RTC2? Banks in desperate $80 billion scramble to avoid "mark to market" meltdown. Just delaying the inevitable

I love how everyone (especially Wall Street and CNBC) thinks the credit crunch is over, and all will be just fine. The banks reporting of billions in write-downs last week was greeted as good news. Too bad those write-downs were just a fraction of the truth.

The news this morning will also be spun as good news. Hopefully some in the MSM will do their jobs and dig a bit deeper. This is the banks trying to save themselves, but the problem still remains - trillions are being lost on the housing crash and someone is holding the bag.

We've only just begun HP'ers. This isn't a $80 billion problem. No, it's in the trillions. Many trillions. And the worst is yet to come. And when the truth finally comes out, it will shock you.

Banks to set up $80 bln fund to limit credit crunch

NEW YORK/WASHINGTON (Reuters) - Major banks including Citigroup Inc are looking at setting up a roughly $80 billion fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy, sources familiar with the matter said.

Representatives from the U.S. Treasury have organized conversations among top global banks, sources said, as financial institutions grow increasingly concerned that a certain type of investment fund linked to banks may have to dump billions of dollars of repackaged loans onto financial markets.

A fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. Such sales could trigger huge losses for banks, and in the worst-case scenario tip the U.S. or Europe into recession.

"We are coming off the greatest lending bubble ... in U.S. history. We will feel its impact for a very long time," said Robert Arnott, Chairman of Research Affiliates LLC in Pasadena, California, earlier this month.

More here...

“For me, this is more of a P.R. blitz,” he said. The banks are “saying, it’s not just that we are doing this on an ad hoc, individual basis. Rather, we have a plan and consortium in cooperation with Treasury, which gives it a veneer of respectability.”

Mr. Stracke said that by serving as another buyer of the highest-rated securities, the banks are hoping to ease the immediate strain on SIVs, which could be forced to sell billions of dollars worth of assets in a fire sale if they are not able to raise new financing and when their capital falls below certain thresholds. The effort, however, will not resolve the longer-term problem many SIVs face with more risky mortgage bonds, he said.

Bernanke's panicked rate cut is purposefully destroying the dollar to try to save the banks. This will not be pretty.

It's sad watching the dollar die. Especially as an expat. Americans who scrimped and saved and planned for retirement, and didn't or don't diversify out of US$, are gonna get slaughtered. And they have no idea. It's just so easy to trick 'em, ain't it?

The stock market may go up, nominal home prices (not inflation adjusted) may drop less than they would have, but the smart people in the room will know the dirty little secret: Inflation is raging, an economic collapse is underway, and the buying power of the dollar is being purposefully and expertly destroyed.

BusinessWeek: Does the Fed Care Only for the Street?

Bernanke's belief that the central bank should slash rates at the start of a bear market is untested, inflationary, and bad for the buck

Aside from the dollar and long-term bonds, markets rose last week as the Federal Reserve demonstrated that it is more fearful of a slowing economy and banking woes than inflation. In fact, it is willing to sacrifice the dollar to save the banks. Just last month, the Fed was saying that the threat of inflation is just as great as the threat of a slowdown in the economy. Now it is cutting rates in a huge way as the Dow nears its all-time high, gold is making new highs, and the price of oil is exploding.

The Fed is obviously terrified. It means that he is gravely concerned about the state of real estate and banking in the U.S.

If the credit markets don't revitalize in the next few weeks, you can expect to see the Fed lower rates again by another 50 points at their October Federal Open Market Committee meeting no matter where the dollar, gold, or the Dow are. They have signaled that they don't give a damn about the dollar. All they care about is Wall Street.