Big banks back to brink of ruin (3 of 4 of USA's biggest banks still have bad loan portfolios)

Dodd's financial reform bill on a party-line vote, moving the bill to the full Senate. Without a doubt, the most important question about the bill is whether it will end massive Wall Street bailouts. Republicans such as Sen. Richard C. Shelby of Alabama want to change the bill to guarantee that it really does end "too big to fail." That's just what he and his colleagues should be doing:Bank of America, Chase, Citigroup and Wells Fargo - the four largest bank holding companies in America - required massive government aid in late 2008. They barely survived into 2009. Now, somehow, these banks have reported upbeat results in the fourth quarter of 2009 - a shocking turnaround. Or was it?

Can these bank forecasts possibly be accurate, or have the banks hired Bernie Madoff to perform their forecasts? Sadly, it looks as if Bernie is hard at work, predicting an unrealistically bright future for these banks.

If we're right, some of our biggest banks will be asking U.S. taxpayers for yet another bailout in the near future.

Consider, for example, Wells Fargo, which reported that its bad loans increased at an annualized rate of more than 70 percent during the fourth quarter, with bad commercial-mortgage loans increasing at a 160 percent annualized rate.

Together, these four banks hold $408 billion in tangible common equity and an additional $129 billion in allowances for loan losses. In their loan portfolios, they hold $445 billion in home-equity loans, $136 billion in pay-option adjustable rate mortgages and $44 billion in construction loans on which I estimate mark-to-market loss rates at 50 percent, $628 billion in residential mortgages, $238 billion in commercial real estate loans, $255 billion in consumer credit card loans and $351 billion in other consumer loans on which I estimate mark-to-market loss rates at 15 percent. Other loans total to $861 billion, for which I set aside 1 percent for general reserves, or $9 billion.

Estimated writedowns total $542 billion as compared with $537 billion in tangible common equity plus reserves for loan losses. Certainly, these assumed loss rates are open to discussion, but most knowledgeable real estate and banking analysts would agree that they are in the ballpark, given current economic conditions in the real estate and consumer sectors of the economy.

If we're right about these losses, three of the four biggest banks have such bad loan portfolios that they would be deemed insolvent under mark-to-market accounting rules. Only Citi would be marginally solvent, but it has serious problems outside of its loans portfolio that drag it into insolvency as well. One can safely predict that these four megabanks, as well as most other lenders, will lose much, much more on mortgage-related loans than rosy-eyed regulators or the banks themselves are publicly acknowledging.

I got this mail from a FReeper. He has my permission to post it on the main thread.

The banks were forced to make loans based on the CRA system Jimmah Carter started in 1977.

It was all based on “everyone deserves to own their own home”. The loans were given out to people if they could fog a mirror and sign an X. These loans are called a couple of things: NINJA.....No Income, No Job or Assets. Also SISA or SASI: STATED Income STATED Assets. Absolutely NO background checks on anything.
A guy in Fresno, Calif was given a loan for a $600,000 house. He was an illegal from south of the border—a seasonal fruit picker (mainly strawberries0—and he was given this loan.

The appraisals were jacked up—the prices were jacked up-—and so the spiral goes.
There was another thing happening—particularly with the illegals. One would buy a home...The prices were going up—so the home would be sold to another family member...and then another...and then another...until 5 or 6 transactions later, the inflated prices of the homes got every player a piece of the pie-—and then the whole bunch goes back south of the border—with money in their pockets and the home is abandoned.
There were large 2nd mortgages also involved, which the LAST person in the chain took the money-— and they all fled.

The banks were forced to make these loans. During Clinton’s tenure, Janet Reno held a news conference where I heard her say that she would use the power and the depth of the Justice Department to sue any & every bank which refused to give out loans to people ‘who just wanted a piece of the American dream”. Henry Cisneros was also a player—using the Hispanic race card.

