Photo above - this chart might refute the theory that "the future's so bright we're gonna need sunglasses".
If you thought the crash and burn failures of several huge US banks earlier this year – one which was piloted by a Federal Reserve governor – marked a turning point, think again. The link below shows that banks have accumulated a staggering $684 billion in losses on the Treasury Bills. Just the Treasuries they already own and haven't been able to dump yet. See the link below.
Somebody in this forum, a pundit who is living paycheck to paycheck, is likely to reply “$700 billion is chump change!”. Not to the FDC. They've had to spend $23 Billion bailing out failed banks already this year. So, $684 billion is . . . ahem . . . A LOT MORE. I'm not going to calculate the exact percentage. About 30X as much. ($23 billion X 30 is around $700 billion)
Of course, when a bank fails, not all their bad Treasuries, loans, and deposits have to be covered from the FDIC vaults (which are simply our tax dollars, if you want to think rationally about it). Bad banks are typically merged into good ones through government diktat, with the FDIC picking up the difference. Does this make the surviving (good) banks stronger, or weaker? This isn't a trick question. Intuition says if you drink poison, you get sicker, despite Nitzsche's bizarre assertion that “whatever doesn't kill you, makes you stronger.” Nietzsche never ran a bank, nor was he a Federal Reserve official, for that matter. (Nietzsche died of syphilis at age 55. This is true - you can look it up.)
Okay - let's peel back the next layer of the onion – the good bank probably gets sicker in proportion to the amount US Treasuries it has to swallow from bad banks, right? If a bad bank is sitting on $100 billion in unrealized US Treasury losses, and (hypothetical example) JP Morgan Chase is “persuaded” to swallow the entire bottle of poison, and take them over, then JPM might get $100 billion sicker too. Or less, if they only volunteer to drink half the bottle. If anyone in this forum is an actual FDIC or Federal Reserve official, and I'm wrong about this, please correct me.
At this point, we should allow the anarchists, socialists, communists, and anti-capitalists to weigh in. Some of these guys are ecstatic at the notion that banks could be sick and dying. And if this spills over onto Wall Street, their joy will only be intensified. Because they believe the whole economic system is rotten, and we should start over from scratch. With what? They dunno – should we copy Russia, China, Venezuela, North Korea, Venezuela, Cuba, Iran? Is there actually an example out there which shows us the way forward?
If banks continue to fail, the only way to fix that will be for the FDIC to bail them out. With money it doesn't have. The Treasury Department will have to issue EVEN MORE Treasuries to cover this. Which means MORE exploding federal debt. And HIGHER mortgage rates. Social Security cuts for Mom and Dad - the money they use to keep the lights on? Do you think there are going to be more – or fewer – tent people on the streets if housing keeps getting less affordable, and social security takes a hit?
I'm not a fan of the leading presidential candidate of either party. I wish someone new would get elected. Someone who is alert, and with rational ideas. But whoever it will be, I don't envy them on inauguration day. They're going to have to fix a LOT of crap . . .
I'm just sayin' . . .
“Unrealized Losses” on Securities Held by Banks Jump by 22% to $684 Billion in Q3, Oh Lordy | Wolf Street