What happened to all that toxic talk about the Banks

Lately, I have been wondering why the US banks suddenly seemed "healed" from all there problems. You hear a lot of noise in the market that the banks have simply "written off" all their bad debt and are now able to look at a future with record profits on the horizon (for eternity). As I believe the economy in the US (and the rest of the world) is still deteriorating. Housing, commercial real-estate, business and private loans, and most other forms of lending have not stabilized yet (though in some areas things might be "bottoming" out slowly). So how is that these banks are suddenly turning record profits, paying out million dollar bonuses again, and are acting like the "sky is the limit" - continuing the same game that actually lead us (the whole world) into this mess. All that with a little bit of TARP money. Not to say that 700 billion is not a lot of money but it seems hardly enough to deal with all the toxic stuff that banks have on their balance sheets. Especially since those assets are still decreasing in value.

I know that the US government put some other things in place to support the financial system (mostly the Big banks). I also know that they conveniently decided to change the accounting rules last spring - something that somewhat coincided with the start of the stock market rally. Banks do have have to "mark-to-market" their assets anymore. They can now "mark-to-preference" their assets. Personally, I would call that lying and cheating. If someone asked you how much your house or car is worth, are you also prone to add about 40-60 percent to the actual value?

This week I finally found an article that explains more about the "total bail out" the banks received from the US taxpayers. A large chunk of it is in the form of "guarantees" and it will take years to figure out what the actual cost of these guarantees will be and for how much "risk" the taxpayers have been put on the line - without any compensation I must add. But still, the sum of this bail out is staggering. Yet it is all for the "greater good" is it not? Does it not benefit everyone if you make a bunch of rich people a lot richer on the accounts of the underprivileged, underpaid and under-insured? If I did not know better, I would think I am starting to sound like a socialist.

I advise everyone to read Meet the Hazzards.

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02 October 2009 • Advised reading/watching, Economy, Finance


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