Saturday, August 15, 2009

August 15.09 commentary..important

Good morning Ladies and Gentlemen:
 
Gold closed down by 7.40 to 947.. Silver fell by 27 cents to 14.72.
 
The open interest on the gold comex closed up by 2600 contracts to 389149.  We are again approaching levels last seen in March 2008 a day that Bear Stearns was rescued.
The open interst on the silver comex continues to confound everyone.  It rose an astonishing 3600 contracts on Thursday, which no doubt caused the raid on Friday.
 
The COT report released after the close was quite revealing.
First the silver COT report:
 

*The large SILVER specs increased longs by 4,147 contracts and increased shorts by 186.

*The commercials increased longs by 173 contracts, but increased shorts by 3,478 contracts.

*The small specs in increased longs by 550 contracts, but increased shorts by 1,206 contracts.

Those who comment regularly will construe this as bearish (I would think.)

 

end.

 

please note that silver specs are continuing to pile on.  Also note that the commercials are continuing to supply

the paper  (JPMorgan). The small specs are out of the game as they know the arena is rigged.

 

And now for gold:

 

*The large GOLD specs decreased longs by 5,020 contracts and decreased shorts by 1,592. *The commercials reduced longs by 2,401 contracts, but decreased shorts by 7,689 contracts.

*The small specs decreased longs by 922 contracts and increased shorts by 938 contracts.

This report will probably be viewed as somewhat friendly.

 

end.

 

Please note that the specs have decreased their longs.  Note that commercials have decreased their shorts by a huge 7700 contracts.

This means that some commercial players (some bullion banks) do not wish to remain short in gold any more.  We are probably aware that

Mainland China plus other sovereign authorities are buying the physical metal and moving it to their shores.  They may be aware of a coming banking crisis and thus do not wish

to play anymore.

 

Yesterday, we saw the deflation trade scenario play out:  use printed dollars to bid up the usa dollar, force bond yields down (bonds up in price), hit gold and silver

down and  let the stock market price falter.

 

Here is garic's assessment of yesterday's trading:

Garic is right on…

For the second straight day the U.S. consumer has disappointed, U.S. Consumer Confidence in "Green Shoots" has failed. The manipulators (price fixers / CRMPG institutions / fascists) have used this to put the deflation trade on for the day and have bombed most commodity prices lower including Gold. As I stated yesterday this is exactly what I expected, given Larry Summers stimulus plan was really a Wall Street Bailout plan and a welfare/transfer payment plan. The average U.S. consumer has lost his high paying manufacturing job to the Chinese, he was been sold a fraudulent mortgage from Wall Street which he is now underwater on and contrary to the Federal Reserve’s claims his cost of living has risen rapidly over the past few years. Quite simply the average American’s standard of living continues to fall just as our Founding Father’s warned would happen, if we ever let bankers and politicians get their hands on a printing press. The Fed and the Treasury have gambled the credit of the U.S. to save Wall Street and Main Street is drowning. It is time for Larry Summers, Ben Bernanke and Timothy Geithner to resign. It is time for the Fed and its primary dealers (CRMPG signees) to be audited and held accountable to existing U.S. laws against manipulation, price fixing and collusion. The policy of lying about government statistics, manipulating markets to the CRMPG’s benefit and printing unlimited dollars for the CRMPG’s benefit is destroying the $ and what is left of Main Street’s savings. 
Garic

Garic for an encore ... a half hour after the market closed...

And there you have it: $ up on the day and the week after the U.S. consumer spending makes a new low for the recession as the ROW recovers, bonds up on the week after a record weekly auction and a record budget deficit, and S&P up on the week after U.S. consumer confidence in “Green Shoots” fails. The S&P closed 9 points off its highs of the year as the closer (PPT) was brought off the bench once all the commodity markets closed on their lows for the week. If this policy was actually helping I could understand. Unfortunately, we are still in the worst economy in 70 years and the people and policies which got us here are still running the show. Hard working farmers will receive lower prices for their Grains as the Goldman Sachs installed CFTC commissioner allows the manipulation in the commodity markets to the downside. Wall Street executives will make record bonus’s after selling fraudulent mortgages to the public as the Treasury Secretary thinks it is good Wall Street is back to making record trading profits. Why they think price fixing in all markets is a better economic system than the prices which would be set by Free Market Capitalism is beyond me. 
Garic

Here are some numbers from yesterday's trading:

 

The yield on the 10 yr T note was last at 3.56%.

