Bailout Money Bolsters Banks
Against Prospective Losses?
“A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be. “
–Wayne Gretsky
It’s a stretch to compare Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson to the incomparable Wayne Gretsky; their ad hoc and inconsistent handling of the credit crisis more often conjures up images of the Keystone Cops.
It’s also the case that the lack of disclosure and accountability expected of the recipient banks is truly appallling, and to many (including me) offensive, given the hundreds of billions of taxpayer funds involved.
That said, if you’re looking for a rationale for and defense of the bailout(s), however strained, here it is:
–Wells Fargo just bought Wachovia and its $150 billion portfolio of toxic mortgage loans (mostly option-ARM’s and the like).
–Two-thirds of those loans, or $100 billion, are now expected to default.
–The loss ratio on the aforesaid defaults is expected to be 25%, or $25 billion.
So guess how much Wells Fargo has received in bailout funds to date? Yup: about $25 billion.
Thanks to Tyler Zimmerman, Edina Mortgage, and Josh Kaplan, City Lakes office manager, for the foregoing numbers and proofreading, respectively.
