"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, January 12, 2011

US Banks Claim Phantom Interest Income

This is unbelievable. Not only do US banks, particularly the too big too fail banks, get obscene amounts of bailout money so they can continue to rob the middle class, but they also get to lie about their incomes.

From Forbes:
US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

Jan. 12 2011 
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators. 
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months. 
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks. 
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed. 
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs. 
The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets. 
About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks.
SOURCE

Is it a surprise that Wall Street bonuses are yet again near record highs?

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