[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.
Josh[/quote]
This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:
“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.
… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”
