Tuesday, February 24, 2009

HT to Drudgereport.com

Below is the text of the statement issued on Monday on the U.S. banking system by the U.S. Treasury, Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve:

''A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

''We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment.

Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.

The conversion feature will enable institutions to maintain or enhance the quality of their capital.

''Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial insti tutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.''

Copyright 2009 Reuters.

An amazing lie.

Everybody knows most major banks have bundled mortgages and derivatives they paid hundreds of billions of dollars to acquire. They can't even identify most of the loans. They weren't audited before they bought them and they haven't since. These banks haven't been forced to. Now, since nobody knows really how bad these loans are, or what kind of losses will be faced, nobody wants to buy them.

The value of an asset nobody will buy, is zero. Regardless of what you paid for it, it's zero.

Unlike tracts of open land, which were at the heart of the Savings and Loan crisis, bad mortgages and insurance against losses from bad mortgages are never going to be worth much again. We now know they're a timebomb; sooner or later, a housing slowdown will arrive, and the holders of such assets will get burnt. Because these assets are losers, they cannot form the basis of a profitable government buyout plan.

Everything that has been done by government since September has been a desperate attempt by the banks to avoid having to report they are basically insolvent. In this fraud, our government has been fully complicit.

We have a golden chance to compartmentalize the failure to the for-profit financials. Instead, by proposing nationalization, Washington is going to export the pain to every household that buy food and fuel with dollars. Because the dollar itself is at stake here.

"The viability of systemically important financial institutions so that they are able to meet their commitments" is not at issue. These institutions are not capable. It would be better for the system if they failed, and we were left to start over with credit unions and foriegn lenders. There's too much opportunity for responsible lenders to have credit vanish from America. And there's no excuse for creating inflation just to protect the top 1% from their own failure.

Make no mistake. These guys are going down. It's just a question of taking the rest of us down with them.

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