BANKS IN WORSE CONDITION THAN 2008: NO MORE BAILOUTS, NOT ANOTHER TARP

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EDITOR’S NOTE: The writer of the article below appearing at truthingold.com is obviously favoring the purchase of precious metals, something that a lot of people have been talking about. He might be right but that is not why I am posting this. The reason is that I think he correctly describes the ongoing method of operations of the banks. They continue to “leverage”, which is another way of saying that they are gambling with other people’s money — our money to be specific. Heads they win, tails we lose. 

What the author has not bothered to mention is that the mortgage asset issue is far from over. He treats it as though that crisis is done but now we have another. I agree with him that we have another one, but the old one that originated our economic crash is still in full swing. The off-balance sheet transactions dealing with consumer debt obligations including mortgage dwarf the risk posed by the sovereign debt issues. The sheer size of the misstatement of mortgage-related assets on the balance sheets together with the off balance sheet liabilities is nearly beyond comprehension.

With Europe taking its shot at assistance for the banks, there is a growing chorus calling for another bailout in which the banks turn in their worthless, nonexistent mortgage assets for 100 cents on the dollar while consumers are stuck with the bill, taxpayers pay for the bailout and of course we all know that consumers and taxpayers are one and the same so they are already paying twice. Somebody here like Merkel of Germany must look the banks in the eye and say that they must accept a “haircut” of 50% or more on the debt structure they so diligently foisted upon us.

What is obvious to one is now obvious to all: the banks are in trouble again, they are looking to stick their customers and their shareholders with the bill and they are looking for another dip into taxpayer money directly through the Treasury Department or indirectly through the Federal Reserve. As they already figured out, Americans are in no mood to deal with past antics, having backed off a fee proposal for just holding a debit card. If another bailout comes to the front of the stage, the sweep of politicians from office will be sudden and complete.

Any politician that aligns himself or herself with the banks can take it to the bank that they will be out of office after the next election cycle. So they better have that consultant’s job lined up with the Banks now because the supply of ex-senators and ex-congressman and ex-legislators is going to be high and there won’t be enough job openings for them to fill — fr one thing they might not seem so valuable to the banks after they get kicked out of office.

Armageddon was yesterday – Today we have a serious problem

the big Wall Street banks are in even worse shape than they were in 2008 and their balance sheets are more highly leveraged.  The only “CHANGE” that 2008 accomplished was the putting in place of the mechanisms for these banks to better hide their fraud and ponzi schemes and the further impoverishment of the middle class taxpayer who has been sold out by the politician(s) that gave him “HOPE,” as said politicians ended up shifting the entire burden of Wall Street’s nuclear cesspool onto the public.”

Tuesday, November 1, 2011

The U.S. Banking System Is More Leveraged Now Than In 2008

Before I get into what the title is about, I wanted to comment on the MF Global situation.  By now I’m sure most of you have read/heard that about $700 million in customer funds are missing from MF.  Legally, a brokerage firm is required to segregate its customer funds from all other capital/balance sheet items.  This is one of the golden rules in the securities industry.  This is supposed to be accounted for on a daily basis and reported weekly to regulators.  My best guess is that Jon Corzine used customer funds to shore up the capital accounts at MF in order to avoid having credit lines pulled and to deflect regulator scrutiny. I can’t think of any other reason those funds would be unaccounted for.  And now I would bet that those commingled funds went down the drain with the other bad bets that destroyed MF.Corzine is a scumbag.  He ran the Government bond desk when I worked at Goldman Sachs in the late 1980’s. I was in the fixed income division and was, on occasion, peripherally in strategy meetings he was leading.  I can recall vividly thinking, “here’s the kind of guy who would trade his mother for a nickel.”  Corzine is emblematic of the blood-sucking greed and corruption that has enriched many connected to Wall Street. Corzine should spend time in jail for this situation at MF.  Unfortunately, through his political and business careers, he has made plenty of friends in high places, including many in key positions in the Obama administration, who will make sure he walks from all of this with nothing more than a slightly bruised ego.  Oh, he will take away another $12 million from MF based on his compensation  agreement as he walks out the door and hands the entire multi-billion dollar bailout tab to U.S. Taxpayers.

I will just add to this that if MF Global/Jon Corzine was commingling customer funds with non-customer funds, I would bet a lot of money that all of the big brokerage firms/banks are doing this.  You still trust those gold/silver ETFs and other paper products being sold by your broker/adviser?  I wouldn’t trust ANY securities firm that is owned by a banking parent or has banking operations (that would be all of the big ones).

