All Clear?

Over the past few years, we have enjoyed the experience of first watching Ben Bernanke, then Hank Paulson, (or was it first Hank Paulson, and then Ben Bernanke, I sometimes got that confused), appearing in front of the television camera on a daily basis telling us the subprime mortgage problem had been contained without threat to the economy, there would be no recession, and finally, our banking system was strong, viable, and the envy of the world. You know those results. Now it appears that we are to be treated to a daily lecturing by Treasury Secretary “Little Timmy Geithner” (my quotes), on how the proper corrective measures have been, and are being taken, to put the global crisis in the past.

Geithner worked at the IMF (International Monetary Fund) for two years, and as much as I dislike the some of the IMF’s policies, I think it’s noteworthy to see if they concur with their former employee. The G20 Financial Ministers, while meeting in London last month, directed the IMF to find out precisely how the balance sheets of the world’s major banks would look if they got back to lending at the approximate same level as before the crisis began. In a sense, an unbiased stress test. Yesterday, they published the “Global Financial Stability Report.” Page thirty-three says it all. “If banks were to bring forward, to today, loss provisions for the next two years, before expected earnings, U.S and European banks, in aggregate, would have tangible equity close to zero.” In layman’s terms, the entire global banking system would be bankrupt if they wrote off all the toxic assets that had been discussed ad nauseam, and that’s after all the money that has already been thrown at the problem. The IMF calculated that not enough money has been thrown at the problem, yet. More will definitely be needed.

Little Timmy should have read the IMF report, especially page thirty-three, before he declared all is well. I guess he figured if Ben and Hank could declare an all clear signal, and the stock market would buy it, why couldn’t he?

Till next time,

Bill



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