The U.S. Banking System's Terrifying Balance Sheet 60 comments
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This is a spectacularly good piece of information design, from Tyler at Zero Hedge. It repays a lot of looking at, and manages to encapsulate both the scale of the US banking system and the scale of the solutions which have been announced or implemented to date. Click to enlarge:
On the asset side of the US banking system’s balance sheet, the $4.8 trillion in mortgages is a problem — but there’s another $3.1 trillion in bank loans and consumer credit which is looking increasingly shaky. Against that there’s less than $1 trillion in common stock, supporting over $12 trillion in liabilities.
Meanwhile, Tyler has neatly lined up the government’s support programs along with the relevant parts of the right-hand side of the banking system’s balance sheet. Add them all up, and they come to just over $9 trillion, or 67% of the banking system’s total assets. It’s an absolutely astonishing amount of support, and it brings home the scale of the problem facing the government.
In a nutshell, the problem is the classic one: on the left-hand side nothing is right, and on the right-hand side nothing is left, at least absent government intervention. Says Tyler:
As the government has the best information about the true sad state of affairs, it is likely that as more and more information about the weakness of the financial system comes to light, more of these support guarantees will become utilized to their full extent. This also means that the asset side of the balance sheet is potentially “inflated” by almost 75% and the net result could be the most dramatic collapse in a banking system’s assets in recorded history as over $8 trillion in “assets” are reevaluated.
This doesn’t need to be probable to be terrifying: it just needs to be possible. And Tyler’s point is that the government has put all of these programs in place precisely because it’s possible. So: fear is entirely rational here.
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Nice quote from Jefferson. Unfortunately it's completely bogus. The term "deflation" was not used before the late 19th century or early 20th century, I'm not sure when the term "inflation" was first used but I don't believe it was in common usage at any point during Jefferson's lifetime. The quote you repeated was apparently manufactured during the 1930s, it is commonly attributed to being in a letter from Jefferson to Gallatin but no such letter exists.
On the other hand, it is pretty well known that Jefferson mistrusted and disliked big banks. Had he been alive today he might have actually written that quote -- but he isn't and he didn't.
Lets All Pretend Until The End.
Empty Bellies And Unemployment May Crush The Dream.
The government is doing the "End Around" on Ammo Though. Keep Your Guns - You Will Have Nothing To Use In Them Though.
www.shootingwire.com/a...
Do Not Look Too Long At "One Hand" Of The Government; You May Be Slapped By The Other.
On Apr 09 11:47 AM Stone Fox Capital wrote:
> Well WFC just said what most people know accept for people that follow
> Roubini. The banking system isn't that close to insolvent based on
> free money from the govt. Didn't Roubini say WFC was insolvent? LOL!
> Nice call!
On Apr 08 09:49 AM Husker Mark wrote:
> Good summary article and good points by Lilguy. I especially concur
> with Lilguy's observation regarding the government's misallocation
> of funds for stimulating the economy.
>
> I honestly believe that the worst could be behind us by now had the
> government done less to "save" the banks and more to stimulate business,
> and especialy job creation. Most of the jobs to be created by the
> $787 Billion stimulus package will be temporary in nature (i.e.,
> construction jobs for projects with limited lifespans).
>
> The role the government should have played was to have assisted in
> the dismantling of failed banks, sales & disposition of assets
> & deposits, public assurance that no deposits will be lost, etc.
> Yes, this would have caused more immediate economic turmoil that
> the process that we have chosen, but it could have been behind us
> by now. As it is, it may still be ahead of us and we have over $12
> Trillion taxpayer dollars at risk. We could have gotten through
> this with half the exposure/cost to taxpayers.
>
> The other side of the coin is how the stimulus funds are being spent.
> If the government had spent $2 Trillion on programs that would really
> stimulate the economy, we could have negated much of the downside
> from the banking collapse. The private sector creates lasting jobs,
> stimulate that! Choose industry with tremendous future potential
> and put together a plan to create global leadership in America.
