Broad Oak: your emotional support animal

Wednesday, July 23, 2008

Mish: "The entire US banking system is insolvent."


Mish gives us a long list of bad news; the last item is, arguably, the worst:

Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

7 comments:

Calum said...

Thanks for pointing this out! It's incredible but not surprising.

Everyone plays the game because everyone else is playing.

Where does risk assessment come in. It appears that banks are doing what many companies do with major projects. They concentrate on the reasons the project will succeed and give little really deep thought to how the project might fail.

Is short-termism the problem: that if one company decides not to follow a particular route they may in the short-term lose out profit-wise to their rivals. That can't be allowed to happen and so all follow.

Jim in San Marcos said...

Hey Sack

I beg to differ. The US banking system is in A-one shape. What is not realized, is that banks can dabble in non related bank stuff and that is not insured. Bank of America and Citigroup have a lot of financial instruments that are not bank products deserving FDIC insurance. That stuff could go under, but the bank itself would remain.

As for cash on hand, most banks probably only have about 5 percent, the rest is in loans.

The real thing on this side of the pond that could go POOF is the investment retirement funds. There is no insurance on investments, you win some you lose some. In this case the average retiree is about to lose a lot.

SACKERSON said...

Hi, Jim, and thanks for calling by. You reverse the old gag about when you owe the bank a million, it's their problem: when they owe us trillions, it's our problem.

But the materially spoilt baby boomer generation will get vengeful if their comfy retirement is compromised, don't you think?

Calum: we've loaned money to gamblers.

Wolfie said...

Does this mean that all the business will come to London? [he asks himself, rubbing his hands with glee]

SACKERSON said...

Wolfie: Hong Kong?

Wolfie said...

[...packing bags now]

AntiCitizenOne said...

> What cannot be paid back will be defaulted on.

Or Inflated away.