Dateline 17 March 2008.
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
SAYS BANK OF ENGLAND GOVERNOR
This is not news if you read The Ticker. But it is absolute validation that what I said at the time, and what I’ve said since, is absolutely true.
More than a year later Bank of America put up $185 billion in alleged “collateral” to secure a $15 billion loan, well into the TARP process and beyond the “recapitalization.”
Bank of America was not alone. Indeed, they were representative. Look at the data again if you don’t believe me.
The question remains: WHERE ARE THOSE LOSSES NOW?
Again, The Fed’s program of lending requires you post collateral to secure your borrowing. TAF had a schedule of “haircuts” off their valuation. Those haircuts were ridiculously small, as I opined at the time, as it was my view that the alleged collateral was in fact trash.
Well, we have now discovered that in fact the collateral was trash, and The Fed simply valued it at a tiny fraction (like $1 for every $10 claimed!) and then haircut it according to their table.
This leaves us with the original question unanswered: Since the collateral was trash and it was not written off in earnings reports, and this collateral was in fact both what left the system insolvent and is radically beyond the “recapitalization” that the banking system received, one still has to ask where is that collateral now, at what value is it being carried, and how is it being valued for that mark?
These are NOT minor or “technical” considerations. They go directly to the question of whether these institutions are solvent today! If these “assets” are being held at values that do not represent reality then at some point they will mature and either have to be rolled or paid.
The premise that many have run in the media and elsewhere is that these “toxic” assets will become less toxic over time – primarily because house prices will go back up – to 2005 levels. It ought to be clear by now that this is extraordinarily unlikely, and that in point of fact the only clearing mechanism we’re seeing on housing is foreclosures!
We deserve answers – and accountability for the lies that were spread by those in government and out. While I like being vindicated that is small consolation if the deception is continuing and, in point of fact, the banks are still insolvent.
You cannot believe anything a proved liar tells you until strict proof of that person’s continued assertions are provided and vetted. More to the point given these facts it appears that every one of these major banking institutions lied in both their quarterly reports and public statements.
For this reason absolutely nothing that Geithner, Bernanke or the executives of any these firms say can be taken as having any sort of value or veracity.