> Temporarily subsidize American manufacturing for products sold in
> America (I really don't like this approach, but think it would be
> better than public works). Provide funding to states with earmarks
> for specific infrastructure updates and improvements (this is what
> we all thought was going to happen), because it would reduce future
> deficit spending requirements of state and local jurisdictions for
> water/sewar lines, bridges, etc. that have been deferred but will
> have to be done sometime. The jobs may not last forever, but the
> work needs to be done and cannot be put off forever. Let's just
> not spend more money on the grass at the Mall - it's fine. But much
> of the public works money is going for such items as improvements
> to existing government office buildings and the Mall. Some of the
> improvements are necessary. But the infrastructure needs of the
> nation are real and have been put off too long! It's money that
> will eventually need to be spent, so let's do it now. It's justified.
> It's real. It's not just for show.
>
> Don't raise taxes on businesses. That just makes us less cost competitive
> with the rest of the global economy. Lower business taxes. So our
> businesses can compete and expand into new regions with lower productivity
> than the U.S. That create more jobs.
>
> By giving money to the poor (and I qualify for that category at the
> moment, because my business profits are currently below levels where
> I can justify paying myself) the economy is not going to be stimulated.
> The poor and middle class need the money, don't get me wrong - we
> do, but the majority will be spent on everyday purchases or go toward
> paying down debt. We may buy meat occasionally, instead of beans.
> But it won't create jobs.
>
> The big banks might survive and their executives will be back cashing
> multi-million dollar bonus checks in a few years. They may have
> to be creative about how the bonuses get funneled to themselves.
> But they'll get. That is the one thing we can all count on. <br/>
>
> The U.S. deficit cannot afford another round of stimulus, but we'll
> probably get one, anyway. There will still be much left undone that
> has to be done even after that. We are burying our future in debt
> and will have so little to show for it. That's what burns me!
Oh, and by te way folks, delaying doesn't always delay the inevitable. Time has a way of fixing things that sometimes seem impossible.
On Apr 09 09:47 AM MJJP wrote:
> What does nationalizing the banks accomplish? It will at the outset
> put many IRA'S and 401'S in the toilet. Do you realize how many people
> and institutions are invested in these supposedly conservative and
> "safe" investments? Lets not forget that banks are invested in other
> banks as well and when I hear the often flip suggestion as why don't
> we just nationalize I cringe. Nationalizing a bank only takes the
> responsibility out of private hands for going forward and giving
> it to govt that really can't do anything more than private individuals
> in the first place. Somehow , someone , somewhere has to pay. By
> nationalizing a bank the first one to pay is you and me unless you
> have no IRA or 401 or pension, or job and get most of your daily
> living expenses once a month from either a welfare check or social
> security.
Time can heal a lot of wounds. We are healing wounds now as americans start to save, the current account corrects somewhat, etc. It is painful, but things work out in the very long run (I know we all die in the long run.)
On Apr 09 12:54 PM PainfullyAware wrote:
> No One Is Insolvent Anymore Because Of "Value As You Like Accounting"
> and "Free Money To All My Friends" From The Government.
>
> Lets All Pretend Until The End.
>
> Empty Bellies And Unemployment May Crush The Dream.
>
> The government is doing the "End Around" on Ammo Though. Keep Your
> Guns - You Will Have Nothing To Use In Them Though.
> www.shootingwire.com/a...
>
> Do Not Look Too Long At "One Hand" Of The Government; You May Be
> Slapped By The Other.
First, the bank's toxic assets are supposed to be valued at market price because they are trading assets (with a view to making a capital gain--LOL!), not ones they intend to hold until maturity. In contrast, while you may sell your home & pay off your mortgage ahead of time, it sounds as if you are quite willing to let it roll until it's paid off.
Second, and more importantly, the value of the toxic assets on the bank's balance sheet helps determine how much (or "little") it can loan as a reserve against bad loans. Right now, the low values of these assets (well, at least until FAS 157 was revised) limits the ability of the banks to lend money and thereby make money--and get that flow of funds you have. This not an issue for you because your income is not determined by the value of your home/mortgage.
