Bankers Need to Fess Up Now

The issue today is inflation, but the greater concern is over the internal problems of the major banks. Banking officers are now finally admitting that they cannot properly place market values on the assets they have on the books (or off-book, but liabilities nonetheless), and so they acknowledge that clients are withdrawing funds. That is not quite a run on the banks yet, but the fear is that it could soon turn into that kind of an ugly liquidity crunch situation.

There really is no antidote except for time. Time heals all. What we need today is for bankers to fess up. It’s a good thing some of them are because what they are doing is attempting to mitigate damages. I anticipate the class action lawsuits will amount to over a trillion dollars against these banks and sales companies that pushed investments they called asset-backed securities onto government agencies, and pension/hedge/mutual funds and corporations, when in fact the value was nowhere close to the selling price. That was a trillion dollar fraud. People will pay.

Moreover, some of these banks – Credit Suisse (CS) Tuesday – have acknowledged that financial controls over trading staff have been so lax that huge losses are on the books and need to be written off. In some cases, these losses are in the mega-billions.

At the end of the day, all banks have lost the confidence of their stakeholders, and something must be done to repair it. After all, what does a bank have left without goodwill? The fractional reserve system of banks would render them all worthless if they were to suffer runs by depositors and investors.

The Bear is not over by a long-shot. All the Talking Heads who are telling you to wait for a massive short squeeze don’t have a clue. These people cannot tell you with any credibility how much the write-offs have to be at the major banks. Moreover, they do not know how far central banks can help in keeping market interest rates down, which has been a relief to the banks. If, as and when those market rates start to move higher, as they should to combat inflation and to recognize the risks of capital loss due to potential systemic banking system failure, the Financial sector and the Consumer sectors will take further damage.

The only accurate thing that a Talking Head can say today is that extreme volatility is a positive to day traders and a negative to the rest of the market that requires price stability and the functioning of capital markets to reflect fair value of the underlying assets.

This is a time to get serious, not play mind games with the public.

Comments

[mrfreddo]

If you remember the international debt crisis in the 70's, you will recall that banks did not tell the truth, at least not all at once because to do so would have driven home the reality that they were broke. So, the international debt was written off over a long period of time and we all survived to screw up another day.

It is the same story now. There is a trillion of write-offs yet to come and we cannot take it all at once or a catastrophic meltdown of the financial system would occur.

So, you see the banks are all lying to us for our own good while they bargain for more time to shore up capital reserves with new infusions of money from the middle east.

We will muddle through this crisis as we have all others...

[WAKEUP]

Nobody seems to get it. This isn't the '70's, or '80's, or 90's; this is the God-Knows-What-Is-Next... in the world of financial reality. The banks' situation is the result of the biggest and most fraudulent scam-period in the history of the United States, and possibly of the entire world. The fallout from this banking situation is in fact incalculable, because everybody who caused it is LYING, to cover their asses, and will continue to lie, as well as to hide the financial bodies anywhere they can, including placing said bodies under the front steps of the taxpayers. Indeed, it is looking more and more like they intended to hide those financial carcasses under the taxpayers' steps, from the moment they hatched this unbelievably large ripoff. And your friendly politicians are just trying to buy time, with their tiny "rebates," until after the national election, when they can get their shovels out, to help with the digging under those steps. Don't spend your "rebate"; you'll need it, to help pay your share of the bailout bill.

[Yoki]

Here's the catch and the way to make money in any market you pick the winners and ditch the losers.... Not all banks are as you are describing above and to say they are is quite honestly lying, so how can you demand honesty when you can't deliver yourself?

I don't know much about anything, but I know one thing that has served me well in my life and that is to stereo type anything will only create opportunities to those that are not blinded by emotion. Those opportunities are there in banks if you can pick the good ones out of the bad because the good ones are getting slammed just as hard as the bad ones and with no merit. Not only that but as the bad banks struggle the good banks will be taking in there business and customers......... Who knows when the markets will turn around certainly not me, but I will be watching for the signs of the good banks and I'll be buying stock in those banks because when the dust settles they'll be ready to run with the fastest of the bulls :P