Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Banks Going Straight to Hell on $1.5trillion Eventual Loss

Companies / Credit Crisis 2008 Jul 27, 2008 - 08:40 PM GMT

By: Alex_Wallenwein

Companies Best Financial Markets Analysis ArticleNAB, National Australia Bank, was just forced to write down over ninety percent of its exposure to US mortgages via so-called SIV's or conduits last Friday, to the order of $830 million dollars. This was by no means a matter of choice for NAB. The bank had just issued and sold $850 million worth of new debt paper. Buyers of that debt are now screaming bloody murder. They are asking why this information, which surely must have been known to the bank at the time of the debt sale, was not disclosed to the market beforehand. They are now demanding their money back or some other way to back out of the deal.


Yet, what happened to this single Australian bank is nothing compared to what will happen to US equity and bond markets when they wake up on Monday morning, July 28, 2008. Robert Gottliebsen of The Business Spectator, an Australian financial news and analysis portal, wrote a commentary pointing to the possible consequences of NAB's write-down.

The Ugly Truth

The low-down on this write-down: According to Gottliebsen, after having written down $450 billion of mortgage loan related assets since last year, US banks will have to take an additional hit of a whopping trillion buckos if the system as a whole wants to come clean, the way NAB just did.

The reason: Bad loans on banks' balance sheets were written off at market value, but those bad loans that had been repackaged and sold off to shady SIV's or 'conduits' (so that they would not burden a bank's balance sheet and restrict its future loan-making capabilities) were not. Those loans were not written off at market value because the market for them had simply disappeared, vanished into thin air - the realm from whence the 'money' they once added to M1 had originally hailed.

In order to account for that lack of a market, NAB has taken the as yet unprecedented step of writing off almost the entire amount of these CDO's or collateralized debt obligations – since it is impossible to predict when and how many of the underlying mortgages get defaulted upon. So far, the usual way of dealing with these imploding assets has been to value them on an "accrual basis". That pretty much entails accounting for bad debt losses based on past experience. The only problem is that there is no past experience with a near-complete collapse of these loan assets, so no reliable figures could be named. At least, that was the best excuse these banks could find to hide behind in their required disclosures.

Now, however, NAB's unprecedented disclosure has broken the dam. US investors are going to demand that US banks do the same thing NAB did, namely, to write off nearly the entire amount of the loans generated and sold off to SIV's! Will the US government pass a new law that prevents banks from marking their SIV assets to market?

Who knows.

When US banks see themselves forced to do more or less the same, they may well find they are floating in a very small vessel up a certain creek without an effective propulsion device. In other words, they will not have any capacity for further lending because the liabilities from their conduit markdowns will have eaten up much, if not all, of their capital.

In still other words, Hell's gates will yawn wide on Wall Street Monday morning - which is where those gates have apparently been all along.

The Effect on Gold

My personal take is that the power brokers on Wall Street and their lackeys in DC will be far too busy to effectively lean on gold and silver during that time. They will frantically try to slap down the forest fire with their wet-rag regulatory powers.

How will they extinguish this fire? Is JP Morgan Chase going to buy the entire failing US financial system as its forbear nearly did in 1907? Will they powers of the air sell oil futures to drop its price back to $50 or so to counter the "bad news effect" this will have on traders and investors? Will they manufacture news about unexpected rises in oil stocks? Will the Treasury announce that it will sell the entire US gold stock into the market? I doubt it, but who knows?

We might easily see some new "banking holidays", though.

Poor bankers. They worked so hard getting us all into debt and into houses and SUV's we can't sell anymore. They surely deserve a holiday or two, don't they?

Making calls like this is dangerous, but it's very much within the realm of the possible for gold to go up by $50 bucks or so tomorrow. We will see. We'll be able to gauge the remaining power of this benighted and abusive financial system by the degree to which gold's rise tomorrow will be controlled – or not controlled.

Got gold?

Alex Wallenwein
Editor, Publisher
The EURO vs. DOLLAR & GOLD MONITOR
In this multi-decade gold bull market, the old investment maxim of "know when to buy and when to sell" has been replaced by "know when NOT to sell!" Euro vs. Dollar & Gold Monitor subscribers know when not to sell.

Copyright © 2008 Alex Wallenwein - All Rights Reserved

Alex holds a B.A. degree in Economics and a juris doctorate in Law. His forte is research. In late 1996, he began to research how money is used by some to exert political and economic control over others' lives. In the process, he discovered that gold (along with silver) is the common man's antidote to this effort. In writing and publishing the Euro vs Dollar Monitor, he explains the dynamics of this process and how individuals can harness the power of gold in their efforts to regain their political and financial autonomy.

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is the golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Alex Wallenwein Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in