Adam Tooze: belief

Transcript context

…Won’t it quickly become a bank-centered crisis? Let’s say 20 percent of Americans are not paying their mortgages, which is an estimate I’ve heard. It might be rough. Within a month or two, that seems intolerable, that even Fed liquidity injections would not get the banks over that hurdle unless we fix it more directly somehow. Exactly. Neel Kashkari came out in the FT, I think yesterday, calling for a big capital raise on the part of the banking system to provide them with more shock-absorbing capacity. Whether that hits the big banks this time, or whether the neuralgic issue will be the mortgage lenders who are in the front line of that shock or the people who are exposed to various types of consumer credit — I think that’s a key issue. It’s not obvious to me right now that the balance sheets of the core group of systemically important largest US banks are vulnerable to anywhere near the same extent as they were in ’08 anyway. But absolutely, you’re right. If this turns into a protracted, extended, real economic recession, if this is a very slow recovery, then feeding up from the bottom by way of households and companies’ inabilities to service that, you would expect that kind of shock to develop. What do you think of the liquidity of Treasury securities — the bid-ask spread on Treasuries — as a way of seeing how well financial markets, in general, are working as a way of tracking the crisis?…

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