumps blood to our industrial muscles, and right now it’s not pumping. We all know that in the past six months you’ve gone from one extreme to another. You’ve gone from lending money to anyone who could fog up a knife to now treating all potential borrowers, no matter how healthy, as bankrupt until proven innocent. And, therefore, you’re either not lending to them or lending under such onerous terms that the economy can’t get any liftoff. No amount of stimulus will work without a healthy banking system.

“So here’s what we’re going to do: we’re going to unclog the arteries. My banking experts have analyzed each of your balance sheets. You will tell us if we’re right. Those of you who are insolvent, we will nationalize and shut down. We will auction off your viable assets and will hold the toxic ones in a government reconstruction fund and sell them later when the market rebounds. Those of you who are weak will be merged. And those of you who are strong will receive added capital for your balance sheets, after you write down all your remaining toxic waste. I am not going to continue rewarding the losers and dimwits amongst you with handouts.”

The rest is here. Read it and laugh/weep?