Tyler Durden over at Zero Hedge has a nice post laying out the banking crisis for visual learners. This Bank and Thrift System balance sheet is, in particular, a helpful way of seeing the data. One caveat, though. Durden's analysis holds that each dollar of potential government support is a dollar that the government expects to be used. "Through its various implicit and explicit guarantees," he argues, "the administration is saying the total pain could potentially reach $8.8 trillion." That's not my understanding. Rather, there's been something of an overwhelming force strategy, with the government offering much larger guarantees than they assume will be needed on the theory that such a dazzling show of support will reassure restive investors. The fact that the government is willing to stop much larger than likely losses is supposed to boost confidence that the system can easily survive likely losses. Put another way, I don't think the government, which has offered more than $8 trillion in backstops, is more pessimistic than Nouriel Roubini, who expects the banking system will need $3.6 trillion in write downs.
