The IMF issued a report on banks today estimating the worldwide bank losses at 4.1 Trillion Dollars. Over 2.7 Trillion- much more than half of the losses are from US banks alone. US banks have yet to write down at least half of these losses. In other words they are pretending to be in much better shape than they know they are.
The banks are dragging their feet because the IMF estimates that if banks wrote off all their losses immediately it would wipe out their common equity altogether. They are bust; all of them. Any that may be skating by will certainly be brought down by the ensuing panic. Non-banking entities will be dragged down by the freeze-up caused by a lack credit and the uncertainty will in turn push other business over the edge and around and around we go.
Then the layoffs that will follow from the collapsing dominos of business will cut consumer spending which will bring on consumer loan failures and so on. Dramatic action is needed to get us out of this death spiral while there is still time. If there still is time.
The big problem underlying this crisis is the lack of industrial capacity in the US since everything has been crated up and sold to China in order to make a few Republicans into billionaires. With nothing of value to exchange for all the Dollars that have been printed; the banking system cannot sustain itself. At some point this will all have to be restructured or the so-called "free market" will correct itself and the dollar will simply cease to exist.
Nobody should assume that this transition is something simple like changing underwear. It’s more like changing skin. The potential for side effects cannot be predicted. Perhaps some moisturizer would help.