Is the U.S. Banking System Safe?
"Treasury Secretary Henry Paulson delivered an upbeat assessment of the economy, saying growth was healthy and the housing market was nearing a turnaround. 'All the signs I look at' show 'the housing market is at or near the bottom,' Paulson said in a speech to a business group in New York. The U.S. economy is 'very healthy' and 'robust,' Paulson said. (CBS Marketwatch 4/20/07)
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“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” (Ben Bernanke during Congressional Testimony 3/2007)
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"We will follow developments in the subprime market closely. However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system." (Ben Bernanke 6/5/07)
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"It is not the responsibility of the Federal Reserve—nor would it be appropriate—to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."
(Ben Bernanke 10/15/07)****************************
“We’ve got strong financial institutions…Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.” (Henry Paulson 3/16/08)
Deception – Keeping the Ponzi Scheme Going
After reading the above quotes, it should be clear to you that these gentlemen do not have a clue. Our economy and banking system is so complex and intertwined that no one knows where the next shoe will drop. Politicians and government bureaucrats are lying to the public when they say that everything is alright. They do not know. Therefore, it is in our best interest to cut through all the crap and examine the facts with a skeptical eye.
Last week, bank stocks, which had been falling faster than President Bush’s approval rating, soared higher based on earnings reports that were horrific, but not catastrophic.
Again, the talking heads, like Larry Kudlow, were calling a bottom in the financial crisis. The bank with the largest increase in share price was Wells Fargo. Their earnings exceeded analyst expectations and the stock went up 22% in one day. Wells Fargo (WFC) has $84 billion of home equity loans, with half of those in California and Florida.
Coincidently, Wells Fargo decided to extend its charge-off policy in the 2nd quarter from 120 days to 180 days, in an effort to give troubled borrowers more time to reach a loan workout. A skeptical person might think that they did not change this policy out of the goodness of their hearts.
Maybe, just maybe, they changed this policy to reduce their write-offs for the 2nd quarter, to beat analyst expectations.
There are many stories of people who are still living in houses, twelve months after making their last mortgage payment. Their banks have not started foreclosure proceedings.
Is this due to incompetence by the banks, or is this a way to avoid writing off the loss? The FASB has joined the cover-up gang by delaying the implementation of new rules that would have made banks stop hiding toxic waste off-balance sheet. The new rule would have made banks put these questionable assets on their balance sheet and would have required a bigger capital cushion
What a surprise that bank regulators, the Treasury and Federal Reserve urged a delay in implementation. Manipulate the facts because the average American doesn’t understand or care. Sounds like Enron accounting standards to me.
The Future FDIC Bailout
During the S&L crisis in the early 1990s, 1,500 banks failed. So far, seven banks have failed in 2008, the largest being IndyMac. The FDIC has about $53 billion in funds to handle future bank failures. The IndyMac failure is expected to use $4 to $8 billion of those funds. Average Americans will lose $500 million in uninsured deposits in this failure. The FDIC says that they have 90 banks on their “watch list”. They do not reveal the banks on the list, so little old ladies with their life savings in the local bank will be surprised when they go belly up. Based on the fact that IndyMac was not on their “watch list”, I wouldn’t put too much faith in their analysis.
There are 8,500 banks in the U.S. Based on an independent analysis by Chris Whalen from Institutional Risk Analytics, they have identified 8% of all banks, or around 700 banks as troubled. This is quite a divergence from the FDIC estimate. Should you believe a governmental agency that wants the public to remain in the dark to avoid bank runs, or an independent analysis based upon balance sheet analysis? The implications of 700 institutions failing are huge. There is roughly $6.84 trillion in bank deposits.
It is almost beyond belief that $2.6 trillion of these deposits are uninsured. There is only $274 billion of the $6.84 trillion as cash on hand at banks. This means that $6.5 trillion has been loaned to consumers, businesses, developers, etc. The FDIC has $53 billion to cover $6.84 trillion of deposits. Does that give you a warm feeling?
