This clip has been out for a day, and I tweeted it yesterday. But it is worht watching, so I'm posting it here for those who might have missed it.
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Her main points:
- The banks are insolvent.
- They don't appear to be in part due to the changes to mark-to-market rules approved by FASB a few months ago that allowed banks to value certain toxic assets to model (IOW, at questionable value). (I read somewhere yesterday that this could be as high as $300 billion worth of assets, but don't have time now to search for the link.)
- As long as the banks can sit on these toxic assets at their newly elevated prices, there is no reason for the banks to have to deal with them. This means that these assets can continue to fester on the books until they either come due or there is a double dip (which might make the prices dip even under the mark-to-model scenario). In fact, it would actually hurt the banks to try to deal with them, as that would be a realization event, forcing the banks to actually book the gains (as if) or losses.
- So the on-going myth that the banks are adequately capitalized is just that... a myth.
We might be able to keep this up. Really. Certainly, the fact that the Fed refuses to raise interest rates suggests that we have an administration that is willing to do just about anything to keep the charade going. But unless we literally see a return of asset prices to what they were before the recession (and just how realistic is that? ANd how long can we reasonably expect it to take?), it seems singularly implausible to argue that this is going to end well.
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