Anyone reading The Ticker for any length of time knows that I have been on the bank outrages since the beginning. Indeed, it was Washington Mutual's game-playing with dividends and capitalized interest that first got me pissed off enough to start blogging and lobbying, as I saw it as nothing more than a repeat of the loot-fest of the 1990s in the Internet space.
Since that time The Ticker has put forward a couple of white papers, thousands of faxes to Congress, several petitions and more.
Today, The Wall Street Journal ran an article in its "Economy" section asking "Is It The '30s Again" with two opposing positions - one that drew parallels, and the second which asserted:
During the Great Depression, more than 10,000 banks failed. Bank runs were so commonplace that moviegoers understood viscerally what was happening during the pivotal bank-run scene in the Christmas classic "It's a Wonderful Life."
Since 2008? A mere 125 banks have failed.
On the contrary. Somewhere around half of the 8,000 or so banks in the United States today have failed.
They are currently open due only to the rank and willful blindness toward the law practiced by our regulators and politicians.
It is time to stop the BS right here and now. Financial institutions were properly priced for the Armageddon that was in fact real in March of this year. Congress exercised its "power" to extort a change in FASB regulations that made legal intentional and willful misrepresentation of asset values.
In effect what Congress did was allow banks to take their $10 bills and use a sharpie marker to add a zero to the denomination - literally -when held in the "asset" bucket.
This is not an exaggeration.
Take as just one example the outright fraud represented in HELOC and Second Line mortgages. As Mark Hanson of Hanson Advisors has pointed out repeatedly in his mortgage update (he specializes in California Real Estate) 70% of dollar value of second mortgages is in the bubble states, and in September of this year alone the average deficiency between mortgage outstanding value and home value on foreclosures was $200,000.
This explains why the banks are now trying to force yet more lawful theft down the throats of the taxpayer in attempting to demand that the priority of mortgage claims be ignored, allowing the shifting of 2nd Lien liability onto the first mortgage (in many cases the taxpayer via improperly-Fed-purchased MBS from Fannie and Freddie!)
Anyone who doubts that half of the banks in this country are bankrupt need only look at the loss statistics for those that have been recognized as "failed." An prime (and representative) example is Colonial, which went down with a forty percent loss on its assets, on balance, with its commercial real estate book devalued by some sixty percent.
These losses were present for months or even years before the bank was recognized as insolvent and seized.
It was and is only through regulators allowing the intentional over-valuation of these "assets" on bank balance sheets that they have been able to continue to operate; in point of fact these firms were bankrupt long before they were "taken over", and there are literally thousands of additional banks, including the big banks that are similarly underwater.
There is no "magic" here nor is the world in "better shape" than it was in the 1930s. The only difference is that in the 1930s we didn't dream of the sort of lying and outright fraud that passes for "ordinary regulatory forbearance" in the 2000s, never mind the outrageous and "in your face" arm-twisting that has been applied to Congress and, by them, to FASB.
The FDIC has similarly backed itself into a corner by refusing to act in a timely fashion when this crisis began. Sheila Bair bought into Bernanke's, Paulson's and Geithner's line of BS that if they just "gave the market a few months" asset prices would rebound and that fundamental value was near the peak, not some 30, 40, 50, or even 75% lower. The distinction is not trivial or to be ignored, since given bank leverage as a consequence of reserve-based lending even a 10% decline from the "at lent" number produces enough loss in a bank to wipe it out.
The "policy accommodations" made by Bernanke, Congress and Bair have placed the banking system on a pedestal as terrorists with nuclear hand grenades, complete with "stick" switches in their hands. By "accommodating" the demands of the financial industry for "forbearance" from regulatory requirements, beginning with the infamous "23A" exemptions that I have been hollering about since 2007 the financial industry has literally taken upon itself the role of terrorist and taken governments, including ours, hostage with repeated threats to "blow up the world" if they are not granted leave to engage in practices that just a few short years prior were (properly) recognized as felonies.
The fact of the matter is that we have played this their way for more than two years and the problems have not been resolved, despite repeated protestations that "things are improving" and that "just one more accommodation" would make things "ok".
