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A good article by Mike Whitney - Are The Banks In Trouble?
“The hope of every central bank is that the real problem can be kept from public view. The truth is that the public---even professionals on Wall Street---have no clue what the real problem is. They know it has something to do with derivatives, but none of them realize that it’s more than a $20 trillion mountain of unfunded, unregulated paper that has just been discovered to not have a market and, therefore, no real value… When the dollar realizes the seriousness of the situation---be that now or sometime soon---the bottom will drop out.” Jim Sinclair, Investment analyst
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That's right; nearly $1 trillion in worthless asset-backed paper is clogging the system putting the kybosh on the big private equity deals and spreading panic through the money markets. It's a slow-motion train wreck and there's not a thing the Fed can do about it.
This isn't a liquidity problem that can be fixed by lowering the Fed's fund rate and creating more easy credit. This is a solvency crisis; the underlying assets upon which this world of "structured finance" is built have no established market value, therefore---as Jim Sinclair suggests---they're worthless. That means that the trillions of dollars which have been leveraged against these shaky assets---in the form of credit default swaps (CDSs) and numerous other bizarre-sounding derivatives---will begin to cascade down wiping out trillions in market value.
How serious is it? Economist Liu puts it like this:
"Even if the Fed bails out the banks by easing bank reserve and capital requirements to absorb that massive amount, the raging forest fire in the non-bank financial system will still present finance capitalism with its greatest test in eight decades."
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“Greenspan presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
On Greenspan's 18-year watch, assets of US government-sponsored enterprises (GSEs) ballooned 830%, from $346 billion to $2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of borrowers such as middle- and low-income homeowners, farmers and students. Agency mortgage-backed securities (MBSs) surged 670% to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than $2.7 trillion.”( Henry Liu, “Why the Subprime Bust will Spread”, Asia Times)
"The greatest expansion of speculative finance in history". That says it all.
.
.
That's right; nearly $1 trillion in worthless asset-backed paper is clogging the system putting the kybosh on the big private equity deals and spreading panic through the money markets. It's a slow-motion train wreck and there's not a thing the Fed can do about it.
This isn't a liquidity problem that can be fixed by lowering the Fed's fund rate and creating more easy credit. This is a solvency crisis; the underlying assets upon which this world of "structured finance" is built have no established market value, therefore---as Jim Sinclair suggests---they're worthless. That means that the trillions of dollars which have been leveraged against these shaky assets---in the form of credit default swaps (CDSs) and numerous other bizarre-sounding derivatives---will begin to cascade down wiping out trillions in market value.
How serious is it? Economist Liu puts it like this:
"Even if the Fed bails out the banks by easing bank reserve and capital requirements to absorb that massive amount, the raging forest fire in the non-bank financial system will still present finance capitalism with its greatest test in eight decades."
.
.
“Greenspan presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
On Greenspan's 18-year watch, assets of US government-sponsored enterprises (GSEs) ballooned 830%, from $346 billion to $2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of borrowers such as middle- and low-income homeowners, farmers and students. Agency mortgage-backed securities (MBSs) surged 670% to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than $2.7 trillion.”( Henry Liu, “Why the Subprime Bust will Spread”, Asia Times)
"The greatest expansion of speculative finance in history". That says it all.
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