BofA, Wells Fargo: No Equity After Accounting for Bad Loans 52 comments
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I have always had the suspicion that Wells Fargo's (WFC) loan values were inflated and wrote as much in January. Wells sits at ground zero of the housing implosion and the fact that their numbers held up so well was a mystery...unless they were very slow to take write downs for bad loans. The company's own 10-K reveals that my suspicion was correct. Numerous banks are equity deficient which explains the continued weakness in the stocks.
According to Jonathan Weil at Bloomberg,
Perhaps never before have so many banks’ balance sheets been so patently full of hot air. Bank of America Corp. last week disclosed that its loans at the end of 2008 were worth $44.6 billion less than what its balance sheet said.
Investors may be placing too much faith in bank's capital ratios. If the bank's own estimates of fair value were applied to the company's balance sheet the banks would be technically insolvent. Weil continues:
Bank of America, for instance, had $35.8 billion of tangible common equity as of Dec. 31, before it completed its government-aided acquisition of Merrill Lynch & Co. That figure falls to negative $1.7 billion once it’s adjusted so that all financial assets and liabilities are measured at fair value, using the numbers BofA disclosed in its footnote. The fair-value version shows BofA needs lots more common equity -- badly.
Wells Fargo’s tangible common equity was $13.5 billion as of Dec. 31. On a fair-value basis, it was negative $133 million. That makes the bank’s $40.9 billion stock-market capitalization look awfully rich.
In total, eight of the 24 banks in the KBW Bank Index had negative tangible common equity on a fair-value basis, including SunTrust, KeyCorp, Fifth Third Bancorp, Huntington Bancshares Inc., Marshall & Ilsley Corp. and Regions Financial Corp.
This indicates to me that these companies will soon be back at the government's teat to get more capital injections, further diluting current shareholders.
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This article has 52 comments:
The homes do not have a $0 value because someone will pay a fire-sale price for them even in this market. It has been proven already in CA, NV, AZ and FL.
Waiting 10-30 years to get those assets back to 2007 values is unacceptable.
As I have always say accounting is nothing more than creative fantasis and analyst well they need a job to talk about them.
In terms of bank equity, the value of their mortgages works the same way. If a bank has a choice to unload their mortgage portfolio on the market today for $0.20 on the dollar, or hold them until maturity and over time collect $0.75 on the dollar after default losses, what is the mortgage portfolio worth? What's the bank's equity worth? In large part that depends on whether the bank is financially strong enough, on paper, to hold the mortgages until maturity (or at least more rational pricing).
Traditional commercial depositor/lender operations would have no trouble with this. They would just mark the assets as held to maturity on their books and NOT write them up or down every time the market blips. They would collect the $0.75 over time, recoup another $0.10 by carrying forward and back their tax losses, and have no liquidity problem with depositors.
However, in 1999 the Glass-Steagal Act of 1933 was repealed, allowing for the merger of commercial banking and investment banking. Investment bankers don't hold assets until maturity, they must keep them on the books as "tradable assets" and mark them to market. When commercial lending assets started being marked to market, the banks' financial positions eroded, reducing their access to capital, which reduced their ability to lend, which led to the credit crunch, which is leading to a depression.
That's what happened in the early 30's too, but the lesson is only now being relearned. You have to keep commercial and investment banking separate or disaster becomes inevitable.
On Mar 05 11:25 AM Roscat wrote:
> To Big Jack
> The homes do not have a $0 value because someone will pay a fire-sale
> price for them even in this market. It has been proven already in
> CA, NV, AZ and FL.
>
> Waiting 10-30 years to get those assets back to 2007 values is unacceptable.
>
On Mar 05 12:30 PM Alex1937 wrote:
> i think that managment of these enterprices, like the banks, car
> manufactureres, investment houses... should return all the money
> they were paid, but not earned, the last few years. Most all of them
> have been paid on fathom income that just was never there, but a
> creation of slick accountants. This crisis could (and should) have
> started way back, perhaps as far as 2000. Most of us were afraid
> then of the looming computer threat, when it was the unscrupulous
> COs of our nation we should have been afraid of. This is going to
> get real ugly. Even if President Obama had the help of ten brothers,
> he would not be able get the country out of this mess. God help these
> United States...!
