Stephen Bové - Art, Technology, Right Action

Tuesday, February 05, 2008

Reserves in US Banks are Negative for 1st time EVER!

From Economist John Williams at his very informative service Shadowstats .

"Fed Emergency Actions Are Keeping Banking System

Nonborrowed reserves of U.S. depository institutions
have turned negative (greater than 100%) for the first
time since before the Great Depression

In December 2007, total borrowings from the Fed topped
36% of total reserves, then the highest proportion
seen since 46% in March 1933, when President Franklin
Roosevelt declared a "bank holiday" and closed the

In January 2008, the U.S. banking system met its
reserves only by borrowing an amount in excess of 100%
of total reserves from the U.S. central bank."

And also from

"Currently there are 52 banks borrowing 40 billion dollars to keep afloat. Nobody knows which banks, whichI assume is deliberate.

The big questions for the following few days are -

Will MBIA and AMBAC (Bond insurers) get downgraded? They’re largely fucked, but if they’re downgraded, everyone who uses them is fucked. Like 140+ billion fucked. Like Municipal bonds, banks, and more, all get downgraded as well.

I don’t believe they’ll do the right thing and downgrade them. It”ll cause too much damage, and the plate spinning must go on.

In a similar vein, Do we get more rate cuts? They’ve been betting on it all week but today people don’t seem as positive. Once again, not a good thing but more of an expected outcome. Can’t have any reality in our financial markets."

And more great analysis here:

Now, I'm not an alarmist, but I observe soberly that we are in all actuality, one "black-swan" moment from a world-wide financial disaster of unprecedented proportions...

I recommend to all my friends moving a "survival" portion of your holdings out of the dollar and/or out of potentially non-liquid/valueless financial instruments.


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