Major US Banks are Insolvent

President Obama promised during his campaign to make government processes much more transparent to the American public. Yet so far his administration has chosen to keep a dirty little secret from the public — that major US Banks are insolvent and the government has no current good plan to fix the problem.

Here is the TheFreeDictionary definition of insolvent:

1.

a. Unable to meet debts or discharge liabilities; bankrupt.

b. Insufficient to meet all debts, as an estate or fund.

2. Of or relating to bankrupt persons or entities.

n.

A bankrupt.

I’m sure that Obama would like to usher in a new era of transparency in government. I expect that the new Treasury Secretary, Tim Geithner, and Obama still haven’t been able to grasp the awful truth, the US banks are insolvent. Neither the banks or the Obama government are willing to write down to market value the remaining trillions of dollars in near worthless or worthless assets on the banks books in the vain hope that markets will recover and that values will increase.

Markets will recover in time but it is unlikely that the values of trashed and stripped down houses will recover or that the value of closed shopping malls that remain closed will have much value. Ever.

The trillions of dollars in toxic “assets” held by the banks has a true value of zero or near zero. The trillions of dollars that have gone to money haven will not return from the land of the money dead.

No wonder Tim Geithner’s plan to revive the banks had so little detail and that Wall Street tanked as his presentation of the non plan proceeded. No one in Washington has a clue as to what will work to fix the US banking problem. In truth there probably is not a fix short of nationalizing the banks. The new administration is not yet willing to explore that option. I expect after pouring a few more trillion dollars down the toxic waste rat hole someone in government will eventually find another word for nationalism and in fact nationalization of the banks will take place under that code name.

With nationalization the present bunch of “highly paid talent” that got us into this mess can be booted out. Many of them should probably be escorted to new digs at a federal prison although the power of the good old boy network is unlikely to let that happen. If it were up to the public I expect that it would be off with their heads.

New good banks can be created and performing assets and customer deposits can be transferred to the new banks. The toxic assets would be left in the original bad bank. The stockholders and bondholders would be wiped out in such an arrangement but the new government owned bank , under new management, would have a good chance of being successful.

While nationalization is a dirty word to believers in the free enterprise system when you become insolvent and there is not enough money in the entire world to restore solvency options become limited. It would be better to face reality now than after wasting trillions of dollars that will have to be printed out of thin air.

Unfortunately, the government is also insolvent so it must act before everyone in the world realizes that sad fact. Who will want to lead money to a government that can only pay it back by wildly inflating its currency? The major banks are insolvent and expect to be saved by an insolvent government. Hmmmmmmm. Maybe buying more gold even as it reaches $1,000 an oz has some merit. The complete distrust of the banking system and of paper money of any kind can not be too far away.