The “promised leaks” concerning the banking system from WikiLeaks have started to be released. As of now I haven’t seen anything about the “major US bank” that could be taken down when the truth of its finances are revealed, but we are reading European banking cables.
Monday, 17 March 2008, 18:27
C O N F I D E N T I A L LONDON 000797
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there's a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks. END SUMMARY
4. (C/NF) The G-7 is almost dysfunctional on an economic level, said King. Key economies are not included, especially those that have large and growing pools of capital. King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.
6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;
European banks were, and still are, insolvent. US banks were, and still are, insolvent. Japanese banks were, and still are, insolvent. At least now someone in a position of power is saying it, rather than just us bloggers.
The Japanese have tried to paper over its insolvent banks for twenty years and they have yet to take the full mark downs. Has this accounting sleight of hand “solved” the Japanese financial problems? Of course not, and it won’t work in the US either.
Monday, 17 March 2008, 18:27
C O N F I D E N T I A L LONDON 000797
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there's a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks. END SUMMARY
4. (C/NF) The G-7 is almost dysfunctional on an economic level, said King. Key economies are not included, especially those that have large and growing pools of capital. King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.
6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;
European banks were, and still are, insolvent. US banks were, and still are, insolvent. Japanese banks were, and still are, insolvent. At least now someone in a position of power is saying it, rather than just us bloggers.
The Japanese have tried to paper over its insolvent banks for twenty years and they have yet to take the full mark downs. Has this accounting sleight of hand “solved” the Japanese financial problems? Of course not, and it won’t work in the US either.
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