Based on the chart below, I would estimate that we are only in the early innings of bank write-offs. The write-offs will at least equal the previous peaks reached in the early 1990s.
If a large bank such as Washington Mutual (WM) or Wachovia (WB) were to fail, it would wipe out the FDIC fund.
If the FDIC fund is depleted, guess who will pay? Right again, another taxpayer bailout. What’s another $100 or $200 billion among friends.
click to enlarge images
What is a Level 3 Asset?
Other banks have been moving assets to Level 2 and Level 3 in order to put off the inevitable losses. The definition of these levels according to FAS 157 are as follows:
- Level 1 Assets that have observable market prices.
- Level 2 Assets that don’t have an observable prices, but they have inputs that are based upon them.
- Level 3 Assets where one or more of the inputs don’t have observable prices. Reliant on management estimates. Also known as mark to model.
This is Warren Buffet’s view on the financial institution practice of valuing subprime assets on the basis of a computer model rather than the free market price.
In one way, I'm sympathetic to the institutional reluctance to face the music. I'd give a lot to mark my weight to 'model' rather than to market.
So, the managements of the banks that loaned money to people who could never pay them back are now responsible for estimating what these assets are worth. According to Bill Fleckenstein,
Recently, the portfolio of Cheyne Finance, one of the more infamous structured-investment vehicles, or SIVs, was sold at 44 cents on the dollar. I suspect that similar assets are not marked anywhere near that valuation on financial institutions' balance sheets. So, the game of "everything's contained" continues, albeit in a different form.
Source: Company records
Merrill Lynch – Poster Child for Lack of Bank Credibility
John Thain is the Chairman and CEO of Merrill Lynch. He makes in excess of $50 million per year in compensation. He previously held positions as President, COO and CFO at Goldman Sachs. He is a good buddy of Hank Paulson. Here are a few recent quotes from Mr. Thain:
"...These transactions make certain that Merrill is well-capitalized." (January 15, 2008 -- Thain in a statement after selling $6.6 billion of preferred shares to a group that included Japanese and Kuwaiti investors)
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"...Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market." (March 8, 2008 -- Thain in an interview with France's Le Figaro newspaper)
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"We deliberately raised more capital than we lost last year ... we believe that will allow us to not have to go back to the equity market in the foreseeable future." (April 8, 2008 -- Thain to reporters in Tokyo, as reported by Reuters)
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"Right now we believe that we are in a very comfortable spot in terms of our capital." (July 17, 2008 -- Thain on a conference call after posting Merrill's second-quarter results)
Merrill Lynch reported a loss of $4.7 billion for the 2nd quarter on July 17. On July 28, eleven days after this earnings report they announce a $5.7 billion write-down and the issuance of $8.5 billion of stock. Thain, the $50 million man, is either lying or completely clueless regarding the company he runs. The SEC needs to investigate him, rather than short-sellers. Their books are a fraud and anything their CEO says cannot be trusted.
Below is Barry Ritholtz’ assessment of the Merrill Lynch deal:
Merrill appears to be moving $30.6 billion dollars of bad paper off of their books.
This paper was carried at a value of $11.1, meaning there was almost $20B in prior related write downs.
After this transaction, Merrill’s ABS CDO exposure in theory drops from $19.9 billion to $8.8 billion (hence, the $11.1B number).
The $6.7B purchase price relative to the $30.6B notational value is 21.8% on the dollar.
Merrill is providing 75% of the financing –- and MER’s only recourse in the event of default is to retake the CDO paper back from the buyer.
While Merrill hopes to be made whole, the reality is they still have potential exposure to these ABS CDOs via the financing;
Actual sale price = 5.47% on the dollar
Less than five and half cents on the dollar? That's an even cheaper sale than originally advertised. What this transaction actually accomplishes is getting the paper -- but not the full liability -- off of Merrill's books. How very Enron-like!
