I think some of you are forgetting that these numbers being bandied about are actual dollars – the kind you use to buy food and groceries. We’re not talking about Monopoly money that gets redistributed at the end of the game. Real greenbacks, real moula, real coin of the realm. I don’t know how else to bring this out of the abstract.
Banks are in business to make money and when they lose money they eventually go out of business, either by BK or by seizure. The feds don’t insure banks without having stringent rules in place for liquidity and “safe and sound” lending practices because in the end these banks are underwritten by the U.S. taxpayer.
In other words, if a bank or an investor writes off one of these big losses that means that someone (lender, investor, government insurance fund) is losing those dollars out of their pockets for good. You can’t “account” your way out of something like that.
I’m fairly shocked that some of you think a bank can routinely write off 6-figure losses and survive. I don’t think some of you realize how thin their margins are. How many good loans does it take to make up for a single 6-figure loss?
As for investors, they’re in the same boat. They literally can’t afford to be writing off these large losses in principal because their margins aren’t that big either.
Try to remember that the typical residential losses that contributed to the last S&L bailout were in the $20,000 – $50,000 range. Now we’re talking about losses that can already be 300% of that with the potential for losses of up to 800%+ of that by the time this is all over.
No, fuzzy math accounting is NOT going to enable these lenders and investors to subsidize the foolish decisions made by these FBs. And wishing for inflation to correct the distortion is a loser, too, because that would essentially force EVERYONE to pay for the stupidity of the few. That’s a morally bankrupt idea from beginning to end.
