Pickle Real Estate

Reading Between the Head-Lines

The Fed’s Hollowing Out Of US Banks

2010-04-29   Daniel Amerman.com

Overview

Have the Federal Reserve’s unprecedented market and banking interventions fundamentally weakened America’s banks?   In this article, we will illustrate how the Federal Reserve has been hollowing out the US banking system.  We will show how the Fed has been creating a banking industry shell that looks strong on the surface, but is increasingly empty beneath that facade, with less and less economic strength, and an ever greater reliance on the Federal Reserve’s monetary creation ability.

Using a single loan as an example, we will explore in step by step detail how almost 10 percent  of US bank assets have been hollowed out, with former investments in the economy being replaced by excess reserve balances at the Federal Reserve. On paper, these balances are the highest quality assets which a bank can own, yet in economic reality, they represent an investment in nothing at all.

Few articles explained the dangerous process of creating an almost entirely artificial mortgage market in 2009, and almost none have explored how participating in this process has transformed US banks in 2010.  When you finish, you may find yourself looking at the new US banking system in a very different way, as well as understanding the powerful economic and personal investment implications.

Full Article Here:

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April 29, 2010 - Posted by | Banking, Foreclosure, Real Estate, Stats

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