Within days after the legalized accounting fantasy masquerading as first quarter earnings for several of America's largest banks and financial institutions were released, the markets began to catch on. After several days of a sucker's rally on Wall Street, the Dow Jones went into retreat as more savvy investors caught on to the charade. That is when Timothy Geithner, U.S. Treasury Secretary, ran to the rescue, ready-made script in hand.
In advance of the so-called "stress test" that is supposed to establish the fiscal health of U.S. banks, Geithner released a sneak preview. "Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators," boasted Obama's Treasury Secretary. With Pavlovian instincts, the market bought Timothy Geithner's fiscal fantasy, at least for a day.
A few weeks before these antics a more sober assessment of America's banking health was delivered at the National Press Club in Washington by Dr. Martin D. Weiss, the head of Weiss Research, a global investment research firm. Previously, Weiss had accurately forecast the demise of Bear Stearns and the implosion of the U.S. investment-banking sector. However, at the National Press Club he offered a more chilling prediction: 1,568 U.S. banks and thrifts risk failure. Included in that number are several of the largest American banks, including J.P. Morgan Chase, Goldman Sachs, Citigroup, Wells Fargo, Sun Trust Bank and HSBC Bank USA. The numbers and depth of the banking problem highlighted by Dr. Weiss are far larger and much more ominous than has been portrayed by the Federal Reserve, Treasury Department and FDIC. He backed up his dire analysis with documentation and precise mathematical modeling. For example, he refers to the government's justification for a hideously expensive taxpayer bailout of AIG, based on the firm's exposure to the fragile investment vehicles known as Credit Default Swaps, or CDS. The policymakers maintain that AIG's $2 trillion in CDS exposure represented an unacceptable systemic risk, meaning AIG was "too big to fail." However, Weiss points out that Citigroup alone holds a portfolio of $2.9 trillion in Credit Default Swaps, while J.P. Morgan Chase possesses a staggering $9.2 trillion of these toxic instruments, about five times the exposure that led AIG to demand that the government rescue it, or see the global financial system implode.
The essential point Dr. Weiss made at his press conference is that the degree of exposure U.S. banks have to a variety of toxic assets is beyond what the U.S. government and, by extension, the American taxpayer is financially capable of rescuing. Continued bailouts of insolvent banking institutions will not repair a broken financial order, but may very well cripple the overall economy.
Earlier, NYU economics professor Nouriel Roubini had already gone on record as declaring that much of the U.S. banking sector was functionally insolvent, and that bailing out zombie financial institutions would only replicate the Japanese "lost decade" of the 1990s, when Tokyo's preference for keeping alive insolvent banks instead of closing them down led to a prolonged L-shaped recession. Roubini and other critics of both Bush and Obama administration policies on bank bailouts have looked to the Swedish model for resolving a profound banking crisis, which involved temporary short-term nationalization, closing down insolvent banks, while those banks that can be salvaged are cleaned up of their toxic assets, recapitalized and then sold back to the private sector. "You have to take them over and you have to split them up into three or four national banks, rather than having a humongous monster that is too big to fail," Nouriel Roubini has argued.
According to the International Monetary Fund, the global financial and economic crisis has already created more than $4 trillion in credit losses due to toxic assets. If nothing else, the IMF estimate on the scale of the economic and financial disaster thus far should compel the Washington political establishment to face the painful yet necessary truths regarding America's precarious situation. However, it appears that fantasy is preferred over reality within the corridors of power.
The procrastination of policymakers in Washington in facing dark reality, and preference to avoid any public takeover of troubled banking institutions while simultaneously subsidizing these financial dead men walking with almost unlimited taxpayer funds, at the same time maintaining the fiction, as Timothy Geithner has just done, that all is basically fine with the "vast majority" of U.S. banks, is to insure the inevitability of a systemic banking collapse in the United States. The conglomeration of reckless, greed-induced banking practices by the oligarchs of finance and inept, reality-denying policymakers is sending much of the American banking sector on a Wagnerian death ride into a financial apocalypse. Many of the U.S. banks are in fact doomed to fail, and no contrived stress test or Geithner speech can alter that outcome. And that isn't even the worst part. For when mass banking failures occur in the United States and overseas, a global economic depression will be an irreversible outcome.
