The Fourteenth Banker Blog

December 18, 2010

Wikileaks Puts the Lie to Myth of Liquidity

Filed under: Running Commentary — thefourteenthbanker @ 6:59 PM

As I have blogged about the last couple times, the never-ending bailout serves the purpose of transferring wealth into the banking system in order to prop it up, prop up the markets, and prop up the economic power structure. I think that has been fairly obvious. Today we have a “smoking gun”, released with the Wikileaks cables. Hat Tip to Credit Writedowns.

From the WikiLeaks cables as published in the Guardian today regarding a meeting with the US Ambassador to the United Kingdom and the Bank of England Governor Mervyn King on 17 Mar 2008:

Systemic Insolvency Is Now The Problem


2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged. He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.

Unblocking Illiquid Mortgage-Backed Securities

——————————————— –

3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs.

What does this prove? That it was widely known in government circles by the time Bear Stearns went bust that the global banking system was effectively insolvent – and that banks’ unloading garbage assets at inflated prices was seen as critical in preventing the whole global economy from collapsing. It’s good to see this confirmed in writing.

Read the rest of the Credit Writedowns post. I don’t need to steal their thunder. Suffice to say that the Emperor of the Treasury has no clothes.




  1. How very interesting at first blush only. Of course, the banks and system are insolvent. You need not be particularly smart to see that the cause is always uncollectable retail loans. In particular, what are assets in the financial system representing aging Baby Boomer debt? Even more specifically, the upper half of the middle class over age 55 with a 401(k) or pension who has a negative or zero equity in his house and heavy consumer debt. As time goes on these people are ever less securely employed and then one day they get canned or see the bright lights glowing about how to shed debt. Essentially, sans house, most people would keep their household assets and even cars in a bankruptcy. They also keep their entire pension and 401(k)up to $1 million each as excluded assets. If they are reasonably smart enough to be larcenous about their survival and plan with a bankruptcy attorney they will shed all debt. Sooner or later, a n entire segment of Americans will shed debt as they retire. Even quit to do so on advice from their attorney .

    This upcoming fact of life is almost now upon us. The bank losses will be fearsome and the decline in value of certain types of residences like the McMansion will be massive. Millions of them with now current loans against the residences. This problem will only get worse as wages decline. Heaven help the system if the bankers try to change the bankruptcy law.

    There are trillions of dollars of credit losses in the United States to be recognized by the time people start collecting Social Security and quit their jobs to get off the hook. Right now, the banksters think they have won. Those that cash out now will have won. But the system makes good to the banks or they go down from Baby Boomer debt escape.

    Dead Bang banks where they have recourse problems on mortgages. Even greater dead bang credit card operations because everything they sell everything into securitization and the business model itself is premised on selling debt full recourse.

    Comment by Jerry J — December 19, 2010 @ 2:00 PM | Reply

  2. To all- feel free to follow updates on Facebook:

    Comment by 15th Banker — December 20, 2010 @ 12:15 AM | Reply

  3. Merry Christmas!!!

    Mariah Carey … one of the greatest divas of our time … She performs my favorite rendition of this Christmas carol. The CD version is better 🙂

    Comment by tippygolden press — December 22, 2010 @ 12:00 AM | Reply

  4. A Canadian Christmas carol — the Huron Carol — and one of the most beautiful Christmas carols ever written.

    Comment by tippygolden press — December 22, 2010 @ 11:24 AM | Reply

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