The collateral problem is not going away no matter how authorities on either side of the Atlantic try to dress up fake guarantees. The system of wholesale lending through repo is terminally broken, since both quality reputations as well as quality collateral are in short supply. In other words, the inside participants of the global banking scheme know all too well that the system pyramided far too much paper on top of far too little actual cash flow. Liquidity is not the real problem since all the worthless collateral still stuck inside the system is likely worthless because the mathematical predictions of 2005 and 2009 proved utterly inept. Those accounting notions of equity during the credit bubbles were just as phantom as the valuations of the assets that were created from it. This coming year will be just a dance or game of musical chairs to determine who gets stuck with the bill. ...
As the progression of crisis has moved from paper asset to paper asset, from banks to countries and back to banks again, the trajectory is entirely clear. Some form of actual, exogenous restraint on credit creation will be imposed, either by someone currently in power that finally "gets it", or by a free market shaking free from the shackles of the over-enlarged financial economy and its hell-bent attempts toward unlimited money. Collateral is king in this banking world, and the rapid decay of "quality" is a testament to the intentional imbalance of finance over economy, to the hubris of modern economics and monetary "science". Unfortunately for the dreamers of true money elasticity, and too late for the rest of us, this was never supposed to happen.
