http://americaspeaksink.com/2009/11/the-press-coverage-at-ft-hood-sickening/

Yet where it gets moderately interesting is when analyzing Interest Rate derivatives (swaps, options and forwards), not only because the numbers suddenly really perk up, but because of the $420 trillion in notional OTC total, about $200 trillion is held by none other than the usual zombie stooges: Goldman, JPM, BofA, C and WFC. Do you see now why the Fed will kinda, sorta always and forever be forced to bail out this unholy pentagram? The shitstorm as a result of the collapse of one or more of the five major spokes of at least $420 trillion (and as much as $840 trillion) in IR derivs would basically wipe out anyone and everything in its path. No exceptions.

Have a nice day on that happy thought.

http://www.calculatedriskblog.com/2009/11/ny-times-unemployment-measure-u-6.html

Life without book-keeping: A quote from the Chicago Tribune story.

http://finance.yahoo.com/q/mh?s=BAC

Find out who really controls State Street (the folks who turned off the spigot for Lehman IIRC), Barclays, FMR, Vanguard, Growth Fund of America (The Capital Group), etc, and you’ll almost have the answers. Note the presence also of Paulson & Co in the group, poster child for “luck.” Remember also that Greenspan was hired by Paulson as a consultant after Paulson collected his $4B-$5B betting on the crash.

As for FNMA? Lost touch with this after the takeover, but why is it mentioned without FHLMC (sorry, don’t like to use the warm and cosy cutesy names)? They were essentially identical. Did their assets end up looking much different? The easy guess is that some sharp outfit like “Pennymac” — who is reportedly not doing too well lately — will fall into some very nicely priced mortgages soon.

The loan loss provision is an expense and the “allowance for losses” account is referred to as a “contra” asset account (a negative asset – if you will). The idea is that the bank doesn’t know specifically which loans will be uncollectible, but under the matching principle of accrual accounting, it must recognize the losses currently, and not wait until actual default.

In making this accounting entry, no cash is involved. No cash is in the “reserves” (allowance) account. The whole point of the allowance is to offset the loan account. When a specific loan defaults, the allowance account is “debited” and the loan account is “credited.” NO CASH IS INVOLVED. That’s the whole point of the loss…..the bank is not being repaid!

Nonetheless, the article highlights the problem with many banks…their loan balances are not worth their book value, but the various regulatory agencies are allowing them to stay open in the hope that new, high-margin loans, will produce interest income that offsets the losses on the old loans.

The unfortunate aspect of this policy is that no one can trust any bank’s financial statements and thus, non one will invest equity capital in banks….which means, the banks can’t create new loans….they simply extend and, in some cases, re-finance old loans. This is the Japanese lost-decade all over again.