The Depth of the Shite We're In
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hoping for a different result". Lawrence Summers, Timothy Geithner,
Nancy Pelosi, Joe Biden et al are straining at the leash to get the
Bailout Ball rolling once again. The stabilization of the financial
sector, as elusive as it has been so far, has become the Holy Grail of
Economic salvation. That makes $8.5 Trillion worth of trying and $0 of
result. The Knights of the Oval Table are gathered to plan their
mission as their beleaguered subjects are trying to batter down the
castle gates. It's no small wonder that Geithner wants to get the
money out the door as soon as the end of this week.
The most recent report from the Comptroller of the Currency seems to
have gone unnoticed in Washington and the press. If banks are not
lending because of increased capital requirements in the face of
Credit Default Swaps, other derivatives and loan defaults then the
report goes a long way in describing exactly why.
Credit Exposure to Capital ratio.
The entries to be read in thsi order
1 Bank Name
2 Assets
3 Derivatives
4 Credit Exposure to Capital Ratio
Amounts in $Millions
=======================
J.P. Morgan Chase
$1,768,657
$87,688,008
400.2
=======================
Citi
$1,207,007
$35,645,429
259.5
=======================
Bank Of America
$1,359,071
$38,673,967
177.6
=======================
HSBC
$181,587
$4,133,712
664.2
=======================
The assets comprise largely of Real estate, residential mortgage,
student, car and credit card loans. With the rise in defaulting
mortgages, delinquent credit card and other debt the problem can only
get worse. To recapitalize the banks to the point where exposure is
low enough to encourage lending would take trillions and that's before
any more fallout from the collapsing economy. Lending also requires
creditworthy borrowers, the number of which is in a nosedive. The $165
Trillion in notional derivatives and the associated credit risk
related to $15 Trillion in Credit Default Swaps illustrated below is
the poison apple that the taxpayer has been forced to bite into.
The entries to be read in thsi order
1 Bank Name
2 Total Credit Derivatives
Amounts in $Millions
=======================
J.P. Morgan Chase
$9,177,731
=======================
Citi
$2,939,783
=======================
Bank Of America
$2,480,672
=======================
HSBC
$1,152,948
=======================
When the "credit crunch" began and Washington began the rush to solve
the problem with taxpayer cash, no accounting of this derivative
nightmare was ever brought to bear. In all the deliberations and press
releases there was not a single mention of the fact that the primary
cause of the bank collapse was due to these "instruments of mass
destruction". It was widely discussed in the blogosphere but, like the
real reasons for invading Iraq, never made it in to the mainstream
media. As with Iraq, one would have to assume that the reason was to
obfuscate the facts and cajole a shocked public in to accepting as a
remedy whatever was proposed by Paulson, Bernanke and Bush. The latter
had to be completely aware of the OCC data at the time and to assume
that they did not is simply not credible. It would have been
completely obvious that $700 Billion would do absolutely nothing to
alleviate the crisis. As witnessed in the ensuing months since the
TARP bill, how the money was used has been obfuscated and
concealed.This was always a scam.
Even as the economic indicators broke one record after another, the
recipients of the TARP funds were selling Credit Default Swaps to each
other, betting on each other's downfall. They knew the game was up and
wanted to profit on the way down as much as they had on the way up.
All the major Banks on Wall St. are seeing mounting losses and the
failure of one will increase the losses of the other. They are joined
at the hip and will fall like a house of cards.
The question begs to be asked, and this is where the cynic in me
dominates, what's the plan? When they do fall will the Government
nationalize the last one standing for the good of the country and
socialize even more of the losses? This would be the coup of the
millennium and give birth to a new Governmental paradigm. To have this
complete before the economy and society have completely broken down
would be a good reason to declare a real National Emergency and
declare Martial Law, the legislation, executive orders and
infrastructure of which are already in place. How can one not be a
cynic when we reflect on what has happened so far?
The numbers are in and the scam stands exposed to those who will look.
Which way the story unfolds from here is anyone's guess. But I am
ready to bet that Congress will not include the OCC data in the
upcoming debate on the next round of cash for the Banks.