Bloomberg's David Reilly provides us with some very interesting, easy-to-understand commentary regarding a subject that's been his focus of late: fiction within our large banks' balance sheets. Here's the latest, "
Banks' Hidden Junk Menaces $1 Trillion Purge."
Banks' Hidden Junk Menaces $1 Trillion Purge
David Reilly
March 25 (Bloomberg) -- The U.S. government wants to clear as much as $1 trillion in soured loans and securities from bank balance sheets with its latest bailout plan.
That might prove a short-term respite. No sooner might the Treasury Department mop up those assets than $1 trillion or more in new ones spring up to take their place.
That is due to the potential return of assets held in so- called off-balance-sheet vehicles that banks may soon have to put back onto their books. The end result may be that banks are in no better shape to increase lending even after the government bailout.
Reilly reminds us that off-balance-sheet "assets" at just the "...four largest U.S. banks--Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- were about $5.2 trillion, according to their 2008 annual filings."
Even if only a portion of those assets return to the banks - - as much as $1 trillion is one dark possibility -- it would take up lending capacity the government is trying to free.
In fact, there are many other factors signalling why it's highly unlikely that the current effort to unfreeze consumer credit markets will succeed. Perhaps, most notably, because banks really don't want to see that happen (see link at beginnng of this paragraph).
For over six months, we've been told by our government that many of these trillions of dollars in taxpayer funds were being directed towards Wall Street to 'inject liquidity' into the marketplace, only to see the effort fail on an epic scale.
One of the real reasons why the effort failed was due to the reality that the banks were taking our money and doing just the opposite, since it's on record that more than $1.5 trillion in consumer credit was being completely eliminated from the marketplace, and that's just from these four leading banks, alone:
Citigroup is cutting credit lines by $600 billion.
Bank of America $500 billion.
JPMorgan Chase $300 billion.
American Express $100 billion.
(NOTE: Substitute Wells Fargo on the short list, immediately above, and it's the same four that Reilly's mentioning in his "off-balance-sheet-assets" problem a few paragraphs up, too.)
Then, on Leno last week, President Obama--for the first time that I can recall anyone in our government acknowledging this--came out and said that the actual intent of funds poured into Wall Street up until recent weeks was to repair banks' balance sheets and prop up their loss reserves--not to inject liquidity into the consumer credit marketplace.
But, this time it's going to be different, so we're told. This time, they're really going to unclog the consumer credit marketplace...just as soon as they spend that next trillion that they're working on now...and then another trillion after that which we don't even know about yet! (Sound familiar? See top of diary about all of that.)
Why, it's to the point where even the screams from the blogosphere are telling us, "See, even people like staunch nationalization supporter Nouriel Roubini are 'supporting' Geithner now!"
Yes, the spin's getting mighty thick.
But, if you really read that article today, as long as you focused on the headline and read it the way you wanted to interpret it, it's easy to see how some could jump to that conclusion...as long as you didn't draw attention to a couple of paragraphs buried at the very end of the story: "Give credit to Timothy Geithner's new toxic asset plan."
Give credit to Timothy Geithner's new toxic asset plan
By Matthew Richardson and Nouriel Roubini
Wednesday, March 25th 2009, 4:00 AM
...But let's not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent in making clear that there is still a wealth transfer taking place here - from taxpayers to investors and banks.
Also, while this plan is designed by the Treasury, many of the big guarantees are being made by the Federal Deposit Insurance Corp. and the Fed. Why not use only Treasury funds? Well, then the administration would have to deal with Congress. While the populist hysteria of last week suggests this end run might make sense, there is something a little worrying about circumventing the legislative process on such a huge investment.
Yep, according to "the blogs," another few months and everything's just going to be peachy on Main Street. Hey, if there's another trillion or two needed (that we're not planning on now) to support Wall Street, we'll just print more money.
That's the ticket!
You betcha...