The following is from GE's 2008 Annual Report P 52,
www.ge.com/ar2008/pdf/...
in million US$
Total Shareowner's equity 104,665
Goodwill Assets 81,759
Other intangible assets - net 14,977
That means tangible common equity 7,929
Total liabilities 684,157
Insane gearing 86X tangible book, sound familiar like FNM or FRE.
This is the iconic model of American AAA corporations.
If you have a rental property that is making you a positive cash flow of $300 per month. Would you sell it at a current market value if it means you will lose money (i.e. having to put up some extra money to cover the difference in the mortgage owed and the sale price?)
People are talking like if we do away with M2M, we dont have another system or model in place to do valuation. How about using the models that we have been using for the banks for the past 50 years or so? Like cash flow models, annuity models, and present value of cash flow, etc....
You obviously have no idea about accounting theory so i would suggest you not comment on it.
Traditional bank loans are not accounted for under FAS 157, ie they are not marked to fair value at each reporting date.
In addition, the problem isn't M2M anymore - that was a 2007 problem. The problems now are loan loss reserves (see my comment above) covering regular bank loans, from home loans to credit cards to commercial loans. Those provisions are still calculated the way they have been for 50 years (i understand the simplification doesn;t make this totally true). If you go back and look at the large bank filings when they reported earnings in January you will notice that the actual losses on the M2M marks were actually small. What you saw causing the ballooning losses were the loan loss provisions (i exempt from my statement above the loses at ML - those were more marks than loan loss provisions)
Regards
On Mar 05 02:23 PM Rigged wrote:
> In M2M even PERFORMING loans (i.e. bank getting positive cash flow
> from interest payments) are being forced to mark down to the current
> depressed market value. So banks are forced into take writedowns
> on PERFORMING loans that are actually making money for them.
>
> If you have a rental property that is making you a positive cash
> flow of $300 per month. Would you sell it at a current market value
> if it means you will lose money (i.e. having to put up some extra
> money to cover the difference in the mortgage owed and the sale price?)
----------------------...
You're exactly right. Now, how did we get to the point where mortgages were being financed with short-term revolving commercial paper instead of bank depositor's money? When did we get to the point where Bear Stearns, Goldman Sachs, Wachovia, Countrywide, etc. were borrowing from the investment markets to underwrite, bundle, and resale mortgage backed securities? Glass-Steagal was repealed because it was considered to be stifling this kind of "innovation" and keeping the investment banks out of the action.
"Lets assume in your example, that instead of a 30 year mortgage, you bought your house with a 3 year mortgage in 2006. Your maturity date is November 30, 2009. You are now seriously constrained in that your house will be around for 27 more years, but you need to pay off the principal in only 6 more months or find someone who will roll the paper. Now what are you willing to sell the asset for? -levin70
----------------------...
When investment banks could borrow commercial paper at 1% annualized interest, they thought they could afford to issue 3 year ARMs at 3% interest. It's safe to say those kind of arbritage opportunities have dried up, and now mortgage investment funding is virtually unavailable.
Note that in the pre-1999 world of traditional banking, the mortgages could have been refinanced using depositors' money even during a recession / credit crisis. Depositors were willing to lend in a crisis because it was FDIC insured and convenient and because they knew the lenders had incentives to write good loans. The money that underwrote most lending in the last several years, however, came from fickle, liquidity constrained investors. The supply of such money is inherently instable, especially in a crisis when banks need it most.
Again, this is what always happens when you combine commercial and investment banking.
Seems all we need to do is reinstate what worked for many years before. Were those regulations perfect? Probably not. But did they save us from the current meltdown? Bet your Fannie Mae they did. This isn't a partisan issue - let's be like Bo and just do it.
How did we get there? Simple - that was the greenspan put
On Mar 05 03:48 PM Chris B wrote:
> "Now take it to the bear sterns extreme and you bought your house
> with a 3% downpayment and funded the rest with overnight commercial
> paper that you need to roll every day." -levin70
> ----------------------...