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There are many ideas out there. We just have to get rid of this cabla of Goldman Sachs sycophants to implement them. A little backbone from our leaders would help also, instead of worrying about their next re-election.
These financial institutions should have been delisted until, such time as they had their house in order. Changing tax rules to hide the Scam they perpetuated will cause more damage down the line.
http://business.theglobeandmail.com/servlet/story/RTGAM.20090423.wreconomy0423/BNStory/Business/home
http://www.ft.com/cms/s/0/eefbab8e-3039-11de-88e3-00144feabdc0.html
Read it several times and see if you get anything of value in this piece. It is as garbled as his plan. He talks and talks and says nothing.
We have forgotten a very simple fact. The health and scope of a financial system is largely a reflection of the underlying real economy. Wall Street was wrong before, is wrong now and will be wrong in the future. Wall Street banksters and their manipulation of our own government is the biggest drag on our real economy. If we do not cut their power, and pare down their corporations to more reasonable scale and fashion our financial system to serve our real economy, it will take us decades to recover.
The most important fact to remember is that our problem is much larger than the banking crisis but if do not properly solve the problem created by banksters we will never address this larger problem. Our government's current actions almost assures a systemic failure.
Provided you have a good bookie, who takes/holds bets both ways (hedging)... to reduce exposure. Obviously however the more you hold, any mistake is more magnified... but then that moeny flows to anothe bank/instituion... just as CDS payments from AIG increased assets elsewhere in the system.
AIG was a bad bookie. However 150 Billion has covered their 2 trillion exposure, some bets they win... some they lose. And as I understand we have about a year more to work through their CDSs... which often have time limits... but again their loss is some one elses gain. The question is .. will we come closing to netting out...
If we dont turn the job situation around and make stuff/reduce imports/stop outsourcing (which takes a long time to do).. it does not matter how you try to solve the banking problem.. nothing will work.
Regards
Somebody from the "I am freaking out and pissed off category" please explain to me how freaking out about the banking crisis is helpful. Telling me the sky is falling is important to hear because??? I'll miss it when it does? Because it is only through fear that anything gets done? Because its the only language anyone understands anymore? Thousands of banks failed during the great Depression. The result of those years and the war that followed led to a fair amount of useful change. "The only thing we have to fear is fear itself." I still believe that. You just might not be able to buy some dang much worthless crap. Boo hoo.
I do not think this is being done for the public interest and I cannot understand why Obama is OK with it. I really fear the consequences of doing it wrong. Its going to be a boondoggle, like the war, with no exit strategy. This could sink the US.
Torture is a serious issue but right now I think it is just a distraction while our pockets are being picked.
The fact that they are not pursuing a global moratorium on derivatives makes me believe that interested parties ore running the show for their own profit, thru the US Treasury Department.
Are our guys really planning to pay for all that stuff? The amount is too huge. They simply can't pay for it all. And of course we do have plenty of other econ problems, but getting the derivatives out of the way would be a great start.
IMHO you are thinking quite intelligently. No one has proffered up anything to this level of thinking. When I was young I was told to not act in haste on economic concerns, especially under duress. But to take a hiatus to enable clear thinking.
That this is all being done essentially under duress causes me to suspect and to reiterate that truth.
There are already growing signs of similarities to the causes of the French Revolution that we need to be concerned about. For example, there is growing social and political factors on the Internet, many of which involve resentments and aspirations. Just listen to all the hostilities in the comments to this article and others. Thus today's wealthy and politically influential (bourgeoisie) merchant class and banking interests project a similar image to that of the aristocratic ruling class of the French 1790's. What the banking interests are slowly coming to understand is that history tends to repeat itself and they, like the aristocratic ruling class, have become the burnt of growing resentment.
Check out:
http://pragmaticstatistic.blogspot.com/2009/03/today-has-too-many-similarities-to.html.
So when is Homeland Security going to realize that our greatest threat is not from the Middle East but rather from within Wall Street and Capital Hill.
Checkout:
http://pragmaticstatistic.blogspot.com/2009/04/goldman-sachs-has-too-much-influence-in.html