Martin Mayer on the huge invisible house of cards in the sky hanging over the banking crisis (this is why they can't do anything but feed the zombies):
Twenty years ago, Michael Milken of Drexel Burnham and a staff of razor-sharp Wall Street kids set up a hugely successful half-billion-dollar "bad bank" to rid Mellon Bank of its doubtful assets and distribute them to investors without any government support. The deal had a terrible press when new, but Mellon, Milken and the buyers of the stuff all did great.
This well-understood process has not been available in the current crisis, mostly because some $30 trillion of credit-default swaps stand between the owners of the "troubled" loan and debt obligations and anyone's assessment of what they are "worth." Each of these hundreds of thousands of swaps is a sort of stand-alone bastardized insurance policy against the prospect that some loan will not be repaid. Anyone can and anyone does write these individual loan guarantees; anyone can and anyone does reinsure them. Source
Huff and puff and they’ll blow the house down, and they don’t want to do that. But it’s only a matter of time, as the housing market is not coming back. It’s the off-balance sheet stuff that needs illumination.