Apparently governments are made of money. Today Germany has taken far reaching action, following more problems at Hypo Real Estate.
The pressure is on the UK by the media to announce a similar guarantee. That is what we were effectively offered when the run on Northern Rock became serious.
At some point governemnt and Regulators have to find a way to get the banks back into sensible shape without government underwriting or nationalising them. The banks together are too large for even the taxpayers and governments to take them on. The sooner they get on with the task of recapitalising themselves the better. All these gurantees and special lending facilities have to be time limited, and there needs to be some more pressure on banks from the authorities to raise capital. The banks also need to establish a new level of prices and values for types of debt and property so they can start to trade with each other. These mortgages and corporate loans mainly have some value. Most of these loans will be serviced and ultimately repaid. The system is behaving as if they would not.