Let's Cut Through The Baloney

Just a liquidity crisis? If you believe that, you probably also believe that baloney is made from meat.

Definition of a liquidity crisis: a bank, or anyone else for that matter, has a portfolio of fine, productive assets but for whatever reason is short of quick cash - for a very limited amount of time. The crisis is very quickly resolved by providing the assets to a lender as collateral and getting a quickie loan. Crisis over. In fact, the whole thing never even reaches the condition of "crisis".

Definition of credit crisis: the same as above, but now the lender takes one look at the collateral proffered and instead of "fine and productive" deems them baloney, i.e. it looks like "meat" but is mostly starch, water, salt and preservatives. He tells the potential borrower "no can do" and to kindly take his collateral elsewhere, e.g. some Lender Of Last resort (LOLr) that is not very particular about the difference between proteins and carbs.

Definition of an asset crisis: The same as a credit crisis, but the LOLr can no longer accept any more baloney as collateral without becoming a luncheon meat merchant. At that point the LOLr runs to the politicians and lays it all on their lap and asks them to make the decision: Print or sink?

Definition of an economic crisis: The politicians form a committee to study the matter of the asset crisis.

Have a nice weekend.