Are The Banks Insolvent? Fair Question, Given This….


I’ve been going through The Fed’s “data dump” that the WSJ has linked and made “easier” for us.

And I’ve got lots of questions.

Let’s, for example, look at “Bank of Amer NA”, otherwise known as BAC.

They used the TAF a lot.  Here’s a snapshot:

Pay particular attention to that pink column I highlighted.


Well, BAC borrowed $15 billion an awful lot.  Maybe the same $15 billion. 

Look at the face value of what they posted as collateral.

$127 billion – or in one case $185 billion – to borrow $15 billion?

What was being posted there – that’s a more than 90% haircut!

That’s a fairly clear declaration by The Fed that these “Assets” were worth no more than $15 billion, right?  After all, that’s all they got credit for when posting their collateral.

Ok, two immediate questions:

  • What was that, and at what value was that carried on their balance sheet at the time?

  • Where is it now and what value is it being carried at TODAY on their balance sheet?

Ah, Kemosabe, now we get to a problem, don’t we?  See, if BAC had to borrow $15 billion, why would they post collateral at that sort of haircut?  Further, that’s a God-Awful loss embedded in those instruments that’s being assumed by the NY Fed and BOG and we damn well ought to know through their quarterly reports where that presumed loss of value went and where it was.

There’s a problem of course – BAC never reported that sort of loss any time during this “crisis.”  That leaves me with the question as to where these so-called “assets” are now, what they’re marked at, and whether we’re still dealing with massive and outrageously bogus “marks” – that is, claims of value – in these securities!

By the way, they’re not alone. Barclays has a bunch of these transactions with big haircuts too.   So does Goldman, with several TSLF transactions that show $2 billion borrowed and $25 billion+ of notional value of alleged “collateral” deposited.

Then there’s Wells, which has a nice single-page output that looks like this:

Have a look and take a gander.  And don’t keep your investigation to the above – try to find just ONE large institution that had all of its collateral postings valued at, say, 80 cents on the dollar or better.

Best of luck.

Remember, the claim was that all of these “facilities” were liquidity operations.

The Fed told us explicitly – many times – that it was taking “good collateral” to back up these loans and that it was quite confident it would not lose any money.

That, it turns out, was true.

What we were not told is that the “collateral” they took was so bad that it was in some cases valued at TEN CENTS on the dollar or less, and in each of these cases it leaves open the question as to where is that collateral now, having been returned to the bank, what is it actually worth, and how is it being carried on the books – because what we do know from the bank’s financial reporting is that it most-certainly was NOT written off.

There’s more than enough here in these tables to call for a massive forensic investigation into the accounting practices of each and every one of these institutions as the fact that FRBNY valued this “collateral” at such a tiny fraction of it’s claimed value by the submitting institution leads to an immediate question as to how one squares that valuation with the values reported by the banks in their quarterly and annual reports, and whether they were at the time, or are today, in point of fact, at anything approaching actual valuations, insolvent.

We the people deserve both answers AND HONEST ACCOUNTING.

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