tag:blogger.com,1999:blog-7539577136486286096.post4167833976057874885..comments2024-03-28T02:46:41.090-05:00Comments on Supply and Demand (in that order): More Proof that Banks did not Need the BailoutCasey B. Mulliganhttp://www.blogger.com/profile/03317454408275318282noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-7539577136486286096.post-16423777600458408682009-02-11T18:15:00.000-06:002009-02-11T18:15:00.000-06:00In the way your stating in the costs don't add up ...In the way your stating in the costs don't add up like that.<BR/><BR/>The bailout added to BAC capital. But the loans don't draw down capital directly. They have to maintain a 7% capital liability ratio.<BR/><BR/>So, 117B in loans uses up only 8.19B in capital, so to speak.<BR/><BR/>The Merrill deal was also all stock, so it doesn't directly affect BAC capital.<BR/><BR/>Now, Merrill writedowns will come out of capital so that was a effect. But its not quite the same.Karl Smithhttps://www.blogger.com/profile/05863281026797375080noreply@blogger.comtag:blogger.com,1999:blog-7539577136486286096.post-66107845729242590422009-02-11T14:31:00.000-06:002009-02-11T14:31:00.000-06:00In addition, I just checked BAC's latest 8k - BAC ...In addition, I just checked BAC's latest 8k - BAC has $51 billion in tangible capital. That's 2.8% of its liabilities ($1.7 trillion).<BR/><BR/>Right now, if BAC's assets fall in value by 2.83% the firm would have no tangible assets to pay off its creditors. Frankly, 2.83% seems absurdly low. It's entirely plausible that global asset values could fall by 2.83% much within a relatively short time. You could make a credible case that the bank is practically bankrupt now.<BR/><BR/>I have no idea what percent of BAC's lending was contractually bound (though I suspect a substantial portion of it was). But if you take out the $45 Billion that has been injected, BAC would have $6 Billion in tangible capital. That would be 0.035% of its total liabilities... leaving, essentially, no cushion whatsoever. If this were the case, it would definitely be sayonara to BAC.Greghttps://www.blogger.com/profile/15959993137411127572noreply@blogger.comtag:blogger.com,1999:blog-7539577136486286096.post-76307375354195744422009-02-11T13:28:00.000-06:002009-02-11T13:28:00.000-06:00Casey, I agree with your point. But I would al...Casey, <BR/><BR/> I agree with your point. But I would also like to point out that BAC may have had legal obligations to fund those lines of credit. <BR/><BR/> Customers with vast liquidity issues (of which there were probably many), could negotiated irrevocable credit arrangements many months ago. Facing a liquidity event, many of BAC's probably drew down the loans. Its plausible that BAC had no legal alternative buy to extend credit on many (or at least a substantial portion) of that debt.<BR/><BR/>Keep up the awesome blog.Greghttps://www.blogger.com/profile/15959993137411127572noreply@blogger.com