Merrill Lynch has a market cap of $24 billion and has raised $30 billion since December just to keep making their payroll. How long will investors be duped into supporting this disaster? You can be sure that the other suspects (Citicorp (C), Lehman Brothers (LEH), Washington Mutual) will be announcing more write-downs and capital dilution in the coming weeks.
Is Housing Near the Bottom?
The one person who has been consistently right regarding the housing market is Yale Professor Robert Shiller. (He also called the top in the stock market in 2000).
The following chart clearly shows that home prices are so far out of line with historical averages that there is no doubt that further decreases are in store.
Home prices have historically tracked inflation and are likely to revert to the mean. The latest data from Case-Shiller does not paint a pretty picture. Sale prices of existing single family homes declined by 15.8% in the past year, with markets in California declining by 22% to 28%. Over 10% of the U.S. population lives in California. Bank of America (BAC), Wells Fargo, Washington Mutual, and Wachovia have a large exposure to California.
Many pundits have been downplaying the resetting of adjustable rate mortgages, saying that the worst is over. I don’t think so. There are $440 billion of adjustable mortgages resetting this year. That means that the majority of foreclosures will not occur until 2009. This means that the banks will still be writing off billions of mortgage debt in 2009. The reversion to the mean for housing prices and the continued avalanche of foreclosures is not a recipe for a banking recovery. Home prices have another 15% to go on the downside.
Fannie & Freddie Fiasco
President Bush signed the Housing Recovery bill this week. We are now on the hook for all of their bad decisions. We believe in capitalism when there are obscene profits, but we prefer socialism when it comes to losses. The CBO estimates that we will pay $25 billion for their mistakes, with a 5% chance that it reaches $100 billion.
The only problem is that they have been given an open ended guarantee. According to former Fed governor William Poole, Fannie Mae (FNM) is technically insolvent. Their shareholder equity was $35.8 billion at the end of 2007. It plunged by $23.6 billion to $12.2 billion as of March 31, 2008. Does anyone think that as of June 30, they have any equity left? We’ll know shortly. Fannie Mae has guaranteed $2.4 trillion of mortgages.
According to the Mortgage Bankers Association, as of June, 2.5% of U.S. mortgages were in foreclosure and 6.4% of mortgages are delinquent. Fannie and Freddie (FRE) are on the hook for $5.2 trillion in mortgages. It doesn’t take a rocket scientist to figure out that about 4% of the $5.2 trillion of guaranteed mortgages will default. This would be $208 billion in defaults. If they are able to recover 50% (current recovery rate) from foreclosure sales, their losses would be $108 billion.
Oh yeah, that would be our losses. This is assuming things don’t get worse.
Next Shoes to Drop – How High Will the Losses Go
Banks and security firms have reported $468 billion of losses thus far. Bridgewater Associates, a well respected analytical firm, thinks things will get much worse.
According to Bridgewater, the models used have grossly underestimated the actual losses. They doubt the financial institutions will be able to generate enough capital to cover the losses. According to the report,
Lenders would have to curtail loans by roughly 10-to-one to preserve their capital ratios. This would imply a further contraction of credit by up to $12 trillion worldwide unless banks could raise fresh capital.
Not all of these losses are in the sub-prime market. According to the report, more than 90% of the losses from sub-prime loans have already been written off. Unfortunately, the losses from the prime and Alt-A loans could be much larger than we have already seen. The sizes of these loan portfolios are much larger than the sub-prime portfolios. Further, Bridgewater expects about $500 billion in corporate losses that must be written off. This leads to the current estimate of more than $1 trillion in losses yet to be written off.
Bill Gross, the well respected manager of the world’s largest bond fund, expects financial firms to write down $1 trillion.
About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices. The problem with writing off $1 trillion from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth.
Nouriel Roubini, economist at NYU, believes that losses could reach $2 trillion.
