Banks need to shed the fat before the next lending feast can begin

Banks have been working diligently to rid themselves of the lending commitments that  helped to take down Bear Stearns. It's not only the mortgage-backed securities and CDOs that everyone's been talking about. Low-rated, high-risk, debt sitting on the balance sheets of many of the top banks is holding back any new motivation for new lending. It's gotten so bad that banks are willingly taking a loss on these loans just to get themselves clear of the whole mess.

From Citibank to Goldman to Deutsche Bank, no one is exempt. Banks are not only selling off loans with junk ratings at almost half-price, but are offering below-cost financing terms to anyone who will buy them. To put that into perspective, that's like someone selling you their home for less than what it's worth (on paper) and lending you the money to buy it at interest rates lower than what you could get elsewhere. Sure, if someone wants to get rid of something that badly, then it can't be all-good, but rest assured that some of these risk-loving buyers are going to win big when things finally do settle.

Cut your losses. It's a saying that every investor knows (or should know). Banks are well known for their ability to make money in any market and their ability to weather almost anything (obviously with some exceptional exceptions). They do so by knowing when to get out of a bad situation. There's a lesson in there, I'm sure...