On Sat, Nov 8, 2008 at 9:53 AM, Dan M <[EMAIL PROTECTED]> wrote: > Well, I looked on this balance sheet, and didn't see that. Further, isn't > senior debt a debt, not an asset? What I think you mean is that it's big > enough to absorb all the loss involved in liquidating assets. > > So, to look at that, I looked up "deutsche bank senior debt" and got > > http://annualreport.deutsche-bank.com/2008/q2/notes/informationonthebalances > heetunaudited/long-termdebt.html > > http://tinyurl.com/62cgfg > > > We see that subordinate + senior debt is less than 200 billion Euros.
Sorry, I assumed from the way you were speaking that you had a decent understanding of the balance sheets of banks, so I was speaking loosely. I'll be a bit more precise now. A bank's balance sheet may be divided into assets and liabilities. Assets can be loans, mortgage backed securities, cash, etc. The liabilities include deposits, REPO's, long-term debt, etc. It is an accounting identity that assets = liabilities + equity (that is the "balance" part of the name). If the assets lose value (for example, bad MBS's) then the balance is maintained by reducing the equity. If the equity becomes negative, the firm is insolvent. I'm not familiar with the bankruptcy laws in Europe, but if they are anything like the US then all the debt holders will lose their money before the depositors. Basically there is an ordering of the liabilities, with the depositors near the top, and in bankruptcy, after all assets have been liquidated, the depositors are paid off first, then the next creditor on down the line until the money runs out. The balance sheet you referenced has total assets of nearly 2 trillion euros, and 422 billion euros of deposits under liabilities. As long as the losses on the assets do not exceed about 79% (loss of 1.6 trillion), then the depositors could get their money back. > You just brushed off the essential problem at the heart of bank runs with a > "it would just". I'm not talking about preventing bank runs. The issue I am addressing is whether the depositors would be able to get their money back in bankruptcy. If the depositors won't be able to get their money back eventually, then that is a more severe crisis than just an insolvent bank. > Second, when bank failures have happened in the US, it's been a big bank > taking over a smaller bank with the US government eating the bad assets as > part of the deal. That is a gross oversimplification. But there are two huge mistakes that the government can make that contribute greatly to the problem: 1) Bailing out the bondholders. If banks find it harder to borrow, then they will have a more difficult time reaching excessive leverage. But if the government bails out the bondholders, then the bondholders will be eager to lend to the banks even if they have excessive leverage. 2) Not charging high enough premiums for insurance. One thing that is obvious from the past year is that the government considers some financial institutions too big to fail. If that was the case, the government should have been charging much higher insurance premiums (in some cases, higher than zero) for insuring these institutions. Big mistake. Government excels at big mistakes. > I'll go back to another example of this: the fact that the spread between > interest on A and AA paper jumped up to almost 5% as the bailout was being > passed, and is now dropping as it is being implemented. Do you make these things up, are you just remarkably ignorant, or are you just going on blind faith in government? If none of the above, please list how the $700B bailout slush fund has been spent so far. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
