Contrary to surface appearances such as the recent stock market rally and "glowing" first quarter profitability statements from certain Wall Street banks, multipronged risks for renewed, considerable turmoil in the US financial sector are mounting.
The recent six-week rally on Wall Street, led mostly by banking and other financial shares, isn't based on any concrete turnaround in the deeply worrying fundamentals of the financial sector.
Instead, it is based largely on the fact that the new administration has trotted out into public view multiple and very large government programs aimed at cleansing the banks' balance sheets of huge sums of toxic assets, unlocking the persistently seized credit markets, stemming the swiftly mounting foreclosure rate, creating jobs, and otherwise stimulating an early economic revival.
None of these aims and goals has been accomplished yet, not even in part, but investors were heartened by the raft of government programs that has been announced, and they have responded by bidding up banking and other shares on Wall Street, hoping that the bottom of the crisis in the financial sector has already been reached.
However, that bottom hasn't been reached, and is still nowhere in sight, despite the recent quarterly profit reports by a few of the largest US banks. It should come as no surprise that Wall Street financial institutions that have been in receipt of massive sums of bailout money and have been targeted by varied "liquidity" operations from the government are suddenly able to report a "profit".
Additionally, much of the "profit" reported for the first quarter resulted from one-off events that have little or no chance of seeing a repeat. In these most recent quarterly statements, the accounting and reporting methods have been altered so as to put a better face on their operations and fiscal position. Their already notoriously "fuzzy" math, which permitted banks to arbitrarily designate which assets are included in their profit statements and which ones are not, now also conveniently permits them to arbitrarily decide which losses are "temporary" and can be excluded from the statement altogether. Consequently, "fuzzy" has now gotten even fuzzier. Why? And, why now?
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Very good article, very insightful.
ReplyDeleteThe securitization people obviously don't get one thing - it's the debt, stupid!
You can't re-inflate anything if people can't pay anymore because they're so underwater. The toxic assets aren't toxic because of some abstract belief of mass delusion, they are toxic because nobody can afford them anymore without taking on more debt they can't pay back.
More attempts at securitization only benefit the banksters and government fraudsters, and they are risking our futures and our kids futures to realize their dream of an over-leveraged, debt laden economy of continuously dwindling returns, hoping to keep us all in the consumer trap as debt slaves.
That's what it's all about folks.
Excellent article posted.
ReplyDeleteAfter reading it it makes me even more concerned where the economy is headed and it looks pretty scary.
Man the economy is messed up!
Thanks
Reference : The securitization people obviously don't get one thing - it's the debt, stupid!
ReplyDeleteYou are absolutely correct. The outcome of all things financial for domestic consumers and markets is contingent upon the level of debt. It is the debt that is absolutely destroying any chance of recovery or prosperity.
The debt overhang is so severe now it cannot be paid down.
There will be a cleansing of this indebtedness through default and foreclosure.
That my friends will usher in a very interesting scenario for citizens and government alike.