Global Writedowns vs. Capital Raised

Below we have charted data from Bloomberg that highlights total global writedowns and capital raised during the credit crisis.  During the current quarter, capital raised has actually lept ahead of writedowns after trailing by nearly 50% in the last quarter.  The total count: writedowns - $684 billion, capital raised - $690 billion.

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Comments

[investor88:]

Positive score for the economy on capital raised vs writedowns. However there are other moving parts that needs fixing before the total picture improves.

2008 Oct 31 09:26 PM

[aarc:]

Too much capital raising will only eat into profitability since most of those capital raised are interest bearing loans.

Banks will have to start lending or wait until the interest on those loans become bigger than their capability to earn. Then they will start borrowing more just to pay for the interest charge and re-structuring the loans on a never ending vicious cycle much like the third world countries have suffered in the past.

Citi alone has $824B cash for a market cap of $74B. Most of those cash are borrowed to the tune of $748B. How can they service those loans with a negative $21.22B last quarter is beyond me.

Govt will have to forego accrued interests on most of those loans in order for banks to be able to survive. A zero percent interest rate, that is.

Or rather negative 1 percent in order to sustain the banks. Thus the banks such as Citigroup will be able to make money out of borrowing from the government.

2008 Nov 01 06:37 PM