Will the Bush Administration's recently proposed $700 Billion 'RTC 2' Financial Rescue Plan prove to be just a DROP in the proverbial Market BUCKET ??? THAT becomes the $60 TRILLION financial system question after digesting the below insightful data courtesy of Douglas Cliggot, the Chief Investment Officer of Dover Management Group:
* According to 2008 data made available from the Federal Reserve, The U.S. financial sector began the year with approx $62.7 TRILLION worth of banking assets ($700 Billion is about 1.1% of this)
* About 20% or $5 TRILLION of this $62.7 TRILLION was effectively transferred earlier this year from the private sector to the public sector with the nationalization of Freddie Mac (FRE) and Fannie Mae (FNM)...leaving U.S. banks with approx $57 TRILLION of outstanding assets ($700 Billion is about 1.2% of this)
* Of the $55 TRILLION in public U.S. banking assets, the face value of outstanding U.S. mortgages currently represent approx 25% or $14 TRILLION of this amount
* Applying a 10% DEFAULT RATE (probably a fair assumption given the current morose state of the U.S. economy) to U.S. banking assets (including loans of all types - residential, commercial, consumer including auto, etc.), would result in about $5.5 TRILLION of U.S. assets being wiped out...a somewhat TERRIFYING amount of wealth destruction considering the fact that the U.S. financial sector entered 2008 with only $4.6 TRILLION in total equity capital (equity capital: the sum of money raised from owners of a company via the issuance of stock + retained earnings) !
Data Courtesy: Douglas Cliggot + CNBC
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