Appreciate the useful comparison, however. Just don't try to loan money based on the value of your house! And good luck on an RE market comeback.
God, where were all you mental Hercules at when this was all going down?
Start living in reality. Someone tell me why I have to believe 75% loss in value of ALL houses and ALL DEBT is rational to expect?
Yes, that is rational if you believe it is rational to see a 75% unemployment rate.
Let me clue you into something, the world as you know it would not exists if unemployement reached 75%. We would be in a Mad Max type environment.
Live in fear folks, bunkers will save you.
On Apr 08 11:25 AM Mary LaRue wrote:
> I have a real issue with the banks. It is my best guess that the
> "positive" earnings will be proven as dismal and the stock values
> will once again return to their realistic value(s).
In no calculation of all the money that has been "proposed" do any of the FACT GETTER OUTERS of the doom and gloom ever bring up the point that banks are already paying some of this money back.
You don't loan money out to people at an interest rate and then demand they pay it back right away. That is stupid and exactly what many of you think is needed.
On Apr 09 02:55 PM wobatus wrote:
> If I have a house that is under water and my mortgage exceeds my
> assets, I may be "insolvent", but as long as I have the income to
> pay my mortgage (admittedly many do not unfortunately) I am in no
> need t go bankrupt, and can continue to pay my mortgage, and in the
> fullness of time I will have paid off the debt. I may have overpaid,
> but we'll see.
>
> Time can heal a lot of wounds. We are healing wounds now as americans
> start to save, the current account corrects somewhat, etc. It is
> painful, but things work out in the very long run (I know we all
> die in the long run.)
Then, if you still feel like it, you can post your own shallow and useless commentary as you have done.
On Apr 08 09:51 AM Steve W from Ford wrote:
> What a shallow and useless exercise. Does no one exercise any editorial
> judgement on what gets posted?
> The analysis is so shallow as to be laughable and the assumptions
> are rediculous. The US banking system will NEVER get to 75% losses
> as way before we reach this point there will be total societal collapse
> as to reach this point of loss posits that NOTHING any longer has
> any value is the US. Not house, not commercial buildings, not securites,
> nada zilch!
> So why not just put on a sign saying "The End Is Near" it's about
> as good an argument.
excellent post. And more proof that the idea of "Securitizing" debt was probably the single worst idea in modern capitalism.
Yank
On Apr 08 10:17 AM nobby73 wrote:
> Hang on a second - everyone is jumping on this point about 75% being
> ridiculous, but you need to think about how the credit bubble has
> played out. When the banks have been securitizing the liabilities,
> it has been tranching up the risk and reselling those tranches. The
> danger always was the fact that the most risky pieces, the equity
> and the mezzanine, i.e. those that would suffer the first loss were
> the ones, were often retained. With securitization, the losses work
> through in a "waterfall", so the first loss hits the equity, until
> that is 100% wiped out.
>
> So the issue is not just the size of the positions, but the quality.
I recognize that an investor can profit greatly from the psychological aspect of the existing financial rally, and I completely understand why a short term investor would want to profit from such a rally (that is exactly what is happening), however, there are other companies with powerhouse balance sheets and increasing dividends that will be more rewarding on a long term basis and eventually produce greater returns than these financials when the market correction comes (and believe me, a market correction is inevitable).
On Apr 09 09:59 PM CJJ wrote:
> What the f does this mean? Really. You have a real issue with the
> banks?
> God, where were all you mental Hercules at when this was all going
> down?
> Start living in reality. Someone tell me why I have to believe 75%
> loss in value of ALL houses and ALL DEBT is rational to expect?
>
> Yes, that is rational if you believe it is rational to see a 75%
> unemployment rate.
> Let me clue you into something, the world as you know it would not
> exists if unemployement reached 75%. We would be in a Mad Max type
> environment.
>
> Live in fear folks, bunkers will save you.
