Many people think that the bailouts, the money printing and the shenenigans by the US Federal Reserve and the US Treasury Department is what stopped the fatal decline of ’08. Many people think that “oh wow, it sure was ugly but at least they did the largest stick save in financial history”. Yet this is completely nonsense. What most people have missed, and indeed more commentators at the time should have vomited in public places over is the ending of mark-to-market practices, or rather the “Enronification” of the entire US financial system. Basically, assets on the balance sheets of financial institutions are now set at whatever value the bank feels like. Banks do not go bankrupt until incoming cashflow is to small to cover outgoing payments.
What this means is that as a bank closes, there are black holes on the balance sheets, meaning that the FDIC has to step in to save depositors. Or actually, it is the US taxpayer that has to step in and save the depositors. The FDIC has been broke for quite a few months, and continues to be broke. How bad are these problems? Read this, and realize what it means in regards to how large losses are waiting for US banks :
These last 11 failures of 2010 continue to evidence the extent to which management of the failed banks exaggerated the value of the banks’ assets. Viewed as a whole, the 11 banks had declared asset values of $2.56 billion and deposits of $2.26 billion. The FDIC estimated the closings cost 580 million, meaning the banks’ assets were really only worth $1.68 billion. Overall, bank management overvalued assets by $880 million, around 52%.
The last 11 banks that were closed, had by average inflated their assset values by 52%. This would indicate that as much as 1/3 of the asset values in the US financial system (if it is in the same state) does not exist. That is trillions we are talking. What this means is that when the larger institutions ultimately go bankrupt, there is not a chance in HELL that the FDIC can cover depositors. Thus, your money is NOT covered by deposit insurance, unless they print the money. What we are lucking at is the largest systemic cluster-fuck in financial history, and it will all unravel when the US Federal Government starts closing in on its debt-limit. That is, not the legal limit, rather the limit when 100% of US debt has to be monetized by the Federal Reserve. The current figure is around 65%.
What will they say, when US tax revenue isn’t even enough to cover the claims of depositors of failing banks? What will they say, when Medicare/Social Security/the FDIC and the US bond market fails simultaneously? You know they cannot do that. They have to print, and print they will. 2008 was a warning sign, and it was ignored. The problems in the US economy have since quadrupled, meaning that a “system reset” seems more or less inevitable. I’d say it all failed as congress voted yes for TARP, the second time. After that, it was too late. There is no way out of this hole.
But the thing you should really consider, as you sit reading this and smiling over my conspiratorial posts as you usually do is this : What if I’m right? Thats something that scares me to an extent that I usually have to pretend that I don’t believe what I am actually writing. It’s simply too astonishing, in a very very dark way, for my mind to comprehend. I thought 2008 was scary, because I started reading up. And all I see now is the US (and maybe world) economy heading straight into a black hole. I would apprecieate any arguments explaining why I’m wrong. Really. I would.