> You're exactly right. Now, how did we get to the point where mortgages
> were being financed with short-term revolving commercial paper instead
> of bank depositor's money? When did we get to the point where Bear
> Stearns, Goldman Sachs, Wachovia, Countrywide, etc. were borrowing
> from the investment markets to underwrite, bundle, and resale mortgage
> backed securities? Glass-Steagal was repealed because it was considered
> to be stifling this kind of "innovation" and keeping the investment
> banks out of the action.
>
>
> "Lets assume in your example, that instead of a 30 year mortgage,
> you bought your house with a 3 year mortgage in 2006. Your maturity
> date is November 30, 2009. You are now seriously constrained in that
> your house will be around for 27 more years, but you need to pay
> off the principal in only 6 more months or find someone who will
> roll the paper. Now what are you willing to sell the asset for? -levin70
>
> ----------------------...
> When investment banks could borrow commercial paper at 1% annualized
> interest, they thought they could afford to issue 3 year ARMs at
> 3% interest. It's safe to say those kind of arbritage opportunities
> have dried up, and now mortgage investment funding is virtually unavailable.
>
>
> Note that in the pre-1999 world of traditional banking, the mortgages
> could have been refinanced using depositors' money even during a
> recession / credit crisis. Depositors were willing to lend in a crisis
> because it was FDIC insured and convenient and because they knew
> the lenders had incentives to write good loans. The money that underwrote
> most lending in the last several years, however, came from fickle,
> liquidity constrained investors. The supply of such money is inherently
> instable, especially in a crisis when banks need it most.
>
> Again, this is what always happens when you combine commercial and
> investment banking.
Note BOA disclosed that its loan, if measured in fair value ( so measured by accountants), was 40 billion over the fair value. So, if BOA chose to charge it off in the income statement, then the equity will be reduced by the same amount.
Note, just one line below that same disclosure of loan fair value, BOA also disclosed the fair value of its liabilities was 80 billion over fair value. If BOA chose to include the fair valie of its liabilities in the income statement, then the equity will be increased by the 80 billion amount.
In short, if BOA had chosen to charge both loan and liabilities fair value in its income statement, BOA would have reported an additional 40 billion income.
I have no problem if one wants to point out the fairl value of BOA's loan if the same one also points out the fair value of BOA's liabilitity. Don't mislead the general public by picking the unfavorable side of information while totally ignoring the favorable side of information. That's called journalists fraud.
On Mar 05 08:49 PM vaughn wrote:
> Fair value is really not fair at all, especially this article.<br/>
>
> Note BOA disclosed that its loan, if measured in fair value ( so
> measured by accountants), was 40 billion over the fair value. So,
> if BOA chose to charge it off in the income statement, then the equity
> will be reduced by the same amount.
>
> Note, just one line below that same disclosure of loan fair value,
> BOA also disclosed the fair value of its liabilities was 80 billion
> over fair value. If BOA chose to include the fair valie of its liabilities
> in the income statement, then the equity will be increased by the
> 80 billion amount.
>
> In short, if BOA had chosen to charge both loan and liabilities fair
> value in its income statement, BOA would have reported an additional
> 40 billion income.
>
> I have no problem if one wants to point out the fairl value of BOA's
> loan if the same one also points out the fair value of BOA's liabilitity.
> Don't mislead the general public by picking the unfavorable side
> of information while totally ignoring the favorable side of information.
> That's called journalists fraud.
All these bozos who write articles screaming their heads off that the banks are insolvent... ALL the banks are insolvent, therefore we should 'nationalize' them (ALL of them, apparently), have no understanding of what the nationalization of so many assets would actually accomplish. Improve consumer confidence? Bull! I'll tell you what it would accomplish: NOTHING. All that would happen is the government would pick up a trillion dollar bill to reimburse depositers (not because the banks are insolvent, but because these are 30 YEAR LOANS we are talking about here), and would then have to stand on the assets for a decade or longer until they could be sold. As long as the 'big bank' can pay its debts and continue to originate reasonable loan volumes and do business there is no reason whatsoever for the government to take it over, and plenty of reasons not to.
Oh yah, and then there are all the idiots who think the banks aren't making loans any more and want us to return to the days of 0% down and no credit checks and here's your 600K loan! Those days are gone, and nationalizing the banks will not magically bring them back. Get real! Banks like Wells Fargo are still making loans and plenty of them... prudent loans, not idiotic ones.
