Tuesday, November 23, 2010

Are the Megabanks Insolvent?

Three trillion dollars in uninsured mortgage exposure? Nine hundred billion in home equity loans (probably better termed no-equity loans)? Plus, 1.7 trillion dollars in suspect commercial loans? "The collateral for these loans is definitely worth less than the loan balance." What a nightmare.

Add in any realistic valuation adjustments for MERS related losses, lost note losses, and the fact that residential real estate sales are still declining and it gets really hard to see how the banking sector can be fully solvent.

The Obama administration needs to do new stress tests, with a specific focus on foreclosure fiasco issues, and then assess which banks are viable and which ones are not. Those that are not viable must be shuttered immediately--before they can do more damage or become even more insolvent.

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