I don't know if this is accurate, but it has the virtue of explaining current events in a manner that actually makes sense. Super scandalous. Read the whole thing. - Ed.
I met with a highly connected guy who works with the Washington crowd and is frequently
in Basel dealing with the banks there.
According to him, the Basel II accords require all banks to adhere to certain standards
in order to be part of the international banking community. The European banks
are frustrated with us because of our loose practices. They claim we use unregistered
fund to finance covert ops around the world and no one can trace it. He said that
up to 5 times the "legal" money moves underground illegally. Basel II
attempts to forbid the movement of such money. Also, we allow banks to carry loans
on their books that they know will never be repaid. Since they still list them
as an asset, they are allowed to lend out x times that amount in loans. If they
were to write off these loans an uncollectible, then their asset base would be reduced,
thereby reducing the amount of loans they could make.
The other world banks have had enough of this. Basel II says that all bank financial
statements must be clean and all money "registered." That means they
have to get rid all that phony money off their balance sheets. This friend of mine
told me in June this was coming and if we did not comply with Basel II, our banks
would be kicked out of the international banking community. He also said that if
we did try to comply, by writing off all that bad debt, our banks would become insolvent
overnight because they would have more loans outstanding than they had assets to
back it up.
If you listen to all the subtle clues, you will see that this bailout has much to
do with this issue. We have to clean the bank's balance sheets. That means
not only bad mortgages, but other bad debts. The reason Paulson does not want to
be tied down to specifics is that he wants to cover all the bad debts that are not
related to mortgages.
