Then he cites a paper suggesting that there are at least $2 trillion of unrealised losses in the US banking system at present, meaning that assets are overstated by that amount. He comes to the conclusion as a result that the US banking system is running on empty: it has no reserves.
Could be.
Second, there is a need to reform audit so that these hidden losses are revealed.
Why? Losses on available for sale portfolios are marked to market. Losses on hold to maturity portfolios are revealed on Form 10Q. Go read the 10Qs and tot up the losses.
Shrug.
Terry Smith: “Why I never invest in bank shares”
https://www.ft.com/content/831cee08-7250-44e4-b992-8b8d1ec1c516
If the assets are marked to market, then *net* assets are stated correctly, not overstated. It is only unrealised losses in those “held to maturity” that are overstated and in the case of insurance companies this overstatement matches the overstatement in the present value of the liabilities against which they are held so net assets are *not* overstated.
The only overvalued assets that matter are bonds that are mismatched against demand deposits in banks (or, in the rare case of certifiable insanity mismatched against term deposits). The conclusion that the banks have no reserves is a non sequitur.
First, there is a crisis and action is required. That is a rate cut this week and a deposit guarantee in the first instance. That leaves something to argue about in place.
I don’t think the opinion of a rank imbecile is high on the bank’s list of voices which need to be listened to.
Second, there is a need to reform audit so that these hidden losses are revealed.
I’ll call for that when he divulges details of how his blog is funded.
Third, this time it has to be real: this has to happen. We cannot keep having these fiascos. And that means, amongst other things, that central bankers have to lose their pre-eminent role in policy making where as a result they think they have the duty to keep wages low to serve the economic interests of a few in a way that always leads to an economic crisis.
I’d agree we can’t keep having these fiascos – that’s why we need to state categorically that QE and MMT are not policies or theories that have any place in the management of a modern economy. We need to shrink the state drastically with huge cuts across the public sector due to the sheer number of fiascos in health, education, defence and Finance (indeed across every department). Not sure that’s what he has in mind, though
Good to see Spud’s understanding of bank accounting matches his understanding of everything else related to accounting.
I’m tempted to send a birthday card to Murphy, belated as he is 65 today.
I could sign it as below, if all are agreeable?
Happy Birthday from all your friends at Tim Worstall’s blog, in appreciation of the Joy (of Tax, snigger) you bring to us, almost daily!
He can run (if he needs to – he says so himself) but prefers to walk briskly.
Seriously I’d like to see that fat lump after a 400m run, never mind anything longer.