Monday, December 13, 2010


I've been saying this for some time now. In spite of trillions in aid the banks are still in trouble and the Federal Reserve is doing their level best to cover for the banks.

Specifically, the Federal Reserve is flooding Wall Street's biggest market players with money by keeping interest rates low. But, instead of being called Wall Street's Trillion Dollar Money Flood, or Wall Street's Bailout in Perpetuity Program (BPP), like it should be, the media is going along with the Federal Reserve's misleading and mind-numbingly opaque "quantitative easing" (QE) terminology.

They're doing this because, you know, Wall Street hates it when they get money virtually for free and we call it what it is - Corporate Welfare.

Interestingly, even though we are deep into the second phase of the Federal Reserve's trillion dollar QE/Money Flood for Wall Street, the Fed knows full well that their first two QE programs aren't working. How do they know this? Because the economy stinks and, in spite of having trillions of dollars dumped in their laps (a process that actually began in 2007), the banks still aren't lending because they don't trust one another.

As a result, the Federal Reserve is moving beyond QE II and is now preparing to push through QE III - or, more appropriately, they're preparing another money dump for Wall Street.

There are four reasons that the banks are in trouble. I've been blogging on these reasons for some time now, but Shah Gilani, contributing editor for Money Morning, has done us all a favor and put them into a nice little list.

Banks Still Carrying Toxic Assets: In spite of being able to dump hundreds of billions in toxic assets on the American taxpayer Federal Reserve the banks still have toxic assets on their balance sheets - for starters, $2.4 trillion in mortgages and more than $1 trillion in mortgage-backed-securities.

Industry Accounting Gimmicks: The banks have been able to juggle accounting rules to make their books look better than they really are.

Bank Smoke & Mirror Profits: The banks have made their recent profitability look robust by moving loan-loss reserves back over into the revenue columns of their income statements - booking that as top-line growth.

Banks Facing Lawsuits: And the onslaught of litigation banks now face that could force them to mark down their assets at the same time that they will have to buy back tens of billions of dollars of non-performing mortgages they originated and securitized.

There you have it. Trillions of dollars handed over Wall Street's biggest banks. Still, in spite of using dishonest accounting standards, and dumping hundreds of billions of their toxic assets on the American taxpayer, the banks are still in trouble. They know it ... The Fed knows it ... The Obama administration knows it. Yet, we're going to do it all over again with QE III.

For what we've gotten in return I'd say this is like dumping money down a drain.

- Mark

1 comment:

R. M. said...

Hello Dr. Martinez,
I just watched this episode of South Park and thought you might find it funny to watch. It very well covers the economy, the banks, investors, spenders, etc. I think you are going to love how the government decides on bail outs. OH! Word of caution in case others are around you, there is profanity.