The worst will not be over until we let the bad banks fail and the good ones start lending again. All this talk, I do not have an advanced economics degree (thank God because those guys got us where we are today) but it seems to me that until you let banks that cannot stay afloat fail, the profitable banks will not have any incentive to begin lending again.
If you had ten chickens and five of them were laying eggs and the other five were just taking eggs from your refrigerator to put in their nests wouldn’t you sell the five non producing chickens to KFC. Or would you keep getting eggs from your refrigerator?
Re: Shannon form Chicago’s comment below. If I understand you correctly you are saying you don’t understand or know what is going on therefore neither does anyone else. Anyone who offers a clear picture is ranting according to their preconceived prejudices.
The failure of the finance based economy of derivatives, credit default swaps, overinflated housing, and constantly increasing indebtedness was entirely predictable. It has happened before. The boom of the 1920’s followed by the bust of the 1930’s as people found they couldn’t all get rich quick. It happened before that repeatedly in the 19th century. The longest sustained growth in U.S. history occurred when the government placed reasonable regulations on banking and markets. They realized the invisible hand was just that, invisible. Businessmen who had lived through the 1930’s accepted that regulation because they did not want a repeat of what they had lived through.
Along comes the 1980’s and enough of that older generation had died that it was forgotten why the regulations were instituted to begin with. The regulation was dismantled. Businesses focused of finance rather than producing good products. Marketeering and stock trading became king. Today we see the results. Whitney and Roubini were not guessing. The curse of Cassandra, the Trojan oracle who warned of the danger from the Greek horse has followed them. She was cursed with being right but that no one would listen. The results of the financial activity of the last 12 years were as predictable as smoking near an open gas can. And they are even more damaging.
America is really a great country. Where else would a sheepish people be led and make financial decisions based on no numbers. The recent uptick is only a result of talking heads saying the right words – words without fact or backing. It is only a wish. Remeber, these are the same experts that didn’t see the collapse coming. Believe in them if you are a fool! You desreve what you get.
Wow! Things are suddenly OK in less than a few days. We went from “very bad” to “good” just by someone saying they are profitable. Note no one has said anything about the profit numbers or the huge indebtedness to the Government. Don’t believe the all of these lies! They (the leaches of Wall Street) are only gunning to get you to buy into an upticking market. I’ll bet anyone that within a few days the market will drop like a rock once the real numbers and facts come out. Things are bad out there and the last thing this country needs is to return to the good ole days of 2 years ago. The powers that be want just that and you only have to open your ears to hear it. We can’t go back and never will. It was all an illusion. Obama is nothing more than an opportunist who only cares about himself and his tax-evading cronies.
If there is any reason why there is no ‘faith’ and ‘credibility’ in the markets the guarded comments by the CEOs of banks show why. Do I believe that the banks are profitable in their ‘limited’ version of profitable? Yes. What they are not telling us is the full story. The full story would prove their comments otherwise. I was told by a math teacher in High School that numbers don’t lie. Give those numbers to a banker or someone on Wall Street or to our government and we soon realize that numbers can lie when spun to fit their objective. I for one stopped believing anything that was said by Wall Streeters and financial institutions a long time ago. They all have an agenda and that is to suck up as much money as possible so that they can get their obscene bonuses and make it seem as if we are all richer and wiser for believing their spin and sometimes fraudulent statements. When is America and the rest of the world going to wake up and see these financial captains as the hucksters they are. Want to buy a dot.com stock? Learn how to get rich through real estate? Call me at 1-800-cyn-ical.
Obama has saved the day. Oh my gosh we’re saved!!!!! Boy I’m so glad we voted for hope and change. He’s so awesome maybe he can cure cancer, aids, and poverty. Man I’m so glad we elected someone smarter than the rest of us. He has everything figured out. We’re so lucky!
Black? Hell no. I want to see them painted red. As in the blood of these shysters that continue to hold our nations future for ransom by demanding “bailout” after “bailout”. And as for this weeks rally? Nope. Not a chance that the ‘bottom’ is behind us. Definitely a dead-cat bounce as other posters have stated. The DOW will climb and claw its way back to the 7500-8000 range before it belly flops right back to where it belongs: 4000 ± 200.
Sure, it’s all over. We are fully stimulated. Dollar cost average in and make sure you’re 100% long at the next peak. Happy days are here again.
