The US banking system has gone from barely insolvent to deeply negative in capital core during the last four weeks, in a dramatically worsening slide. The Federal Reserve balance sheet reports a worsening negative capital core position, according to Barrons. What was a MINUS $8.5 billion US bank reserves capital core in early March has turned to a MINUS $61.8 billion capital core by March 31. Refer to non-borrowed reserves. A shocking reversal of fortune has befallen the US banking system since mid-December, when free reserves logged in at PLUS $43.8 billion.
The worst has not been seen for big leveraged financial institutions, not yet, not by a long shot. They are walking the Battan Death March, seeking reprieves, forced to eat their own fecal diets. They might have shipped toxic bonds worldwide, but they stuffed plenty in their own cupboards and refrigerators, now ending up on their dinner tables. WE HAVE YET TO SEE THE FAILURE OF BOATLOADS OF INNOVATIVE PRIME ADJUSTABLE MORTGAGES. They are called Exploding ARMs for a reason. Unlike subprime loans which force monthly payments up by 30% to 50%, Exploding ARMs force monthly payments up by double or triple. They punish homeowners for their negative amortization violations, whereby they underpaid interest and tripped upper limit thresholds. Such folks are in real big trouble, since in most cases, they face being underwater with negative home equity at the same time, owing more to the bank than the home is worth. And then there is the $1000 billion in shaky credit card debt, and the gaggle of failing car loans. Car repossession rates have jumped to a decade high. And car thieves are stealing catalytic converters in pursuit of platinum, worth up to $1000 per unit on large SUVs. Oy oy oy! The nightmare of housing, including trashing foreclosed properties, bribes for keys to the homes (called Anger Escrow), food stamp usage on the rise, all is covered in the April HTL newsletter. The US is slowing sliding into a Third World nation, whose premiere trait is puppet governmental leaders of corrupt variety.
Sir Alan Greenspan has come under fire from many fronts, justifiably. He is the chief architect, apologist, and underwriter of the banking system that busted last year. He boasted of sophisticated risk offloading models that brought about stability. He boasted of innovative financial instruments that enabled a long housing boom with more participants. Too bad his design was heretical and flawed! Few seem to properly recognize what his original sin was, committed in 1994. It was then that he departed from a responsible monetary policy. He publicly defended an important change. Instead of permitting the money supply to grow in consistent step with economic growth, he unleashed money supply growth, letting it grow more briskly. Only if the Consumer Price Index showed a warning sign in a rise would the Greenspan Fed halt monetary growth. What an insane concept!!! The CPI is by far the most corrupted economic statistic, now under-stating price inflation by almost 6%. Two years later, he gave his famous ‘Irrational Exuberance’ speech decrying the stock frenzy, as the Dow Jones Industrial index jumped from 4000 to 5000 to 6000. Here was the root problem, the original sin, the initial heretical act by a central banker, where the seeds of financial crises were sown. The wreckage came in the Asian Meltdown in 1997, the Russian Default in 1998, the US tech telecom stock bust of 2000, and the housing & mortgage debacles from 2007 through 2011. This final crisis is the worst of all, since home equity losses will match stride for stride the bank bond losses, trillion$ for trillion$. However, the ultimate disaster will be what we see now, TOTAL DESTRUCTION OF THE US BANK INDUSTRY. This is the Greenspan Legacy! The desperate attempts to fight it will send gold to $2000 easily, and silver to $40 easily.
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