As a longtime retired banker, let me tell you why.

Banks and other regulated financial institutions now have way too many loans on their books that have or will default and whose book value is doubtful. As the loans decline in value, the difference between book and market value must, by regulation and accounting requirements, be written off, causing a loss on the P&L. When the loss from the P&L is reflected on the bank's balance sheet, it is a charge against the capital accounts. An adequate amount of capital is a requirement of the bank regulations for banks to make loans.

So what we have here in the current financial mess is a huge number of loans (most estimates have the amount as well more than $1 trillion) that reside on bank's books that will be written down or even written off, reducing the bank's capital accounts dollar for dollar. The only way that those capital accounts can be restored or built up is thru retaining profits (not likely that the banks will be profitable anytime soon) or thru the sale of equity (no company would contemplate selling stock in this market). The result of the mess is that not only will banks not be able to make new loans, but they will likely have to reduce the amount of loans they have on their books. Without credit, our economy and the economy of the rest of the world will grind to a halt very, very quickly. If you consider how banks and lenders can correct this problem--increasing capital by being profitable or selling equity--you can easily see how long it will take for the economy to "re-start" and work itself out of this situation. It could be years of negative economic growth, a severely depressed stock market, much incresed unemployment, inflation, an even less valuable dollar--basically a long depression.

Everyone should be incensed at those that caused this problem--Wall Street, greedy bankers, an inattentive Congress, an administration that purposefully weakened bank regulations, lobbyists who "bought off" the politicians, and an American public who didn't give a damn. But at this point, there's no point in being mad and saying No, No, No. That would be cutting off our noses to spite our faces. Unfortunately what needs to be done, in one way or another, is to remove the bad loans from the bank's books so that they can use their capital to make new loans and keep the economy moving--not necessarily growing for awhile, but at least moving. Basically, the government--you and me--will be required to dig deep into our pockets and the pockets of our children and grandchildren to provide the capital to buy the loans and remove them from the banking system. That needs to be done NOW. Correcting the causal factors and getting rid of the people who were behind this mess will have to wait until later. I'm hopeful that will happen and that the public will maintain its collective anger until things are done--but that may be wishful thinking.

I hope this helps everyone understand what's happening.