Well if someone gave my business billions of dollars in bailout money I guess hoarded it on my balance sheet I could be very profitable real fast also. Throw in the fact that the new Mortgage Relief Program of Obama’s is going to allow the government to use Fannie Mae and Freddie Mack to transfer the risk to the taxpayers from the banks of making these new forclosure relief loans and things are starting to look up if your a banker. Now change the M2M accounting rules and you have the icing on the cake, instant profitability!! Especially since nobody will be able to figure out if they are profitable or not. We will have several Enron’s operating again in the future and wonder what the hell happened………..again.
How do you go from ‘worst ever’ to ‘it’s all better’ in one damn day. Give me a break. My theory is that it was all about to come crashing down so they needed to lie to save the whole system. citi… ok BofA… ok retail sales… ok all at the same time?? Bull. You are being lied to.
Is the worst over? That’s anybody’s guess – and its just that, a guess. If people keep being told the sky is falling by certain people, more may continue to feel like walking away from their house, or credit card debt, or car loan is the thing to do.
Are some banks showing profitability? I’ll believe the CEO, particularly these that are under close scrutiny, before I’ll believe an analyst that doesn’t see the details, but just guesses at things based on what limited info they can get their hands on.
IMO sad to say the worst is not over.
The banks will only move forward when they all come clean. That will take a long time by the looks of it.
Yesterday’s TALKBACK on M2M accounting standards was instructive in this regard. A lot of people seem to think this is an accounting problem. I would like to hear from a few bank insiders on this issue.
The regulators could suspend M2M rules, but we would still have the problem that the banks would, in reality, be under-capitalized for the loans they hold or (the government) might wish (them) to make.
Are we willing to suspend all reserve requirements? Why not even allow every bank to just print their own money, to meet customer ‘needs’ just like the FED can do?
Marking the value of loans or securities down does not mean that they will never be collected on. If the banks write down their values, and keep the underlying loans in-house, they can still realize some value later, sometimes even more than their book valuation. Then they record a gain.
No one who has a mortgage at such a bank will be free and clear from their obligation to pay the bank back because that bank has ‘written the loan off or down’. But the banks need to have the flexibility IMO to be able to sell such ‘assets’ to other financial entities. Companies sell their receivables all the time. But no one will buy them at the currently-inflated values. Would we prefer that the banks take the loss at the time they sell some of these loan securities?
While we discuss all this, and while the politicians hold their various gabfests, the market is quickly revaluing houses and selling them to new owners. In the end, it matters little what the authorities decide. The market is the final arbiter. The authorities can just gum up the works and slow down the readjustment process.
The West ‘lectured’ Japan in the 1990-s about the Japanese ‘Zombie Banks’.
Please see an interesting story about Daiei written in 2002. http://query.nytimes.com/gst/fullpage.html?res=9903E2D7143FF93AA15753C1A9649C8B63
Guess what? We are now all ‘turning Japanese’.
We told Japan to clean up their banks. We told them that this would be the only way to prevent the malaise from continuing. We told them to have their banks write down or write off their bad loans and mark those banks’ stock holdings (part of the reserves) to market values.
Many Japanese banks instead kept on lending to their Zombie Company clients. If a particular Zombie Company could not pay its interest, hey, no problem — the bank just extended more loan money to the client so as to increase principal owing. That way, the loan stays on the bank’s books as a ‘performing loan’.
Some performance. It’s known as negative amortization — adding the interest owing to the principal and skipping payments on the loan.
Now we want to do what we told Japan not to do.
Well, which is it?
Fractional-reserve banking is already highly-leveraged. That is part of the systemic problems we are facing. Some day we will have face fixing our Broken Money System.
We cannot just take other societal assets and ‘cover’ these losses. There is no ‘outside’ caped-crusader who will drop money or other resources from the sky.
We are trying bailouts (or equivalently, avoiding meeting current M2M-type accounting standards) to ‘jump-start the economic system’.
The problem is that the correct analogy is that our economy is a single battery that has one set of positive and negative terminals on the top — and another set of the same terminals on the side.
We take the current from the side terminals and attempt to jump-start via the top terminals. All we have done is to steal ‘juice’ from the side of the battery and tried to run it into the top. You can see that the battery is not going to get charged in this way.
And there is no external starter motor or battery charger. We are all ‘inside’ that single economy, that single battery. Even the FED is inside that battery-cum-Economy.
Ever reach down and try to lift yourself up by your bootstraps? Pretty hard to do.
The reason we think we can do it, is that this tactic seems to have worked in the past. But this was always a mirage. The Federal Reserve in the past just lowered the interest rate. Or the government just temporarily lowered the tax rate.
Such ’stimulus’ seems to work because it leads to more people making loans to do short-term things like open up more businesses and more gambling casinos and build more houses and open up more massage parlors and pedicure shops.
