1. george monsoon said...

The banks rely on us for their business.

I say, stop bailing them out and lets just see what happens.

3. bluebeach said...

If it was your own company, would you hand out the cash to some debt ridden, shoe box owning pleb, who you believe could
fold at any moment, just because Gordo and Ali say you should. I think not... don't just blame the banks, the blinkered Sheople
must take the rap too.

5. icarus said...

Let's get rid of the idea that banks were 'careless' or 'overstretched themselves' or 'mispriced risk'. These are ex-post labels that don't explain the policies and mechanisms. It takes a lot of deliberate cartel activity on the part of investment banks, politicians and regulators to inflate bubble after bubble (getting hold of the funds to do this is a major exercise). Wall Street banks spent billions on advertising to get Americans to increase their mortgage-related debt by buying or taking out second mortgages (one such Citigroup campaign cost $1 billion).Those who inflated the bubbles hoped they be rich and retired before things went belly-up or they thought they could create another bubble to counter the losses from the bursting of the previous one.

Once a handful of Wall St. investment banks play this game they make big, though unsustainable, profits and other financial institutions are forced by investors to play the same game, so commercial banks etc. are sucked in.

7. Crunchy said...

2. will

So let's stay away from the loan sharks and be wise pawns, instead of headless prawns.
Let's not shell out for a house just yet, shrimply cause we need one. Sea what happens when the next wave hits and things sink to new debts. The tide is turning and early nerds will see the worm squirm then turn back down under, with no rebait.

It's all one big joke, our empty pockets will be the punch line in the end.

9. shipbuilder said...

Let's not forget that the banks have taken taxpayer's and future taxpayer's money to lend back to us at interest.

11. shipbuilder said...

The banks don't have to do anything while they are being bailed out. Why would they lend? The UK economy can go to the wall and they'll be all right. When you're a multi-national who can conduct business elsewhere and a guaranteed blank cheque at home, why would you care?

13. gardeniadotnet said...

The time has come to issue one of my sternest warnings to date: Bank
of America and Citigroup could fail despite the most radical
government rescues of all time.

Right now, after recent close calls with instant death, these two
megabanks are on life support, receiving massive transfusions of
government capital. But they’re still hemorrhaging, and no one in
Washington has found a cure.

Already, they have received capital injections of $90 billion ($45
billion each).

Already, this bailout is larger than the total combined capital of PNC
Bank, Suntrust Bank and State Street Bank — all among America’s ten
largest.

Yet, ironically, that $90 billion is still a drop in the ocean
compared to their massive exposure to risky assets.

The shocking facts revealed in the banks’ own balance sheets and in
the OCC’s Quarterly Report demonstrate the enormity of problem:

Fact #1. Too big to save. Bank of America Corp. and Citigroup, Inc.
have combined assets of $3.9 trillion, or 43 times the size of the
Treasury bailout funds they’ve received to date.

Fact #2. Bigger losses ahead. Even before any further declines in the
economy, an unusually large portion of their assets are already in
grave jeopardy — commercial real estate loans going sour, credit cards
loans tanking, auto loans sinking, and residential mortgages turning
to dust. Now, as the economy continues to tumble, avoiding much larger
losses will be almost impossible.

Fact #3. Big derivatives players. Bank of America and Citigroup are
the nation’s second and third largest high-rollers in the derivatives
market, with a combined total of $78 trillion in these bets
outstanding. That’s over ten times the derivatives that Lehman
Brothers had on its books when it failed last year.

Fact #4. They’ve bet far too much on each other’s failure. Bank of
America and Citigroup are also the second and third largest
participants in the most dangerous derivatives of all — credit default
swaps. These are the big bets that financial institutions make on the
failure of other major companies.

But participants in this market are like shipwrecked sailors in a
sinking lifeboat betting fortunes on who will live and who will
survive: If a company bets too heavily on failures and too many
companies actually fail, who’s going to make good on those bets?

