Banks Window Dressing: A Possible Confirmation

http://www.ft.com/cms/s/0/ee80c738-46ca-11dd-876a-0000779fd2ac.html?nclick_check=1

The sharp drop in the markets the last 2 weeks was extreme and broad based.
That suggested that money was being taken off the table indiscriminately. I cited a few possible reasons:
1. Lock in profits - Not very likely. The agriculture and oil related sectors had the biggest runs the last few months and yet they did not really sell-off.
2. End of quarter window-dressing - Hedge fund performance gets are measured at quarter end. Also, re-balancing the portfolio makes sense if there are off-setting gains in some of the hot sector investments

But what was most remarkable was the suddenness and the race for the exits before July 1st and the start of the new quarter. After all, the market stopped dropping July 1st and is set to open positive July 2nd.

That indicates that deadlines are the rogue in the house. And my take is that a lot of financial institutions are scrambling to raise cash to cover shortfalls from mortgage write-downs. It's like a margin call on lenders.

Additionally, they can't lend out the cash at this time - they have to preserve their books. So that forces their clients - like Hedge funds - to pull money out of the market. Covering $30B in writedowns has the follow-on effect of $400B in withdrawals form the market (just my estimate based on the margin requirements and the secondary effect on other investors that get caught in the storm).

The implication would be that - once the books are closed - lenders will go back to lending and the markets could rally as money re-enters. Something to think about for our short positions.

So if you read the article I linked, you'll see a rant about lending rates between banks. It goes like this:
In stable times, banks loan money to each other at around 0.20%.
In a period of crisis, when banks don't know who to trust, rates go up. When Bear Sterns was melting down, the rate surged from 0.20% to 1%.
The rates subsided a bit but have risen slightly recently (from 0.69% to 0.72% - I know, it doesn't seem like much, but when you are used to paying 0.20%, that 0.03% uptick stands out.

I am wondering if this article is interpreting the situation incorrectly. What if this isn't a return of a crisis of confidence but plain old supply-and-demand at work. Bank A needs cash fast to cover a writedown. So Bank B charges a bit more.

It would confirm my suspicions that we just went through a fire-sale of money leaving the market to cover lender's books. In which case a rally is imminent.

Key impact: AGN puts which expire soon. An earnings miss is likely but the quarterly report is AFTER the options expire. I want out. We'll take the money and run.

All other puts are fine because a rally will fizzle in a month