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San Fran Fed On "Lessons [Un]Learned" From Loss Provisions And Bank Charge-offs
One of the very few "green shoots" pertaining to our extremely unstable financial system, that had been greeted by bulls far and wide was the alleged decline in loss provisions and charge-offs by banks and credit card companies in recent months. In fact, JPMorgan's rose-colored commentary on trends observed in this area during Q1 was supposed to be the catalyst to push financials to a new high during this earning season, until we uncovered that Europe is broke, and that everyone decided to sue Goldman, which had a slightly more adverse reaction on stocks. Amusingly enough, and in confirmation that no lessons have been learned, the San Fran Fed has released a mistitled paper called "Loss Provisions and Bank Charge-offs in the Financial Crisis: lesson learned" which confirms that banks are once again blindly rushing to repeat the very same mistakes that were part and parcel of the array of flawed judgments that led to the bursting of the credit bubble built on a house of cards of good intentions and optimistic projections. The paper concludes: "The recent financial crisis and recession have painfully demonstrated the vulnerabilities associated with the bank loss-provisioning process. It’s clear that provisioning should be more forward looking. However, even a more forward-looking provisioning process would not have fully addressed bank vulnerability to the extraordinary events of the past few years. By definition, loan loss reserves are designed to absorb expected losses. Even if banks had better forecasts and more discretion in setting reserves, they would probably still be unable to adequately provision against unexpected large economic shocks. Guarding against such shocks is the role of capital. The lesson of the financial crisis is that the buffer against downside risk must come in the form of higher bank capitalization." Amusingly, just as various amendments seek to cut regulatory cap ratios, banks are once again rushing to lower their loss provisions, soundly refuting the FRBSF's thesis that the US financial system can ever learn from anything that occurred more than 24 hours prior. We are confident that as the "priced to perfection" scenario unravels, even such overly optimistic captains of industry as Jamie Dimon will once again be forced to readjust their loss provisions materially higher, leading to a new regime in financials, in a direction which however will not be to the bulls' liking.
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Fed's doves don't get it. This is THE depression.
Shit, maybe they do get it. Scull and bones vs. the middle class, round 11..........ding!!!
Actually I think the extended language proves the doves do get that the system is as fragile as 150 year old bone china. Doesn't mean they are doing the right thing, just means they have no more tricks to pull out of their hats. When U.S. QE 2 is announced, the markets won't do the same as last time. That was just a greatly needed bear market rally. This time, the markets will know that Global QE is an endgame...not a remedy.
Whats up Howie?
I agree with your synopsis, well thought out friend. They do know....
Hey, a flash crash....surprised? Not me....this is getting ugly.
Many more flash crashes to come...of that I am 100% certain.
Yes, many more....many more of these squibs...these little flash crashes..taking out the pillars one step at a time. Reminiscent of a controlled demolition, no?
I'm thinking more of the final scene in Fight Club... :)
You're a fractional reserve goddman financial system. There's no damn way you will ever have enough money in your banks to cover losses because your money system stops matching up with assets/liabilities and turns into debits/credits.
It doesn't work because it's a FUCKING SCAM. Stop pretending there's some "way" out of it.
toilet paper.
is useful, because it is soft.
Check out Blankfeins new tattoo.
http://ugliesttattoos.com/2010/03/03/funny-tattoos-shit-tickets/
He's down with the morts.
For three years I have said, "when JPM finally hits the wall," as my response to the question: When will this financial crisis be over?
The fact that Jamie & Co can use aggressive accounting to get out in front of this "recovery" is just the right prescription for "the next leg down" to be scarier than the '08-early '09 version.
"The ratio of problem consumer loans is high relative to past cycles, reflecting the ntensity of the recession for households"
Well no kidding! That's what happens when you loan money to people who can't pay it back, to buy property that's worth less than what they want to pay, via a mortgage that requires little or no skin in the game from the borrower!
Prudent lenders realize that borrowers must have some skin in the game, that they must have verifiable income and a decent credit profile, and that the asset they are loaning against must not be overpriced. Otherwise, you are just pumping air into the housing bubble, and placing your enterprise at risk.
What? Oh, that was the whole point?
Never mind.