Defaulting banks - where will it stop?

[Jan Klimkowski]

Karl Denninger, lifelong Republican voter and highly astute observer of financial markets, reckons that America will have to default on its debt:

Off-Balance-Sheet - Now CREDIT CARDS

Nearly two years ago I was screaming about the scam called "off balance sheet" vehicles, as is found here:

Despite your claim on Cramer's show that "we'll profit from this" I believe your firm is going to be hurt badly, both from defaults (which your own 8K you filed this morning says have doubled in the last year) and from greater spreads which will make it tougher - or impossible - to sell your loans off into the CDO market at a profit. I also believe that reality is that we're looking at a price decline for homes, both new and used, and we are facing higher real interest rates - and no rate cut from the Fed. Finally, I would love to see a real look inside your kimono at that company, including all "off balance sheet" entities and everything your firm has marked to market, including the thousands of REOs that, according to another site, you currently own

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That was Countrywide. They would have outright "boomed" if not for Bank of America buying them in a shotgun marriage.

I wrote that in April of 2007.

Two years later, we have done NOTHING about the problem:

It will force card issuers -- such as Citigroup Inc., Bank of America Corp., American Express Co., Capital One Financial Corp., Discover Financial Services and J.P. Morgan Chase & Co. -- to bring off-the-books credit card loans onto their balance sheets. These companies will be taking on these securities at a time when losses on these loans are piling up amid rising unemployment.

American Express said in its annual report that if the amended FAS 140 goes through, the company would have to bring onto its books $29 billion of card loans and set aside an additional $1.8 billion in loss reserves, according to figures as of Dec. 31. American Express' loss reserves totaled nearly $3.4 billion at the end of 2008.

Citigroup, using figures as of Dec. 31, would have to take onto its books $98.2 billion of card loans, according to its annual report. The altered FAS 140 will have a "significant impact" on its financial statements, the company said in the regulatory filing. Discover currently estimates that it will have to assume $20.6 billion of card loans on its balance sheet.

This garbage must stop!

As I have repeatedly pointed out we are in this mess because our wonderful "financial system" made loans to people they could not pay back.

That is, there is too much debt in the system for the amount of earnings power that people and corporations have.

This is the root of the economic and financial problem we have in this country, and we cannot clear it, nor can we restore growth, until that excess debt is cleared from the system.

Hiding that debt will not make it go away.

There are only two ways to clear it: Pay it down or default it.

It should be obvious by now that we can't pay it down.

That leaves defaulting it.

The people have had it with outright looting operations conducted against the taxpayer, and the claims by various firms and their CEOs that are either outright false or present only half of the truth.

Distracting people with GM and Chrysler will not work any more than distracting the people with AIG's bonuses did while the real theft with AIG was the nearly $100 billion funneled to banks around the world.

There is no political capital available to further encumber the taxpayer for more bailouts, and with good cause. The people have been lied to repeatedly by both the current and previous administrations, with both having been turned into stooge departments for monied interests, much as happens in a banana republic.

Treasury has less than $100 billion left of the stolen TARP money (yes, stolen, given that none of it was spent on actual purchase of assets thus far!) and despite what President Obama might like I'm willing to bet that if he attempts to get more appropriated the result could be half the unemployed in America - over 2 million people - lay siege to the Capitol (hopefully peacefully!) and demand the resignation of all 535 clowns inside.

An even worse outcome is possible, of course - continued attempts to steal from the taxpayers for the benefit of lying bankers could easily lead to a near-immediate outbreak of widespread civil unrest or worse. Public opinion is tinderbox hot and dry at present and further looting is unlikely to be tolerated - no matter the excuse.

We are now being compared to Russia or Argentina prior to their collapses, and while that's a bit overstated, I unfortunately must agree that the overstatement is minor, and in general, it is spot-on.

Time is running out to stop the stupid as tension is building among the citizens of this nation dramatically and if we do not have actual leadership and the truth is not told and those who looted are not forced to give it back and go bankrupt - soon - the process of re-basing our economy to a sustainable level will not happen in an orderly fashion, but rather through violence and destruction.

May God visit upon our elected leaders the wisdom necessary to change their course of action, because I have seen no evidence that they possess that wisdom to date.

http://market-ticker.org/archives/913-Of...CARDS.html