The only spiral of death here is the stock price, from all the idiots in the media who haven't even bothered to sit down and read the 10-K. If they had, they'd know there is more to it then the simplified, unrealistic junk they write in their articles.
-Matt
On Mar 05 12:37 PM The Mad Hedge Fund Trader wrote:
> There is some fascinating action going on in the options market right
> now. There is some massive buying of short dated puts in Wells Fargo
> (seekingalpha.com/symbo...) and JP Morgan (seekingalpha.com/symbo...),
> while buying of longer dated puts has weirdly almost vaporized.
> These are the only two high priced big bank stocks left. It is not
> happening in Citibank (seekingalpha.com/symbo...) or Bank
> of America (seekingalpha.com/symbo...), where there is so
> little meat left on the bone that buyers don’t want to feel like
> they are the last man at an all you can eat buffet. Brace yourself.
> This is good news. It means that traders expect to see some short
> term volatility in these names. After that, Obama’s bank bailout,
> stimulus program, and new budget will start to kick in and come to
> the rescue of the sector. Call me the “options whisperer.” I stroke
> these things and they speak to me.
>
1. Out of clutter find simplicity.
2. From discord find harmony.
3. In the middle of difficulty lies opportunity.
- Albert Einstein
Of the four remaining mega money centered banks still standing, Wells Fargo is the most attractive.
The future earnings power of Wells and JPMorgan Chase is immense. Earning $10 a share for each of these companies will not be hard when the economy normalizes. Let's not forget that banking is a hugely profitable business and has been in existence for hundreds of years.
The only reason I don't like JP Morgan Chase is their huge derivatives book. It is referenced as the largest in the world. When derivative contracts transact through a clearing house (I don't know why this is taking so long), and there is transparency, then JP Morgan Chase may be a strong buy.
BofA grossly overpaid for both Countrywide and Merrill. As stupid as they are, they still may survive this.
I looked up the definition of a zombie bank and found a picture of Citi. They are toast and will cost the taxpayers billions. Like AIG, Citi's losses are too overwhelming to shut them down right now. Citi were the stupidest and greediest guys in the room. A lethal combination that would be knee slapping funny if I wasn't an American taxpayer.
I know every one on this website is a trader but it might be more profitable to forget about tomorrow and anticipate where values might be 12 months from now.
--------------
"But continuing the analogy, if the fire sale price that I could sell my house for in 1 day is $20k, but I could put it on the market and sell it within 6 mos for $150k, and perhaps 1 year for $180k, what's the house actually worth? To me, it's $150-180k, because I have no intention of giving it away at a fire sale."
-------------
The problem with your analogy is that it will take 10-30 years for the assets to raise to the same level as in 2007, not 6 month. Thiese aren't futures you are selling but, hard, tangible products.
There is a reason why houses shouldn't have been securitized. Because selling the underlying security assumes that one holds that house for 30 years. But, investment firms took the haircut immediately, vs over 30 years. Simple short-term vision.
So, if it's worth $20k now and you need to sell it, that's what you get and even if you wait a few more months you're still not gaining much. In this market, you're lucky if you get even that price.
It is all about asset protection, not about making money out of housing.
On Mar 06 08:59 AM REITBull wrote:
> The decline in Wells Fargo, while unfortunate, was inevitable. It
> is actually a positive sign to the broader market. This credit crisis
> was not going to bottom until Wells faced the music.
On Mar 05 12:33 PM Chris B wrote:
> But continuing the analogy, if the fire sale price that I could sell
> my house for in 1 day is $20k, but I could put it on the market and
> sell it within 6 mos for $150k, and perhaps 1 year for $180k, what's
> the house actually worth? To me, it's $150-180k, because I have
> no intention of giving it away at a fire sale.