Just as I suspected, the big Wall Street banks have a significantly higher exposure to the European banking crisis than is apparent from the “on balance sheet” disclosures.   Bloomberg reports this morning that U.S. banks have $518 billion in credit default swaps (CDS) on European sovereign and corporate debt. That number increased by $81 billion in the 1st half of this year. JP Morgan, Goldman, Morgan Stanley, Bank of America and Citigroup write 97% of a CDS in the U.S.  This data is reported to the Bank of International Settlements (BIS – the “central bank” of all central banks) but does not show up in the balance sheet numbers reported by the banks and marketed by Wall Street as being “fortress balance sheets.”  It shows up somewhat opaquely in the footnotes but is largely off-balance-sheet and unregulated.  The regulations that are in place go unenforced.  I got into an argument with a Wall Street meathead salesman a couple months ago who challenged my call that the U.S. banks were in much worse shape than reported.  Looks like I was right and he’s still a meathead.  Here’s the report:  LINK

Despite the fact that these banks will say that they have arranged “net out” hedges against the CDS that they’ve underwritten, here’s the bottom line:  “The payout risks are higher than whatJPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc, the leading CDS underwriters in the U.S., report.”  The reason for this is “counterparty risk.”  That is exactly the risk that torpedo’d AIG and technically bankrupted Goldman Sachs in 2008.  These banks may well have their CDS bets hedged, but if the bank/insurance company/hedge fund/MF Global on the other side of the trade defaults, the hedge incinerates and the big bank is left completely exposed.  That is, until the Fed and the Treasury come to the rescue and print money and use Taxpayer funds to bail out the big banks who underwrite these CDS trades.

At the end of the day, the big Wall Street banks are in even worse shape than they were in 2008 and their balance sheets are more highly leveraged.  The only “CHANGE” that 2008 accomplished was the putting in place of the mechanisms for these banks to better hide their fraud and ponzi schemes and the further impoverishment of the middle class taxpayer who has been sold out by the politician(s) that gave him “HOPE,” as said politicians ended up shifting the entire burden of Wall Street’s nuclear cesspool onto the public.

There is one way to at least insulate your wealth from this poisonous garbage going on in our financial system:  physical gold and silver.  Note: Not ETFs of any kind.  Not Morgan Stanley, Monex or Kitco unallocated, pooled gold accounts.  Not GLD, SLV, CEF or GTU (PHYS and PSLV are fine but only if you have the $100s of thousands required to turn in your shares and receive the actual bars).  Gold/silver do not have any counterparty risk – any “promise” to pay by anyone.  When you own gold and silver, you own the world’s oldest currency and most time-tested reliable wealth preservation vehicle.  If you own the paper your adviser sells to you that claims to be backed by gold, you don’t own gold – period.

Posted by Dave in Denver at 9:33 AM

11 Responses

  1. The insanity continues—with cars:

    http://www.huffingtonpost.com/2011/11/01/auto-subprime-securities_n_1070328.html?ref=business

    Dealerships Package Billions Of Dollars Worth Of Subprime Auto Loans Into Securities

  2. brian davies—

    can you please contact me—I would like to ask you a question—thanks.

    cariemac9@gmail.com

  3. LPS Mortgage Monitor: Over 4 Million Loans 90+ Days Delinquent or in Foreclosure, 72% in Foreclosure Not Made Payment for at Least 1 Year

    Posted: 01 Nov 2011 09:00 PM PDT
    Inquiring minds are reading the latest LPS Mortgage Monitor, released today.
    Foreclosure timelines continue to increase across the board – almost 40 percent of loans in foreclosure have not made a payment in two years, and 72 percent have not made a payment in a year or more. New problem loan rates increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days delinquent or in foreclosure.
    Here are a few charts from LPS.
    Click on any chart for a sharper image.

  4. tnharry and/or tony—

    if you’re out there—can you please post again what a non-judicial state foreclosure/sale attempt (by a foreclosure mill and/or “trustee” of empty trust), dismissal for lack of “subject matter jurisdiction” would look like—or rather how to do it?
    Sorry about the phrasing—but I’m sure you understand what I’m asking?!?
    Thanks.

  5. Fourteen Servicers Begin Lengthy Foreclosure Review Process
    By: Krista Franks 11/01/2011

    show details 7:14 AM (1 hour ago)

    I called and the servicer will send you a letter by 12/21/2011 to invite you to send in a complaint. The time will be by April 31, 2012. That effectively delays for a year from the consent. How many have lost their houses. What a scam. Website worthless. No live people only the person from the OCC press release.

    When asked who is the independent group she sad call the servicer.

    What another scam. Why so long to get a result.

