Tuesday, April 21, 2009

Geithner says banks well funded, are they really?

Stocks staged a rally yesterday on US Treasury Secretary Timothy Giethner’s statement that vast majority of US Banks have more capital than they need (Geithner Says `Vast Majority' of U.S. Banks Have More Capital Than Needed)

That is a little hard to believe when IMF has come with a revised estimates of $2.7 Trillion losses in the US financial system and the need for additional $250 Billion of capital (Global banking losses to hit $4 trillion)

Of course Geithner did sound a note of caution about the weakness in the US financial system, but that doesn’t seem to have been reported too widely (Geithner: Most Banks Well Capitalized)

The profits from banks like Citigroup and Bank of America (BoFA) are all non cash profits arising due to the government relaxing the mark to market rules and dubious benefits arising out of some other accounting standards

Citigroup Loss at $ 1.7 B : The truth behind reported profits

When governments do a Ponzi

Both Citigroup and BoFA have been candid enough to admit the increasing credit losses and possibilities of higher losses in the upcoming quarters. However what they have probably failed to mention (or they might not have realized yet) is that they have not provided enough for upcoming losses. The losses across the US banking system are likely to be far more than estimated by the banks themselves, and that is something neither factored in by the banks or the stock markets

The way the US stock market rallied yesterday reminds me of an old quote – “ Nero was playing the fiddle while Rome burned”