Is the Bank Crisis Over?

In recent months, US bank shares have rebounded, and some banks have even succeeded in repaying at least part of their government-provided capital. But this may only be a temporary improvement in expectations rather than a sign of permanent recovery, as the size of the banks’ hidden losses on their balance sheets is probably enormous, with much of it yet to be written off.

MUNICH – As America’s various rescue plans take hold, stock markets are recovering somewhat. The S&P 500 price/earnings ratio is gradually climbing back to its long-term average of 16. Bank shares in particular are rebounding, and some banks have even succeeded in repaying at least part of their government-provided capital.

But, as I point out in my new book Kasino-Kapitalismus , this may only be a temporary improvement in expectations rather than a sign of permanent recovery, as the size of the banks’ hidden losses on their balance sheets is probably enormous. According to the International Monetary Fund’s most recent estimates, the total write-offs on financial claims in this crisis will be $4.05 trillion for the United States, Japan, the euro zone and the United Kingdom, of which the US alone will have to absorb $2.7 trillion.

But according to my calculations of Bloomberg data, just $1.12 trillion had actually been written off worldwide by February, 2009. This suggests that only a quarter of the necessary write-offs have been realized.

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