He insists that NR´s fundamentals have not changed! If that were true, they wouldn´t need to borrow from BoE, so the underlying values have changed and it has become ´unsustainable´. When BoE lends to an ´unstable´ bank, on an emergency basis, repayment and (L2 billion) interest income cannot be presumed in the best of cases.
That an FT writer (and NR stock investor) denies the reality of the subprime/derivative global problem does not apply to NR is too absurd, but the FT has no shame.
Now, I wish we could know how many central banks are covering how many other cases. Our knowledge has surpassed our wisdom. --Charu Saxena.
From my days in the UK's Insolvency Service I learnt that there are two "insolvency tests". One is the "Assets vs Liabilities" test. The other is the "Paying debts when due" test, and this is the one that NR fails of course.
The US situation is very different to the one in the UK, I think, because of the restricted supply of land here. Property in the US has become over priced due to the irresponsible "sub-prime" lending that drove prices to unsustainable levels.
The reality of US defaults is about to hit big time - all we are seeing at the moment, is the expectation of defaults.
But don't forget that even in a default situation property will never - absent complete fraud - go to zero value, and so even when a bank gets hit by defaults it may in practice not actually lose that much if it can only hang on and keep paying its depositors while it repossesses and sells off the property, and probably takes a loss on it.
So even if the Fed did start printing gazillions of "interest-free" dollars (greenbacks), and buying up all the defaulting sub-prime loans with them, it then essentially has the option of becoming a bloody great landlord, and all of the rentals paid by the hapless sub-prime borrowers could go to the tax payer via the Fed.
In fact this - quasi-nationalisation - would be the perfect solution.
Surely there would be inflation? Well actually no, the Fed's credits simply cancel out the existing bank-created loans, and no money actually enters circulation.
The trouble is that it is difficult to get your head around the reality of our system.
As Galbraith said
The process by which banks create money is so simple that the mind is repelled
