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.