Obviously, in the real world, the assets that the banks have on their books are more complicated than that for dollhouses. But, if the banks had to sell them now, in today's market, they'd almost certainly take a huge loss -- a loss big enough to wipe out their capital and the capital of their depositors, and that would shut them down.
And it's not just a few banks. Banking experts estimate that more than a thousand U.S. banks are either facing this situation right now or soon will be. And that includes -- and this is the crucial point -- many of America's largest banks. Bottom line: They owe more money than they have. And there's a nasty little word for this that no one wants to utter: insolvent.
But you don't have to take my word for it. Listen to Jeremy Siegel, who is known as the Wizard of Wharton -- Wharton of course being the famous business school.
Question posed to Jeremy: How many banks right now do you think would be insolvent, if bank examiners came in and hard-headedly evaluated what they actually have on their books?
Jeremy replies: "I wouldn't be surprised if Citi and Bank of America, if they were to acknowledge the current true value of their assets, they would no longer be able to cover depositors and bond holders and it would wipe out their shareholder equity."
Translation: Jeremy Siegel is saying that at two of the biggest banks in the US, their true assets are too small to cover their liabilities. These losses, if acknowledged, would effectively wipe out their capital and there would not be enough left over to pay the depositors and all the other people who lent them money. That is no small matter, it is huge.
It's true that depositors with a regular savings account would not lose any money under practically any scenario because the government guarantees their deposits up to 250,000 dollars. And provided the FDIC didn't run out of funds, they'd all get their money back. The problem is that big banks get lots of their money from big investors who lend them millions or even billions of dollars, and that money is not protected by the FDIC. If the banks go down, because they are forced to face the truth and acknowledge it to one and all, these big investors could lose their billions, and the consequences of that would ripple around the world. Therefore, the lie must be kept. It must be maintained. The truth must not be publicly acknowledged. And it then becomes imperative that the Fed gives the banks enough money to keep them operational, restore confidence in the banking system as a whole, and pay their depositors whenever the depositors want their money.
Therefore, thanks to critically needed help (hundreds of billions of dollars in no-interest or virtually no-interest loans) from the Fed, big banks like Citibank and Bank of America are able to maintain the lie and haughtily dispute the claim that they're insolvent. Based solely on their blind faith that the housing market is going to come back, both banks say they have more than enough capital and there's no need to worry. And as long as our federal government can keep borrowing money from China and elsewhere around the world, thus allowing the Fed to create out of thin air all the additional billions that are needed by all these secretly insolvent banks, they are right: there's no need to worry.
Next Page 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
4
1
1
