Sunday, December 13, 2009
Do Summers, Geithner and Bernanke Have to Share Credit for Saving the Banks with Drug Kingpins?
I have repeatedly criticized Summers, Geithner, Bernanke and the rest of the boys for their approach to "saving" the too big to fail banks. I have argued that they are trying to paper over the banks' real problems instead of fixing them.
I have pointed out that the giant banks may still be insolvent - even after all of the money which the fellas handed them - demonstrating that:
(1) The giant banks have repeatedly gone bankrupt in the past due to speculative bets, and the government hid the insolvency
(2) The too big to fails have used "creative accounting", and may still be in big trouble. I've repeatedly noted that the giant banks have huge liabilities hidden off-balance sheet in "structured investment vehicles" and are using mark-to-moon accounting valuations to pretend that their toxic assets are worth enough to keep them in the green. As one of the engineers of Britain's efforts to rescue its financial statement reminded us last week:
An IMF study showed at the middle of this year that banks had only declared half their losses on their books: we have a long way to go.
But let's be optimistic and assume that the giant banks really have made it through the crisis. We can congratulate Summers, Geithner and Bernanke, right?
Not according Antonio Maria Costa.
Costa is the head of the UN's Office on Drugs and Crime. He says that what saved many banks during the height of the financial crisis was drug money:
"In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.
Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities ... There were signs that some banks were rescued that way."
So even if the banking system really has stabilized, Summers, Geithner and Bernanke cannot really take full credit.
4 comments:
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Sooner or later the banks will fail.
ReplyDeleteThis is VERY appealing to the long term bear. I think this adds a key fundamental backing to the bear outlook. Take a look and take from it what you want… I’m not a buyer
http://absolute-investments.blogspot.com/2009/12/historical-s-pe-ratio-vs-historical.html
I would never put my drug money in a bank!
ReplyDeleteA few years back, I had the misfortune of founding a business involving a 'banker' who was involved in private capital placements. He and and the experience were incredibly bizarre, as he and his firm seemed to have interests far and wide, shadowy investors, and not a great deal of regard for actual back-office book-keeping. They seemed to be awash in money, though.
ReplyDeleteI have often wondered since that time if I had stumbled into a laundry operation for drug money.
Since I enjoying living and breathing, I'm none too eager to investigate in any detail. I'm just glad to be away from him and them.
Thanks for the link to your old post on bankruptcy of banks. I notice that Pres. Obama is currently trying to jawbone US banks to lend more.
ReplyDelete(I would insert a link here but apparently I'm not allowed to)
I wonder whether Paul Volcker is recycling the "fat spread" strategy that old post described, only this time with US borrowers. I also wonder what rates the banks will charge if they do as Pres. Obama demands.