Connecting the Dots

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Let's try to summarize and put in order some of the most important stories we have been following over the past 6 months or so (references are made indicatively and certainly not exhaustingly):

First we learnt that contrary to what their executives and analysts were claiming, the banks were carrying in their books bad assets in excess of USD 1 trillion (the number has been revised upwards a number of times since, so I have stopped paying attention), making them essentially insolvent.

Given that it would be impossible to convince even the most naive of Madoff's clients to participate in any share capital increase, the banks had to accept an as-of-yet unspecified amount of government funds (likely to increase further in pace with the previously mentioned revisions) in order to avoid bankruptcy.

This infusion of capital inevitably brought with it increased scrutiny and intervention from some very angry politicians who insisted that bank executives return most of their bonuses or even forfeit them altogether. As expected, this made some very senior people very seriously frustrated.

Then came the news that the banks were allowed to change the accounting rules of their bookkeeping, in essence turning their balance sheets into religious scripts (as in "we believe that the true value of our assets is...").

Then on Thursday, Wells Fargo showed to the world the wonders that the new religion can do announcing Q1 earnings of USD 3 bln, while the power of the investors' faith sent its shares up 32% (a resurrection totally overshadowing the one performed by Jesus three days later on Sunday).

In the meantime, Goldman announced that it no longer wished to hold a single dime of government money and it felt confident it could repay it entirely as soon as possible by doing the impossible - raising capital from the markets (yet another miracle! - these people must have trouble diving in their pools).

Having gone through all these stories only one question remains: Can the share capital increases be wrapped up in time for the 2008 bonuses to be paid before the opening of the Hamptons season? I am sure the boys will work their miraculous 120-hour weeks and make it happen...
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