Who Pays the Bills?

Here is a graph of the current losses of Swiss Bank UBS. The dashed line is my guess at a worst case projection. I have absolutely no facts to back it up. From my years as an engineering student we would often pencil in expected future results. It is more a test to see if your model is a working one. My model supports the theory that the banks are hiding as much as possible until it becomes obvious. If the facts were known, the problem would feed on itself. The nice thing about a blog is that we are not limited to just facts like a newspaper. We can manipulate our models and try to forecast the future.

Your average bank has a good idea what is going to happen three months out. They have to calculate what is being paid off in the near future in order to issue new loans. The graph projects an increase of 43 billion more in losses, three months out, as a worst case scenario. It could be way off, we can't measure the human psyche. Loss of faith in a bank is an abstract process. It doesn't have to be based in truth, but the results are always the same, people tend to vote with their feet. In this case, they have been doing a lot of voting with this bank.

UBS has 37 billion of losses, Deutsche Bank has 4 billion, Citi Group has 21 billion and Merrill Lynch 22 billion. That’s about 83 billion dollars in bank losses (skipping the Bear Stearns Tooth Fairy bailout). Look on the good side, it could be worse. On the bad side, it probably is worse. We didn’t spend it on anything that we really needed, like teacher’s salaries. Our money left the building and took an "Elvis walk." We are talking spirits here, 100 proof or better.

The US government gives 150 billion to the tax payers and 30 billion to JP Morgan. Didn't we cure the whole savings and loan fiasco of the 1990’s with 120 billion dollars? Na, must be my imagination.

This whole mess started near the end of July last year with the implosion of two of Bear Stearns’s Hedge Funds. Eight months after the event, our government is mailing us a big check to spend. That there, ought to be enough to make you sleep with one eye open. It's kind of like your wife getting you a hooker for your 60th birthday. What's the catch? Especially if you knew she would feed you through a blender for cheating on her. The check makes cents but no sense! The question not being asked, "Who ends up paying the bills?" "Congress" is not the right answer.