More on the Pirates of Wall Street (and Bay Street Too?)

Now that the Fed and Treasury have shoveled trillions in bank coffers, and accounting rules have been relaxed so that those toxic assets don't look so toxic after all, major banks in the U.S. are deciding that they don't need to unload all of these nasty, risky loans.

As a NYT report on this notes

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

In other words, banks are claiming values on these assets that not even the promise of massive subsidies can prop up. Better to claim a 'mark to fantasy' value and hence bogus profits than to even entertain the notion of establishing market prices. And of course this also avoids the messy problem of controls on management compensation.

Yet the troubled assets remain, and with them the reality government and markets alike are hiding from; many of these banks are insolvent. Thus

[n]o one knows exactly how many losses are buried in the troubled mortgages on banks’ books, but some analysts estimate that the unrecognized losses total more than $1 trillion. Under accounting rules, banks do not have to write down the value of most mortgages unless they sell them or they fall delinquent.

Of course, at least Americans get to hear about this. In Canada, we have the highly secretive EFF, off the books and unaccountable to Parliament, handing out $200 billion to banks that have been given the same generous accounting standards regarding their assets. And we have a lap dog press anxious to look the other way.

So how are our banks doing? The fact is we don't know.