This is a few weeks old, but it’s definitely worth watching if you haven’t yet. Elizabeth Warren, chair of the Congressional Oversight Panel (which was created to oversee TARP), has some frank words about the current state of the banks:
Here are a few transcribed excerpts.
Scarborough: “Are we out of the woods when it comes to toxic assets?”
Scarborough: “How bad is it still?”
Warren: “…by and large, the toxic assets that brought us to this point are still on the books of the banks.”
Buchanan: “Are you saying that if they mark to market, and these assets were priced at what they’re really worth now, these banks would still be under water?”
Warren: “…once the folks changed the accounting rules… that means you can carry them on your books at a higher level than the market would treat them. And now the problem is the banks say: ‘In fact, why do I want to sell them? Because if I sell them, I can’t sell them at that value, I’m gonna have to sell them down at the lower market value. That means I have to recognize the loss.’ Recognize enough losses, and some of them are going to be gone.
Buchanan: “If all these banks, or an awful lot of these great big banks are under water if you price their assets what they’re worth, you could have a second big hit here, couldn’t you?”
Warren: “You could have real trouble.”
Warren: “If the idea behind rebuilding the economy is: ‘let’s use a lot of the bad practices we’ve used over the last five years, and see if maybe we get a little bubble going…’ I have to say, much of what is wrong and needs to be fixed is not rocket science.”
The blunt truth is that the policies that have been enacted in response to this financial crisis to date are nothing more than “extend and pretend,” where we hope that the banks can just fake it until the economy somehow magically rebounds.