Red Ink: Not an Illusion

Since the crisis began, banks and other financial institutions worldwide have written off or lost a staggering $1.7 trillion, though the losses have been cushioned by capital-raising to the tune of $1.5 trillion.

However, that $200 billion differential -- which doesn’t include current-quarter losses or red ink hidden from view by "flexible" accounting treatments -- could easily widen out to far more troublesome levels amid a renewed downturn in the economy and an abrupt return to reality in the stock market (which would, of course, make it difficult to raise capital by selling shares).

In fact, I think it is going to be a very long time before the financial sector is (legitimately) profitable or in financial good health, regardless of whatever those firms say in their quarterly and annual reports.

For more on the subject of financial sector accounting, check out "The Bank Profit Mirage," by Annaly Capital Management.

Comments

[kevinearick]

The democratic disclosure process, temporarily and artificially restrained by the mentioned government policies, ensure quantum increases in the output gap, which places added stress on the system. It will blow, and the too-big-to-fail circuit has removed all the circuit breakers. Now is a good time to think about economic migration, which will be at the least cost, on all attributes.

The following background and roadmap may be useful:

DC human circuits are one-way roads, where knowledge is power. They get knowledge from AC human circuits, which are two-way roads, where learning is power and knowledge is temporary.

Human DC circuits can only be run off of human AC circuits. Human AC circuits can tap anywhere into the planetary AC circuitry, as long as the laws of physics are applied. The DC sub-circuits always end up pulling too much current and blow the circuit.

The people who are capable of designing AC circuits have all walked out from under the old economy DC circuit, which now has no motor, resulting in complete discharge, short to ground.

Enterprise architects build up inventories of temporary bridges. To span gaps, the closest fit is inserted with modifications. Subsequently, proprietors set up a gate, first charging for passage, and then building structures for additional income, while the architects move on to the next gap. In short order, the proprietors are selling too many lots, and all manner of nonsense, that pulls way too many amps, and the temporary structure collapses.

The Internet is such a bridge, originally designed for the purpose of discovery, which automatically shrinks the container under review and increases its internal pressure. The same process that brought down the USSR is now exerting the same influences on the American Enterprise System, as several billion people watch in real time.

It is a race between speed of discovery and commercial securitization, and commercialization is going to bring that bridge down, because it was never designed for permanent occupation and its operators obviously have no skill at enterprise architecture. DC is efficient, but not effective.

Microsoft was spun out of IBM, propagated by the nexus that controls government, and Bill Gates was inserted as the figurehead. The university system was diluted to serve as a hub of economic activity, lots of people were given make-work jobs, and K-12 was reorganized strictly into a compliance system, all to the end of serving the same old debt manufacturing machine, which liquidates assets into income for economic transfer.

The same algorithm has been repeating for several thousand years, riding the demographic wave of human expansion, with confidence that cash flows could be readily pulled forward, until now. The demographic curve hit the vortex inflection point in 1974, with no change in behavior, due to breeding over the time period on the positive side of the wave cycle.

The next bridge in this series is a transparent global public education utility.

Because a functioning economy requires a middle-class capacitor, architects adjust anonymously, forcing proprietors to build out for a middle class.

The old economy is currently delivering 15% return to real labor. The laws of physics require 51%, and the only way for them to know that 51% is reached is if the new motor turns over and starts. The last time around, the rate to all “labor” was increased to 65% before ignition occurred, after WWII.

Migrate toward the next bridge with your individual risk in mind. The President just said that Government cannot solve this problem, but he was talking to nexus leaders. Do not get too far ahead of the curve, and do not expect the beneficiaries of the old economy to be helpful. Increasing return to labor will be their last resort.

You do not necessarily have to migrate in order to develop an inventory of migratory skills. If you want change, change yourself. Threat or opportunity is a state of mind that depends entirely on an inventory of effective adaptation skills.

Quantum falls in G and C tells you that I emigration is already quite large.

[David]

Re the 10:59 am comment: interesting but I have some questions:

If the internet is "DC", good grief what is AC? Who are these AC people and where did they go when they crawled out from under the DC economy?

What is the physics that requires 51% return to real labor, to get an economy to function. Unemployment means that people are willing to accept the 15% or whatever the market is offering, but they cannot get even that. Won't they take their best opportunity, and even if one economy offers 10% and the alternatives offer 8%, they'll take the 10%. But if one economy offers 51% and another offers 60%, they'll abandon the 51% in favor of the 60%. How did you calculate these percentages anyway?

[walt]

47% of all statistics are made-up on the spot.

[robert]

"Statistics are like a bikini. What they reveal is suggestive but what they conceal is vital."