What passes for financial "wisdom" these days is astounding.
a) If your house is "worth" anywhere near $150K, then it will surely sell for more than $20K in a reasonably short time.
b) For an illiquid asset, 1 day is not a reasonably short time. Houses cannot, as a general rule, be sold in 1 day due to transaction frictions. A reasonably short period for selling residential real estate is 30-45 days.
c) I'm happy that you have no intention of "giving away" your house. That's irrelevant to the market price except insofar as it shows sticky price phenomenon. The idea is that you may change your mind, or have your mind changed for you by circumstances. In that case, what is your house worth? The best laid plans don't always materialize regardless of your vigor in stating your case. If I'm loaning you money or otherwise capitalizing your sitting there in your home office typing Seeking Alpha advice, then I want to know what your home is really worth as dictated by the market, not by your wishes for the future.
Your comment adds further evidence to my thesis that there are very few honest, free market participants in our supposed free market capitalism. Rather, people only embrace the free market when they're winning, and suddenly want to resort to rule changes when they are losing. (And don't start with arguments about when the FAS rules changed on MtM; fair value accounting has been a known factor for a long time prior for other reasons.)
Mark-to-market or some proprietary banks schemes?
In a free-market environment, I prefer a mark-to-market evaluation even it has many flaws. Furthermore, I do not trust at all to the present banks' management. They have lied too much and too often.
It is a mystery to the majority of us (outside of banking establishment) what banks have on their books (commercial real estate, 2nd-mortgages, derivatives, etc.,). Good many of these banks investments might have huge loss potential. Just ask AIG...
Consequently, before the entire banks info becomes available, there is no way to put good numbers on banks valuations.
On Mar 05 01:29 PM Andrew P wrote:
> We should have taken our medicine (Depression) when the dot-coms
> collapsed in 2001, but instead Greenspan and Bush pumped up the housing
> bubble to kick the can down the road, with the idea of kicking it
> into 2009. They didn't quite make it, did they? The housing bubble
> made the situation twice as bad as it would have been at that time.
> You will be hearing more about trials for "economic crimes against
> humanity" as more people realize this.
>
> On Mar 05 12:30 PM Alex1937 wrote:
After all, you really don't want to report to your investors that assets are worth $100 when collectability of that $100 is in reasonable doubt.
However, most senior managers do not want conservateive statements prepared. They prefer aggressive accounting, and for most of the last couple of decades got away with it. They were also in position to override their staff accountants' judgements, and to influence the duditing firms ( may need a different auditor next year after all, and similar veiled threats ).
Boards of Directors should insist that the Chief Accounting Officer (sometimes the CFO, sometime not) report directly to the Board, not to the the CEO. And they should do what they can to remove influence of the CEO in choosing auditors.
The accounting staff cannot be watchguard for the Board if they report to the CEO.
On Mar 05 11:34 PM dare16 wrote:
> Fair value accounting should be abolish, it is an evil which make
> co achieve better performance when the economy is good but make financial
> statement worse than it should have when economy is bad.
> This only works if you continue to follow mark to market. Wonder
> how the average analyst would feel if we made them claim $0 for their
> homes because their homes could not sell in less than 6 months. Get
> rid of mark to market and you'll see these companies have potential.
> Just because an investment is frozen in the credit market doesn't
> mean you should claim it as totally worthless. That's stupid.
I agree - they are not worthless.
They are however well beyond rational appraisal. The difference between "Fantasy Land Value" and "Real Value" has spread so far that it has engulfed all reserves in many institutions. Because of the "No Reserve Limit In The Shadow Banking System" and the fact that no one wanted to be left out of the "Fabulous Returns" being generated by off book betting; Our real institution have been undermined by too optimistic risk analysis.
Treat The Disease Not The Symptoms.
Everyone is holding their breath; those in the know and those who don't. Why is it that the FED will not tell any one how tax payer money is being spent? No Accountability? the statement given in recourse to the Bloomberg suit - "It would undermine confidence in the Government." (At this point I think that this is unavoidable, for all but those that assume benevolence.)
Suspend Mark To Market - It will only buy time (it has already been done).
Perhaps it is better to pretend that if we throw enough money at this problem, and subjugate all future generations, that we will return to prosperity. It appears to me that this is the current plan.
At This Point I Feel That It Is Safe To Say - REALITY BLOWS !!!
