Martin Wolf og Paul Krugman er enig: rystelsene i finansmarkedet skyldes ikke mangel på likviditet. Det skyldes manglende solvens, dvs. råtne lån i et omfang som påvirker verdisettingen. Rystelsene vil m.a.o fortsette.

Fem sentralbanker ble denne uken enig om å overrisle markedet med likviditet. Federal Reserve stilte 40 milliarder dollar til disposisjon. Men hvis det skal virke forutsetter det at problemet er troverdighet pga frykt. Men hva hvis problemet skyldes begrunnet frykt, at bankene sitter på dårlige lån til oppover ørene. Da snakker vi om solvens, og milliardene vil ikke kunne redde situasjonen. Det er som å øse penger ut fra helikoptre, som Martin Wolf skiver.

Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.

As home prices come back down to earth, many of these borrowers will find themselves with negative equity — owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.

And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.

That translates into a lot of losses, and explains why liquidity has dried up. What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.

How will it all end? Markets won’t start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried. And that probably won’t happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.

Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

After the Money’s Gone