It's amazing the number of "Bank Experts" that have crawled out from under the rocks now that we are a year and a half into the ordeal. These "Experts" didn't know diddly before or during the event, but now that we are starting to see the light at the end of the tunnel, NOOOOWW they see clearly and have it all figured out. AMAZING! How on earth can anyone, ANYONE believe that there will be a 75% value loss on virtually every asset in the world? 92% of all loans, including credit cards and autos are being paid on time people, 91.5% of all people are still working, so if you seriously believe that 7,8, or 9% of all the people and all the assets are going to kill us all, you have no business being allowed out of the nuthouse. So 48,000 business's failed last year, and you're right it may well hit 62,000 this year, but guess what wingnuts, there are approximately 600,000 new businesses started each year according to the Small Business Administrations website. So, you "Baby Gloomers" go ahead and stick to your gold and bunkers plan, meanwhile the rest of the world will go on living.
On Apr 09 09:59 PM CJJ wrote:
> What the f does this mean? Really. You have a real issue with the
> banks?
> God, where were all you mental Hercules at when this was all going
> down?
> Start living in reality. Someone tell me why I have to believe 75%
> loss in value of ALL houses and ALL DEBT is rational to expect?
>
> Yes, that is rational if you believe it is rational to see a 75%
> unemployment rate.
> Let me clue you into something, the world as you know it would not
> exists if unemployement reached 75%. We would be in a Mad Max type
> environment.
>
> Live in fear folks, bunkers will save you.
You also missed my "IF" my house is underwater. My home is not underwater. I sol my home in 2005, and rode it to 5x my investsment in 6 years even after taking equity out twice that exceeded my downpayment. I rent now.
In any event, I DO lend money. And even if underwater I would to. Anyone with a savings account, CD, etc, bond-holdings is a lender. Cash is king (even though inflation is coming).
But I know there are differences between my hypothesis and a bank. But TIME heals a lot of wounds (and wounds a lot of heels).
All the best to you and yours!
On Apr 09 09:47 PM Lilguy wrote:
> Wobatus--Nice analogy--it got me thinking about its accuracy. There
> are a few significant differences, however, between your circumstances
> and those at the bank.
>
> First, the bank's toxic assets are supposed to be valued at market
> price because they are trading assets (with a view to making a capital
> gain--LOL!), not ones they intend to hold until maturity. In contrast,
> while you may sell your home & pay off your mortgage ahead of
> time, it sounds as if you are quite willing to let it roll until
> it's paid off.
>
> Second, and more importantly, the value of the toxic assets on the
> bank's balance sheet helps determine how much (or "little") it can
> loan as a reserve against bad loans. Right now, the low values of
> these assets (well, at least until FAS 157 was revised) limits the
> ability of the banks to lend money and thereby make money--and get
> that flow of funds you have. This not an issue for you because your
> income is not determined by the value of your home/mortgage.
>
> Appreciate the useful comparison, however. Just don't try to loan
> money based on the value of your house! And good luck on an RE market
> comeback.
>
On Apr 10 09:54 AM Mary LaRue wrote:
> Of course I have an issue with the banks and can't grasp why anyone
> with an extensive amount of knowledge of the banks' balance sheets
> wouldn't have an issue with them. Additionally, with respect to your
> question about where we were when the market was going down, I can
> tell you that I dumped my BAC, GE, JPM and AIG BEFORE they tanked
> in 07 because I relied upon my own research and failed to listen
> to the ones who insisted that everything was just fine. At that time,
> the big picture wasn't adding up and it STILL isn't adding up today.
> As someone who has been in the market for more than twenty years,
> I can easily detect the psychological aspect of this "rally," and
> the fact that a pyramid scheme in the financial sector is in the
> works. This has been going on for almost one month now.
> I recognize that an investor can profit greatly from the psychological
> aspect of the existing financial rally, and I completely understand
> why a short term investor would want to profit from such a rally
> (that is exactly what is happening), however, there are other companies
> with powerhouse balance sheets and increasing dividends that will
> be more rewarding on a long term basis and eventually produce greater
> returns than these financials when the market correction comes (and
> believe me, a market correction is inevitable).
>
> On Apr 09 09:59 PM CJJ wrote: