Denninger at his best!

http://market-ticker.denninger.net/archives/2076-Bombshell-We-Now-Know-What-Set-It-Off-2008.html


"Bombshell: We Now Know What Set It Off (2008):
"Does this mean that we're going to get a blow-up tomorrow? Of course not. But it points to a severe danger - when one's assets are impaired - whether due to being "infrequently traded" or because you're carrying them well above a market price - you're asking for it. All it takes is for the securities you can pledge to be drained and you're doomed.

Now take a look back through the last few Tickers. I keep seeing evidence that the banks are not only holding things above reasonable recovery value in the HELOC space they're doing it everywhere else too, whether it be not foreclosing on homes, making bogus reports to credit bureaus about payments that are not being made or accepting ridiculously small payments that are a tiny fraction of even "interest only." Why? There's only one reason that makes sense - to claim (falsely) that their assets are worth more than they are - that they're "performing", "have collateral value of X" or "paying" when in fact they're not.

How long will it be before the next large financial institution goes to post a repo and has no good collateral?

I have no idea.

But this I do know: If it happens again "they" won't be able to stop the crash with promises and BS. In fact, they won't be able to stop it at all." Karl Denninger


Also look at this from earlier today:

http://market-ticker.denninger.net/archives/2072-What-The-Lehman-Report-Proves-Financial-Insolvency.html

"If we apply the FDIC's own metrics to the expected losses from such a revelation that would "immediately appear" we get a number between $2 and $3.5 trillion that would have to be paid to depositors of the failed institutions - equal to somewhere around one full year's Federal Budget and dramatically exceeding what the FDIC and Treasury could cover - by more than 10 times.

The consequence of such an event would be literally catastrophic. Having squandered over $3 trillion in the last two years in new borrowing by The Federal Government to prop up the economy (instead of clearing this bad debt through resolving the bankrupt financial institutions) it is highly unlikely that The Government would be able to, on short notice, raise another $3 trillion.

I'm out of all long positional trades as of this morning and will not be back in them until this issue is resolved. Even if there is a potential 10 or 20% advance that I will miss by doing so, the downside risk of 85% is so extreme and the facts that we now have available strongly suggest that not only are all the large banks insolvent but that the government has been and is complicit in covering it up - not just temporarily, but as an ongoing practice, just as occurred with Lehman.

I'm sure many will call me crazy for this analysis.

We will see if you still think so in a year or two." Karl Denninger