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SEVERELY delinquent loans crippling U.S. banks

Writing about how delinquent, or “non-performing” loans are ravaging the U.S. financial sector may sound like “old news” - especially with the weekly reports of more U.S. bank failures driving that point home every Friday evening (when the FDIC executes its emergency, salvage operations of bankrupt banks).

However, data released in a Bloomberg article today indicates that the number of delinquent loans is literally only half the story here. I was flabbergasted to read that the average length of delinquency on these loans – for the entire U.S. financial sector – was 90 days.

As a matter of basic statistical analysis, the vast majority of non-performing loans should be delinquent only 30-60 days – for two reasons. First, in an environment even remotely close to normal, many of the borrowers who get behind on their payments catch up on their payments before ever becoming 90 days delinquent. Secondly, as loans get more than 60 days overdue (especially with credit card and consumer debt), we would normally expect banks to begin writing off/writing down these loans – and then referring these debts to collection agencies, or seizing collateral (depending on the type of loan).


The fact that the average length of delinquency for all bank loans is 90 days tells us two things. First, this number shows that once U.S. borrowers get behind on their payments in the current economic collapse, only a relatively small percentage are ever able to catch up on their payments.


Secondly, despite the fact that the banks can obviously see this drastic change in borrower-behavior, they are refusing to write off/write down vast number of loans where they already know they will never get fully paid.


These observations, in turn lead to more elementary deductions. To start with, as I have insisted on many occasions, the U.S. financial sector (as a whole) is still insolvent – despite the fat “profits” Wall Street is reporting thorough its “trading” with the Federal government (i.e. Wall Street tells the government which of its balance sheet feces it wants it to buy and how much they have to pay for it).


If this sector was truly returning to some semblance of health, it would not have to hide millions of loans for which they will never obtain full payment. Instead, they would be writing off these bad debts, with their “fat profits” providing the necessary capital-capital cushion to absorb these losses.


Another example of this “ostrich approach” to bank accounting and loan practices is the desperation-policy of “rolling over” hundreds of billions of dollars worth of bad, commercial debt. The result of several years of this irresponsible behavior is that over half a trillion dollars of commercial debt requires refinancing over just the next year.


This is occurring at exactly the same time that one of the U.S.'s biggest commercial lenders – CIT – is in a day-to-day struggle to avoid going into bankruptcy, exactly the same time that the commercial real estate market is in the midst of its own collapse, and exactly the same time that all categories of U.S. debt are at all-time record delinquency levels.


In other words, with U.S. banks already carrying a trillion dollars or so of bad debt on their books, all that we can say for sure is that this problem will get much worse over the next year. Yet all we hear from the main stream, media propagandists is that “the worst is over”.


U.S banks are hiding more and more bad loans, yet we are told all the major banks are “stress-tested” and healthy. U.S. foreclosures hit an all-time record for the 3rd time in the last five months in July, banks are hiding millions of foreclosed properties off the market, and mortgage resets won't even begin to hit their peak until 2010 – yet we are told this sector has “bottomed”.


This propaganda campaign is relentless, and having an obvious effect – as evidenced by the fantasy-valuations in U.S. equity markets, where an “economic recovery” is already priced into the markets despite the fact the U.S. economy continues plummeting downward.


Once again, the U.S. “consumer confidence” reading indicates a glimmer of comprehension on the part of brainwashed Americans. While the talking-heads are now declaring that the “recovery” has actually begun, consumer confidence has been moving in the opposite direction since Americans reached the peak of their delusions in March.


As U.S. bank-bankruptcies continue to accelerate, as U.S. economic indicators crash below the worst-case scenario of the (so-called) “stress tests”, and as all-time record delinquencies turn into all-time record loan-losses, it is not a question of “if” but only a question of “when” the fantasy share prices for the members of the U.S. financial crime syndicate crash back to reality.