We need a return of Glass-Steagall - Obama’s guru, Paul Volker, stated as much in a recent speech in Canada. God knows our legislators and regulators aren’t smart enough to deal with the two together – this requires a bit too much gum chewing and tummy rubbing at the same time. So separate the banking system from the shadow banking system. Insure one, let the other live or die on its own, totally burdened with all the appropriate market risks, without a Gov safety net. Separate systems, separate ownership (which is key – everyone needs to decided in which world they want to stand, not both). But as for our current situation…
Everyone with a brain, it seems, agrees that mark-to-market is a problem. But we’re spending too much time talking about price. The real and only question should be, ‘who owns long-term the increased valuations b/t mark values and REAL market values (whatever they are)? Let me suggest that it is those who actually pay taxes (versus all the other slackers for whom our current Gov/administration seems to cuddle-up with) who should see that benefit over the long-term.
Those who subjected taxpayers to undo risks and a terminal raid on their wallets as they reached for ever-higher, out of the box profits put their institutions, shareholders and the taxpayer in harm’s way. And boy have they!!! $5 Trillion in combined total assets for the Big Five against $170 Trillion (!!) in combined notional derivative contract (9/30/08 numbers). Just commit those two numbers to memory if you what to be on top of the next shoe to fall!!??
“We appreciate that you guys made mistakes, we really do. Had you had the opportunity to do it all over again you would have done things differently. You’re sorry (or so you say). We get it. You realize, now, how risky derivatives products are and you won’t do it again” (note: This isn’t the first time derivatives have played a key part in tanking more than a few banks and thrifts, each swearing their derivatives portfolios were net hedged. And in walked the FSLIC (then) to say, “Surprise!! We’re here to shut you down.”)
“But just like you’re telling your borrowers who can’t make payments, we (the taxpayer) are here to foreclose on our collateral. We’re really sorry these assets aren’t worth what you think it is. We’re really sorry to put you on the street. We’re sorry about that lost Golden Parachute. But you are, now, 12 months delinquent and we’re unable to continue to fund your mistakes. So hand over the keys and we’ll have to take it from here.”
Shut ‘em down, put the notional contracts and mortgage portfolios in a ‘lock box’ to pay dividends to future taxpayers, un-available to law makers (do they actually make laws anymore?). Fill the banking void with local and community banks and set strict limits on M&A/growth activity – it shouldn’t be ‘too big to fail,’ it should be ‘too big to allow to survive.’ It really is that simple.
2. Still, no bank believes the numbers in the other bank's balance sheet! Why? B/c they ALL are cooking from the same recipe book of deceit and fraud.
3. We need a NUREMBERG style investigation and trial of ALL the CROOKS involved in the Industry and the GOVT!
Then guy must be short BAC and WFC - does not mention his position though. Self-serving bum.
Simple, stop loaning Citi and BAC money and liquidate them if they cant pay their bills. There are many smaller banks that could pick up the assets and get this mess over with. Let the Officers and employees who screwed this up pay with their jobs. Same with the congress.
The reason Canadian Banks are solvent is because they werent regulated by the US Government.
WFC this year, before major loan loss reserves, is going to have net income before taxes of $20 billion. What? Check their numbers.
4 year from now, WFC will be a non-inflation adjusted $60 stock, and that is assuming a loss this year - - that all that net income before tax goes to reserves. So that is an accounting loss, a reserve, but meanwhile, watch the cash grow by $5 billion as a result of the dividend cut. Pretty savvy. Two years from now, maybe they will reverse some reserves. Lookout above!
And here comes the bailout in full swing by 2010.
And we all know the WFC already wrote down $25B of the WB book.
Meanwhile, may the market gods push WFC to $3 and PGF to $3, and for that matter PG, KO, and GE down lower. I am selling off parts of my life just to buy more shares at ever cheaper prices.
As investors turn from "flipping houses" to "throwing in the towel", I am grabbing every damn share I can afford all the way down to S&P 475 (after that, I will be spent).
About the Canadians buying WFC; they couldn't win the votes. Such a transaction would have to be assigned to them from the FED. And what intelligent Canadian (everyone I have ever met is pretty smart, but then I'm from Philly) would ever take Bank of America - - for free. Too risky due to ML component. ML doesn't know what is going on inside itself, so how could anyone at BAC know what is going on, let alone anyone anywhere else in the world.
