[Post Summary]My beloved had turned away and was gone.
—Song of Solomon
* * * * *
Apparently Wall Street's attempt at maintaining status quo treatment of a bankrupt financial system is sinking faster than Titanic. The idea for a 'Bad Bank' is rapidly appearing nothing more than a last gasp effort at salvaging the legitimacy of hopelessly insolvent structured securities created in a Ponzi scheme dwarfing Bernie Madoff's.
On Tuesday, January 27, 2009 CNBC's Steve Liesman broke the "story" claiming Treasury and Wall Street executives were in talks discussing how non-performing, illiquid assets could be removed from bank balance sheets, allowing banks to once again get back in the business of lending.
However, by the end of the week the idea appeared as dead as Elvis. The major stumbling block, of course, is pricing these illiquid pieces of paper euphemistically called "assets."
One wonders whether, at the time these securities were taken on banks' books, due diligence concluded the physical economy possessed ample capacity enough to generate such wealth as would be necessary to ensure payment of the massively inflated supply of structured products that were being adding to the financial system like tomorrow might never come?
Honest investigation likely will conclude no due diligence of this sort was done. So, the concern among bank boards simply had to be whether the supply of structured securities could continue expanding more or less indefinitely. If so, there would be no financial claim that could not somehow be made good. The so-called assets on the balance sheet would remain sound. If not, then problems were sure to abound because, absent ability to expand supply, a squeeze for capital would be on.
Everyone knew this. Anyone who says otherwise (Jamie Dimon) is either ignorant or lying. The extent to which this is easily proved only awaits Congressional inquiry.
I have been reading about this risk for years. So, at this point any concerted effort to maintain the legitimacy of securities-based finance should be seen as nothing more than a continued attempt to further perpetrate the fraud that brought us to this extraordinarily vulnerable point in the first place. Anything short of a massive write-off and reorganization in bankruptcy is doomed to fail. The physical economy's wealth-generating capacity — stripped down and shipped overseas while what remained was leveraged to the hilt — simply has been overwhelmed by a mountain of financial claims lacking anything of value to leverage further still.
Not even the U.S. Treasury can maintain appearances of solvency forever. Either this failed regime of myriad derivative securities upon which our financial system is floundering is put out of its misery, or the nation's credit worthiness will be brought to ruin.
Wall Street might scream in protest over the coming nationalization of the banking system, but odds this financial mess can be bailed out, leaving equity and bond holders intact, are about as likely as a day soon coming when pigs fly.
—Tom Chechatka
0 comments:
Post a Comment