Tue Jan 10, 2012, 11:44 AM
dixiegrrrrl (48,855 posts)
Even the Wall St Journal is against the Fed's latest attempt to paper over bank losses.
Denninger posted a lengthy commentary today, with some of the most important issues in the middle of it.
One key issue is that WSJ is against the Fed's latest attempt to paper over bank losses.
Breaking down the Market Ticker report:
1. The Fed is has sent an unsolicited white paper to Congress, in an attempt to get Congress to cover the bank's butts on losses,
and the paper admits that if implemented, there will be losses which " must ultimately be allocated among homeowners, lenders, guarantors, investors, and taxpayers."
( anyone but the banks, that is).
Denninger helpfully links to the pdf of the paper
2. Further in the Ticker column are details of the fact that banks are sitting on HUGE piles of losses from 2nd mortgages, and a discussion of why these are monstrous ticking time bombs for all of us, esp. pension funds:
" * The losses are real but being hidden by further Fed actions! Just one example is the hundreds of billions of dollars of second lines (Home Equity and "Silent Second" mortgages) that are behind underwater, non-performing first line mortgages. These have an actual net present value in a foreclosure of zero, as they're not entitled to one penny of recovery until every dollar of the first is satisfied, and the first is underwater and thus will not be fully recovered. All of our large banks have monstrous exposures in this regard -- almost none of these loans were securitized and thus they are all sitting on bank balance sheets, most at nearly 100 cents on the dollar. These accounting values are fictions.
The reason that The Fed and our Government are desperate to hide these losses, praying for a miracle to somehow keep them from being recognized, is quite simple -- these long-duration investments are typically held by insurance companies and pension funds. Recognition of these losses will cause the allegedly "healthy" firms and funds that hold this paper to be shown to be severely impaired or worse."
I urge a read of the column. VERY illuminating. The White paper is also worth tucking away for posterity.
Hopefully one day it will be an exhibit in a trial of those who wrote and signed it.
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Even the Wall St Journal is against the Fed's latest attempt to paper over bank losses. (Original post)