The other shoes have begun to drop. Last week Amex reported a 40% decline in earnings as their wealthy super-prime customers are not paying their bills. So, even the well off are struggling.
This week, CB Richard Ellis, the largest commercial real estate broker in the country reported an 88% decline in earnings. So, commercial real estate is imploding. Bennigans’s and Mervyn’s filed for bankruptcy this week. The consumer is being forced to cut back on eating out and shopping. The marginal players will fall by the wayside. Big box retailers, restaurants, mall developers, and commercial developers are about to find out that their massive expansion was built upon false assumptions, a foundation of sand, and driven by excessive debt.
The U.S. banking system is essentially insolvent. The Treasury, Federal Reserve, FASB, and Congress are colluding to keep the American public in the dark for as long as possible. They are trying to buy time and prop up these banks so they can convince enough fools to give them more capital. They will continue to write off debt for many quarters to come.
We are in danger of duplicating the mistakes of Japan in the 1990s by allowing them to pretend to be sound. We could have a zombie banking system for a decade. There is good reason for this gentleman to have a splitting headache.
My advice is:
- Absolutely do not have more than $100,000 on deposit with any single institution.
- Do not buy financial stocks. There are years of write-offs to go.
- When you see a bank CEO or a top government official tell you that everything is alright, run for the hills. They are lying. They didn’t see this coming and they have no idea how it will end.
- Educate yourself by reading the writings of Ron Paul, John Mauldin, Barry Ritholtz, Mike Shedlock, Bill Bonner, Paul Kasriel, John Hussman, and Jeremy Grantham. They will tell you the truth. Truth is in short supply today.
This article has 71 comments:
eetup
by the New York Investing meetup, up to and including our predicting the insolvency of Fannie Mae and Freddie Mac. We agree that the U.S. authorities are attempting to copy the 1990s disastrous Japanese policy decisions for the U.S.banking system. However, we disagree with other analysts in that we are predicting the U.S. will experience a major inflation episode instead of the deflation experienced in Japan.
- Organizer, New York Investing meetup
Since time began if anybody makes money, banks make money which assures their survival. Our destruction happens when Our government pays for promises made in 25-35 years.
ng
Now it is up almost 10 points in 3 weeks. But what I don't understand is that they report a $8 Billion loss and the stock goes up instead of plummetting b/c the CEO says that there will be no need for additional capital.
I would be interested to get your opinions and forecast. I know we are all taking educated guesses b/c if we had a crystal ball... yeah yeah yeah...
Thanks!
Fraud and corruption in the banking system need to be investigated. I don't think it will happen unless there is a citizen outcry. The bankers and politicians are in bed together and the few honest ones don't have the courage to call it like it is.
The talking heads like Kudlow, (who was in a Republican administration) are either ignoring the coverup or they are just plain stupid. In either case, they are doing the public a great disservice.
We need to get to the bottom of this mess, ferret out the offenders and severely punish them. Unfortunately, they have done so much damage that the future looks awfully bleak.
Once again, the American taxpayer will be the patsy.
Just kidding.
The financial sector jumped about 30-50% in a month, based on the most fundamentally baseless and atrocious (but still hiding something) earnings of any sector.
WB announced their losses were not far off the inverse of Exxon's profits. Their stock went through the roof, more or less because they announced that they might keep their doors open for a little while longer, Oh and, of course that they are an excellent buyout candidate. It's just fine; our government says so. What's really laughable is that the SEC is trying to kill the canary in the coal mine: the shorts (well really the already illegal, but rarely prosecuted naked shorts).
Keep dreaming. I hope that things don't go as badly as the real dooms day scenarios predict. However, many of these banks need to fail for the benefit of all mankind. I am absolutely seething that the treasury and the FED have decided that it's OK to hit my kids up for the tab on this debacle. U.S. citizens will be paying for these losses for decades, unless China and other holders of our increasingly risky debt decide they feel warm and fuzzy enough about the U.S. to let us write off our debts. There is no bailout for the taxpayer.
