The Tycoon Report

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1. Helmut (1 year ago) Is this Spam?

   One of the things it might mean is a collapse of the financial system as we know it.
   
   According to the Federal Deposit Insurance Corporation report of 30 September 2007, the system comprises 8,560 insured institutions, of which 5,193 are FDIC-supervised.
   
   Together, these institutions hold total assets of $bil12,707, of which $bil7,704 is held in loans. The assets are covered by an equity to assets ratio of 10.45%.
   
   To give a different meaning to "double-entry book keeping", I bet every bank had two sets of books: one, which it shows to the public, where assets that have gone down in value are shown at cost, and assets that have gone up in value are shown at current value; the other book, which it keeps to itself so it knows the true state of the situation, does the exact opposite, i.e. assets that have lost value are shown at current value because the loss may never be recovered, and assets that show paper profits are shown at cost because paper profits are not profits until they are realized.
   
   Banks should be forced to reveal both sets of books. Investors could then make a value decision between the two results. The first is clearly an over-estimate and the second is likely an under-estimate of true assets.
   
   Who said it's the small, unobserved factors that are usually the first signals of a disaster?
   
   In a system that has assets of $12.7 trillions, even if the assets are "trumped up", a shortfall of $52.5 billion is a drop in the ocean.
   
   But that is exactly my point. How come that a system that has $1.3 trillion in equity ( 10.45% of $12.7 trillion), has to borrow $52.5 billion from the Federal Reserve to cover its statutory reserve requirements of $40.8 billion? A case of "asset rich and cash-flow poor", which happens to people when they mismanage their affairs?
   
   You have to wonder how much mismanagement has occurred? Why borrow $52.5 billion when all you need is $40.8 billion? Reminds me of the time when I borrowed more than I needed so I could meet future interest payments. Or have they actually dipped into their depositors' funds?
   
   How could such a small thing signal the collapse of the system? For starters, the banks can raise $52.5 billion in one foul swoop by increasing their charges. Then, why are the Federal Reserve and Government so panicky?
   
   They know something we don't!
   
   Data obtained from http://www.fdic.gov/bank/statistical/stats/2007sep/industry.html

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