Most of the large banks have been battered by their own speculative investments.  Speculative from a more traditional banking perspective, that is. 

  

There is even talk now of banks going belly up because of this mess created by the questionable loans and clever repackaging of those sub prime loans by "piggy backing" them on prime loans in these packages for marketing purposes. 

 

A significant part of the problem seems to be the opaque nature of these repackaged investment instruments.  The prime loans and the sub prime loans were often combined in a pea soup mixture and could not be identified easily, let alone distilled once again into prime and sub prime.  It thus became extremely difficult to determine the market value of the instrument, to “mark it to market” as it were. 

  

There is of course more to it than that.  But combining and repackaging, and trading the packages between sometimes several financial institutions pretty much describes the framework of the problem. 

  

Of course we cannot allow major banks to fail, so the Federal Reserve has jumped into the middle of the mess with interest rate reductions, assuming that these would be passed on to the customer to keep the wheels of the economy greased.  So why are the credit cramps getting worse?

  

It seems the BIG Banks are using the largess from the Fed to shore up their financial situation rather than spread the cash around to their clients.  The choice seems to be retain the cash for short term survival or crap the cash in loan nuggets to their clients and risk financial insolvency. 

  

And as the BIG Banks’ credit sphincter tightens the credit cramps are felt more painfully throughout the economy.