Opinion

Felix Salmon

The US banking system’s terrifying balance sheet

By Felix Salmon
April 8, 2009

bailout2.jpg

This is a spectacularly good piece of information design, from Tyler at Zero Hedge. It repays a lot of looking at, and manages to encapsulate both the scale of the US banking system and the scale of the solutions which have been announced or implemented to date.

On the asset side of the US banking system’s balance sheet, the $4.8 trillion in mortgages is a problem — but there’s another $3.1 trillion in bank loans and consumer credit which is looking increasingly shaky. Against that there’s less than $1 trillion in common stock, supporting over $12 trillion in liabilities.

Meanwhile, Tyler has neatly lined up the government’s support programs along with the relevant parts of the right-hand side of the banking system’s balance sheet. Add them all up, and they come to just over $9 trillion, or 67% of the banking system’s total assets. It’s an absolutely astonishing amount of support, and it brings home the scale of the problem facing the government.

In a nutshell, the problem is the classic one: on the left-hand side nothing is right, and on the right-hand side nothing is left, at least absent government intervention. Says Tyler:

As the government has the best information about the true sad state of affairs, it is likely that as more and more information about the weakness of the financial system comes to light, more of these support guarantees will become utilized to their full extent. This also means that the asset side of the balance sheet is potentially “inflated” by almost 75% and the net result could be the most dramatic collapse in a banking system’s assets in recorded history as over $8 trillion in “assets” are reevaluated.

This doesn’t need to be probable to be terrifying: it just needs to be possible. And Tyler’s point is that the government has put all of these programs in place precisely because it’s possible. So: fear is entirely rational here.

Comments
5 comments so far | RSS Comments RSS

Thank you Felix. This information should be available in its simple and clear form to very taxpayer in this country.

Posted by YR | Report as abusive
 

Our mainstream media remains a propaganda machine. I think the American people are figuring it all out anyway. Suffering by so many and so many more to come with little or no opportunity for redemption is an inescapable fact of American life. Soon all will see the truth.

Posted by Anubis | Report as abusive
 

Felix – not sure if you are aware or if others are having this problem but the reuters page seems to automatically reload while I am reading your blog. So if I am down on the third or fourth entry the page refreshs and takes me back to the top. Is there a way to turn the auto refresh off?

Posted by mihir | Report as abusive
 

I also have the “refresh problem”, the solution I use:
1) Firefox browser
2) AdBlockPlus extention for Firefox
3) add blocking filters to disallow most of ad-related scripts, especially cross-site ones, like google-analytics, yahoo. This step takes a while to find proper set of rules, but then it is worth solving it once and for all. For Reuters this is the script to be filtered out:
http://static.reuters.com/resources/js/r efresh.js

4) as a general advice, if AdBlockPlus does not help, the next stop is GreaseMonkey which allows total control of page elements…

I am sorry Reuters, but my computer is mine and some “services” are simply pests, far from being useful.

Posted by Anonymouse | Report as abusive
 

This is why the government is effectively going to guarantee trillions of dollars in loans. We don’t have to nationalize the banks, just guarantee their commitments. Not only has the government paid off AIG’s bad bets, but they have taken over their credit swap business.

Posted by KenG | Report as abusive
 

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