Fleckenstein has been warning about this since 2005. Yes, he is a bit dark and jaded, but his predictions have been deadly accurate to date.
1) Rhoubini says 2 T in banking & R.E. losses is going to be added. Bill Gross says a 1 T to the taxpayer. Bill is biased but let's say the truth lies in the middle. $1.5 T
2) The credit crisis will persist, the Fed will print to cover losses these short-term losses. For several months, believe inflation will subside but come roaring back in late 2009 and we'll see hyperinflation in 2010.
3) There is a reason recent Doha talks failed. The monetary support of advancing trade agreement has collapsed. The conversation with other nations might as well simply now be about USA public debt restructuring of $11 T.
4) Bush tax cuts expire in 2011. Banks and utilities extremely predatory right now. I personally spent 12 hours in July dealing with 'mistakes' such as bank kiting, utilities new 'fees', forward billing 60 days out then utilities shutting off because credit limit had been reached (but no increase in volume) but then apologizing for the 'mistake' etc.
5) Job destruction, in Consumer Health. Clinical trials going over seas. Big pharma hates Democrats wants to stay in USA as labor becoming affordable now but won't take chances keeping this business here with current House control and myriads of new taxing laws being proposed (I know Exxon is also excited/sarc). Cubicle, service jobs going overseas. Why pay a griping employee about not being able to pay bills at $45,000 a year when an Indian or Chinese can code, answer phones etc at $15,000 and be thrilled?
6) I expect voter revolution in 2012. The leadership in Washington is corrupt from the guy cleaning the John to 2/3rd's of the House. Either McLaime or Obamanation are not going to be much help next year. I expect McLaime to win and Democrat controlled House. Socialism shall prevail.
Look for hedge funds that are investing in non-performing mortgage paper to continue their large profit margins so long as they concentrate on keeping consumers in their homes. Increased foreclosures will only impede recovery if inventories continue to increase.
What I don't understand is that banks and servicers should just take this position on their own. It doesn't make any sense to see a non-performing pool of mortgages sell at 50 cents on the dollar when they can write off 30 cents, modify the asset and improve their balance sheets. Since fear follows the repercussions of greed, I do understand why they've lost all common sense at this juncture.
I would love to be able to loan ten times as much money as I actually have and get the extra money for a very cheap interest rate from Big Daddy, the United States Government, which we sometimes call US and other times call the enemy of Truth, Justice and the American Way.
If depositors begin to think that banks are not "safe," as you put it, then there will be inevitable "runs" on banks.
But banks are never "safe" because even during economic expansions banks STILL only have about 5% cash on hand to pay depositors. So even then, if depositors decide banks are not safe and run to take their money out, the banks will quickly become insolvent.
Calling banks and the American banking system "unsafe" amounts to yelling fire in a crowded economic theater and is not "allowed" by Big Daddy, the United States Government because it will cause a run on banks.
Service
I agree with NY above that inflation is going to accelerate, but with all of the reasons that housing prices have to continue to decline, I'm wondering if house prices may decouple from that measure.
r
Best advice? Learn how to steal.
Okay, so, do the hedge funds stay the (recently losing) course, or what? I don't know if they are known for either patience, or individuality. Where do they take their $$$, greed and leverage?
I vote much more for incompetence and group behavior than fraud and lying on the part of bank/regulator/account... "leaders".
"I sit on a Privately Held Bank Board in TEXAS and can assure you things are tightening up, but remaining VERY SOLVENT thanks to CONSERVATIVE VIGILENCE!!!"
You've got to be kidding! It's "conservative vigilence" or better put, a lack thereof, that has created the environment that has allowed all these fraudulent lending practices to flourish.
Hypocritically, the conservatives who cry out for less government regulation and less government spending are the ones who want the people to bail out the perpetrators of these crimes.
