What kind of crap is still in the bank vaults?

( – promoted by buhdydharma )

There is only one important question, the Big One, on which everything else rests: Are the banks insolvent?  Karl Denninger makes the perspicacious observation concerning the Fed’s dodgy data-dump: It suggests very dodgy bank assets, that the banks may very well be insolvent.  So much for Ritholtz’s recovery, if true.

Let me first digress on the dodginess of disclosure: While the Fed has published a lot of information concerning the emergency loan facilities provided to the banks, according to Bloomberg, it did not fully comply with Dodd-Frank:

The Federal Reserve withheld details on individual securities pledged as collateral by recipients of $885 billion in central bank loans, denying taxpayers a measure of the risks they faced from its emergency aid.

The central bank yesterday released data on 21,000 transactions from $3.3 trillion [bullshit, me: there was $9 trillion in overnight lending alone!] in emergency lending to stem the financial crisis. July’s Dodd-Frank law required the Fed to disclose the names of borrowers, the size and interest rates of loans, and “information identifying the types and amounts of collateral pledged or assets transferred.”

For three of the Fed’s six [bullshit, me: there were at least 13 or 14 lending facilities, according to the Fed’s own data dump!] emergency facilities, the central bank released information on groups of collateral it accepted by asset type and rating, without specifying individual securities. Among them was the Primary Dealer Credit Facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed.

“This is a half-step,” said former Atlanta Fed research director Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “If you were going to audit the facilities, then would this enable you to do an audit? The answer is ‘No,’ you would have to go in and look at the individual amounts of collateral and how it was broken down to do that. And that is the spirit of what the requirements were in Dodd-Frank.”


So, the Fed dump largely complies with Dodd-Frank, but technically is “unaccountable” without the details on collateral: What exact securities were put up, and what was their value?

Karl Denninger made an interesting observation, despite the lack of detail.   I give you his entire column, because it’s worth it (I omitted his emphases, and put in links to pics where he had actual pics):

Are The Banks Insolvent? Fair Question, Given This….

I’ve been going through The Fed’s “data dump” that the WSJ has linked and made “easier” for us.

And I’ve got lots of questions.

Let’s, for example, look at “Bank of Amer NA”, otherwise known as BAC.

They used the TAF a lot.  Here’s a snapshot:

Pay particular attention to that pink column I highlighted.


Well, BAC borrowed $15 billion an awful lot.  Maybe the same $15 billion.  

Look at the face value of what they posted as collateral.

$127 billion – or in one case $185 billion – to borrow $15 billion?

What was being posted there – that’s a more than 90% haircut!

That’s a fairly clear declaration by The Fed that these “Assets” were worth no more than $15 billion, right?  After all, that’s all they got credit for when posting their collateral.

Ok, two immediate questions:

• What was that, and at what value was that carried on their balance sheet at the time?

• Where is it now and what value is it being carried at TODAY on their balance sheet?

Ah, Kemosabe, now we get to a problem, don’t we?  See, if BAC had to borrow $15 billion, why would they post collateral at that sort of haircut?  Further, that’s a God-Awful loss embedded in those instruments that’s being assumed by the NY Fed and BOG and we damn well ought to know through their quarterly reports where that presumed loss of value went and where it was.

There’s a problem of course – BAC never reported that sort of loss any time during this “crisis.”  That leaves me with the question as to where these so-called “assets” are now, what they’re marked at, and whether we’re still dealing with massive and outrageously bogus “marks” – that is, claims of value – in these securities!

By the way, they’re not alone. Barclays has a bunch of these transactions with big haircuts too.   So does Goldman, with several TSLF transactions that show $2 billion borrowed and $25 billion+ of notional value of alleged “collateral” deposited.

Then there’s Wells, which has a nice single-page output that looks like this:

Have a look and take a gander.  And don’t keep your investigation to the above – try to find just ONE large institution that had all of its collateral postings valued at, say, 80 cents on the dollar or better.

Best of luck.

Remember, the claim was that all of these “facilities” were liquidity operations.

The Fed told us explicitly – many times – that it was taking “good collateral” to back up these loans and that it was quite confident it would not lose any money.

That, it turns out, was true. [not sure what Denninger meant by that “truth…”  He couldn’t have meant “good collateral,” because he points to just the opposite.  Perhaps, “we didn’t lose money?”  I don’t know.]

What we were not told is that the “collateral” they took was so bad that it was in some cases valued at TEN CENTS on the dollar or less, and in each of these cases it leaves open the question as to where is that collateral now, having been returned to the bank, what is it actually worth, and how is it being carried on the books – because what we do know from the bank’s financial reporting is that it most-certainly was NOT written off.

There’s more than enough here in these tables to call for a massive forensic investigation into the accounting practices of each and every one of these institutions as the fact that FRBNY valued this “collateral” at such a tiny fraction of it’s claimed value by the submitting institution leads to an immediate question as to how one squares that valuation with the values reported by the banks in their quarterly and annual reports, and whether they were at the time, or are today, in point of fact, at anything approaching actual valuations, insolvent.

