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
Afloat.

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
banks.

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 http://rubenfield.com/?p=25

"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:

http://globaleconomicanalysis.blogspot.com/2008/01/bank-reserves-go-negative.html

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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