Banking That 2011 Never Comes (Updated)
Jesse of Le Café Américain wrote the most recent guest post in Naked Capitalism
- read it here: The Next Wave of the Financial Crisis is Coming (and why)
In it, Jesse excepts from the COP- highlighting one of our "recovery's" *cough*massive*cough* little problems:
Congressional Oversight Panel - August 11 Report - The Continued Risk of Troubled Assets
"...But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today.
If the troubled assets held by banks prove to be worth less than their balance sheets currently indicate, the banks may be required to raise more capital. If the losses are severe enough, some financial institutions may be forced to cease operations. This means that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued operation of the banks.
...If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.
...Part of the financial crisis was triggered by uncertainty about the value of banks' loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of troubled assets on institutions‟ books so that markets can function more effectively. Finally, as noted above, Treasury must keep in mind the particular challenges facing small banks.
This crisis was years in the making, and it won‟t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the
financial system.
...Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved."
The banks must be restrained, and the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.
Well put. Kudos to the Congressional Oversight Panel for pulling this back out from under the rug to expose it to at least some light of day. This past spring the markets put in a V shaped recovery as banks were allowed to manipulate accounting rules... more to their liking. But the problem now is that if these assets do not quickly begin tracking in real-time (to market) what these banks have recently been allowed to report them to be "worth" (mark to model.. aka: mark to fantasy, mark to make-believe, mark to madness) ... eventually, some point out 2011 as the year, the banking system will ultimately be held to task for bullshitting the rest of us. And if that day of reckoning comes, 2008 may look like a walk in the park.
- read it here: The Next Wave of the Financial Crisis is Coming (and why)
In it, Jesse excepts from the COP- highlighting one of our "recovery's" *cough*massive*cough* little problems:
Congressional Oversight Panel - August 11 Report - The Continued Risk of Troubled Assets
"...But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today.
If the troubled assets held by banks prove to be worth less than their balance sheets currently indicate, the banks may be required to raise more capital. If the losses are severe enough, some financial institutions may be forced to cease operations. This means that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued operation of the banks.
...If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.
...Part of the financial crisis was triggered by uncertainty about the value of banks' loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of troubled assets on institutions‟ books so that markets can function more effectively. Finally, as noted above, Treasury must keep in mind the particular challenges facing small banks.
This crisis was years in the making, and it won‟t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the
financial system.
...Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved."
The banks must be restrained, and the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.
Well put. Kudos to the Congressional Oversight Panel for pulling this back out from under the rug to expose it to at least some light of day. This past spring the markets put in a V shaped recovery as banks were allowed to manipulate accounting rules... more to their liking. But the problem now is that if these assets do not quickly begin tracking in real-time (to market) what these banks have recently been allowed to report them to be "worth" (mark to model.. aka: mark to fantasy, mark to make-believe, mark to madness) ... eventually, some point out 2011 as the year, the banking system will ultimately be held to task for bullshitting the rest of us. And if that day of reckoning comes, 2008 may look like a walk in the park.