Reinko

Mike Mayo's Seven Deadly Sins of Banking

Can we take the writer Tyler Durden seriously?

His black and white picture looks like a seventeen year old, his writings are at best a 27 year old running on testorone.

There is only repetition on info that is already out, zero future stuff has been observed.

So Tyler; who are you & for example where is the US$ one year from now???

Citigroup's Derivatives Reduce Bailout to a Non-Event

My dear reader, the author Rakesh Saxena is talking about 'maturity mismatches' but do you know what that is?

For example before all those weird investment banks fell; up to 25% of their total balance 'asset value' had to be financed via 24 hour borrowed money.

The working model was as next:

We borrow out money for the long term, this creates high yields.
We finance this (since we have no money for ourselves) with short term borrowed money that is cheap cheap cheap.

In the end 25% of total balances were financed by one day borrowings,
that is 'maturity mismatch'.

It is not very rigid by the way.

Citigroup's Derivatives Reduce Bailout to a Non-Event

To 1977 degree C:

It could very well be that Citi has mostly those swap instruments on her derivative books. But this does not take away that worldwide there is over 600 trillion in nominal value in the OTC markets and that was bought and sold for about one US GDP (14.5 trillion).

The basic instability problem is as next:

As just a few percent of this 600 trillion has to be paid, money streams like one US GDP have to be there.

After my humble opnion this is a fairy tale world; no institution has a few trillion on the shelfs in case this need to be paid out...

Paulson and Bernanke: A Conspiracy of Dunces

Your step 3 makes some sense; the banks complain that accountancy rule 157 is pro cyclical in nature.

But first the healing of rule 157 needs to set in.

Don't forget that a lot of banks used rule 157 in their benifit; they wrote down about 200 billion of their own debt obligations...

That is about the same size of the reported down writings in the first year of this credit crisis, of course it is rather strange to write down your own debt obligations. This lays the axe at the roots of your credit ratings but the banks did it anyway.

Furthermore, all attention is now on the normal bank balances. There is a large shadow bank system behind it where the Basel 1 rules for bank reserves simply do not apply.

The real shit is of course nicely parked in the shadow bank system...

Is the $700 Billion Really for Bailing Out the Fed?

This is a highly interesting article, I am only for about one week aware of a possible 'Plunge protection team' that was raised by a local television network named RTL7.

I have a degree in math and statistics and for over 4 years I am studying the US financial complex.

And so often I have observed weird market behavior while the SEC did her own thing that all in all I can say:

PPT for real?

Statistical proof = 100%
Courthouse proof = 0%

__________

In the article it is mentioned that the 700 billion size could be explained by the fact that the US FED is almost at the end of her US Treasuries (builded up since 1913 or so).

After my humble opnion it has more to do with accountancy rule 157 now we are just before the end of the fiscal year.

That also explains why there is so much hurry to shove this through Congress & the likes.

I am not an accountant but rather likely there are vast quantities of assets that are only marked once a year to market value.

So for the time being I only look in amazement at the 700 billion US$ thing; why the size and why the speed?
And PPT theories are rather likely true, but all they do is plunge protection and have not infiltrated the money and Treasuries auctions...

But you never know; sometimes I am wrong too...

Where's the Bottom? Still Anybody's Guess

A fiat money system like we can can survive a long time if the money supply is under control. There even are some simple laws that guide what money growth should be:

M3 money growth = GDP growth + inflation growth.

But the US Federal Reserve stopped publishing M3 money growths years ago with the weird argument 'This number gives no additional economical insight' (or words like that).

Of course a fiat money system can blow itself up if it is too far in the debt, this is called a Ponzi financial unit.
In a Ponzi financial unit the debt is so high that even for the interest more borrowing is needed.

As soon as the debtors find this out, the plug will be pulled.

An example of such a Ponzi unit is the combined US financial sector;

Even this last year when the credit crisis started they borrowed over 1500 billion more, now the total debt is over 16,500 billion US$ and is growing 10% a year.

The whole problem only emerges when the speed of borrowing is far above GDP growth, this is the case for many years in the USA.

And that is simple to explain: Alan Greenspan never did see the dangers coming with entire sectors borrowing themselves to death...

Banks on the Verge of a Nervous Breakdown

Nice stuff, especcially the math remarks.

I myself have a degree in math (the queen of science they say but in practice it is the oil of science) and I was capable a long time ago to declare armageddon on the US financial sector.

