But somebody would still have to unwind the bankrupt firms and the best people to do that would be FDIC.
2.I’m happy to let the people reading this decide whether a Bloomberg article that says "The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. " backs up my claim that the government has guaranteed trillions of dollars of assets of American banks.
I think it’s pretty clear that Citi were using leverage provided by their customers’ deposits to take massively leveraged bets. That’s why we have the whole thing about re-separating brokerage operations from regular lending operations with the commercial banks, because banks like Citi used the money to make massvively leveraged speculative bets.
By the way, the writers of that Bloomberg article did a follow-up in March, which provides more clarity on what they were talking about. They also increased the dollar amount to $12.8 trillion. Of note, only $4.2 trillion had been committed at the time.
Please see the chart at the bottom of the article. As you will see, in that $4.2 trillion total, they are including several things that would clearly not even relate to banks. For example, they have the nearly 1 trillion that was part of the Obama and Bush stimulus packages, .5 trillion for Fannie Mae and other government sponsored entities, the money going to the auto companies, the money going to AIG, money going to HUD, etc.
I picked that article because it had the bit about the government guaranteeing hundreds of billions of Citi assets and I was also hoping somebody would say “look how much Obama has given the banks!” as the article was from November 2008.
It’s going to be interesting to see how much it continues to go up. There are hundreds of billions of Alt A and Option ARM mortgage resets to come over the next couple of years.
The big wall of green in the graph was when all the subprime mortgages reset from initial cheaper-than-rent monthly teaser rates to normal rates. Now there’s another huge wall of dodgy debt resets to come over the next couple of years, it’ll be interesting to see how much of it has already been owned up to by the banks or if it’s all going on the national credit card. And there’s one and a half trillion with a “t” dollars of commercial real estate debt that needs to be rolled over this year and more next.
