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Banking, finance, and taxes

Banks May Face $325 Billion Margin Call

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By Douglas A. McIntyre Published
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The Fed may need to get ready to put another $300 billion into the banking system, trading cash for paper that is clearly not worth a hundred cents on the dollar.

According to a report from Morgan Stanley (NYSE: MS) "A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call," according to Reuters.

The report is based on subprime-related home prices falling a total of 30%.

The private markets do not have the capital to solve a problem of this magnitude. Even sovereign funds are not likely to be able to pul ltogether the level of funds which the report indicates might be necessary. Nor is there any reason to believe that they would want to take that kind of risk.

That would leave the problems at the feet of the Fed, which has already opened a credit facility of $100 billion to ease a tightening market. It looks more likely with each passing day that the problems with write-downs may still be in their early stages.

Douglsa A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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