Big Banks Levering UP UP UP! Here we go again.

Posted on April 27th, 2008 in Daily Stock Market / Economic News - The Real Story

Well, isn’t this cute. While spewing ‘de-leveraging’ every chance they get, apparently the big banks are levering up faster than ever before. FT.com reports that “according to Tim Bond of Barclays Capital, in the months to the end of February assets held by US banks rose by $960bn but deposits rose by only $293bn (£147.7bn), leaving a record gap of $667bn.”

The very same banks that have all said the financial system’s problems are due to the massive leverage and lack of capital are back on the crack pipe and in rare form. This story is infuriating but just goes to show the peril in which the banks have put themselves. “But what about the rest of us?” is right.

Let’s hope this return to ‘abnormality’ brings some long needed liquidity to the US mortgage market. This is likely wishful thinking on my part, however, because big banks need to clean up their own house before they can worry about anyone elses house (no pun intended)…and cleaning up their house could take a long, long time.- Best, Mr Mortgage

Source: Relief on Wall Street Unlikely to Bring Universal Joy By Tony Jackson

6 Responses to “Big Banks Levering UP UP UP! Here we go again.”

  1. I think they are getting ready to pump and dump the markets before the Q1 GDP numbers come out in late May, to raise cash from the gullible rubes (retail investors, and all our 401k’s) to recapitalize.

  2. Clearly you missed the change in accounting rule that reinstated mark to model “myth” when make to market was causing the collaspe. The are not releveraging, just adding back crap they don’t have to report on now.

  3. This is all ABOUT INVOLUNTARY BALANCE SHEET EXPANSION, as we saw with LEH. Thanks for pointing that out Alex2008. That is what makes this story so frightening. There comes a point when it all blow. What about all the capital these banks – they sure didn’t raise alot compared to how their balance sheets grew.

  4. Great stuff, Mr. Mortgage, keep up the good work.

    I see lots of “for sale” signs. Anyone buying? My wife and I are staying out of this market. The Fed and the banks may be able to keep this ponzi scheme going for another year or so, but not much longer.

  5. I am doing a video and releasing some research on ‘has housing bottomed’. Stay tuned in the next day or so. Also, check out the most recent posts about Vacancy Rates.

  6. Peter: yes I know they can now bury anything they want in Level 3 — for now anyway. All that means is that the Fed’s “stop time” swapping facilities are no longer needed, just reclassify everything as Level 3 until you are ready to eat the losses.

    My point is that you can see the Yen carry trade revving up again. Now that the banks can delay the pain a while longer, doesn’t it make sense for them to go back to playing the markets to raise more cash, since their loan business obviously isn’t booming any more?

    Besides, the Fed DID loan them a pile of cash — what else are they going to do with it? Loan it out to more consumers who are about to get laid off and default on the payments? Hell no, I’d have poured it into commodities, and when that burst, rush it back into paper and try to get out before the next crisis hits.

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