While big banks were trying to dig themselves out of the subprime mortgage mess, they neglected to notice that muni-bond insurers had made the same not good bets that they had. According to Reuters, the failure of banks to address the insurance crisis early on could cost them. The total write-downs at the banks “may jump by nearly 50 percent, according to brokerage Oppenheimer & Co. in New York. That is considering the tottering bond insurance companies some banks used to guarantee their mortgage bets are facing their own troubles and may not deliver on policy claims.” Write-downs by big banks already total $150 billion.

That is not only poor for the banks, it is poor for their customers. Even

with the Fed cutting rates, banks may not pass those lower rates on to clients. As a matter of fact, they may cut back their lending considerably considering they cannot afford the risk of extending credit, even to corporations.

The assumption until recently is that, even with poor financial news, the Fed could give banks sufficient liquidity to supply capital to industry. That could fuel growth across a wide variety of businesses and keep the economy out of recession.

But, the banks aren’t lending money.

Douglas A. McIntyre is an editor at 247wallst.com.

Original post by Douglas McIntyre

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