Karl Denninger: System Was Insolvent In 2008 (And Still Is)

12-18-2010 • Market-ticker.org

More than a year later Bank of America put up $185 billion in alleged "collateral" to secure a $15 billion loan, well into the TARP process and beyond the "recapitalization." Bank of America was not alone. Indeed, they were representative. Look at the data again if you don't believe me. The question remains: WHERE ARE THOSE LOSSES NOW? Again, The Fed's program of lending requires you post collateral to secure your borrowing. TAF had a schedule of "haircuts" off their valuation. Those haircuts were ridiculously small, as I opined at the time, as it was my view that the alleged collateral was in fact trash. Well, we have now discovered that in fact the collateral was trash, and The Fed simply valued it at a tiny fraction (like $1 for every $10 claimed!) and then haircut it according to their table. This leaves us with the original question unanswered: Since the collateral was trash and it was not written off in earnings reports, and this collateral was in fact both what left the system insolvent and is radically beyond the "recapitalization" that the banking system received, one still has to ask where is that collateral now, at what value is it being carried, and how is it being valued for that mark? These are NOT minor or "technical" considerations. They go directly to the question of whether these institutions are solvent today! If these "assets" are being held at values that do not represent reality then at some point they will mature and either have to be rolled or paid.