Robert Mcdowell

Big Banks: Pulling Off the Ultimate Bait and Switch

Sure the banks are 'insolvent' if having their capital wiped out means that. But there are various ways of measuring insolvency. Problem is what to do when in aggregate all banks are having their capital wiped out twice over, once by the credit crunch and again by the recession? The government is replacing 1 X bank capital ($1 trillion) so that the banks can maintain lending in the recession to supplement the fiscal stance (worth maybe 4% GDP boost when 6% is needed to get recovery happening). Banks need to recover another 1 X capital this year. Over 2 years they raised 0.5 X capital and are generating half as much again from underlying net interest profit on traditional banking. They also face problems in refinancing their 'funding gaps' betweem customer loans and deposits and some international withdrawel from US banks' MT Note and covered bond programs (medium term financing). The Geithner Plan is starting with $500bn of assets to be auctioned off at maybe 40% write-down discounts. But, that still leaves banks needing to access the short term money market window at the Fed for a couple of $trillions.
Legal firms are collecting class action groups of shareholders to sue banks over misrepresenting their balance sheets. Why don't they or the investment banks or the Fed or FDIC or Fannie Mae and Freddy Mac collect large groups of distressed mortgagees and let them into the market for buying the banks' impaired RMBS instead of the hedge funds (who are seeking minimum 17% returns on the Geithner Plan). Remortgage money should buy the sub-prime and Alt-A RMBS at substantial discounts and use that to cut the mortgage debts of borrowers and thereby also cut their negative equity overhangs. That way, Main Street wins something in place of the Wall Street hedgers who made plenty shorting the banks and shouldn't be further rewarded by Fed loan subsidies plus exit clauses to profit from banks' fire-sale deals.
Private funders should take their lead from the Fed and maybe through government guarantees for the big Money Market Funds provide 'funding gap' financing and gain more normal profits instead of looking for big kills for vulture fund strategies?