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$1.1 T Potential Loan Losses Plus $700bn Securities Writedowns
RGE Monitor ^
| 01/20/09
Posted on 01/21/2009 6:05:45 AM PST by TigerLikesRooster
$1.1 T Potential Loan Losses Plus $700bn Securities Writedowns: How Sound Is the U.S. Banking Sector?
- Jan 20 Roubini/Parisi: Assuming a further 20% fall in house prices and unemployment peaking at 9%, we project total loan losses to amount to $1.6T out of $12.4T loans outstadning. Of these $1.6T loan losses, about $1.1T accrue to U.S. banks and brokers.
- Mark-to-market prices as of December imply around $2T in writedowns on 10.8T securities outstanding. Flow of funds data show that 40% of U.S. originated securities are held abroad. U.S. banks' share of writedowns is about 30-35%, or 600-700bn according to weights in IMF GFSR October 2008, table 1.1
- Total loan and securities losses amount to $3.6T, half of which accrue to the U.S. banking system, or $1.8T. Capitalizaiton of FDIC banks is $1.4T, that of investment banks as of Q3 $110bn. If projected loan and securities losses materialize, the U.S. banking system is close to insolvency despite TARP 1 of $230bn and private capital of $200bn.
- Chris Whalen (IRA): The bad news is that estimates that put aggregate charge-offs for all US banks over the next 12-18 months above $1 trillion are probably in the right neighborhood. The entire banking industry only has $1.5 trillion in capital, so new equity must obviously be provided by Washington and/or private investors.
- Other estimates: Goldman Sachs expects a further $1.1T in loan losses alone for a total of $1.6T.
- Calculated Risk: I think the U.S. residential credit losses will be in the $1 to $1.5 trillion range and additional credit losses from corporate loans and bonds, commercial real estate, credit cards, and other consumer loans will probably add close to another $1 trillion in losses.
- Roubini: In order to restore healthy credit conditions, the banking system needs about $1-1.5T in public or private capital. This calls for a comprehensive solution along the lines of a 'bad bank' or RTC.
- Krugman: 'Bad bank' throws good money after bad. A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks' debts to make them solvent; and sold the fixed-up banks to new owners
- Roubini: in order to resolve this financial crisis it is not enough to take the
bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via asignificant debt reduction on their mortgages (an HOLC program like the one that was implement during the Great Depression); and also recapitalize undercapitalized banks with public capital inthe form of preferred shares (as the RFC did with 4000 banks during the Great Depression). An RTC scheme without an HOLC and RFC component would not resolve two fundamental problems: 1) millions of households are insolvent and unable to service their mortgages; 2) the financial system is vastly undercapitalized and needs capital to avoid an ugly credit crunch and to foster new credit creation that is needed for future growth--> That is why I proposed the creation of a HOME (Home Owners Mortgage Enterprise) that would
be a combination of an RTC, a HOLC and a RFC.
TOPICS: Business/Economy
KEYWORDS: loan; loss; writedown
To: TigerLikesRooster; PAR35; bamahead; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; ...
2
posted on
01/21/2009 6:06:21 AM PST
by
TigerLikesRooster
(kim jong-il, chia head, ppogri, In Grim Reaper we trust)
To: TigerLikesRooster
BS ! Loan losses may add up to $ 2.7 Trillion on their own. Mountains and mountains of forged loan documents and forged exotic derivative paper is floating out there. Securities write downs may add up to another $ 2 Trillion. The entire world financial system is BK. All because greedy Wall Street crooks wanted to maximize their bonuses.
I say. "Off with their heads ! All of them !"
3
posted on
01/21/2009 6:17:32 AM PST
by
ex-Texan
(Ecclesiastes 5:10 - 20)
To: TigerLikesRooster
Like some of us didn't already know the monster is still very much alive, very hungry and is being purposely hidden behind the curtain?
Maybe if we let another 100 million illegals into the country, support them and never talk about any of this, the problem will fix it will all go away, won't it? Uhhh, that's until the new influx $1.8 trillion is skimmed from the top by multi-million dollar bonuses and the cooked books that scam with the unregulated derivatives markets.
4
posted on
01/21/2009 6:23:20 AM PST
by
RSmithOpt
(Liberalism: Highway to Hell)
To: ex-Texan
I also feel that the amount involved is much higher than he or any other experts can handle with their bag of tricks and provide lime light to their ‘political hero.’
5
posted on
01/21/2009 6:39:04 AM PST
by
TigerLikesRooster
(kim jong-il, chia head, ppogri, In Grim Reaper we trust)
To: ex-Texan; RSmithOpt
Many of well-known economic blogs are now starting to show their political bias. Most of them tend to root for 'their hero,' Zero.
They are beginning to recast the current problem as being solvable with massive money supply and spending program. They still cling to the illusion that no drastic elimination of their favorite social and economic pet projects.
Without both liquidation of heavily indebted entities and spending cut to the level they find too painful, they will only make things worse by injecting money into the bottomless pit which cannot be filled.
6
posted on
01/21/2009 6:49:40 AM PST
by
TigerLikesRooster
(kim jong-il, chia head, ppogri, In Grim Reaper we trust)
To: TigerLikesRooster
Well put and extremely accurate in the truth. The one thing I have learned from the past that is a given, and that is, Libs and politicoho's have an extremely difficult time with realities.
Many to this day, though educated, refuse to at all acknowledge simple math as well as the history w/ regards to documented past economic and political blunder.
7
posted on
01/21/2009 8:02:29 AM PST
by
RSmithOpt
(Liberalism: Highway to Hell)
To: TigerLikesRooster
When you build your empire on moving worthless pieces of paper around, you have a worthless empire.
8
posted on
01/21/2009 8:20:49 AM PST
by
Wolfie
To: TigerLikesRooster; Travis McGee; M. Espinola
9
posted on
01/21/2009 10:47:17 AM PST
by
ex-Texan
(Ecclesiastes 5:10 - 20)
To: All; TigerLikesRooster; Travis McGee; M. Espinola
Perhaps I really ought to say something more. For all the Wall Street shills out there: Looks like banking stocks are not going to get a boost just because Obama was sworn in. . .
10
posted on
01/21/2009 11:11:51 AM PST
by
ex-Texan
(Ecclesiastes 5:10 - 20)
To: ex-Texan; All; TigerLikesRooster; Travis McGee; M. Espinola
Giving away free money is no way to sustain an economy.
Giving away productive people’s money, is no way to encourage & sustain a productive economy.
We’re all in for MAJOR trouble.
11
posted on
01/21/2009 5:28:12 PM PST
by
4Liberty
(Discount window +fractional reserve banking = moral hazard + bank corporate welfare + Inflation tax)
To: 4Liberty; All
Isn't it great to live in America . . . ?
The Evidence is Clear: Paulson's 'Bailout Bait and Switch'
Paulson and Bernanke ought to be arrested immediately. For treason, perjury before Congress and major financial fraud. But that will never happen. Obama is calling all the shots now.
The Big O stole some old pages out of Mussolini's Play Book. After all, he is merely a tool for the central banks.
12
posted on
01/21/2009 8:55:43 PM PST
by
ex-Texan
(Ecclesiastes 5:10 - 20)
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