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Confounded

Just A Reminder Why The Banks Appear Fixed But Are Not

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I know the long timers on this site are aware of why everything seems so rosy in the world of banking atm when only 6 months ago we were facing a complete collapse. The US decided to go back to Enronomics having briefly used a mark to market form of accounting that precipitated the credit crunch.

This is why I am in the managed deflation camp and not the hyper inflation camp. It did not take a genius to realise the effect the new accounting rules of mark to market that was introduced in Nov 07 was going to have on the banks at a time when their assets were destined to plunge. As soon as the pain got too great they then stopped this practice which allows the banks to mark to fantasy again, the consequences have been a rapid rebound. If inflation takes hold then the deflationary reality will be allowed to bite again. This will be a marathon and not the sprint everyone seems to be expecting atm.

See below for a good discussion on the US banks

http://www.msnbc.msn.com/id/22425001/vp/32385463#32385463

Edited by Confounded

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SO true,

It was CGNAO who announced the deadlines for this change in 2007 and brought it to light on this website.

Either Barclays or HSBC reported early that year...one hour before the rule change....it was suspicious at the time but not mentioned in the MSM anywhere.

They KNEW THEN.

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SO true,

It was CGNAO who announced the deadlines for this change in 2007 and brought it to light on this website.

Either Barclays or HSBC reported early that year...one hour before the rule change....it was suspicious at the time but not mentioned in the MSM anywhere.

They KNEW THEN.

Thats disgusting!

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Guest DissipatedYouthIsValuable

So, Skippy, what you're saying is, all those chopped up mortgage bundles that are counted on banks balance sheets as assets, because in the banking world, debt is money, are actually being counted at face value (marked to model/myth) rather than being counted using any sensible projection model which is going to truly take into account the vast amounts of defaults by mortgagors who can't pay? And you want a boxing match?

****** me, Skippy, I can understand kangaroo.

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Some of the problems are hidden in plain sight.

http://blogs.reuters.com/commentaries/2009...ition=debatehub

Hard as it may be to believe, shares of beleaguered Citigroup are on fire.

The stock of the de facto U.S. government-owned bank is up some 300 percent after it cratered at around $1 back in early March.

The over-caffeinated stock maven Jim Cramer keeps calling Citi a “buy, buy, buy†on his nightly CNBC television show. Even the more sober-minded writers at Barron’s are pounding the table a bit, predicting Citi shares could double in price in three years.â€

Time out! It’s far too soon for anyone but stock flippers and fast money hedge funds to buy Citi right now.

That’s because there’s still a world of hurt for Citi in the $83.2 billion in subprime mortgage-backed securities, corporate loans, home loans and commercial real estate mortgages that the bank’s finance team has stuffed neatly into something called the “Special Asset Pool.â€

But there’s nothing special at all about these assets. This cesspool of toxic securities and floundering loans is the worst of the stuff that’s been stinking up Citi’s balance sheet.

And these rotting securities and loans represent a good chunk of the $300 billion in problem assets the federal government is guaranteeing under its bailout of the giant bank.

Yet what the cheerleaders for Citi sometimes forget is that the struggling bank must absorb up to $39.5 billion of the “first loss†on those troubled assets. To date, Citi says it has incurred $5.3 billion in losses on this pool of toxic assets — meaning the bank has another $34 billion in losses to soak up before the taxpayers start footing the bill.

And the way things look today, Citi is looking at a good deal more losses to come from its Special Asset Pool.

For starters, Citi still sits on a rather sizable portfolio of subprime-backed collateralized debt obligations — the dubious securities that helped spark the financial crisis.

At last count, Citi valued its CDO portfolio at $9.6 billion, a 56 percent decline from the value the bank placed on those securities last summer. To protect itself against a potential default on those CDOs, Citi has hedged its exposure with some $4.5 billion in credit default swaps.

But unfortunately for Citi, it didn’t buy those insurance-like derivatives from American International Group, another big bailout recipient.

If Citi had been shrewd enough to have done business with AIG, it would have been able to sell its CDOs at face value to an entity set up by the Federal Reserve, just like Goldman Sachs, Deutsche Bank and Merrill Lynch and other big banks did. In a flash, Citi’s CDO problem would have disappeared.

