one chart that is important to understand what is happening with the US banks.
http://research.stlouisfed.org/fred2/series/BOGNONBR
Non-Borrowed Reserves. the banks are supposed to have reserves to cover their own debts & liabilities. they have customer deposits, which are a form of reserves - unless people panic and pull money out of their accounts.
starting in February 2008, the number went negative. meaning the only way banks en masse could meet reserve requirements was with borrowed money. at first the number was 10 billion. then 20 billion.
now, 125-130 billion. that is how much US banks are away from being solvent, as defined by the regulatory standards (ratios of reserves to loans) that constituted SOP (standard operating procedure) until earlier this year.
the slope of the non-borrowed reserves curve - 20 billion in March, call it 120 billion in September. increased 100 billion over a period of 6 months. in other words, US banks are having to borrow more and more and more to meet reserve requirements, at a rate that is quite historical.
i think the technical economic details of what is occurring is one of the most fascinating things i have ever seen.
Cliff Notes version - i think this is the biggest financial train wreck in the history of our species. for people that get caught in the collapse, e.g. losing life savings, it is and will be extraordinarily painful.
the odd thing is, this whole mortgage-backed securities industry was really a class of products that were only purchased by wealthy people & financial institutions. however, because these credit derivative products permeate our financial institutions, on which working folks & small businesses depend, the choice to let those institutions fail is hard to imagine.
if the investments that were made to wealthy people could be separated out, i would say, let them take the loss. if the fact that their investments were leveraged causes their wealth to be wiped out, i would say, so it goes, that's what happens when you invest using borrowed money. Warren Buffett would still be there with the funds to run MBIA, one of the bond re-insurers, an important but obscure part of this situation. Gates would still be there.
i wonder, as the government starts dissecting the products they just bought, e.g. the Longshore credit derivative, what will they do ? i would ask, "who bought this product, who owns it". it was sold by a hedge fund, who sold shares in the product to banks and wealthy investors. the hedge fund should have a list of customers. the Longshore CDO is worth 10 cents on the dollar. i don't know the practice, if it's a time "deposit" that is cashed out at a particular time, or if investors can choose to wait, like not selling a stock when the price has fallen.
multiply x 1000, that's the task the government has taken on. who will pay the salaries of the people who are assigned to unwind and dissect this whole mess ?
are lawyers going to make a HUUUUGE amount of money from this situation ?
http://research.stlouisfed.org/fred2/series/BOGNONBR
Non-Borrowed Reserves. the banks are supposed to have reserves to cover their own debts & liabilities. they have customer deposits, which are a form of reserves - unless people panic and pull money out of their accounts.
starting in February 2008, the number went negative. meaning the only way banks en masse could meet reserve requirements was with borrowed money. at first the number was 10 billion. then 20 billion.
now, 125-130 billion. that is how much US banks are away from being solvent, as defined by the regulatory standards (ratios of reserves to loans) that constituted SOP (standard operating procedure) until earlier this year.
the slope of the non-borrowed reserves curve - 20 billion in March, call it 120 billion in September. increased 100 billion over a period of 6 months. in other words, US banks are having to borrow more and more and more to meet reserve requirements, at a rate that is quite historical.
i think the technical economic details of what is occurring is one of the most fascinating things i have ever seen.
Cliff Notes version - i think this is the biggest financial train wreck in the history of our species. for people that get caught in the collapse, e.g. losing life savings, it is and will be extraordinarily painful.
the odd thing is, this whole mortgage-backed securities industry was really a class of products that were only purchased by wealthy people & financial institutions. however, because these credit derivative products permeate our financial institutions, on which working folks & small businesses depend, the choice to let those institutions fail is hard to imagine.
if the investments that were made to wealthy people could be separated out, i would say, let them take the loss. if the fact that their investments were leveraged causes their wealth to be wiped out, i would say, so it goes, that's what happens when you invest using borrowed money. Warren Buffett would still be there with the funds to run MBIA, one of the bond re-insurers, an important but obscure part of this situation. Gates would still be there.
i wonder, as the government starts dissecting the products they just bought, e.g. the Longshore credit derivative, what will they do ? i would ask, "who bought this product, who owns it". it was sold by a hedge fund, who sold shares in the product to banks and wealthy investors. the hedge fund should have a list of customers. the Longshore CDO is worth 10 cents on the dollar. i don't know the practice, if it's a time "deposit" that is cashed out at a particular time, or if investors can choose to wait, like not selling a stock when the price has fallen.
multiply x 1000, that's the task the government has taken on. who will pay the salaries of the people who are assigned to unwind and dissect this whole mess ?
are lawyers going to make a HUUUUGE amount of money from this situation ?
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