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The banks are getting worse not better

|Includes: BAC, Citigroup Inc. (C)

Following on my previous post, not only are the banks balance sheet in much worse shape but they continue to get worse.  NPL's and bad assets are outpacing loan loss reserves.  If you assume that from 07 to 12 banks are getting worse and then from 2012 to 2017 banks will start healing and back to full health in 2017.  Easily a lost decade.  It's easy to say don't be Japan but much harder to do it.

Banks won't sell their bad assets because then they would have to realize their losses and there would be no doubt that they are insolvent.  Instead they will just limp along relying on plenty of Fed money to fend off bank runs and not making loans.

A much better solution is to
1.  Recognize that banks are insolvent
2.  Recognize that banks will still be insolvent next year.
3.  Liquidate insolvent banks and sell bad assets to other banks.

Selling bad assets to other banks will allow them to dollar cost average their old bad assets with the new ones, which will help them get in the black a lot sooner.