Dallas Fed's 2011 annual report: time to break up TBTFs

[Winehole23]

http://dallasfed.org/fed/annual/index.cfm

[TeyshaBlue]

"The term TBTF disguised the fact that commercial banks holding
roughly one-third of the assets in the banking system did
essentially fail, surviving only with extraordinary government
assistance."

Boom.

[TeyshaBlue]

The analogies to internal combustion engines are pretty weird...but they hold up so far.

[boutons_deux]

F & F must make them banks/lenders take back all the toxic mortgages, taxpayers win, the banks will be bankrupt, nationalize them, break them up, put Glass-Steagal back.

[TeyshaBlue]

Dodd-Frank puts a crimp on that, boutons, with the liquidity/capital stipulations. You can't just dump the toxics back into the box. The box has moved. And it's alot smaller.

[TeyshaBlue]

Going forward, F&F shouldn't be allowed within 1000 ft of a subprime mortgage.

[MannyIsGod]

Honest question: Is it surprising that the Dallas Fed is saying this? I assume that it is, but I don't know what they would be expected to say.

[TeyshaBlue]

I don't know, Manny. I've always gotten the impression that the Dallas Fed was more of the Maverick of the Feds.:lol
Sorry. :depressed

But srsly, I think they are.

[RandomGuy]

http://dallasfed.org/fed/annual/index.cfm


If allowed to remain unchecked, these entities will continue posing
a clear and present danger to the U.S. economy.

No shit.

Good to see some other policy wonks are pushing for this.

I can hear the Republican base shrieking "socialism" already.

[RandomGuy]

http://www.spurstalk.com/forums/picture.php?albumid=195&pictureid=1666

Sniglet from that report, certain to irritate Paulbots.

Hard to read, but it shows the amount of time spent in recession before and after the Fed was created.

[scott]

http://www.spurstalk.com/forums/picture.php?albumid=195&pictureid=1666

Sniglet from that report, certain to irritate Paulbots.

Hard to read, but it shows the amount of time spent in recession before and after the Fed was created.

I'm having a difficult time understanding what the bottom portion of the graph is trying to convey. It doesn't makes sense to compare a short period during which there was a recession (2008-11) with much longer periods where the recessions have more time to be diluted by periods of non-recession. We could have picked 2008 and had the graph at near 100%, but what does that show?

The top portion of the graph is a fun, non-contextual jab, but there are too many other variables to draw a conclusion about the Fed's effectiveness (and I support the existence of a Central Bank).

[Th'Pusher]

http://www.rollingstone.com/politics/blogs/taibblog/with-blistering-dallas-fed-report-ending-too-big-to-fail-goes-mainstream-20120329

[Winehole23]

solid article. notice he cut down some on the swears.

[greyforest]

I'm having a difficult time understanding what the bottom portion of the graph is trying to convey. It doesn't makes sense to compare a short period during which there was a recession (2008-11) with much longer periods where the recessions have more time to be diluted by periods of non-recession. We could have picked 2008 and had the graph at near 100%, but what does that show?

You're correct. This is a shitty, shitty graph with random cherry-picked dates that aren't apples-to-apples comparisons with each other.

[Winehole23]

FDIC outlines a plan for breaking up TBTFs:

http://fdic.gov/news/news/speeches/chairman/spmay1012.html

[boutons_deux]

breaking up the TBTFs ain't never gonna happen, even if they crater the economy, again, repeatedly. The financial sector owns Congress and WH, and the VRWC Repug SCOTUS is always ready to legislate activism.

[RandomGuy]

FDIC outlines a plan for breaking up TBTFs:

http://fdic.gov/news/news/speeches/chairman/spmay1012.html

They are talking about the plans that large financial insitutions have to have in place to wind them down should they get into trouble.

This is less about breaking them up actively, but more about winding them down in case they are on the brink of failure.



ast September, the FDIC Board adopted two rules regarding resolution plans that systemically important financial institutions themselves will be required to prepare – the so-called "living wills."

[boutons_deux]

the TBTFs have been and continue to lobby Congress, with Repug help of course, to gut the requirement for higher reserves. I have no doubt the lobbying will pay off.

[Winehole23]

They are talking about the plans that large financial insitutions have to have in place to wind them down should they get into trouble.

This is less about breaking them up actively, but more about winding them down in case they are on the brink of failure.agreed

[Winehole23]

Tom Frost: The Big Danger With Big Banks

Taxpayer safety nets such as the FDIC should be available only to banks that are in the loan business, not those in the investment business.



