* U.S. Banking crisis just BEGINNING

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U.S. Banking crisis just BEGINNING 0 comments
Aug 15, 2009 02:37 pm

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The dichotomy between the fantasy-world of U.S. business reporting and the real world continues to widen. While media propagandists have unequivocally claimed that “the worst is over” for the U.S. banking sector, the employees and shareholders of the 77 U.S. banks which have already gone belly-up this year might choose to dispute this claim.



Five more insolvent U.S. banks were seized by the FDIC in its weekly salvage operations Friday night. As is becoming increasingly common, even with the large bribes which it offers potential buyers, it couldn't find takers for all of these bankrupt companies.



Bank bankruptcies have already more than tripled the total for all of last year, and are steadily accelerating. Meanwhile, for a nearly endless list of reasons, the crisis in this sector can only get much worse.



Thanks to the U.S. accounting 'watch-dog' – the FASB – legalizing fraudulent accounting (see “FASB strong-armed into mark-to-fantasy accounting”), the “solution” which the bankster oligarchs have come up with to the mass-insolvency of U.S. banks is to simply hide a lot more bad loans. Indeed, fraudulent accounting has become a way of life for the U.S.



It began when the U.S. federal government simply stopped reporting the exponential increase in liabilities from its benefit programs in its own budget – contrary to its own law requiring all of its corporations to report such liabilities. Instead, it simply calls this humungous mountain of future debt “unfunded liabilities”, and spends most of its time pretending it doesn't exist.



The bonus for not including the $70 TRILLION or so in “unfunded liabilities” on its balance sheet is that the federal government can steal money from the Social Security “trust fund” and pretend that the money it steals from one of its own departments is actually lowering the official deficit! While the U.S. government talks about “fixing” Social Security, in reality it has stolen trillions of dollars from future U.S. retirees – making the under-funding much, much worse.



The U.S. government calls these “loans”, but given that it has to print money just to pay the interest on its existing mountain of debt, the chance of one penny of Social Security “loans” ever getting repaid is zero. In the Ponzi-scheme mentality of U.S. accounting, “success” means simply pushing today's obligations off until tomorrow – when the problem gets even bigger. Then tomorrow the objective is to postpone dealing with the problems until the next day, and so on.



This Ponzi-scheme accounting could also be called “deficits don't matter” - the mantra of the U.S. government for the last thirty years, which has resulted in the U.S. government being hopelessly insolvent.



Seeing how 'well' this form of accounting procrastination has worked for the federal government, the Wall Street oligarchs are now copying that behavior. There are three main ways in which U.S. banks can (and are) hiding huge losses from their own balance sheets.



First of all, they have deliberately kept millions of already-foreclosed properties off the market (see “U.S. economic propaganda hits fevered pitch”). This accomplishes two purposes. It slows the collapse of U.S. housing prices through reducing the number of foreclosure sales (as well as write-downs on ALL their housing-related assets). Secondly, on an individual basis, until a foreclosure sale locks-in the losses which a bank has taken on a property, fantasy accounting rules allow these properties to be listed on the books of U.S. banks at their non-existent “bubble” prices.



The next way that U.S. banks have been hiding hundreds of billions of dollars of losses is through simply “rolling over” vast amounts of commercial debt – even though they know the borrowers are no longer solvent. This has resulted in the largest block of commercial debt in history needing to be refinanced over the next year, at exactly the same time this sector is plunging into its own solvency-crisis.



The third way in which U.S. banks are falsifying their balance sheets is through carrying extremely delinquent loans on their books, without initiating any type of collections action or default proceedings. Again, these stalling tactics don't solve any problems, they only create BIGGER problems tomorrow.



As I wrote yesterday (see “SEVERELY delinquent loans crippling U.S. banks”), the average length of delinquency on all these loans is a mind-numbing 90 days. This means that for every loan which is delinquent by two months, there are an equal number which are delinquent four months, and for every loan delinquent one month there are an equal number of loans delinquent by five months.



Given that all categories of bank loans are simultaneously at all-time record levels for delinquencies, this means that U.S. banks are carrying millions of loans on their books (which they refuse to write-down/write-off) which are delinquent for four, or five, or six months (or even longer). There is no possibility of most borrowers ever catching up on these delinquent loans. Instead, the number of delinquencies can only go much higher.



The U.S. economy is losing roughly 1.5 million jobs per month, and now nearly half a million people a month are running out of unemployment insurance. Deutsche Bank recently estimated that more than half of all U.S. mortgage-holders will have less-than-zero equity in their homes by 2011, while a huge spike in the number of mortgage resets guarantees an even bigger spike in foreclosures during 2010 and 2011. Meanwhile, the large, demographic bulge of retiring baby-boomers are suddenly realizing that their retirements are grossly underfunded.



This means that the single, largest block of spenders in this consumer economy will either have to drastically reduce spending, or dump vast amounts or real estate onto the most over-supplied market in real estate history. Given that these retirees are facing a $3 trillion shortfall (see “U.S. pension-crisis: the $3 TRILLION question”), most likely they will be forced to do both.



With the U.S. labour market guaranteed to continue to worsen, the housing sector guaranteed to worsen, and the critical retail sector guaranteed to keep contracting for years to come, nothing has been done to stop the downward spiral of the U.S. economy toward a total, debt-implosion.



For the smaller, U.S. regional banks which are unable to dupe foreign patsies into buying their worthless shares (as the Wall Street oligarchs have still been able to manage), pretending their losses are smaller than they really are (by many multiples) does nothing to keep these banks solvent and operational – it only makes their bankruptcies a shock to their shareholders.



As for the Wall Street crime syndicate, they have run out of scams with which to dupe potential investors. Once even the most gullible chumps discover what a sham the Geithner “stress tests” actually were, these crooked oligarchs will finally have exhausted the pool of “stupid money” which has kept them alive.



From this point onward, the only source of funding to keep them from financial implosion is now the U.S. government, the same U.S. government which claims that the $10 trillion in hand-outs, loans and guarantees has already “fixed” their solvency crisis.



What will happen when the banksters are forced to return to the federal government for more panhandling – after the American public has seen how quickly their greed and contemptuous arrogance returned (as soon as they thought they had stolen all the money they needed)?



Will U.S. politicians finally be overcome with guilt for their traitorous betrayal of the American people, and say “no” when the banksters come begging for more trillions?



Based on past behavior, the likelihood is that U.S. politicians will once again claim that they are handing Wall Street more blank-cheques (from taxpayer coffers) “for the good of the American people”. And, based on past behavior, Americans will be much too busy with their partisan squabbling to pay attention.
Themes: U.S. financial secto, U.S. economy, U.S. propaganda