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WHAT’S THE PROBLEM?….In response to a Paul Krugman post about the Treasury wasting time implementing a capital infusion program for distressed banks, a commenter wrote:

They still don’t know why banks don’t trust enough to lend commercial paper.

If it’s balance sheet issues then unloading toxic debit will work.

If it’s a need to de-leverage then a capital infusion is required.

But if it’s trust then we need regulation of and a change in management at the banks.

And if it’s fear of credit default swaps, or other essentially incalculable obligations, then they need to be unwound and banned, at least the incalculable or morally hazardous ones, going forward.

My guess is that all four of these are issues, but it’s the last one that keeps me up at night (metaphorically speaking, anyway). If CDS losses turn out to be the biggest problem — and potentially, at least, they seem to be responsible for far bigger losses than the underlying subprime losses themselves — then even a big capital infusion might not make much of dent in the credit crisis. But how do we find out?

And here’s another thing to be curious about. When Gordon Brown announced his capital infusion plan, Britain’s four biggest banks apparently took him up on his offer almost immediately. But what about America’s biggest banks? Have they been putting out feelers? Burning up the phone lines begging Paulson to get off his ass and offer them a deal? Or what? And which American banks are in weak enough shape to want fresh capital at (presumably) punitive prices? All of them? A few big ones? Lots of little ones? Wait and see, I guess.

UPDATE: That should have been “Nobel prize winning economist Paul Krugman’s post.” Apologies for the error.

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WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

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