The dollar rose .44 to 78.44. The euro fell .0083 to 1.4190. The pound fell slightly to 1.653, while the yen rose .50 to 94.78.

Crude oil was hit for $3.01 per barrel and fell to $67.51.

The CRB sank 7.40 to $257.75.

 

end.

The following story was the big news of the day:  150 banks are in severe jeopardy!:

More Than 150 Publicly Traded US Banks Are In Serious Trouble

http://jessescrossroadscafe.blogspot.com/2009/08/more-than-150-publicly-traded-us-banks.html

***

 

 

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return 

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By Ari Levy

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.

“At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.

Cash Drain

Nonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. In addition, Chicago-based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut.

“This is a fairly widespread issue for the larger community banks and some regional banks across the country,” said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.

Ratios above 5 percent don’t always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans. Banks with higher ratios of equity to total assets can better withstand such losses, saidJim Barth, a former chief economist at the Office of Thrift Supervision. Marshall & Ilsley and Synovus said they’ve been getting bad loans off their books by selling them.

Exclusions

Bloomberg’s list was compiled by screening U.S. banks for nonperforming loans of 5 percent or more, and then ranked by assets. The list excluded U.S. territories and lenders that have already failed. Also left out were the 19 lenders that underwent the Treasury’s stress tests in May; they were deemed “too big to fail” and told by regulators that government capital was available to keep them in business.

Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.

About 2.6 percent of the $7.74 trillion in bank loans outstanding in the U.S. at the end of March were nonaccruing, the highest in 17 years, according to the most recent data from the FDIC. Nonaccrual loans peaked at 3.27 percent in the second quarter of 1991, during the savings and loan crisis, and averaged 1.54 percent over the past 25 years.

‘Off the Charts’

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the “ability to try and earn their way through the cycle,” said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp.

Corus, with more than two-thirds of its loans nonperforming, has the highest rate among publicly traded banks. The company said last month that it’s “critically undercapitalized” after five consecutive quarterly losses tied to defaults on condominium construction loans. Randy Curtis, Corus’s interim chief executive officer, didn’t respond to calls for comment.

Marshall & Ilsley, Wisconsin’s biggest bank, reduced its nonperforming loans last month to 5.01 percent from 5.18 percent after selling $297 million in soured loans, mostly residential mortgages in Arizona, the Milwaukee-based company said Aug. 10.

Deadline for Nonperformers

The bank has “been very aggressive in identifying and tackling credit challenges,” Chief Financial Officer Greg Smith said in an Aug. 12 interview. Smith said 26 percent of loans classified as nonperforming are overdue by less than the industry’s typical standard of 90 days. With those excluded, the ratio would be around 3.7 percent, he said.

Synovus, plagued by defaulting construction loans in the Atlanta area, said nonperforming loans rose to 5.4 percent in the second quarter from 5.2 percent the previous period. Disposals of nonperforming assets reached $404 million in the quarter ended in June, the Columbus, Georgia-based company said.

Synovus is selling troubled loans and will continue its “aggressive stance on disposing of nonperforming assets” as long as the level is elevated, spokesman Greg Hudgison said in an e-mailed statement.

Michigan Home

Flagstar is based in Troy, Michigan, the state with the nation’s highest unemployment rate. Flagstar has $16.4 billion in assets and reported last month that 11.2 percent of its loans were nonperforming; about two-thirds were home mortgages. Flagstar CFO Paul Borja didn’t return repeated calls for comment.

The bank’s allowance for loan losses was 5.4 percent of total loans at the end of the second quarter, compared with 3.3 percent at Synovus and 2.8 percent at Marshall & Ilsley, according to company filings. All three reported at least three straight quarterly deficits.

The FDIC doesn’t comment on lenders that are open and operating and doesn’t disclose which banks are on its problem list. The agency will probably impose an emergency fee on the more than 8,200 banks it insures in the fourth quarter to replenish the insurance fund, the second special assessment this year, Chairman Sheila Bair said last week. The FDIC attempts to sell deposits and assets of seized banks to healthier firms to avoid eroding the fund, said agency spokesman David Barr.

