Those Nasty Troubled Assets

The Dow Jones Industrial Average is above 9,200 and all seems to be right again with our business world.

Except for a little thing called “troubled assets.”

Lest you forget about that nagging problem, the Congressional Oversight Panel, about the pluckiest government outfit around, today released its August report on the Troubled Asset Relief Program (the memories are flooding back now, right?). The COP did something that hasn’t been done in a while: try to calculate the number rotten assets still on our nation’s banking balance sheet.

First, you should know that the Treasury Department has already brushed aside the panel’s conclusions with a “the Treasury’s efforts have already helped stabilize the banking system” statement.

So how bad is it even today? I’d say very bad.

In publicly available data reviewed by the panel, the 19 stress-tested bank holding companies have

* $657.5 billion in Level 3 assets, which include assets for which it is difficult to find
reliable external indicators of value;
* $132.9 billion in annualized loan losses;
* $264.6 billion in past due loans; and
* $8.9 trillion in credit default sub-investment grade exposure.

I don’t have enough fingers for that math. The panel went further and calculated that all banks had another $627 billion to $751 billion of annualized losses still to come. Do the banks have the money to cover those losses? Uh, no. COP says the shortfall of capital across banking might be as much as $23 billion.

No, Elizabeth Warren and her COP cohorts aren’t loons. The COP’s estimates are middle of the road compared to others.

Federal Reserve Stress Test (Adverse Case) — $599.2 billion
IMF — $550 billion
Goldman Sachs — $450 billion
RGE Monitor — $1,220 billion

We’ve all grown fatigued by discussions of financial calamity. The numbers just become too big; they lose their meaning. But these numbers are real and some variant of them will hit banks in the months and years to come. We can gloss over it, but the truth is what it will be.

“Troubled assets were at the heart of the crisis that gathered steam during the last several years and erupted in 2008,” the COP writes. “The stabilization of the financial system is a significant achievement, but it does not mark an end to the crisis. One continuing uncertainty is whether the troubled assets that remain on bank balance sheets can again become the trigger for instability.”

I’d put it another way: There’s still ugliness to come.

  Like This Post
Share It:

    One Comment

    1. jjhornblass says:

      Here is the link to the Naked Capitalism post.

    Leave a Reply