Citi, however, had the misfortune of purchasing its CDS from Ambac Financial Group, a bond insurer that many see as being on its last legs. The bond research firm CreditSights says Ambac “may run out of capital sometime in 2013.â€

Many others think Ambac’s demise could come much sooner. On August 7, Ambac, which trades around $1, reported a larger than expected $2.4 billion second-quarter loss.

A collapse of Ambac would render the CDS that Citi holds on its CDOs all but worthless.

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Yup, well worth a watch and confirms what has been said on this site for a long time.

When you have Elizabeth Warren - Chief of congressional oversight saying this stuff I gets difficult to ignore.

She has a wonderful way of explain things in a way understandable to average Joe, probably because she is an academic.

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AMBAC FFS...how can they possibly be still trading??? they were at the epicentre of the monoline losses in 2007/8!

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This is THE KEY ISSUE for me. The banks are still bankrupt and we continue to have people on here wondering why they won't lend. Huge defaults in CRE/Option-ARMs/Alt-A/Credit cards still lie ahead of the banks.

FFS keep up at the back.

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SO true,

It was CGNAO who announced the deadlines for this change in 2007 and brought it to light on this website.

Either Barclays or HSBC reported early that year...one hour before the rule change....it was suspicious at the time but not mentioned in the MSM anywhere.

They KNEW THEN.

They have been fighting the economic battle since the Dotcom bust, if a bunch of amateurs can see how messed up the economy is and how reliant it was on debt and further bubbles to keep it going you can guarantee they have been working on this for a while.

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Guest UK Debt Slave
I know the long timers on this site are aware of why everything seems so rosy in the world of banking atm when only 6 months ago we were facing a complete collapse. The US decided to go back to Enronomics having briefly used a mark to market form of accounting that precipitated the credit crunch.

This is why I am in the managed deflation camp and not the hyper inflation camp. It did not take a genius to realise the effect the new accounting rules of mark to market that was introduced in Nov 07 was going to have on the banks at a time when their assets were destined to plunge. As soon as the pain got too great they then stopped this practice which allows the banks to mark to fantasy again, the consequences have been a rapid rebound. If inflation takes hold then the deflationary reality will be allowed to bite again. This will be a marathon and not the sprint everyone seems to be expecting atm.

See below for a good discussion on the US banks

http://www.msnbc.msn.com/id/22425001/vp/32385463#32385463

It's like wathing The One Show on the Beeb but with a gaggle of people quietly discussing economic armageddon with smiles and idle banter.

Hells Bells. If Americans watch this stuff, why aren't they machine guns cocked and loaded? :angry:

Edited by UK Debt Slave

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Guest UK Debt Slave

"Potentially 50-60% default rates on commercial mortgages through 2010-11"

! :blink:

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"Potentially 50-60% default rates on commercial mortgages through 2010-11"

! :blink:

I started a thread on this last week.

About half of U.S. mortgages seen underwater by 2011

By Al Yoon Al Yoon – Wed Aug 5, 5:12 pm ET

NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

http://news.yahoo.com/s/nm/20090805/bs_nm/...ng_deutschebank

IMFresets.jpg

We have only seen the first wave of this crisis.

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This is THE KEY ISSUE for me. The banks are still bankrupt and we continue to have people on here wondering why they won't lend. Huge defaults in CRE/Option-ARMs/Alt-A/Credit cards still lie ahead of the banks.

FFS keep up at the back.

Exactly, it's about solvency not liquidity.

And what do we have in the UK? The stinking APS. I would like to put some of my turd in there - its worth £1000 a kilo.

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Exactly, it's about solvency not liquidity.

And what do we have in the UK? The stinking APS. I would like to put some of my turd in there - its worth £1000 a kilo.

All that QE is trying to do is to pump enough liquidity into the system so that markets lose sight of the fact that the system is essentially insolvent.

Liquidity can mask insolvency for a while but not forever.

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All that QE is trying to do is to pump enough liquidity into the system so that markets lose sight of the fact that the system is essentially insolvent.

Liquidity can mask insolvency for a while but not forever.

1 year on and the mask appears to be falling off. Welcome to the next round of deflation.

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