Wednesday, August 24, 2011

Ready For Round Two?

Big banks are about to fail. Again.
Here's the thing: as the stock market drops, the value of banks' stocks drain right alongside. The difficulty comes in determining the leverage ratio. That's the ratio of loans outstanding to capital.
You can increase or decrease the numerator, the amount of debt a bank holds. One of the reasons that banks, even after getting massive bailouts, were reluctant to lend is they still had enormous amounts of outstanding receivables that were basically valueless. So decreasing this is difficult (you basically have to take massive losses, which tanks your stock which is a problem that I'll get to in a moment.)
Lending more money will raise your profits and your stock but only marginally, and in a difficult economy those loans go bad and you've done the classic mistake of throwing good money after bad.
Or you can play around with the denominator: raise the value of your stock will raise your levels of capital. Issue more shares, but you'll dilute the price of current shareholders who will dump your shares. Lowering your capital. Increase profits, but that only happens when you earn more money and apart from screwing depositors (which they have), you have to loan more money.
See above.
We're fucked unless we start creating jobs so the middle class will start spending again. So...Mr. Weaker of the House Boener...WHERE ARE THE MOTHERFUCKING JOBS, YOU SPINELESS SHIT????