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CIT Bankrupt...Now The Entire Banking System Insolvent

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September 29, 2009 – Comments (18)

I prognosticated to you by 9.09 you would know MOAP...The Mother of All Projections....I told you it was big...Alstry BIG......and here it is....the banking system in America is insolvent..........and proof is provided by our buddy Karl Denninger......the math is the math.....and the math doesn't lie.

Following up on the quick mention now that I have a story to cite from Amherst:

Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.

Let's put some numbers on this.

There are roughly 125 million single-family homes in the US.

Of those, roughly 30% have no mortgage on them at all.  This leaves 87.5 million single-family homes with mortgages.

Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity.  This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)

These numbers are, with a high degree of confidence (90%+) low - that is, losses will exceed these estimates, perhaps dramatically so.  It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.

From this we can develop a "cocktail napkin" view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar "commercial" paper.)

$200,000 X 40% = $80,000 loss per foreclosure.

87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.

10,867,500
x    80,000
=============
$869,400,000,000

or $869 billion in losses remaining in single-family mortgages alone.

What if the average outstanding is higher and negative equity greater than 20% (which is likely)?  Losses will almost certainly be well north of a trillion dollars.

The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is "eating", is insolvent.  These facts are why the government is lying - they're well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.

(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more - as was seen with Colonial.)

It gets better.  The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has - contrary to its mandate - been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its "guarantee" should they default.

Care to argue with the math folks?

NOW YOU KNOW MOAP IN 9.09.....WHAT YOU SHOULD BE CONCERNED ABOUT IS HOW THE REST OF THE WORLD REACTS WHEN THEY FIND OUT IN THE NEAR FUTURE!!!!!!!!!!!!!!!

If you think your property is your property when your country is broke...you clearly are not familiar with the legal concept of joint and several liability.....that is what you will feel going forward.

YOU SHOULD NOW BE PREPARED.....AS SOME FOOLS ARE STILL LOOKING AT THE TICKER.

18 Comments – Post Your Own

#1) On September 29, 2009 at 10:21 PM, KamranatUCLA (29.72) wrote:

You Sir are right on the money!!!

I think many think that what you are saying teh worst case senario and maybe even laugh at your comments.

You are absolutly correct and banks are insolvent. FDIC has no money!!! (Actually right before I read your post I wrote a post myself about how Paul Volcker said that FDIC is broke and that's why FDIC let the small banks fold first because they had the money to cover deposites at small banks but not big banks).

But I don't think it will be the end of the world...So yeah all you say is right but I appreciate-we all do- if you tell us what you think will result as a consequence of what you are saying.

I personally think FDIC will get printed money from government and some big banks will go bankrupt too and then we will have inflation...maybe hyper inflation.

Right now we are in a bubble...a deflation bubble...but it is very close to pop!!! And I am seeing the signs already.

Yesterday I had a Fish Sandwich combo and McDonalds and it cost almost 7 dollar!!!! Seven dollars!!! small fries, small coke, a cancer causing sandwich for 7 dollars!!!

And today I got a haircut at supercuts. 17 dollars!!!! last time I was there few months ago it was 12.95.

And I don't think buying gold is teh answer...so what do you think we should do to make some money here??!!!

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#2) On September 29, 2009 at 10:26 PM, RLAprof (< 20) wrote:

#1 said: "And today I got a haircut at supercuts. 17 dollars!!!! last time I was there few months ago it was 12.95.

And I don't think buying gold is teh answer...so what do you think we should do to make some money here??!!"

 

Start cutting hair?

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#3) On September 29, 2009 at 10:48 PM, ozzfan1317 (78.55) wrote:

Buy the right stocks and you will make money but do your HW. We might have very limited growth the next few years but at least in my opinion I think we will start to dig our way out of this hole.

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#4) On September 29, 2009 at 10:49 PM, djkumquat (48.09) wrote:

#2 - ha!

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#5) On September 29, 2009 at 10:54 PM, goldminingXpert (29.55) wrote:

Of course the banking system is insolvent. Anyone who doesn't realize this is clueless. Americans are quite stupid.

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#6) On September 29, 2009 at 11:14 PM, prose976 (< 20) wrote:

That's a pretty general statement "Americans are stupid." 

Kind of like accusing America for the whole financial meltdown.  Sure, there were plenty of American involved, but expand your mind a little and you will realize that it was ALL the unethical, immoral peopel AROUND the world, from every corner of the globe who feasted on the buffet of exotic investments, fattened themselves and then, when they were satiated, tore down the buffet table.

