We just read that banks are digging into their reserves to bolster their quarterly earnings. They are doing this at a time when real estate prices are double-dipping, Greece is heading for default, Spain, Ireland and Portugal are in serious financial trouble, US municipalities are facing bankruptcies and swipe fees are being legislated back to levels of sanity in an attempt to curtail Banks' up to now unstoppable greed. When reserves reach zero, this shell game will surely come to an end. Or will it?
Why shouldn't the Banks be able to manage negative reserves? After all, they already have Balance Sheet Management and Liability Management? See Bankspeak in the Investing Forum if you are not familiar with the bank vernacular..
This new concept of negative reserves will widen horizons, limited only by the imagination of those who gave us Credit Default Swaps, Mortgage Backed Securities and drove the world economy to the brink of collapse. “Reserve Management” has a great future!
Any enterprise. including a Bank, must produce a profit to attract investors to buy its stock, but what happens when negative reserves reduce Banks' book value to below zero? No Problem: The investor/shareholder will get paid to “buy” the stock. He has no exposure to further liability. If the shares fall further he just sits tight. After all, he will have made his money. He also will earn a dividend (remember, the bank is worth nothing but its earnings are still positive, for a while, at least.
One thorny problem remains: Who pays the investor? The taxpayer, of course! The government will issue SCREW's (Securitized Collateral Reverse Equity Warrants) and sell these to Pension Funds, Retirement Accounts etc. The beneficiaries of these accounts may not want to sell their good assets and buy government SCREW's, but there are ways to make them see things the government's way: The most powerful army in the world will soon be coming home, looking for new things to do.
OF COURSE, THIS IS JUST A SPOOF isn't it? Our government couldn't really issue SCREWS could it? Yes it could. Read the following little gem published by Bankrate.com on May 20th of this year
“Debt Doomsday Imminent – see Raiding Federal Pensions
In the meantime, as of Monday, Geithner began dipping into federal pension funds to tide the country over until Congress gets around to raising the debt limit. He calls it a "debt issuance suspension period," but he will redeem or suspend new investments amounting to $84 billion in the Civil Service Retirement and Disability Fund, and he'll suspend reinvestment of another $130 billion in the Government Securities Investment Fund, a money market fund in the federal employees' defined contribution plan. He must take these actions to "avoid breaching the statutory debt limit." This suspension period began Monday, May 16 and will last until August 2”
RESERVE ACCOUNTING
We just read that banks are digging into their reserves to bolster their quarterly earnings. They are doing this at a time when real estate prices are double-dipping, Greece is heading for default, Spain, Ireland and Portugal are in serious financial trouble, US municipalities are facing bankruptcies and swipe fees are being legislated back to levels of sanity in an attempt to curtail Banks' up to now unstoppable greed. When reserves reach zero, this shell game will surely come to an end. Or will it?
Why shouldn't the Banks be able to manage negative reserves? After all, they already have Balance Sheet Management and Liability Management? See Bankspeak in the Investing Forum if you are not familiar with the bank vernacular..
This new concept of negative reserves will widen horizons, limited only by the imagination of those who gave us Credit Default Swaps, Mortgage Backed Securities and drove the world economy to the brink of collapse. “Reserve Management” has a great future!
Any enterprise. including a Bank, must produce a profit to attract investors to buy its stock, but what happens when negative reserves reduce Banks' book value to below zero? No Problem: The investor/shareholder will get paid to “buy” the stock. He has no exposure to further liability. If the shares fall further he just sits tight. After all, he will have made his money. He also will earn a dividend (remember, the bank is worth nothing but its earnings are still positive, for a while, at least.
One thorny problem remains: Who pays the investor? The taxpayer, of course! The government will issue SCREW's (Securitized Collateral Reverse Equity Warrants) and sell these to Pension Funds, Retirement Accounts etc. The beneficiaries of these accounts may not want to sell their good assets and buy government SCREW's, but there are ways to make them see things the government's way: The most powerful army in the world will soon be coming home, looking for new things to do.
OF COURSE, THIS IS JUST A SPOOF isn't it? Our government couldn't really issue SCREWS could it? Yes it could. Read the following little gem published by Bankrate.com on May 20th of this year
“Debt Doomsday Imminent – see Raiding Federal Pensions
In the meantime, as of Monday, Geithner began dipping into federal pension funds to tide the country over until Congress gets around to raising the debt limit. He calls it a "debt issuance suspension period," but he will redeem or suspend new investments amounting to $84 billion in the Civil Service Retirement and Disability Fund, and he'll suspend reinvestment of another $130 billion in the Government Securities Investment Fund, a money market fund in the federal employees' defined contribution plan. He must take these actions to "avoid breaching the statutory debt limit." This suspension period began Monday, May 16 and will last until August 2”
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