Bank Losses Part II

by Larry Levin

There was absolutely NO trading today with just a 4.50-point total range in the S&P500 futures. Because of that I thought I would do a quick follow up on yesterday's bank loss/balance sheet issues.

Yesterday I wrote "As I have written before, these banks are marking UP their real estate portfolios to roughly no loss. In the make believe world of make-it-up-as-you-go-along accounting, banking execs are legally allowed to mark the portfolio to what they believe the homes will be worth in the future and if they don't go broke in the interim, then the swindle will have worked." I forgot to write that YOU, the taxpayer, is funding the fraud.

Specifically, one of the bank data were as follows...

* Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits. They were "underwater" by $800,000, right? Wrong: Estimated loss, $51 million. That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.

What is interesting is that a reader on Mr. Denninger's blog took it upon himself to actually write to Mr. David Barr at the FDIC. The blogger asked "How could Waterford Bank have lost $51 million when its balance sheet was clean?"

Mr. Barr responded with "That's the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that's what they paid for it three years ago, but the reality is, if they had to sell it in today's market, they'd only get $250,000 for it. The FDIC has to sell assets in today's market."

So the FDIC knows it is getting screwed by paying for these illusory "assets" but can't do anything about it. After all, it's the way Congress wants it.

Thanks your member of Congress by voting him/her OUT of office in the coming election - regardless of party affiliations.



Previous Day's Trading Room Results:

Trade Date: 3/8/10

E-Mini S&P Trades*
(before fees and commissions):


1) 80% sell @ 9:00am at 1137.50 = -1.25 (1 lot)

2) 80% sell @ 11:17am at 1138.00 = b/e (1 lot)

3) Algorithm positions (5)

4) "Reading the Tape" positions (2) ...combined Secret's, Algo, & "Reading the Tape" total...-.25



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