We recently learned that the U.K. financial institution, RBS, lost $41 billion. We also learned that Citigroup lost $8 billion. How are we to interpret these numbers?
Would you be surprised if it was the reverse, with Citi losing $41b and RBS $8b? Probably not. You see we have no way of assessing the current state of banks. There is very little transparency.
For example, we do know that Citigroup as $300b in assets sitting “off balance sheet”. Who knows what those assets are worth.
We also know that some of these assets are not being marked to market (fair market value) because there is supposedly no bid or extreme lack of liquidity. As a result, we are relying upon the model prices that the bank (rather than independent third party) provide.
In this video blog shot on January 22, 2009, I make two points. First, in order to rebuild confidence in our banking system we need an extraordinary degree of tranparency. Second, the government has no business blowing taxpayers’ money on bailouts of institutions where the government has no idea what the value of the firm is.