And unfortunately, betting on each other’s demise in huge amounts is
exactly what the nation’s megabanks have done. At their latest
reckoning, Bank of America and Citigroup held credit default swaps
with notional values of $2.5 trillion and $3.3 trillion, respectively.
(See OCC report, pdf page 23.)

Total between the two: An astounding $5.8 trillion!

This number is not directly comparable to capital. But just to give
you a sense of the magnitude of the problem, Bank of America and
Citigroup’s combined credit default swaps are more than sixty times
larger than the $90 billion they’ve received so far in capital
infusions from the Treasury Department.

Fact #5. JPMorgan Chase is not far behind. Right now, Washington and
Wall Street are still counting on at least JPMorgan Chase to pick up
the pieces after major failures and shotgun mergers.

But according to the OCC, among the three megabanks, JPMorgan Chase is
actually the most heavily leveraged, with over 400% of its capital
already exposed to the risk of default by trading partners. Bank of
America’s and Citigroup’s exposure (177.6% and 259.5%, respectively)
is also wild, but JPMorgan Chase’s exposure is obviously far greater.

Fact #6. JPMorgan Chase’s derivatives could double the size of the
banking crisis overnight. On the day that JPMorgan Chase needs to join
the ailing Bank of America and Citigroup in Uncle Sam’s intensive care
unit, the derivatives mess doubles immediately.

Reason: The bank has $9.2 trillion in credit default swaps, almost
twice as much as Bank of America and Citigroup combined.

Fact #7. Stocks crashing. Shares in failed banks are worth zero, and
that’s where Bank of America’s are headed. Citigroup’s are already
close, making it almost impossible for the company to raise capital
from investors.

In light of these facts, how can the government save America’s
megabanks?

Wall Street is hoping that the Obama administration will create a
separate, government-run “bad bank” to take bad assets off their
hands. And some pundits are even proposing that the U.S. government
nationalize the big banks in trouble. But …

Neither approach addresses the obvious reason our nation’s banks are
in the ICU to begin with: Excess debts and risk-taking. In fact, these
“solutions” would merely pile on more of the same. Meanwhile …

Both approaches spread and transform the contagion from a Wall Street
debt crisis into a Washington debt crisis, as the federal deficit
explodes to as much as $2 trillion in fiscal 2009.

My Forecast: Washington Will
Ultimately Lose This Epic Battle!

No matter what the government does, it cannot patch back together the
busted market for mortgages, derivatives and especially credit default
swaps.

by Martin D. Weiss, Ph.D.
Monday, January 26, 2009

15. 51ck-6-51x said...

gardenia - I found Weiss' post... Conclusions are:
"""
So don’t count on Uncle Sam to save your bank, your business, or the economy.
Keep up to 90% of your money in cash.
Avoid bank deposits as much as possible, using mostly short-term Treasury bills or equivalent.
"""
Why would he recommend putting 90% of one's cash into T-bills if he thinks these banks are going down? The end of them would be the end of the $. Surely with this proposition one should own physical assets and one should keep them within one's reach, in the scenario he is proposing T-Bills would certainly not be what you'd want to be left holding!

17. Alan Lubin said...

gardeniadotnet - Don't HSBC have huge exposure to CDS? I remember reading back in September that they held lots of these.

19. 51ck-6-51x said...

My guess? I like you, and Weiss have little idea, however I do know that exposure is a tiny fraction of notional and that in the nightmare scenario, there is little to enforce payments anyway.

For one the U.S. government (well, justice system) control the definition of default in the end (think chapter 11). Secondly the U.S. can print $ - and they will if it comes to that. Thirdly I don't think there is much point in preparing much for such financial Armageddon, since once that happens all you've got left are your friends and your muscle (buy weapons if you want to keep your piles of gold safe after the event).

21. This comment has been removed as it was found to be in breach of our Blog Policies.

23. troy said...

5ick oh dark one ~~~
I know someone who got banished from this site for cracking Weiss jokes

take care