Loans have to be paid back, with interest.

But - credit quality is credit quality, and at the end of the day the question for the markets comes down to asset allocation.

Since Bernanke has shown his willingness to shoot off his mouth with statements that call into question his sanity, in which he has stated outright that he will protect insolvent institutions and homeowners by destroying the credit quality of The United States, we should not be surprised if the market, over which Bernanke in fact has no control (his delusions of grandeur notwithstanding), decides to allocate assets away from those things which he has and can wipe his butt with!

So if you're talking about "distortions" and who's to blame, go talk to Bernanke. He has single-handedly created this mess and the responsibility lies with him. You cannot blame people for allocating assets in a way that they perceive as safe.

You cannot fault market participants' perception that US Treasury instruments are fundamentally unsound when your own Central Bankers make public statements and take actions that demonstrate their willingness to destroy the credit quality of same!

The simple fact of the matter is that everything that Bernanke (and before him Greenspan) has done over the last eight years has been fundamentally bankrupt. Willfully turning a blind eye to knowingly-fraudulent lending practices, from appraisal fraud to ratings agency fraud to intentionally-overstated incomes to insane leverage ratios within our investment and commercial banks, all of which has occurred with the explicit approval of The Fed and our Government, has led to an incredible debasement of the credit quality of United States Treasury paper.

Now that the bubble in housing has burst we have seen three quarters running of so-called "kitchen sink" losses from the banks and brokers, yet each quarter proves that the banks lied in the previous one when more losses are unearthed. Financial statements continue to show proof of "cooking" the numbers, with assets moved from one bucket to another in a vain attempt to avoid recognizing and reporting losses.

Yet The Fed, OCC, OTS, OFHEO and Congress continue to allow this nonsense to go on, with ZERO in the way of enforcement actions against these firms, while allowing them to backstop their balance sheets by exchanging illiquid and potentially worthless securities for The Fed's Treasuries.