Capital Levels

To determine which banks are most troubled, regulators compare the ratio of nonperforming loans to the percentage of equity a firm has relative to its assets, said Barth, the former OTS economist. A company with 5 percent nonperforming loans and equity of 8 percent is better positioned than one with the same amount of troubled loans and equity of 4 percent, he said.

Flagstar’s equity-to-assets ratio in the second quarter was 5.4 percent, Synovus’s was 8.9 percent and Marshall & Ilsley, which raised $552 million through a stock sale in June, was at 11 percent, according to the banks.

The three lenders that failed last week -- Florida’s First State Bank and Community National Bank and Oregon’s Community First Bank -- all had nonperforming loans above 6 percent and equity ratios below 4.5 percent.

“The nonperforming ratio, in and of itself, should be a great concern,” said Barth, a professor of finance at Auburn University in Alabama and senior finance fellow at the Milken Institute in Santa Monica, California. “It becomes even more troublesome when it goes above 3 percent and the equity-to-asset ratio is quite low.”

Toast Time

While 5 percent can be “fatal” for home lenders, commercial real estate lenders may be able to withstand higher rates, said William K. Black, former lawyer at the Federal Home Loan Bank of San Francisco and the OTS. Commercial loans carry higher interest rates because they’re riskier, he said.

“At the 5 percent range, you’re probably hurting,” said Black, an associate professor of economics and law at the University of Missouri-Kansas City. “Once it gets around 10 percent, you’re likely toast.”

To contact the reporter on this story: Ari Levy in San Francisco atalevy5@bloomberg.net

Last Updated: August 14, 2009 00:00 EDT 


Of special note is Corus, which has 2/3 of its total loans NON PERFORMING. The big Marshall and Ilsley bank of Wisconsin, and the state of Wisconsin's largest banks has seen its non performing ratio climb to 5%.  Synovus, which has huge defaulting construction loans in the Atlanta area has its non performing ratio climb to 5.4%.
 
 
In other economic news, consumer prices remain flat last month as inflation was held in check.  The consumer is not spending for prices are not rising yet:
 
08:30 Jul CPI 0.0% vs. consensus 0.0%; ex-Food & Energy 0.1% vs. consensus 0.1%
Jun CPI unrevised from 0.7%; ex-Food & Energy unrevised from 0.2%. 
* * * * * 

U.S. consumer prices flat in July
 

WASHINGTON, Aug 14 (Reuters) - U.S. consumer prices were flat in July versus June as expected, but fell over the past 12 months by the most since 1950, government data showed on Friday. 

The Labor Department said its Consumer Price Index was unchanged after rising 0.7 percent in June, in line with market forecasts for a flat reading. 

Gasoline prices fell 0.8 percent after jumping 17.3 percent the previous month, helping to keep overall prices contained. The food index declined 0.3 percent, the biggest fall since May 2002, after being flat in June, while prices for apparel and new vehicles rose in July. 

Compared to the same period last year, consumer prices fell 2.1 percent, the largest decline since January 1950. 

Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation rose 0.1 percent in July after increasing 0.2 percent in June. That was also in line with market expectations for a 0.1 percent gain. 

Compared to July last year, the core inflation rate rose 1.5 percent, the slowest advance since February 2004, after increasing 1.7 percent in June.
end.
 
However, you must bear this in mind:
 
Unadjusted Year Over Year: Consumer Price Index Down -2.1%

Here's my summary of today's CPI numbers:

  • Associated Press Headline And Lead: "Consumer prices flat in July as energy retreats... Consumer prices were flat in July as energy costs retreated following a big surge in June."
  • Labor Department News Release: click here.
  • Key Numbers: -1.28% Unadjusted 12-months ended May 2009. The unadjusted index is at 215.351. July 2008 was 219.964 from its initial news release.
  • Last Month: -1.4%
  • My Spreadsheet (click here)

Here's my uneducated (also not not spun by guys trying to make you a sucker) interpretation - price deflation is still picking up steam from a year-over-year perspective. To my mind, the interesting question is what happens in Q4 09 when the year over year commodity prices stop falling (assuming no fall crash)? Year-over-year crude oil is still down 36%. That changes in the next couple of months (assuming no crude oil price crash). That's when we'll know what's really up short term with the inflation vs deflation debate. Will price deflation ease up and go into price inflation or not? That is the question.

