The Curious Investor

America's Banks: Are They Really Insolvent?

For those still interested, I highly recommend this follow up article on the subject of bank insolvency. thecuriousinvestor.com.../

America's Banks: Are They Really Insolvent?

Truth seeker, I don't know about WFC, but I linked to an end of year investor presentation from BAC that does list out the kinds of information you are looking for. I suspect other banks will have similar presentations available as they release full year results. Unfortunately, loans are complicated beasts and it can be difficult to present them in a clear manner for people who aren't experienced with finance and accounting.


On Feb 12 05:29 PM truth_seeker wrote:

> If bank "insolvency" is truly a mere accounting trick, perpetrated
> by the greedy who wish to buy victim-bank assets at firesale prices
> and who also wish to capture huge chunks of market share (or whatever
> devious purpose I didn't think of), then why don't the banks in mortal
> danger explain their situation in a more public way? Last night
> I was trying to answer whether WFC is anywhere near insolvency, but
> all you see on their balance sheet is "Net Loans," i.e., no breakdown.
> Why couldn't say BoA, JPM, Citi and WFC simply say "look, here's
> our detailed loan portolio, by amounts, loan types, geography, etc.
> Then one could undertake fundamental analysis, project cashflows
> for various scenarios and understand best, middle and worst scenarios.
> But they are not doing this, they simply claim to be well capitalized,
> CEO buys stock, some other useless action. If and until they do
> this with numbers in a detailed way, one has to ask what they are
> hiding.

America's Banks: Are They Really Insolvent?

@TERN

This is a really interesting idea. Can you provide any links or further reading on the way the Danish handle home mortgages. I've never heard of the ability to buy back your debt on the secondary market.

On Feb 12 06:15 PM TERN wrote:

> If the market valuation (or lack of) "toxic" assets is at the heart
> of the problem, and the current market for these assets is not providing
> realistic pricing, then the US would do well to look at the Danish
> system of mortgage financing, where the home owners themselves have
> the option of buying back their debt.
>
> If the CDO's could be untangled enough to yield lists of home owners
> that owe the debt, surely many of them would be highly interested
> to buy their debt off at more than 30 ct on the dollar!
> Online auctions would quickly show the true market values, and this
> would help all banks in the process of "mark to market".
>
> Temporary nationalization might be the blunt force needed to create
> this new and functioning market, but it might not even be necessary.
>
>
> Adopting the Danish model would also go a long way to prevent such
> a mess in the future.

America's Banks: Are They Really Insolvent?

I'm not saying Krugman and Roubini don't know. I'm saying most people in the general public don't and that Krugman and Roubini's articles didn't necessarily articulate it in a way that is understandable by the public which seems more intent on finding a way to punish banks than look at the options that are before us. In fact, if you read Roubini's article, he does present several options for how to recapitalize our banks. While he advocates nationalization, he doesn't explicitly say another route wouldn't work. Krugman describes a very specific hypothetical bank in his article which it seems everyone in the mainstream media has decided to equate to every bank in operation. When was the last time you saw an article on "insolvent" banks that had any real numbers or analysis done?


On Feb 12 09:21 AM old boat guy wrote:

> Saying that Krugman and Roubini don't know what nationalization is
> is rather stupid--you give up your entire argument.

America's Banks: Are They Really Insolvent?

That's exactly what I pointed out. I didn't miss the gravity of that statement. That doesn't mean that at the same time that these assets get written down, an inflationary monetary and fiscal policy and cash receipts at banks won't make up for some maybe all of the shortfall provided that the market returns to a less volatile and more liquid state.

Obviously, such a solution is likely over optimistic. In fact, the likely result of such an argument would be one for stag-deflation over the next decade or more, but to some this may be more palatable than trying to force all our write downs into the open as soon as possible which is what a nationalization strategy would necessarily be trying to achieve.

In the end, I'm not trying to argue one way or another in this article. I'm just trying to give readers a more rounded view of what I think is increasingly turning into a one-sided and alarmist call for nationalization of our nations banks.


On Feb 12 07:58 AM CautiousInvestor wrote:

> You should reread what Krugman and Roubini are saying. The basic
> argument is that the US banking system has $1.5 trillion of equity
> but is facing likely writedowns above this amount or around $1.8
> trillion. If this comes to pass, it would wipe out the equity of
> US banks.