My grandfather was a banker ( the only stockholder)- before I was born. I would like to believe that he would have closed the bank before he would have participated in this fraud.
It has taken since 1977 for all of this to percolate.
Reagan kept it from happening, also Geo H W Bush. Then Clinton, Reno, Cisneros, et al, put it on steroids.

There never were “sub prime” banks loans before this CRA legislation. “Hard money” was gotten from private sources at high interest or in some parts of the country—The Mob.

Forcing banks to loan money when welfare—WIC—Section 8 housing money- Medicaid- etc were all to considered INCOME !!! was a complete recipe for disaster.

Derivatives were invented so the banks could make some profits somewhere just to keep their balance sheets solid. None of them existed before CRA, either.

The banks were forced to make these loans—and they were facing discrimination lawsuits if they didn’t.

Most of these loans were given to people who were not qualified to even buy a t-shirt with payments.
When someone has lived in the projects—and/or on Section 8 Housing vouchers for their whole lives, they have absolutely no experience in handling maintenance-lawns- bill paying, etc.
There also was a great push in all those years to force developers to have 10% of each cluster they built to be “low income housing’. This was never something that the rest of the development wanted. The other 90% have worked hard to rise up, have a larger home in a safer area, etc, and they then get stuck with 10% of the homes being sold at a lower price to a much lower class of buyer. The developers were not allowed to cut a corner in the low income units. They had to be the same as the others.

Hence, 50 homes get built:
5 are sold at a considerable discount, but are the same as the other 45.
The other 45 have to have their prices jacked up to pay for the profits lost in the 5. So now, you pay MORE than a fair price because you are carrying part of the loss of the 5 homes, you have a questionable class of person next door to you-—and the bank was FORCED to make the loan to those 5 on top of it all.

It doesn’t take a economist to figure out how much the 45 will eventually resent the 5 who don’t live up to the standards of the area, and got their houses for a much lower price.
In a state like California, where property taxes are based on the purchase price, the inequity of the situation continues for a long time.

Don’t you love how Democrats try to run a business?

BTW-—Jimmah Carter went bankrupt 3 times GROWING peanuts.

In Georgia, a person with a 3rd grade education can make a profit growing peanuts.

If I have confused you, get back to me. Meanwhile, pass this on to others who are confused, please.

Another mail I got from the same FReeper worth sharing.

He told me that he is just a simple Full Charge Bookkeeper, not a CPA, but a person who can sometimes really connect the dots.

IF the banks are forced to write down the principal value of home loans and commercial loans, they will be technically insolvent.

There are state Federal and industry standards about the ratio between a bank’s assets and liabilities.
Writing down the loans drops the assets dramatically.
Liabilities cannot be changed easily. The ratio gets disrupted, and bingo-—the bank is technically insolvent.

This leave the bank vulnerable to NObama coming in and closing the bank or pushing it off to another bank. There will come a tipping point where there are no more banks that can absorb one that is insolvent. They will all be insolvent—and make them ripe for NObama nationalizing them all.

I am totally convinced that NObama wants to destroy this country.

Breaking down our contract laws is one big way.

He already broke bankruptcy laws and contract laws with GM & Chrysler.

When a person buys a SECURED BOND—that is exactly what they expect-—SECURITY. They are FIRST in line to be paid-—FIRST.

NObama threw the secured bondholders under the bus at GM & Chrysler. He took the stocks from the stockholders and gave the stock to the unions in lieu of their unfunded pensions.

When I was a kid- GM was considered one of the Blue Chip stocks—Grandma & Grandpa held these stocks, as pensions were not prevelant then. NO one today wants Granny to live in their house, but Granny won’t be abl;e to afford her retirement home if her pension is disolved. Then what?? More chaos.
Since pensions have been more prevelant- GM and such are usual stocks held by pensions—including lots of unions.

Keep destroying the pensions of people who have worked all their lives- whether union or not, and you cut retirees off at the knees.

NObama is systematically destroying this country, IMO.
He is doing do deliberately. It is not just his inexperience.

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