 
 
end.
 
 
Industrial production rose .5% last month but it was due to the usa autos  clunker inducements:
 
U.S. industrial production rises 0.5 pct in July 

WASHINGTON, Aug 14 (Reuters) - U.S. industrial production rose more than expected in July, Federal Reserve data showed on Friday, supporting hopes the longest recession since the 1930s was finally drawing to a close. 

Aside from a hurricane-related rebound in October 2008, this was the first monthly increase since December 2007, which marked the start of the current recession. 

Industrial production rose 0.5 percent, stronger than the 0.3 percent that economists polled by Reuters had expected and well above June's 0.4 percent decline. 

Manufacturing output rose 1 percent in July, mostly because of a jump in motor vehicle assemblies which rose to an annual rate of 5.9 million units in July from 4.1 million in June. 

Auto sales got a big boost from the government's "cash for clunkers" program, which provides incentives to buy new cars. The program's initial $1 billion funding was exhausted in its first week, and it has since been expanded to $3 billion. 

Excluding motor vehicles and parts, industrial output fell 0.1 percent in July. 

The capacity utilization rate, a measure of slack in the economy, edged up to 68.5 percent, slightly higher than economists had expected but still 12.4 percentage points below the 1972-to-2008 average.
 
 
end.
 
This brings me to the big story of the day, the seizure of Colonial bank of Montgomery Alabama.
 
First the story:
 
FDIC seizes Colonial, to sell assets to BB&T- report 

* Failure would be biggest bank failure this year 

* Deal approved by FDIC on Thursday, report says 
(Adds FDIC response, background, updates share movement) 

Aug 14 (Reuters) - The Federal Deposit Insurance Corp is taking Colonial BancGroup Inc into receivership and will sell the struggling lender's branches and deposits to BB&T Corp , Dow Jones said, citing a person familiar with the situation. 

The deal was approved by the FDIC on Thursday night and is expected to be announced later on Friday, the news agency reported. 

Colonial officials could not immediately be reached for comment. The FDIC said it does not comment on open and operating institutions. A BB&T spokesman declined to comment. 

Colonial, based in Montgomery, Alabama, operates 355 branches in Florida, Alabama, Georgia, Nevada and Texas and has over $25 billion in assets. 

Its failure would be the largest bank failure since Wachovia collapsed last September…
 
 
end.
 
 
This large banking chain of 355 plus outlets in many states  (Fla. Alabama, Georgia, Nevada and Texas) had over 25 billion in assets and 22 billion in deposits.
This is the largest banking failure since Wachovia.
 
It is strange that the FDIC decided to close the operation on Thurday night instead of Friday.  There was considerable action on the bank.  i.e. a run on the bank as depositors were wary of some ill-proprietary on the bank.
 
On August 7th, the FBI raided the mortgage operations of the bank and seized records.  The warrant stated only improper accounting.
 
One week later, the FDIC decided to close these guys up. The news of the raid got little attention on Wall Street.
 
The FDIC sold the assets to BBand T of North Carolina in a deal which the FDIC shares in losses on the portfolio acquired. Many believe that the assets carried on the books in Florida are worth zero.  The FDIC is going to have to take a huge hit.
 
Today, the FDIC provided 2.8 billion dollars and as stated above shares in the risk with the new banking entity.  This last salvo of money wipes out the reserves of the FDIC.  They will now rely on the advance of treasury funds.
 
 
 
Here is another commentary on the failed Colonial Bank:
 
ONE OF THREE DOWN:  IS THE FDIC SOLVENT?
 

Here we go!

Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said, becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.

The FDIC usually waits until the close of business Friday; they must have had a slight problem with withdrawals......

Left unsaid is what's going to happen to the FDIC's deposit insurance fund on this one - my guess is that it will be ugly, as these guys were up to their necks in Florida on development projects that went bad.  The "value" of that paper may be very close to zero; if the FDIC avoids doing one of their 40% loss deals I will be quite surprised.