By TOM C. FROST (http://online.wsj.com/search/term.html?KEYWORDS=TOM+C.+FROST&bylinesearch=true)

In the early 1950s, when I was a young college graduate and a new employee of the Frost Bank, my great-Uncle Joe Frost, then CEO, told me that the very first goal we had was to return the deposits we received from customers. Our obligation was to take care of the community's liquid assets and manage them safely so others could use them (via loans) to grow.



Frost Bank was not big enough to be saved by the government, Uncle Joe told me at the time, so we would always need to maintain strong liquidity, safe assets and adequate capital. I was impressed that making money was not high on his list of priorities, but he implied that profits would come if we observed sound banking principles.


When we look at banking in the United States today, Uncle Joe's values seem so long ago and far away. The industry is now dominated by a few large banks.
In 1970, according to data from the Federal Reserve Bank of Dallas, the five largest U.S. institutions owned 17% of banking industry assets; in 2010 that share was 52%. Their business has expanded well beyond the role as steward of the community's assets into riskier endeavors that chase supersized returns.




As the financial crisis of 2008 showed, the very diversification, structure and size of most of our largest banks put the community's assets at tremendous risk. They had become "too big to fail," and the government—really the American taxpayers—had no choice but to keep their colossal mistakes from bringing down the economy.



But as Harvey Rosenblum, the Dallas Federal Reserve Bank's executive vice president and director of research, wrote last year, "These rescues have penalized equity holders while protecting bondholders and, to a lesser extent, bank managers." In other words, by protecting people from the consequences of their errors, the bailouts raised the risk that the same errors will be made in the future.
There are many good proposals for minimizing, if not entirely eliminating, the likelihood of another "too big to fail" crisis of the sort we faced in 2008. Perhaps most prominent among them is the recommendation that we require banks to hold additional capital to protect themselves (and the rest of us) from loans and investments gone sour.



But even these recommendations would allow the big banks to keep their traditional FDIC-insured deposits, alongside their investment enterprises within the parent company. I suggest that we divide the two functions into separately owned, managed and regulated entities. That's the only way we can ensure that their riskier businesses don't undermine the insured deposits that are the foundation of a stable and healthy economy.



Taxpayer safety-net programs, such as the Federal Deposit Insurance Corporation (FDIC), should be available only to banks in business to provide insured deposits. Financial institutions that provide primarily investment, hedging and speculative services don't deserve protection either by the FDIC's explicit guarantees or by an implicit understanding that taxpayers will bail them out because there is no other alternative. Indeed, this kind of protection is a perversion of capitalism and can distort its good outcomes.



Uncle Joe was not a fan of the FDIC—he said it took his money to subsidize his inefficient competitors. I support the FDIC as a protection for the depositor, but, with a nod to my uncle's wisdom, I believe this safety net should apply only to banks that are allowed to receive FDIC-insured deposits.



There are actually two business cultures in the banking business, and they should be separated. The first focuses on establishing long-term customer relationships, building the communities in which the bank does business, and preserving depositors' liquid assets. Most of America's smaller banks do business this way, and this banking culture needs to be sustained for the sake of local, regional and national economic well being.



The second culture allows, and even encourages, risk taking that threatens the first culture if the two are bound within one institution. Please don't misunderstand: Financial institutions should be free to engage in services that insured-deposit banks can't. But they shouldn't expect taxpayers to bail them out when their risky activities fail.
We need a real and impregnable firewall that keeps one part of the banking system—and the economy—from being consumed when the other goes into flames.



The combination of both banking cultures in a single institution—which had been separated for decades by the Glass-Steagall Act of 1933 until the 1990s—brought us to the doorstep of global financial-system collapse a few years ago. If the nation stays on its current path, we could see another crisis.



We are approaching a state of affairs in which an oligopoly of a few major institutions dominates our entire banking system. There's little evidence those institutions will share the concerns and dedication of my Uncle Joe—and many like-minded bankers in his time and since. If we truly separate the cultures of commercial and investment banking, the clients of both will prosper.
Mr. Frost is chairman emeritus of San Antonio, Texas-based Frost Bank.
http://online.wsj.com/article/SB10001424052702304371504577406023330005352.html

[Winehole23]

Former Citigroup (http://data.cnbc.com/quotes/C%2C%20) Chairman & CEO Sanford I. Weill, the man who invented the financial supermarket, called for the breakup of big banks in an interview on CNBC Wednesday.


“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill told CNBC’s “Squawk Box.” (http://www.cnbc.com/id/15838368/)

He added: “If they want to hedge what they’re doing with their investments, let them do it in a way that’s going to be mark-to-market so they’re never going to be hit.”

