The stock markets took another big dive today on word that the banks are much worse off than you would think given their latest claims of profitability. The profit numbers did not bear much scrutiny to begin with. They shifted their quarter forward a month to ditch a month of heavy losses. Then there is the accounting change that allows them to stop counting their toxic assets as a current liability and on and on.
The latest news is even more troubling as it portends a coming crisis. The Treasury Dept. is proposing to convert the preferred stock that the Bush Adm. bought in all the big banks under TARP into common stock. This means the banks can use this money to directly offset losses; apparently the Treasury is anticipating the banks taking really big losses. Not a hopeful indicator of where the economy is going since really big losses would mean a lot more home foreclosures and business failures.
Converting to common stock also means that the taxpayers go to the back of the line in case of bankruptcy. Some have pointed out in a conspiratorial tone that all this common stock makes Uncle Sam the majority share holder of most of these banks; free to start dictating how the banks are run. Of course any bank that fails to meet liquidity standards these banks can be seized lock, stock and barrel by the government without notice and these bailout banks have already failed that test. Twenty-five small to medium banks have been taken over so far this year and some industry watchers are predicting that hundreds more will fail later in the year.
So ends another day in the tug of war between the Obama Adm. who is desperately trying to save capitalism from itself and the capitalists who want to maintain the illusion that they are the Masters of the Universe for one more day. I think I will go to bed early (maybe under it). www.prairie2.com