The simple truth of the crisis

For a good bit of journalism on the current banking crisis it's worth reading Norma Cohen and Paul J. Davies in this mornings FT

Six months ago, the Bank believed that credit markets had become too pessimistic, for instance, about the scale of defaults on US subprime mortgages and predicted that there would be a recovery in confidence and risk appetite over the next few months.

they say but

Instead, as the latest report makes clear, what has happened is a global re-appraisal of risk. There has been international recognition that the recent global credit boom had produced rapid and unsustainable bank balance sheet expansion. It had also led to the creation of assets whose liquidity and credit quality were of uncertain value in any climate other than one of unbridled optimism.

This report highlights the main problem that we in this country have been facing.The simple banking model of lending = savers deposits has been broken,perhaps for ever.
Banks were forced to chase other options to bridge the gap.Those options have left them vulnerable to asset inflation and now they are forced to write down their security.