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Accounting changes in the US next year mean all credit card debt will have to be brought onto balance sheets. That spells trouble for Bank of America, Citigroup and JPMorgan, which hold more than half of their credit card debt outside their profit and loss accounts, according to Oppenheimer & Co.
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The names sound familiar? They should. You just handed them close to a trillion dollars of your money. They're gonna want more when this debt goes on their books and the bottom falls out once again.
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Including credit card debts, Citigroup is exposed to $1.2tn of off-balance-sheet debt, JP Morgan to $735bn and Bank of America to $73bn. Not all of it will be dumped back on to profit and loss accounts but Whitney warns her estimates do not include off-balance-sheet mortgages. "We are unclear what the magnitude of that will be."
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You know, the automaker bailout looks more and more like a real bargain, compared to the mess Wall St. made of, and on, themselves. It'd be nice if we made the banks and mortgage houses jump through the same hoops as the Big Three instead of just throwing money at them.
As I've said since we bailed out the airlines after 9/11 (have any of the major airlines made a profit since?), we should let failed businesses go under and die. Fiscal Darwinism means someone else will step up to fill the gap. There will always be someone who can do the job better and more efficiently. Throwing money at bad business models only encourages industries to follow the failed model*.
Like our failed President, who's been saved from his own mistakes since his formative years, rewarding failure only produces bigger failures. For a bailout to work, the old rules and lassiez faire regulation have to become a thing of the past and the new regs must be in place, and enforcable, before one red cent of taxpayer money is allocated to their rescue. This hasn't happened on Wall St. and half the allocated money is already gone.
Hopefully, after the inauguration if there's any money left, we might have some people in control who look at these businesses objectively and not with a slant to how much they contribute to the party's campaign coffers. If Barack Obama wants to save the economy, his first order of business should be to close every lobbying firm on K Street. Until the politics is taken out of fiscal policy, business as usual will prevail.
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