I believe singling out Americans as stupid is probably one of the most naive notions that gets perpetuated by the very narrow-minded, finger-pointing individuals among us.

Don't be too Foolish by oversimplifying the obvious.

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#7) On September 30, 2009 at 12:20 AM, awallejr (77.67) wrote:

"I prognosticated to you by 9.09 you would know MOAP...The Mother of All Projections....I told you it was big...Alstry BIG......and here it is....the banking system in America is insolvent.........."

So this was it?  All the 9.09 screaming by you.  All the moap is coming the moap is coming just wait and see screaming by you.  All the DOW is going to tank wait until end of summer it will be 5,000-2,000 blogs written by you. And this is how you try to salvage your nonsense?  Some cocktail napkin scribbling?

We all knew this last year about the banks.  That's why they were taking such large writeoffs, and probably will still have to do so for another year or 2.  That is why Bernanke and Paulson did what they did.

So the end of summer has come and gone.  September ends tomorrow.  The world is still turning.  The country, while hurting and trying to mend, has not fallen into chaos.  You have nothing to show for all your spamming warnings, so you come up with old news.

You are like the bearded man who holds the sign "The world will end tomorrow."  Eventually you will be right.  But just not now.

And prose976 just consider the "source" regarding the "Americans are stupid" comment and disregard it.  The clueless ones are the ones who let 7 months of market gains go by while telling everyone else it is all a mirage and stay away. But hey October is here, let's scare people about that month now.

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#8) On September 30, 2009 at 12:24 AM, lquadland10 (< 20) wrote:

oh will they pull a rabbit out of the hat?

* Citi's China unit was prudent during crisis - regulator

* Citi has grown less than rivals in China - regulator

NEW YORK, Sept 29 (Reuters) - Citigroup Inc (C.N), the third largest U.S. bank, should expand its operations in China, according to a Chinese regulator cited by The Wall Street Journal on Tuesday.

Citigroup's China unit was prudent during the financial meltdown and now should be "expanding, absolutely," Yan Qingmin, director of the Shanghai branch of the China Banking Regulatory Commission, told The Wall Street Journal in an interview posted on the paper's website.

Yan Qingmin said he was not worried about the U.S. government's 34 percent stake in Citigroup, adding that Washington's support for Citigroup was the right decision and that it has done little to alter how Chinese policy makers regard the financial services giant.

Over the past year, Citigroup has expanded in China, but not as much as other foreign banks, Yan said, according to the article.

Citigroup, hurt by billions of losses and write-downs of bad loans and toxic assets, had to be rescued twice in the last year by the U.S. government with $45 billion.

(Reporting by Juan Lagorio; Editing by Richard Chang)

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#9) On September 30, 2009 at 12:56 AM, oshiri (< 20) wrote:

. . . landed10 . . . 

     For how long, and how often, can the U.S. financial system count on the Chinese to bail us out?

 . . . Prose & Awall (AWOL) . . .

     Americans are stupid.

     You need look no further then who they elected as President. A guy will a whole 100 days in the Senate. Now there's an expert at managing not only the economy, but also foreign policy.

     Last time I check besides printing foreign container loads of green backs, "your" President pulled the rug out from under Poland and the Czech Republic vis-a-vis missile defense. And just yesterday, Iran test fires missiles that can reach Europe. Hmm . . . is there a pattern here?

     Y'all are denying that major change is underway. 

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#10) On September 30, 2009 at 1:02 AM, mawnck (< 20) wrote:

#6 ... you're reading things that ain't there.

#5 didn't single out Americans as being stupider than any other nation's citizens. #5 just said that Americans are stupid. The preponderance of the evidence fully supports such an assertion.

The math is obvious, the solutions are obvious, and we're fighting over health insurance, wars in Afghanistan and Hawaiian birth certificates? That's STUPID.

So which stupid side are you on? Democrat Stupid or Republican Stupid? The fact that 90% of the country can't get past this binary choice concept proves that ... well ... they're stupid.

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#11) On September 30, 2009 at 1:17 AM, awallejr (77.67) wrote:

#9 "Americans are stupid."  Must be true because you said so.  But hey it was the Chinese who bought all our T Bills.

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#12) On September 30, 2009 at 1:18 AM, oshiri (< 20) wrote:

Right on Senor Mawnck!

