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Daily Kos
If you look down from a very high level what you see is this: There is $75 trillion in global real estate, $50 trillion in annual global GDP, and $675 trillion in derivatives - synthetic financial instruments loosely associated with the real world that, when inspected, prove to be worth a small fraction of their face value. Nine years ago Weathervane McCain’s chief economic adviser, Phil Gramm, got the Glass Steagall Act largely repealed. Investment houses engaged in an orgy of what can only be described as private money printing, taking real assets, puffing them up, marking them up, passing them around, and they kept at it until there were five or six dollars of funny money for every real dollar of stuff. Ssshhh, don’t anyone tell the pension funds …

What is the connection to commercial banks?

We have 8,500 commercial banks in the United States. They take deposits from folks, they make loans, and the bigger ones are publicly held, so their fortunes influence the stock market’s so called “financial sector”. It’s in quotes because it was 5% of the economy for a long, long time, then it mysteriously poofed up to 25% … before beginning a slow motion deflation starting last August. Again, we should keep the pension funds in the dark …

So these 8,500 commercial banks wrote and sold mortgages and they made commercial real estate loans. Now the housing market is tanking because the asset inflation associated with houses is over because five dollars in funny money isn’t going to get you a nickel of real stuff soon. The commercial real estate market, that being the strip malls and such desired by all those newly minted suburbanites, well … as Marvin the Martian would say There’s supposed to be a huge ka-b00m! There will be and make no mistake about it … Ilargi summed it up nicely in the July 19th Debt Rattle.

Ilargi: The rate of failure among the approximately 8500 US banks is about to start accelerating, probably in large and fast steps. The main reason for most of the smaller ones is their positions in commercial real estate and construction, where “The loss rates are just astronomical.” More

Bloomberg
FEDERAL Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies. Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open “either on a standby basis or operating at a very low level,” he said in a speech in New York yesterday.

“If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy’ now called the Federal Reserve that’s going to back you up,” said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets. “But if you are a stockholder this kind of worries you because investment banks will be more highly regulated and won’t be able to use leverage as much as before,” he said. More