Setting Expectations For the Credit Crisis

From Tim Duy's Fed Watch"
"Whatever news comes out of Washington regarding the plan of the day for the banking system, I hope one thing is soon made clear to the public - fixing the financial system is not the same thing as expanding lending. We are way past that point; you can't fix the system with more bad loans. If Treasury Secretary Geithner tries to sell his plans as the solution that will revive credit growth, I suspect he will further test the already strained credibility of the government. A more honest approach: We are simply trying to prevent the financial system from outright collapse."

TW: These are wise bits of perspective. Those who get uptight about banks "lending more" are missing the point. At this point in the downturn lending is not the big issue, solvency/viability as a going-concern are the big issues. I am highly confident the Treasury and Fed folks who receive plenty of backseat advice from peanut gallery are focused on the latter rather than the former as well they should be.

The market seems captivated by their parlor games relative to what DC will do next with the banks etc. Three things to keep in mind:
a) some "sages" lament DC getting so involved, but for the banks/hedgies etc. screwing things up so badly there would not be a need for Barney Frank et al. to be so prominent
b) far more importantly the big challenge now is demand contraction, the banks are a component but not the only or even largest piece of putting this economic puzzle back together
c) this fascination with bank nationalization seems missplaced, the banks are insolvent. Whether or not the equity holders get anything after all is said and done may be important to those equity holders and the pundits on cable but not to the overall state of our economy. The pundits are worrying about bank stock prices when they should be more concerned about a viable banking system.