Thursday, January 22, 2009

In Ironic Twist, U.S. Taxpayers Are Approaching Net Debt-Free Status

BofA estimates that the U.S. Treasury and Federal Reserve combined, now are responsible for directly supporting about 70% of the banking system liabilities and 20% of shareholders' equity. Presuming there is virtually no equity value in U.S. banking, which would of course be the case without systemic support, then liabilities equal assets. In that case, in a government mediated vicious circle, U.S. taxpayers have indirectly paid off 70% of the loans that the US banking system has underwritten to U.S. taxpayers...

We say one resolution to this whole problem is balance the two sides of the equation: write off the taxpayer loans that the government supports, remove the systemic crutches, inject any new rescue funding at the preferred level, and voila - here is your bank rescue.



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6 comments:

Anonymous said...

preferreds aren't considered tangible capital...so banks would still be insolvent.

kel said...

The systemic risk has been transferred from the private sector to the government. Which is fine because of course governments can't fail, especially ours...

Jesse said...

Governments "can't fail," but currencies can.

Chad said...

"Which is fine because of course governments can't fail"

The bonfire and throngs of protesters in front of Iceland's parliament begs to differ.

RG said...

Guys, kel is surely saying that with sarcasm.

Anonymous said...
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