When the ’stimulus’ disappears so do the reasons for having established those redundant enterprises. But the businesses that close down may not be the same ones that were most recently opened. Indeed it might be the earlier-established businesses (with slightly older machinery, etc.) that might be the losers. But there is no overall gain to society.
This tactic seems to work and it does employ more people, for a while. Then it no longer works. That time has now arrived IMO. But we are still following the same old strategy. It’s human nature.
It’s because we have not correctly recognized why it seemed to ‘work’ in earlier times (when it never really did — all we did was buy more time to put off the day of reckoning). So we keep trying.
But now the day has arrived IMO that it is just about clear to everyone that there are no more ‘opportunities’ to open up more gambling casinos and build more houses and buy more cars. Those opportunities were never real in the first place in earlier times of ’stimulation’ — we were just fooled into thinking they were real. Was the Housing Boom of 2002 – 2007 real in your opinion?
What we did in 2002 to 2007 was to artificially bring forward in time, the building of houses for the next decade or longer. We brought forward the buying of cars for the next 5 years. And we brought forward the buying of common stock for the next who knows how many years.
Now I see here in Canada that some car companies — Ford I believe, who otherwise has operated in a very businesslike manner, not asking for bailout money — are asking the Federal Government to give everyone with a ‘clunker car’ $3500 toward the purchase of a new car to ’stimulate’ the economy.
Where will that lead? Nowhere good. We will buy a little more time. But nothing will mend itself from doing such interventions. Things are just too out-of-whack, too broken. We are just pumping in juice at one end while depleting it from some other location.
So I think the correct answer to today’s question from Paul is that “It’s a DEFINITE Head Fake”.
The banks will not do any better than the overall economy. And it seems like we’re a long ways from understanding what got us here and what it will take to get us out.
Being as the banks are fish that swim in the same waters that the rest of the economy resides in, IMO investors have to really beware such Bear Market Rallies. Dead cats apparently still seem to bounce pretty high.
To Answer the question “No”, but it does prove one point though. What is says thought is media attention plays a lot into the whole thing. And short seller made a killing with the media perception. And look what happens when a major CEO says something positive even if it is not, the stock goes up amazing. If you want people to put money back in the market we need to have less doom and gloom, and short selling. And to really get this thing going we need the stimulus to starting working those infrastructure jobs too.
Sure, it’s possible. What we should start seeing less of are the huge writedowns on toxic assets. They’ve already been marked-to-market to pennies on the dollar…not much further left to mark down. Couple that with the fact that bank core businesses (apart from these toxic assets) have always been consistently profitable, even during recessions, and you are left with a high probability that these big banks may pull out a Q1 surprise.
There are two questions here; largely unrelated.
(1) Is the financial sector stabilizing, and (2) should we belive analysts.
with respect to 1, my answer would be maybe. The fact is none of us have access to the big banks complex balance sheets. We simply don’t. This lack of transparency caused teh problem, but it also means everybody commenting on the situation is talking about their own preconceived prejudices and opions and ranting away freely with no basis in actual reality or fact. (i.e., see post by Pete Atkins, Iowa, below). It may be the dark before the dawn. It may be teh dark before evn more dark. Who knows? None of the commenters because we have about 0.0001% of teh facts to go on.
(2) Should we trust analysts. This one is easy. No. They have access to just as little information and are ranting based on their own preconceived notions, compounded with a good deal of fervant wishful thinking that a certain outcome will occur because they have bet their client’s money on such occurrance. They are about as accurate as medieval soothsayers and carnival fortune tellers.
True, every once in a while they are right, such as Whitney and roubini in this downturn. But they were wrong 99,999 times before that and will be wrong 99,999 time sagian after it. even a stopped clock is right twice each day; and that is about as accurate as people like Roubini and Whitney have been.
So the banks want to paint it black? Maybe they should hire the Rolling Stones. Are they in the black if the TARP funds from the trough are not counted in. This is just an excuse to give the execs big bonuses again.
The ‘worst’ could be over (eventually, they run out of things to write down), but there’s still some ‘bad’ or ‘worse’ left to go. Home loan interest rates resetting on exploding HARMs to higher levels continue to push borrowers over the cliff every day. Message to banksters: STOP THE RESETS, NOW !
We’re seeing home prices resetting back down to normal, pre-bubble prices (about 1998 prices), and we need to see HARM interest rates reset in a downward direction, too.
If the big banks are tallying up operating income during the first two months of each quarter and then taking the massive loss reserves in the last month of each quarter, then the CEOs and analysts can all be right: small profits for the first two months and massive losses for the last month and entire quarter, each quarter.
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