A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC in the position of immediately needing to go hit up Treasury for more money. 

That ought to be good for confidence, right?

Oh, there are two more on the "you're dead" list that I've been talking about for a while: CORUS and Guaranty, both of which have said they (as of last filing) have a negative Tier Capital Ratio, meaning that they are formally underwater and IMHO should have been seized months ago.

But don't worry, Treasury has an infinite credit card to keep funding the FDIC with, right? 

"Heh Mr. Chinaman, can you spare an extra trillion - or three?"

end

As the above article stated, China is not amused with the usa with all of their QE activity.  We are now seeing that the Chinese and others have their foreign holdings of usa debt decline last week.  China is purchasing gold, and commodity companies etc:

Foreign c.banks U.S. debt holdings fall in week-Fed 

NEW YORK, Aug 13 (Reuters) - Foreign central banks' holdings of U.S. Treasuries and agency debt at the Federal Reserve slipped in the latest week, data from the U.S. central bank showed on Thursday. 

The combined holdings of Treasuries and agency securities by foreign central banks at the Fed fell by $2.55 billion to total $2.810 trillion in the 
week ended August 12. 
Treasuries held by overseas central banks at the Fed edged down by $688 million to total $2.027 trillion. 

Foreign central banks' holdings of securities issued or guaranteed by the two biggest U.S. mortgage financing agencies, Fannie Mae and Freddie Mac , fell by $1.86 billion to total $782.83 billion in the latest week. 

Overseas central banks, particularly in Asia, have been huge buyers of U.S. debt in recent years and own more than a quarter of marketable Treasuries. China recently overtook Japan as the biggest such buyer. 

The full Fed report can be found on: 
http://www.federalreserve.gov/releases/h41-END-

 

This next article is a dandy:

Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil 

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Commentary by Jonathan Weil

Aug. 13 (Bloomberg) -- It’s amazing what a little sunshine can accomplish.

Check out the footnotes to Regions Financial Corp.’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.

So, if it weren’t for the inflated loan values, Regions’ equity would be less than zero. Meanwhile, the government continues to classify Regions as “well capitalized.”

While disclosures of this sort aren’t new, their frequency is. This summer’s round of interim financial reports marked the first time U.S. companies had to publish the fair market values of all their financial instruments on a quarterly basis. Before, such disclosures had been required only annually under the Financial Accounting Standards Board’s rules.

The timing of the revelations is uncanny. Last month, in a move that has the banking lobby fuming, the FASB said it would proceed with a plan to expand the use of fair-value accounting for financial instruments. In short, all financial assets and most financial liabilities would have to be recorded at market values on the balance sheet each quarter, although not all fluctuations in their values would count in net income. A formal proposal could be released by year’s end.

Recognizing Loan Losses

The biggest change would be to the treatment of loans. The FASB’s currentrules let lenders carry most of the loans on their books at historical cost, by labeling them as held-to- maturity or held-for-investment. Generally, this means loan losses get recognized only when management deems them probable, which may be long after they are foreseeable. Using fair-value accounting would speed up the recognition of loan losses, resulting in lower earnings and reduced book values.

While Regions may be an extreme example of inflated loan values, it’s not unique. Bank of America Corp. said its loans as of June 30 were worth $64.4 billion less than its balance sheet said. The difference represented 58 percent of the company’s Tier 1 common equity, a measure of capital used by regulators that excludes preferred stock and many intangible assets, such as goodwill accumulated through acquisitions of other companies.

Wells Fargo & Co. said the fair value of its loans was $34.3 billion less than their book value as of June 30. The bank’s Tier 1 common equity, by comparison, was $47.1 billion.

Widening Gaps

The disparities in those banks’ loan values grew as the year progressed. Bank of America said the fair-value gap in its loans was $44.6 billion as of Dec. 31. Wells Fargo’s was just $14.2 billion at the end of 2008, less than half what it was six months later. At Regions, it had been $13.2 billion.

Other lenders with large divergences in their loan values included SunTrust Banks Inc. It showed a $13.6 billion gap as of June 30, which exceeded its $11.1 billion of Tier 1 common equity. KeyCorp said its loans were worth $8.6 billion less than their book value; its Tier 1 common was just $7.1 billion.