So it is great news to observe that the Harvard Business School is trying to put elementary math on the curicculum...;)

It's Time For a U.S. Sovereign Investment Fund

To bbzz24:

Ha ha, that is a great idea!
Just like the FDIC fund that is funded with (still) AAA rated Treasuries...

Goldman Sachs Raids the Cookie Jar

Ah that leveraged stuff, wonderfull...

When a bank is leveraged 25 fold with respect to market cap and (borrowed or invester) assets, then just a 4% decline gives rise to a total wipe out of all market cap.

This explains that 'just a tax dispute' in 'just a segment of the leveraged department' gives rise to 50% less dividend and dillution of outstanding shares...

There are many ways to measure leverage but market cap to assets is one of my favorites because the banks are constantly telling that they are working on the leverages, but when stock value declines those leverages are still climbing...

Welcome to the world of Alan Greenspan!

Research Zeitgeist: Bank Capitalization Concerns Heat Up

And I forgot to mention that most US commercial bank reserves are not borrowed reserves;

They have negative real reserves and positive borrowed reserves, see the second column in the next file:

www.federalreserve.gov.../

The real reserves are now 130 billion US$ in the negative and what exactly the value of the pledged collateral is is not known right now.

Ha! In the past the Federal Reserve always did put a price on the pledged collateral but they now have programs where the primary dealers are placing a price on the pledged collateral...

All in all it still looks like the entire financial sector is sinking deeper and deeper.

In case how you want to see how all this pledging of collateral works on a day to day basis you can go to:

www.newyorkfed.org/mar...

In the last row you can find some links that track the daily details of the five 'providing liquidity' programs in place until now.

Research Zeitgeist: Bank Capitalization Concerns Heat Up

Also of interest since the latest Z1 release of the Federal Reserve is out:

Total debt of the US financial sector still above one US GDP while the financial sector as a whole picked up about 200 billion US$ Q on Q in new debt in Q1 2008.

Compared with the first quarter after the credit crisis broke out (over 500 billion US$ new debt in Q3 2007) we see the credit crisis actually works: New debt availability is still on the decline and so the profits of the entire financail sector will follow suit.

Source:

www.federalreserve.gov...

Since it is anybodies guess how the financial sector is going to pay back the 16 trillion of outstanding debt, let alone pay for the interest on it, we aren't out of the woods yet.

Latest Bank Headache: Home Equity Loans

Last year in the Summer when the 'credit crunch' finally opened after waiting so long, I sometimes told people here in Europe that Amercans has so called home equity lines of credit.
That is a credit card on your house I told them.

More often than not, these people were stunned, shook their heads in utter disblieve and sometimes managed to say stuff like 'But that is crazy!'

And they went utterly nuts when I told them the fairy tale of the climbing leverages: a bank leverages stuff 15 times and when they have about 40% decline of total value, they leverage it with 25...

That was enough, most of them went through the roof...;)

Bank of America Seems Serious About Retaining Its Dividend

Nice to know that the Bank of America puts so much value in keeping up the dividend! But weirdo weirdo Bernanke also has a website and it is known as federalreserve.gov.

And on Bernankes website you can find lots of nice stuff around the US econmy, most Wall Street traders don't do that because it is all so difficult to understand while Jim Cramer is so much easyer to understand and if Jim fails we will always have Ophra...

Now, here is a FED file that clearly indicates that the whole of the US banking system has only 200 million left in reserves...

Yes you read it right, so use your God given brain; am I right or am I wrong? Just look at the 'non borrowed (3)' column and do your thingking...

Here is the file:

www.federalreserve.gov.../

Do your thinking please...

These Stocks Are Attractive Amidst This Selloff

Oops: Correction:

Scroll down until you hear her in her shining beauty.

Sorry, I don't know what came over me...;)

These Stocks Are Attractive Amidst This Selloff

Nice article, it sheds a bit of light on how Wall Street folks look at stuff.

But sorry sorry, there are also reasons to believe we only have 200 million of real reserves left in the entire US banking system while just six weeks ago there were over 40 billion US$ of banking reserves.

Here is the Federal Reserve H3 current release and look in the column that says 'non borrowed (3)'. Scroll down until you her in her shinging beauty: 200 million US$.

Here is the link:

www.federalreserve.gov.../

Tomorrow we will have another update on this detail, we will wait and see.

From the scientific point of view we can say this: At least one US bank has negative reserves. And we wonder why the Federal Reserve does not act on that and make it public.