I think it's disgusting.
It reminds me of the Savings and Loan crisis a few decades back. My how time flies. One of the regualtors wanted to step in an slow down/stop the bad practices, but the something five/Keating/ McCain stopped them and a year later the system failed. Oh well, expect more governament rules, more bail outs and in another decade, more of the same
The American economic watchdogs owe us for letting the bubble get out of hand. Gee, where were they before anyway? Why did they suddenly come out of the woodworks when bubble bursts already! It's exasperating to contemplate that when they knew these financial institutions were making a killing, they looked the other way. And now that the s#@& hits the fan, we and our descendants gets the tab.
That was the "Keating Five", one of which is running for President today. Charles Keating went to jail for his part in the S&L debacle. John McCain and the others should have joined him.
You are right in saying that penalties shoulb be mete but is the corrections system lavish enough to accomodate all the white-collar crooks? Feds are aware of wrong-doing but they won't allow the crisis to get out of hand, explaining the way BSC was handled. Fed chose an assisted and controlled landing, not an outright crash, with taxpayers as pavement for the runway. It makes me wonder whether Bernanke and Paulson are constitutionally entitled to handle so much power! Do they have the mandate to write-off our children's economic well-being?
Feds get to play God as well for they get to select which institutions get exterminated. What is the limit to how much money can they print? Will my kid need a shovel-full of greenbacks to purchase a dozen of eggs?
er
Sebastian
I know enough about small-business accounting to not expect to get paid from an empty till! It's the old blood-from-the-stone type effort.
Imho, where uber-bears make the greatest mistake is that they believe people have a stop-loss on their house. This is not the case. Negative equity only becomes a factor when one cannot or chooses not to make the payment on the house. Thank God moving is such a pain.
More losses are likely, and many investment banks holding leveraged instruments are likely holding their losses. Whether it's a trillion, or a few more hundred billion, I don't know.
The housing rescue bill is more important than many, many, realize. GS estimated that US banks will have to raise $65B of capital. The housing bill just injected $300B onto banks balance sheets, and this should affect some downstream CDOs and other instruments as well.
Of the much-maligned baseball analogy, in my view we are likely in the bottom of the seventh inning.
The world is not ending, financials will still be around. Take a hard look at WFC's earnings release, and then you will know why it went up 22% in one day and much higher in the days that followed.
Guess what, with all the dire predictions they were still making money. Even if you put all their home equity losses on the books, that is still the case. Enjoy the summer, take the kids to the lake.
I'm very much of two minds about WFC. They are indeed making money, at least so far. But they also have a lot of dodgy exposure, and the HELOCs are coming, too. I agree that it's a much better bank than C or WM or WB. But it's hard to make a case for buying it instead of USB, a similarly-priced bank with a more conservative balance sheet. Both did very well after they announced similar earnings at the short-term bottom. But I have more faith in USB's management and loan book than in WFC's, even though USB's payout ratio is somewhat higher and it's slightly more expensive to book. USB just seems the safer pick here. Unfortunately at $30 both are now fairly valued and I see little upside beyond the dividends. At $21, well, that was a nice day to buy.
Long USB. No position in WFC.
Again, Wells Fargo deferred their charge offs from 120 days to 180 days. This does not have any effect on income so it does not help WF beat analyst expectations. The entry for a chargeoff is debit Loan Loss Reserve, credit Loan Asset, both balance sheet accounts. No other entries are involved, ergo no income statement effect. What Wells Fargo ends up with is a higher loan loss reserve, appropriate because they still have the non performing asset on their books. For Wells Fargo this change actually makes their financial statements look worse because they have a loan loss reserve that is more than 100% of nonperforming assets, so the change brings this important ratio down. Many other banks with ratios of LLR to nonperforming assets of less than 100% could be properly criticised for such a change.