We the people deserve both answers AND HONEST ACCOUNTING.

Denninger’s point concerning the discrepancy between “loan values” and “collateral posted” is spot on.  Posting collateral at 10 cents on the dollar suggests that the collateral was worth just that, 10 cents on the dollar.  Certainly, not all discrepancies were that bad.  However, they were bad enough.  I saw one Credit Suisse loan for 5 million that had put up 6 billion in collateral assets.  

So I looked through some of the company-searchable spreadsheets posted by the WSJ and the excel files posted by the Fed (scroll down).

Anyway, here are a few highlights:

Under TAF alone, Wells borrowed $8.1 billion and put up $54.4 billion in collateral.  That suggests the true value of its assets (collateral) was 14.9 cents on the dollar.

Under TAF alone, BoA borrowed $14.14 billion and put up $100.38 billion in collateral, suggesting that the true value of the collateral was 14 cents on the dollar.

The Fed viewed the banks’ collateral as “crap,” The Big Shitpile, to borrow Atrios’ term.

Now, let’s look at Lehman, under TAF alone: Well before and until their meltdown, they borrowed $7.59 billion, and put up $18.18 billion in collateral, suggesting their market value was 42 cents on the dollar.  Then they went bust.

This was a world-wide bail-out.  BNP Paribas, RBS securities, Barclays, Deutsche, HSBC, Mitsubishi, you name it!  This thing was fricking huge!  You do the WSJ search!  Look at the spreadsheets!  There was a shitload of garbage on the books.  JP Morgan looks relatively good by these standards (loan-size versus collateral-size), but I wonder how good their assets can be when everyone around them is flopping on deck gasping for air.

Now, let’s take a look at the overall lending and collateral by each lending facility:

Primary Dealer Credit Facility (overnight): $8.95 trillion in loans; $9.67 trillion in collateral; 92.6 cents on the dollar.  Not bad percentages.  Except we’re talking trillions!

TALF:  loan: $71.09 billion; collateral: $79.01 billion; collateral valued at 89.9 cents on the dollar.

Term Asset-Backed Securities Loan Facility (Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, I believe) trade value: $2.45 trillion; price: $1.03 trillion; 42 cents on the dollar.

I confess, the following one made no sense to me.

Commercial Paper Funding Facility: loans: $739.14 billion; total outstanding principle as of maturity date (?): $37.59 trillion???; net portfolio holdings of cpff llc: $38.03 trillion??

First, how does principle rise between loan origination and maturity?  Second, how does it rise 40 or so times in value?  From less than one trillion to forty trillion?  Obviously, I’m missing something here.

Fed purchases commercial paper: $738.26 billion. Almost the exact amount of loans above?

Term Securities Lending Facility: par amount lent: $2.01 trillion; “market value” lent: $2.28; total collateral: $9,74 trillion; depending on one’s measure of what was lent (par vs. market value), that collateral was worth 20.6 cents and 23.4 cents/ dollar.  We’re talking trillions.

Term Auction Facility: loan: $3.82 trillion; collateral: $18.01 trillion; collateral valued at 20 cents on the dollar

There were a few more lending facilities:

TOP (TSLF Options Program): $197 billion; AMLF (asset back commercial paper money market mutual fund liquidity facility): total loans: 217.35 billion; collateral (multiple CUSIPs) too complicated for me.  Then there was Maiden Lane, Maiden Lane II, and Maiden Lane III.  I didn’t even bother.  Foreign currency liquidity swap lines were only 10.06 million?  Why were any panties twisted over a measly $10 mil?  Look at all the garbage above.  Finally, there were “any other program created as a result of section 13(3) of the Federal Reserve Act”

When people ask what, if anything got fixed by the bail-out, the current value of The Big Shitpile is a big, big part of it.  Are these toxic assets still on the books?  Why wouldn’t they be on someone’s books, somewhere?  We’ll never know until we get back to mark-to-market accounting.  But the Fed’s data dump suggests we have thrown around tens of trillions of dollars and we are still fucked.  QE III, anybody?

Let’s not mention that the banks are bigger and failer.


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  1. I read the Denninger post, too.

    When this info first came out – my thoughts were how close the banks were to insolvency. How did they pass the stress tests? For that matter, were the stress tests even germane?  After all, Irish banks passed the stress test, too.

    When I ask people in the biz these questions – all I get is that the U.S. banks have “credibility and Asian investment”. WTF? That’s all that’s separating the American depositors from losing EVERYTHING – credibility!!

    • banger on December 5, 2010 at 7:25 pm

    People, I’ve learned, want to believe what they want to believe. If they believe the banks are solvent then they are and least in the virtual sense. Americans are the most obviously deluded people on earth–yet, somehow it all works. You can tell them piece of obvious bullshit and the majority will swallow it. Why? Because in order for everyone to live their lives everyday without disruption they must swallow all the shit that keeps society coherent.

    I think the system has yet more smoke and mirrors to keep things keeping on–that is what people want and why they can believe all the obvious Orwellian crap that the propaganda ministry puts out.  

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