The so-called "improvement" certainly isn't reflected in trade shipments as seen at the Port of Long Beach or LA. Indeed, given that September is a key "stocking month" for the holidays, that traffic levels sunk to nine-year lows ought to give everyone pause.
There is only one way out of this mess - end the lies and recognize the damage that has already happened.
Our current "market strength" is being powered by one and only one thing - the sinking of the dollar. This, however, is not a positive beyond the rather short-term; every nation that has tried to use weakening its currency as a means of "economic prosperity" has seen that capital flees faster than trade balance improves. This ought to be obvious; when you create an inherent loss in any foreign interest that might have had funds in your currency you create a (justified) fear that the devaluation will not stop, and they will leave to prevent you from imposing an arbitrary loss on them in the future. At the root of this (justified) belief is the fact that these sorts of trade "benefits" only come from the weakening itself - not a steady but weaker currency - and as such these types of moves beget even more weakening, just as the original acts of lying permitted with the "23A" exemptions have begat more and bigger lies, first with the FASB arm-twisting and now with attempts to re-write senior creditor protections ex-post-facto.
The fact is that Sheila Bair is entirely unqualified to run the FDIC, as she has refused to exercise not just her lawfully-granted power but her lawful duty to seize banks - all banks, irrespective of their size - before the value of their assets decline below that of their liabilities.
This is not a recommendation or "suggestion" it is in fact a black-letter legal requirement.
It is a fact that the second lines behind bubble house first mortgages are, at the instant of first line default, worth zero, as a matter of logic and current law, as the first mortgage has absolute priority and in virtually every case the first mortgage is for more than the current resale value of the property in these areas. 80% of dollar value of these notes is in the bubble states. Yet you can't find ANY bank that is accounting for the almost-certain 100% loss on these notes, for the simple reason that if they did they would be instantly insolvent several times over.
To get out of this mess we must force the "too big to fails" to in fact recognize their liabilities and assets at their present value. If this causes them to fail then so be it; the damage to the economy will be considerable and we will need to backstop depositors but then the damage will be over. There are literally thousands of banks and credit unions that are in decent financial condition and distributing the deposit bases of these "too big to fail" institutions among them would make them even stronger, allowing them to step into the roles that the "big banks" have now.
We always argue "now is not the time" but this is nothing other than a bank robber asking for just two more minutes before you push the alarm button. In the meantime all of these banksters are literally looting billions of dollars in bonuses and wages from institutions that, were their "assets" to be marked to the market, would be instantly recognized as insolvent! No legitimate government or accounting firm would ever allow the continued withdrawal of "performance bonuses" from a firm that is in fact bankrupt, yet that's exactly what is now happening!
There is no legitimacy remaining in the US Government when it comes to accounting matters, banking or financial regulation. The sad fact of the matter is that the United States Government has declared itself to be illegitimate just as the British Government did in the 1700s, and we know how that ended. In today's world the more likely outcome is an internal collapse as currency debasement gets out of hand is foreign capital flight provokes wild commodity price spikes that destroy the American Middle Class, instantly rendering 100 million people destitute, homeless and angry should our policymakers not arrest the idiocy before it reaches that stage.
Bernanke, Bair, Geithner and Paulson have had more than two years to prove their thesis and have utterly failed. Despite claims that "the crisis is past" the "extraordinary measures" have not been withdrawn, providing the best proof available that all of these individuals are well-aware that their policies have failed and they have backed themselves into a corner.
We need, today, a strong leader who will stand up and demand that the law be followed, even if this instantly sinks those "too big to fail" institutions. We can not afford further delay, as just this morning we had a Fed President on CNBC stating clearly that they had no intention of defending the currency and in fact they didn't care to what degree it is debased.
The path we are on heads directly to disaster, and time is running short to put a stop to it. While the oligarchs seem to be quite smug in their belief that they will be able to escape with their loot I caution policymakers to consider whether they have really thought through the consequence that will come with a runaway debasement of the currency and commodity price spike in an environment with close to 20% of the working-age population out of work.
Two years ago I recommended that Congress find and set aside $200 billion in cash to provide for emergency food, shelter and clothing for up to 30% of the population of this country. This was, of course, ignored as the ranting of a nut. Today it is too late to find the money, but the risk is rising dramatically that the need for those funds will arise - and they will not be present or able to be raised.
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