1) Banking Crisis Growing, will be here for at least a decade
2) Soaring Price of Oil - Boone says largest transfer of wealth ever
3) Global Warming - food crisis looming, more national weather disasters to come, no more trailers from FEMA
4) Deflation in housing/Inflation in everything else
5) No Liquidity for new loans to drive the economy
6) 8 years of a fool for a President - America's reputation tarnished
7) Soaring National Debt
8) Never-ending War
9) Soaring Health Care costs
10) Iran, N.Korea going 'NUKULARE'
Other than that everything os A-OK
Wizard
Personally, I have been both long and short at times, but I think the equity comments are missing the point.
Our current crisis is a once-in-a-generation type of crisis. I have no idea how it will end and which equities will be the winners and losers, but I do understand that this resolution of this crisis will profoundly effect the workings of our economy and government going forward. If you are myopically focused on a few equity names or the performance of your portfolio, you are missing the larger context that will affect the larger United States economy (and society) going forward.
If you take nothing else from this article, please spend an hour or so perusing the writings of the individuals listed an the end of the article, particularly Ron Paul. Feel free to fervently disagree with their conclusions but educate yourself on their ideas first. You will be doing yourself a favor to at least understand the nature of their concerns.
and some recommendations at the end are disconnected from the analysis done in the article. particularly objectionable to me is advise number 4, to me there is little difference between somebody who knows what the truth is and lies, and somebody who speaks the 'truth' without gaining the knowledge to put the truth in perspective.
What I do know, however, is that they are not falling off a cliff and the rumors of their death had been very exaggerated.
This leads to my hypothesis that negative home values are not a direct correlation, or even a strong correlation, between the very large loss estimates the author cites and current forecasts.
we'll see how the construction loans go.
Similarly, WFC reported 5x their usual gain in trading. Were they suddenly that good at trading? Or did they just run the winners through the IS in order to make the number, and book the losers in "investment account"?
Charlie
If the bank owners were personally responsible for loan losses do you think they would have made all those bad loans? They can socialize the losses and take all the profits, so they do. As noted in this great piece, fractional reserve loaning is totally corrupt, a government-approved Ponzi scheme.
Loans from fractional reserve banks are inherently “liar’s loans”, the lie being, the bank is loaning money that it really doesn’t have. The Fed and the thousands of banks creating these liar loans create inflationary conditions that actively discourage thrift: people throw their money at something that hopefully will go up in a lot in price in order to hold onto the buying power of their money, trading the certainty of being screwed in the long run for the chance to possibly avoid being screwed at that future time. Debt-money leaks out value like a bucket with a hole in the bottom leaks out water. This is just going to keep happening until the basic cause gets fixed.
First of all, WE NEED OUR OWN DEBT-FREE CURRENCY, backed by all of the real estate owned by the United States (which is, in fact, all of the real estate within the national boundaries, and really more than that including other nations whose continued claim to existence depends on U.S. defense of that claim; case-in-point, Kuwait, 1991), we should distribute that new currency in monthly equi-dollar amounts to all legal residents (amounts due minors to be held in trust accounts). Also, we need bankers to be held financially responsible for any loss of depositors’ money (if they want to gamble with fractional reserves, it’s the bank owners who should pay, not taxpayers, and if you lose your own money by depositing it in a fractional reserve bank, again, it’s YOU who should pay, not taxpayers. How can we ever expect things to get right with a system based on socializing losses?
Next, we should REPLACE ALL FEDERAL NON-CONSUMPTION TAXES with a one-half percent(+/-) Tobin-type tax on ALL outgoing electronic transactions (avoidable by using cash for all transactions, and, since avoidable, the tax will be arguably being paid voluntarily) in order to:
1. Pay off the national debt,
2. Repair the damage that the U.S. government has done to persons and the free market by favoritism (reparations for having “Constitutionalized” slavery might be considered) and excessive regulation (e.g., we need about 4 times as many doctors and healthcare professionals as we currently have in order to have enough competition extant to get medical costs back to the realm of affordability, and we would have had them had there been a free market in medical education), and
3. Extract and destroy excess currency as required to avoid inflation.
No other form of Federal non-consumption tax would be allowed (this tax could go to zero when it has done its job if there is no inflation in the system).