"Democrat Stupid or Republican Stupid" many of us agree, including who's blog we've invaded. The political system is corrupt, that has led to financial corruption, which has led to a real need for collapse.

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#13) On September 30, 2009 at 1:25 AM, oshiri (< 20) wrote:

AWOL part duex . . .

     Somewhere here I saw a reference to Paul Volcker. I saw him interviewed on Charlie Rose today. He said that Chinese dollar reserves have been halved.

     The key to your #11 entry is "bought" -- past tense. Eventually you go back to the well too many times.

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#14) On September 30, 2009 at 2:39 AM, awallejr (77.67) wrote:

Bought and still buying.  France, Japan, even Russia came out in support of the dollar, for example. China just whines, despite the fact that they made their wealth off the US.  When American females are a larger economic force than India and China combined, it tells you who is the greater international force.  China just thinks it is when in fact they just simply aren't. Every month their exporting data decreases yet "somehow" their GDP stays way positive. Kind of a derail here.

But on topic, your arguing that Americans are stupid, like you did, is silly.  Argue points, not personal subjective generalizations.

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#15) On September 30, 2009 at 5:17 AM, cashkid79 (94.97) wrote:

Americans are largely uninformed about these things, doesn't mean 'stupid', I bet the hairstylist would make most economists look 'stupid' having a discussion about hair gels..that said, why the hell would a hair stylist be on here...but seriously, these uninformed Americans are useful when it comes to political media moves to motivate the masses in support of their agendas...truth...

China reported their stim money right off the bat, so GDP/growth shoots up regardless if that money down the line is in the form of a 100,000 dog toys manufactured with a new facility from said money yet still sitting in a warehouse with noone to buy toto a toy, but hey China has one up on us when it comes to doggy toys....whew its late...bed!  -cashkid79

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#16) On September 30, 2009 at 8:50 AM, mawnck (< 20) wrote:

"Americans are largely uninformed about these things"

That in itself seems pretty stupid to me. If hair gels had caused all the strife that the economy has over the last year or so, shouldn't they be learning all they can about them?

What's stupid is they THINK they know all about everything because they watch Fox News or CNBC, or blindly accept what their favorite politician, talk show host or pastor is telling them. They don't check with multiple sources ... they don't consult the knowledgable and the educated ... they don't have a healthy skepticism of people who they agree with ... they support their investment decisions with illogical fairy stories like "God loves America more than the rest of the world and that's why our economy will never collapse" or "I made lots of money the last few months so I don't need to pay attention to the big picture."

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#17) On September 30, 2009 at 11:53 AM, cashkid79 (94.97) wrote:

yes, you pretty much detailed a lot of the reasons people are uninformed, thinking they know everything based on limited/biased information....but just because the majority of the American public aren't financial analysists and economists or maintain a lifestyle that requires the analysis of the constant stream of data that molds our financial markets and global economy as they relate to everything from personal investments to politcal agendas DOES NOT make them stupid...stupid is quite a subjective term

Like it or not, when it comes to some investments (the zero-sum games) - those 'stupid' investors need to keep on if the other half wants to profit...not that this is my point at all, but the average American is not receiving streaming newswires and market quotes even when their 401k has lost 40% of it's value in the prior year...I subjectively think that is careless, but hey, if Bob the nuclear physicist has $$$ and chooses to play with the stock market dumping money in and not research it, I for one think it's better than if he went down to the casino and increased WYNN's net worth with his losses (obviously he could just make the FED some money and put it in a bank, but that's no fun and Bob doesn't have enough money to come close to the deficit the FED is facing anyway - ideally, Bob should start a local small business grant program with his disposable wealth)

I personally watch CNN, FOX, MSNBC, check MSN, REUTERS, newswire, too many to list really...but I am in a position to do so and disseminate the info to those who would listen...I religiously tell people to watch all the news channels if for nothing more than to laugh at the different spins on the same stories...

The main reason I am back in school now is to have the opportunity to talk with PHDs in my field personally, network in the community, get the inside loop with the local job market and small businesses, and finally, get another degree.  Knowledge is power brother...and I am amazed constantly at how uninformed many otherwise well-respected successful Americans there are...and most of these people are far from what anyone would consider 'stupid'...

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#18) On September 30, 2009 at 1:00 PM, goldminingXpert (29.55) wrote:

I like you mawnck.

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