When a loan’s market value falls, it might be that the lender would charge higher borrowing costs for the same loan today. It also could be that outsiders perceive a greater chance of default than management is assuming. Perhaps the underlying collateral has collapsed in value, even if the borrower hasn’t missed a payment.

The trend in banks’ loan values is not uniform. Twelve of the 24 companies in the KBW Bank Index, including Citigroup Inc., said their loans’ fair values were within 1 percent of their carrying amounts, more or less. Citigroup said the fair value of its loans was $601.3 billion, just $1.3 billion less than their book value. The gap had been $18.2 billion at the end of 2008.

Covering Liabilities

History provides some lessons here. A common problem at savings-and-loans that failed during the 1980s was that they relied on short-term funding at market rates to finance their operations, which consisted mainly of issuing long-term, fixed- rate mortgages. When rates rose sharply, the thrifts fell in a trap where their assets weren’t generating sufficient returns to cover their liabilities.

The accounting rules also left open the opportunity for gains-trading, whereby companies post profits by selling their winners and keeping losers on the books at their old, inflated values. Had the thrifts been marking loans to market values on their balance sheets, their troubles would have been clearer to outsiders much sooner. (The FASB didn’t require annual fair- value footnote disclosures until 1993.)

Arbitrary Accounting

If nothing else, today’s fair-value gaps highlight the arbitrariness of book values and regulatory capital. Banks already have the option to carry loans at fair value under the accounting rules. For the vast majority of loans, most banks elect not to, on the grounds that they intend to keep them until maturity and hope the cash rolls in.

Consequently, the difference between being well capitalized and woefully undercapitalized may come down to nothing more than some highly paid chief executive’s state of mind.

Fair-value estimates in the short-term can be a poor indicator of an asset’s eventual worth, especially when markets aren’t functioning smoothly. The problem with relying on management’s intentions is that they may be even less reliable.

At least now we’re getting some real numbers, even if you have to dig through the footnotes to get them.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York atjweil6@bloomberg.net

Last Updated: August 12, 2009 21:01 EDT 

end.

 

Check out Regions Financial Corp.  In their lastest financial filing because of the new FASB reporting, firms must give a footnote to their real fair market value of loans.

The loss on Regions' fair market value loss is 22.4 billion dollars which wipes out its 18.4 billion dollars of Retained earnings.

Wells Fargo has a loss of 34.3 billion dollars which is greater than its R/E. The large SunTrust Bank has seen its loan losses exceed its R/E by 2 billion dollars.

 

You can judge for yourself what this means.

 

I want to bring to your attention two dates which could be highly signficant:

 

1. August 25.09

2.Sept 8.09

 

August 25.08 is the date that the FDIC will report on the second quarter results.  Rumours are floating around as I indicated in the above commentary that 150

and up to 500 banks might be insolvent.  This may trigger a banking holiday.

 

The second date is Sept 8.09.  One year ago, on Sept 8 08, the usa engaged with Europeans, and the British with usa dollar swaps.  The usa provided the European Central

bank with freshly minted usa dollars in return for freshly minted  Euros etc.  Likewise, swaps were arranged with England with England receiving dollars and the usa receiving pounds. These swaps must be unwound one year from commencement ie. on Sept 8.09.

 

The problem here is that on the usa side of things, the pounds, euros etc have disappeared down a sink hole where these currencies have basically backstopped the 10 trillion dollars of losses from Europe.

 

What is more fascinating is that the usa has used the foreign central banks to purchase new usa bonds overseas with the dollars from the swaps.  The usa dollars that were sitting on foreign soil have been utilized by buying the bonds.   This is why we are witnessing such a high indirect partication in bond purchases.

 

Now these bond swaps must be unwound.  How are they going to unwind all of those bond purchases to get to the dollars?

 

We may see our next banking crisis.  Keep these two dates in mind!.

The usa dollar crisis will occur when all of foreign dollars held in the form of bonds are cashed and those dollars enter the usa to purchase goods or buildings or whatever. Then you will have your full scale crisis!. You will see the big derivative bust when the last oz of physical gold/silver is handed  in whereby central banks will no longer lease any physical silver or gold. In other words they ran out of metal!

See you on Monday;

 

Harvey

 

 

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