Ticking Time Bomb for 2010

There isn't enough commentary out there about how the "recovered" sector of the American economy - the banks - are recovering through continued and massive taxpayer subsidies.  One of my Capitalist Pals had a good piece on it earlier this week. Healthy balance sheets are coming from (1) free money guvmint money (effectively zero interest) for which the banks can charge 5% or whatever; (2) the use of higher-yield Fannie Mae and Freddie Mac securities, although these agencies are floated by bailout funds; and (3) the declaration of actual losses as income:

many of the same banks that received TARP funds were deliberately allowed to mask big losses in the 1980s after their loans to Latin American countries went bust.

Today, banks are doing the same thing by underreporting losses and delinquencies. This means that, even if banks aren't collecting, they can keep counting interest they're owed as if they are getting paid. This allows them to delay the write-down process, and casts doubts on their financial statements.

 The fact that the author of this piece depicts his view as controversial suggests we're living again in Kool-aid World, and that unpleasant surprises await.

Be sure to read the even scarier Part II.

HNY quandmême!