absolutideas

“The Wall Street maestros sold the investment community a bill of phony goods that will be evident by summer. They engineered a bank sector rally based on falsified earnings reports, orders by the USFed to keep the Bank Stress Tests secret until May, a return of the uptick short stock rule, and a return to valuing bank assets by creative methods based upon valuation models. Those hidden proprietary models contain a scad of silly assumptions like a 7.0% jobless rate. The March data already gave us 8.5% on that meter, but the reality-based Shadow Govt Statistics claim the jobless rate (when people without jobs are counted) is 17.0% actually.”

The official FDIC Banking Profile report from the fourth quarter of 2008 reveals that failing loans have risen faster than reserves. The big banks cannot bring in new capital (from TARProgram, USGovt-sponsored carry trades, or equity investors in Saudi Arabia) to match growth in their losses. This has caused the ‘coverage ratio’ to plunge below 100%, cut in half since 2005. It is below 80% actually (shown in red). The big banks must dig into earnings to build loan loss reserves. 

Michael Mayo of Calyon Securities  said, “Mortgage related losses are about halfway to their peak, while credit card and consumer loan losses are only a third of the way to their expected highest levels. The nation’s largest banks may be transitioning from a financial crisis marked by write-downs of capital, to an economic crisis featuring large loan losses.” And then the headline catching report from Calyon Securities suggesting that total bank loan losses could reach 5.5% by the end of year 2010.

 

read full article by Jim Willie here

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