    Fourteen Servicers Begin Lengthy Foreclosure Review Process
    By: Krista Franks 11/01/2011
    The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board both announced Tuesday that the independent foreclosure reviews of 14 large servicers issued in April are now under way.
    About 4.5 million borrowers could have their loans reviewed and potentially be compensated for imposed financial hardship, according to a previous statement by the OCC.
    According to the OCC, the review will take several months due to the volume of potential foreclosures to review.
    The foreclosure review is part of a broader list of enforcement actions for the servicers to rectify missteps in the foreclosure process. The enforcement actions mandated by the OCC include improved borrower communications, greater oversight of third-party vendors, updated management information systems, and the elimination of “dual tracking” – which takes place when a servicer forecloses while a borrower is being considered for a modification.
    The OCC issued enforcement actions to: Ally’s GMAC Mortgage, Aurora Bank, Bank of America, Citibank, EverBank, HSBC, JPMorgan Chase, MetLife, OneWest, PNC, Sovereign Bank, SunTrust, U.S. Bank, and Wells Fargo.
    The Federal Reserve Board issued similar mandates in April and is also requiring the four large servicers it oversees – GMAC , HSBC, SunTrust, and JPMorgan’s EMC Mortgage – to appoint a single point of contact to certain distressed borrowers.
    “The independent foreclosure review is a significant component of the mortgage servicers’ compliance with our enforcement actions,” said acting Comptroller of the Currency John Walsh. “These requirements help ensure that the servicers provide appropriate compensation to borrowers who suffered financial harm as a result of improper practices identified in our enforcement actions.”
    Independent consultants will begin reviewing cases in which borrowers believe they suffered financial harm due to foreclosure actions that occurred between 2009 and 2010.
    Servicers began mailing letters to borrowers Tuesday explaining the process of requesting a review, according to the OCC.
    If independent reviewers determine a borrower did face financial harm due to misrepresentations or errors by the servicer, the servicer will be required to compensate the borrower.
    “Borrowers are encouraged to carefully consider the information about the review program to determine if they should participate,” stated the Fed in its Tuesday announcement. “There are no costs associated with being included in the review.”
    The Fed is also calling on independent reviewers to conduct a comprehensive examination of certain categories of foreclosures. For example, they will look for violations of the Servicemembers Civil Relief Act and review all cases in which a borrower filed a complaint about their foreclosure proceeding.
    Borrowers’ requests for reviews will be accepted through the end of April.

  6. “The card issuer still services the account, but the assets are removed from its balance sheet. This allows the card issuer to issue more accounts and to reduce its capital reserve requirements, the amount of money banks are required by law to hold to do business. ”

    Who is the card issuer? that would be Citibank, Chase credit card, Cap 1, Discover, Am Ex, and so on.

  7. When I say banks are nothing more than marketing companies these days, here is why:

    “Securitization Of Credit Card Receivables

    The process of securitizing credit card receivables is very similar to that of securitizing mortgages and other loan obligations. A card issuer sells a group of accounts to a trust, which issues securities backed by those receivables. The card issuer still services the account, but the assets are removed from its balance sheet. This allows the card issuer to issue more accounts and to reduce its capital reserve requirements, the amount of money banks are required by law to hold to do business. This money doesn’t earn interest, so, naturally, the card issuer wants to reduce its required reserves as much as possible. As the cardholders pay on their accounts monthly, most of the money is sent to the trust, which pays the holders of the credit card ABSs interest and principal. The card issuer retains a servicing fee and part of the finance charge as profit, and also includes part of the principal—the seller’s interest.

    Securitization allows more rapid growth of banks specializing in credit card issuances by providing a source of funding and transferring risk. Before the securitization of credit card receivables, card issuers borrowed money from a bank or relied on bank deposits to fund credit card loans. Securitization greatly expanded funding for credit card issuers, including monoline issuers, and issuers whose main business is not banking or issuing credit cards, such as Target.

    Major credit card banks in the 1990s included Capital One, First United States, and MBNA.”

    http://thismatter dot com/money/bonds/types/abs/credit-card-abs.htm

  8. Here is a nice and easy to read explanation of all of your loans from a bank and turned into ABS and MBS.

    Make sure when you finish reading a page, you click on the bottom of that page to the NEXT page and read along.

    Keep in the back of your mind this question : Why won’t they reduce principle or give principle reduction? The answer is obvious, because all loans Mortgages, Auto’s, Student, Credit Cards are turned into ABS and MBS. This is the Wall Street machine taking over the USA.

    http://thismatter.com/money/bonds/types/abs/asset-backed-securities.htm

  9. America’s bankers are doing it with used Auto Loans

    http://www.huffingtonpost.com/2011/11/01/auto-subprime-securities_n_1070328.html

    instead of manufacturing goods America manufactures loans.

  10. Great article Neil.

    Here is another interesting article
    Victims of improper Foreclosures can submit claims.

    http://www.latimes.com/business/realestate/la-fi-foreclosure-errors-20111102,0,487669.story

  11. Banks lie about everything including their balance sheets. Say one thing do another. Show us one thing don’t show us another. They hope to rouse public sympathy by pointing blame at others….so we actually think there is a problem. Fed Res hides funds, so do the banks. I’ll bet you a donut.

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