Wednesday, April 20, 2011


Does the financial system pose an even greater risk to taxpayers today than before the crisis? According to analysts at Standard & Poor's the answer is "yes." Specifically, because of accounting tricks, increased derivative exposure, and faulty reforms, the market watchers at S&P "believe the risks from the U.S. financial sector are higher than we considered them to be before 2008."

Put another way, the banksters are stilling looting the joint.

To be sure, the S&P is the same group that saw nothing, and did little to reign in the banksters speculative euphoria on Wall Street before 2008. Still, the good folks at the S&P believe that the next rescue "could be about a trillion dollars costlier" because the level of global interconnectedness now tie firms "to one another in ways experts do not completely understand."

Still not sure what this means? Let's use a metaphor.

What the S&P is saying, in layman terms, is that if you thought Charlie Sheen was a mess during his last meltdown, imagine him on an untreated syphilis-induced drinking binge, with no goddesses. Yup, they think it's going to be that bad.

Here's why ...

THE BANKS BOOKS: Like Spain many of our banks are still in trouble because they are under-capitalized, while our banking system remains dogged by delinquent bubble-era loans.

INCREASED DERIVATIVE EXPOSURE: The rise of globalization and the continued growth of derivatives -- financial instruments that are supposed to spread risk -- have seen their notional value grow to between $450 trillion and almost $700 trillion ($191 trillion for the commercial banks alone), and led to greater exposure between countries, industries, and companies. 

FAILED REFORMS: Global financial market remains fragile due to weak policies, lax regulation, poor accountability and systems that are not designed to capture global risk management.

Think about it. Banks have still not accounted for losses on poorly-performing assets they're hiding on their books, while many of the world's economies aren't as strong as they were just a few years ago. All of this means that when another market collapse happens (and it will) lawmakers will be hard-pressed to convince taxpayers to backstop another bailout.

Because the banksters are doing the same thing they did before the collapse, according to the S&P, we're in trouble.

- Mark

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