Speaking of BAC; it too will one day be an $60 stock, but unfortunately, that may be AFTER the govt. wipes out the existing shareholders first, and then sells it back to the public - - the Roubini plan.
I own, unfortunately, lots of BAC prior to the ML merger, and I wasn't smart enough to sell my position prior to the merger despite the fact that I voted against it.
Predicting rain doesn't count, building arks (by selling the ranch when there is a true adverse change) does. Lesson learned, and I'm poorer for it. Next issue:
______________________...
Bernanke and Greenspan had all of the opportunity in the world to warn of this crises. In China or Saudi Arabia, and in older civilizations of prior empires, they would be put to death for failing to attempt to protect the public, which was their job. I am not sure whether they would have been successful, but they could have pulled out all the stops.
Or maybe he should not be executed, but rather banished from our kingdom.
I offer the lesser sentence to Bernanke because as the disaster he caused unfolded before his eyes, at least he intervened, and continues to bail out banks to prevent a second Great depression (after learning his Lehman lesson, that is).
So, like a criminal who helps make restitution, these guys maybe deserve a slightly lesser sentence, not death, but life.
My allegations are serious, as were their crimes. Both Greenspan and Bernanke were the watchdogs of the financial system as whole. They were the generals, and we, the American public, relied on them to protect us.
They should have been barking up a storm.
Greenspan did attempt to prick the dot.com stock bubble, but I am unsure whether it worked; at least he railed against it, but then at the same time Greenspan helped pass the laws that caused the housing bubble, permitting the CDS and ABS markets to grow limitless without regulation. This is not to mention Greenspan taking over just as Glass Steagal was reinterpreted, overriding the opposition of then hero (and still hero) Paul Volcker, who in hindsight, he should have been appointed Fed Chairman for life.
Greenspan recently has changed his mind, suddenly. Greenspan helped cause this financial meltdown and the near destruction of the USA (we'll see how this ends, but I am an optimist). Greenspan and Bernanke were complicit in destroying lives of Americans in way that Osama Bin Laden could only fantasize about.
Despite the irrefutable evidence that was mounting month by month, and the questions being raised on a daily basis, Bernanke denied over and over there was any housing bubble, finally admitting it when it was too late. And Greenspan was wishy washy this time, acknowledging the problem but not addressing it head on.
These two were charged with guarding the coop, and instead they mostly just looked on while the foxes of BOTH Wall Street and Main Street (both of whom share the blame equally per the Adam Smith's Invisible Hand theory) went on a drunken rampage.
Wall Street as bartender provided the booze via its speakeasy of shadow banking called securitization - - now a toxic wasteland, and consumers got drunk stupid on credit they couldn't afford like underage wannabe alcoholics. And many bankers, like Mozillo of WAMU, didn't care a whit to check their ID.
The FED was supposed to be the police in all this - - at least attempting to stop it all even if their best efforts could not. You can blame the bartenders. You can blame the drunks. You can blame the beat cops - - the rating agencies. But we should prosecute the department captains who watched it all and looked the other way.
At his trial, I would like to ask Bernanke how he feels NOW about intervening when asset prices get out of hand. His practice of Laissez-faire economics nearly destroyed our country.
In fact, I would say that while Bernanke is not as evil as Madoff, his crime of ignorance and inaction were much greater.
In this country, Madoff gets to remain in his posh apartment. What do think would have happened to Madoff if he lived in China - - he would hang, of course. As would Bernanke and Greenspan.
In this country, however, we have due process, so let's get on with it:
UNITED STATES OF AMERICA vs. Benjamin Bernanke, Alan Greenspan, Carter Glass, Henry Steagall, Phil Gramm, Bill Leach, William Clinton, Moodys, McGraw Hill, Fitch, Citigroup, Merrill Lynch, Bear Stearns, Lehman Brothers, WAMU, GoldenWest, Indymac, et. al. and John Does 1- 25,000,000.
see notes below:
www.washingtonpost.com...
www.guardian.co.uk/bus...
www.reuters.com/articl...
en.wikipedia.org/wiki/...