So, Uh, The Banking System Is Still Insolvent
AKA Why There Will Be Another Banking Panic And Market Disaster
Remember how all the banks made a big show of paying off TARP money to demonstrate how they had recovered? Well that was pretty much a lie and they are all extremely under capitalized. It should be noted that the entire rationale for letting the banks mark to model instead of market was that the market was not functioning, but these new values are for the end of June — when everything was supposed to have recovered. In fact, some debt levels are already back at bubble levels! And they are still that bad!
It should be noted that there is another $500-$600 billion of bad loans in commercial real estate that are due to go bad over the next three years, so that will obviously be a huge hit coming, plus residential foreclosures are hitting all time highs once again.
Oh yeah, and with the Friday bank failures the FDIC is (or close to) bankrupt. The FDIC is funded by fees on banks and thus is supposed to be private, and this means that all failures now will come primarily from the US taxpayer. Technically they are approved for a $100 billion loan from the Treasury that they will tap into, but the fees needed to pay back that loan would have to be very large, so it’s my guess that the loan will be forgiven.
As usual, the point woman on all these issues is Elizabeth Warren, who cuts to the chase in a way that I wish that the rest of the government would listen. I’m not sure why they made her the head of the panel if she was going to be marginalized.
As Bloomberg notes: “Consequently, the difference between being well capitalized and woefully undercapitalized may come down to nothing more than some highly paid chief executive’s state of mind.”
…And wallet.
10 Responses to “So, Uh, The Banking System Is Still Insolvent”
I’m not sure why they made her the head of the panel if she was going to be marginalized.
Your question appears to be asked and answered in that statement.
Haha yes. I had a comment that recognized that originally, but took it out to make it a more implicit critique generally.
LOL Canada has good capitalization, few bad loans, legal prostitution and single payer health care…
A decent model of capitaism and some socialism working…
I believe—I guess—the thinking is that by postponing the short-term reckoning, banks will be able to write-off their held-over losses against profits accrued along the medium-term.
I certainly agree with you that there are problems with this, to say the least. Personally, I think it would have been more efficient to just socialize the too-big-to-fail banks.
Ha!—imagine the insanity that would have provoked!
And they do it with very similar tax rates…
Well, I hate to be too stupid to get it, but who does what with which tax rates which are very similar to whoever else's tax rates?
Oops, was that not a reply to Rudi? I meant canada. Well actually all the industrialized non-Nordic countries have similar tax rates (they have higher but they have the highest satisfaction in the world too).
Anyway, about your comment, yes that's the idea the government has. But the banks don't.
It's not just small businesses either, individual credit is plummeting.
As the first comment says: “Why should they lend money to small businesses when they can trade and make a killing in their capital markets divisions? It's all about Casino Capitalism and the banks are collecting huge fees on trades and spreads. They do not care about small businesses.”
Mikkel -
As usual you get past the the usual “what happened today” syndrome and force your readers to look more deeply at fundamental issues, like the impact of going off mark to market and the impending commercial real estate loan implosion.
That issue, commercial real estate loans, has been recently and publicly raised by Elizabeth Warren. While politicians may attempt to marginalize her, she has circumvented those same politicians by finding a listening public for her rare (for a public official) and blunt honesty about both the current economic situation and what is yet to come.
Anything that can be done to bring her disclosures and analysis to broader public attention is worth the effort.
Thank you.
Mikkel–
My fault. Sorry.
Here's the actual Canadian tax rates:
http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng…
However, this doesn't include GST and HST: Around 18% at the worst case.
http://en.wikipedia.org/wiki/Goods_and_Services…)
But a high sales tax with Habanos, topless beaches …
isn't all bad.