The monthly equi-dollar distribution amounts should be of sufficient quantity (assuming $1000, that’s $24,000 Federal tax-free per couple, plus whatever wages and other income they bring in) to be considered sufficient replacement for all forms of corporate, farm and personal welfare, including subsidies, welfare, tax incentives, Social Security (to be phased out), Medicare, the Federal Minimum Wage law, and ALL OTHER forms of Federal financial redistribution schemes; there won’t be any need for separate Federal retirement accounts since there won’t be any income or investment taxes.
For those who like their political solutions morally justified, the monthly equi-dollar distribution amounts can be considered “justified compensation” for the denial of free access to all the property that the government has privatized.
With everybody getting the same monthly amount, and everybody paying the same percentage increase of fiat money, there is no redistribution nor inherent injustice in the plan.
FDIC will cover $200k if you make the account P.O.D. to someone.
Wizard
2] A religious but very unscientific belief in global warming in spite of a decreasing average global temperature over tha last four years.
3] Massive disinformation concerning any comprehensive energy policy.
4] A blatent disregard for the drastic effects on our economy of the impact of importing 12.2m barrels of oil/day@$150/barrel. I believe that a country with a negative cash flow of over $800b/year cannot sustain itself.
5] The almost facetious premise that a country that could go to the moon in 8 years can't drill for new oil in less than ten years and that using what amounts to roughly 60 days worth of our imported oil in the strategic oil reserve will solve the problem.
6] That only non-nuclear, non-fossil fuel sources of new energy will address the most important question concerning our energy problem soon enough to avoid an economic disaster.
7] That before G.W. the world loved us and because of him they don't. Let's recap, in the 90's we considered Pakistan a potential enemy. Libya was developing nuclear weapons, so was N KOREA, France, Russia and China were working against us at every turn and Iran and Syria were causing trouble in the mid-east. Reading Comarade J., A biographical account of a high level russian post cold war spy who defected is an eye-opener. The book is written by a former Washington Post reporter.
8] The misconception that our domestic oil companies can actually be controlled by the actions of the US congress when 75% of their operations are in countries over half of which are contolled by state entities.
9] The constant negative drumbeat of much of our media and sites such as this that the sky is falling, the solutions of which are sell short, buy gold, buy euros, blame it on Bush or dig a hole in the back yard and fill it with a year's worth of survival commodities. All very constructive.
10] Last but not least, the concept that it is Ameica's duty and for sure its obligation, to accept all the folks the rest of the world would like to get rid of, solve the aids epidemic in Africa, stop any genocide that is going on anywhere in the world, come to the aid of any natural disaster anywhere in the world and let any wide-eyed radical philosophic group blow up a govenment building, a skyscraper or one of our embassies whenever they choose and have a discussion about their motives so we can better understand them.
You also commented about WFC trading gains. I don't have a position in WFC and so I don't follow them and don't know how unusual that portion of their Inc Stmt was. It used to be very easy for a bank to cherry pick their investment portfolio in any period if they want to pump earnings up. Now, more investment securities are marked to market any way so its more difficult, but not impossible.
You can only WISH that some socialism might prevail in the US! Good luck with that.
The time is to buy Commodities on this correction.
Visit a Jim Rogers`s blog at jimrogers-investments....
concisetrading.blogspo.../
Ryan
Well... whom the gods would destroy, they first make mad! And there is much madness in the land. The vile Presidency of George W. Bush proves the point. Sheer madness!
Oh... and one final thing: WHERE THERE IS NO INSIGHT, THE PEOPLE PERISH! Amerikans reap what they $ow!