USA BANKS WILL SUFFER $2.7 TRILLION IN LOSSES, ACCORDING TO IMF, AND $4 TRILLION WORLDWIDE

The updated information from the IMF about the projected losses attributed to the CRISIS worldwide and in the USA came after a "optimistic" reports from various government sources, predicting a financial improvement later in 2009 and definitely into 2010.

The International Monetary Fund said Tuesday worldwide financial institutions could suffer more than $4 trillion in losses from the global credit crisis with the U.S. leading the way with a total of $2.7 trillion.

The $2.7 trillion estimate for the United States was nearly double the IMF's projection from just six months ago. The agency for the first time estimated losses for other regions of the world, saying the global total could surpass $4 trillion.

This projection would also fall far short of the funds that have been allocated to assist banks with regulatory capital.

So who do we believe; the IMF report or our government officials?

The IMF also warned that governments must take decisive policy actions to contain the fallout. The agency said governments have made progress getting extra money into the banking system, but more needs to be done to deal with toxic assets on banks' books and shutting down insolvent financial institutions.

Additional capital is needed to cushion balance sheets against further loan losses and to restore investor confidence, the IMF said. The Obama administration has said it's considering converting some of the $200 billion in loans to banks into purchases of common stock as a way to bolster their capital reserves.

Would it not be better to simply keep it as preferred stock, for the better position it offers as well as interest?

The financial system remained under "severe stress" as the economic crisis broadens from the banking sector to consumers and businesses, the IMF said in its "Global Financial Stability Report."

"Further determined policy action will be required to help restore confidence and to relieve the financial markets of uncertainties that are undermining the prospects for an economic recovery," the IMF said.

The stability report and an updated economic outlook due out Wednesday will form the basis for meetings slated to begin with talks among the Group of Seven rich industrial nations and the Group of 20 major industrial and developing economies on Friday.

Discussions among the nations that serve on the steering committees of the IMF and World Bank are scheduled for Saturday and Sunday. Those talks will seek to flesh out the commitments made at a G-20 leaders summit in London last month. At that meeting, President Barack Obama and the other leaders pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.

Emerging economic powers like China and Brazil are demanding a bigger voice in how the IMF and World Bank are run in return for their increased support. That is all we need, a communist country like China telling us all how to run things, and Brazil, a big developing nation where only 9% of the population has ever traveled on a plane.

These countries want to be our financial advisers.

The 185-nation lending institution came under severe criticism during the 1997-98 Asian currency crisis, for the types of stringent reforms it imposed on countries seeking IMF loans.

IMF Managing Director Dominique Strauss-Kahn has sought to revamp the agency's lending programs to make them more flexible. The IMF has created a new line of credit it's willing to extend to countries with solid economic track records without the tough restrictions of normal IMF loan programs. So far, Mexico has been offered $47 billion and Poland $20.5 billion under the new program.

The agency already has shown greater flexibility in the loans it has extended for countries caught up in the current crisis, including those made to the formerly communist Eastern European countries of Hungary, Latvia, Ukraine, Serbia and Romania.

Some economists worry that without stringent IMF programs, countries will not make the tough choices needed to trigger an economic rebound. But most believe the new flexibility is a welcome change from past approaches.

There was a general feeling after the Asian crisis that some of the loan conditionality had been too intrusive.

Oh, yes why have any conditions attached to the loans. Let's just give the countries billion and billions with no accountability. Why not, our TARP had no conditions for the first $350 billion.

The old IMF was too harsh. Some of the conditions they imposed in the past did not take into account practical realities, but accountability and oversight should certainly be a part of that.

At the same time, some member nations are pushing to give the IMF greater powers as a global economic watchdog. They argue that if the agency had played a greater monitoring role, some of the financial market excesses that led to the current crisis could have been avoided.

However, any move to increase the IMF's oversight is likely to meet stiff resistance among countries like China where officials have objected to IMF lectures on its undervalued currency.

The financial stability report said the estimate of $2.7 trillion in losses in the U.S. included $1.07 trillion in loan losses and $1.6 trillion in losses on securities backed by mortgages, consumer and business debt. The losses for the 16 nations using the euro currency and Britain were estimated at $1.2 trillion. The losses in Japan were put at $149 billion.

The IMF said banks worldwide have raised about $900 billion in new capital since the crisis began, with about half of that coming from public sources. In the U.S., the government has spent $200 billion from a $700 billion bailout fund to inject fresh capital into more than 500 banks.