He essentially called for the return of the Glass–Steagall Act, which imposed banking reforms that split banks from other financial institutions such as insurance companies.


“I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading, they’re not subject to aVolker rule (the Volcker rule explained), (http://www.cnbc.com/id/44891917) they can make some mistakes, but they’ll have everything that clears with each other every single night so they can be mark-to-market,” Weill said.
http://www.cnbc.com/id/48315170

[scott]

Who among us would not be in support of the return of Glass-Steagall? Stand up, and let your voice be heard.

[coyotes_geek]

Who among us would not be in support of the return of Glass-Steagall? Stand up, and let your voice be heard.

Clearly these guys wouldn't.......

http://img.wikinut.com/img/p61ml67tuzupboxy/jpeg/700x1000/Joint-Session-of-Congress.jpeg

[boutons_deux]

The Repugs will block ANY and ALL financial regs.

If they can't remove regs,they will defund/destaff enforcement.

Here's a good insight as to how Geithner/Treasury soft-peddled the Banksters Great Depression (iow, regulatory failure)

NYT’s Jackie Calmes’ “Grossly Inaccurate” Hit Piece on Neil Barofsky

It isn’t surprising that the knives are out. Former Special Inspector General of the TARP Neil Barofsky’s new book Bailout depicts the Treasury, where his effort was housed, as completely, hopelessly in thrall to the banks. While Hank Paulson at least seemed genuinely to appreciate the need for procedures and checks to protect taxpayers’ interests, Geithner chafed at any interference in catering to every whim of the financial services industry and used every bureaucratic trick at his disposal to undermine Barofsky.

Although Barofsky’s book has generally gotten very positive reviews, including one from the New York Times’ Gretchen Morgenson last weekend, a rearguard action by Friends of the Administration was inevitable. And it has come in the form of a book review by a Washington reporter for the Grey Lady, one Jackie Calmes.

Calmes closes the piece by contending that the fact that Wall Street is giving more money to Romney is proof that the Administration’s policies weren’t all that bank friendly. Funny, Obama was clocking more in donations than all Republican candidates combined in 2011, which is the relevant time frame for Barofsky’s story (he left SIGTARP in March 2011). Since Romney became the Republican candidate, the Administration has taken to attacking Romney’s record with Bain, which is being taken up in the media as a (well deserved) broader criticism of private equity. PE is a huge fee machine for Wall Street. Even though Team Obama has focused on Bain only, it’s not hard to see how members of that part of the financial-industrial complex would pour money into Romney to support their franchise.

If journalism were a profession, Calmes’ piece would make a strong case for disbarment. But since reporters increasingly act as scriveners to the powerful, Calmes is likely to continue to enjoy a career of well paid stenography.

http://www.nakedcapitalism.com/2012/07/nyts-jackie-calmes-grossly-inaccurate-hit-piece-on-neil-barofsky.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29&utm_content=Google+Reader#3RAGgIP493JU3WkE.99

[coyotes_geek]

The Repugs will block ANY and ALL financial regs.

If they can't remove regs,they will defund/destaff enforcement.

Here's a good insight as to how Geithner/Treasury soft-peddled the Banksters Great Depression (iow, regulatory failure)

NYT’s Jackie Calmes’ “Grossly Inaccurate” Hit Piece on Neil Barofsky

It isn’t surprising that the knives are out. Former Special Inspector General of the TARP Neil Barofsky’s new book Bailout depicts the Treasury, where his effort was housed, as completely, hopelessly in thrall to the banks. While Hank Paulson at least seemed genuinely to appreciate the need for procedures and checks to protect taxpayers’ interests, Geithner chafed at any interference in catering to every whim of the financial services industry and used every bureaucratic trick at his disposal to undermine Barofsky.

Although Barofsky’s book has generally gotten very positive reviews, including one from the New York Times’ Gretchen Morgenson last weekend, a rearguard action by Friends of the Administration was inevitable. And it has come in the form of a book review by a Washington reporter for the Grey Lady, one Jackie Calmes.

Calmes closes the piece by contending that the fact that Wall Street is giving more money to Romney is proof that the Administration’s policies weren’t all that bank friendly. Funny, Obama was clocking more in donations than all Republican candidates combined in 2011, which is the relevant time frame for Barofsky’s story (he left SIGTARP in March 2011). Since Romney became the Republican candidate, the Administration has taken to attacking Romney’s record with Bain, which is being taken up in the media as a (well deserved) broader criticism of private equity. PE is a huge fee machine for Wall Street. Even though Team Obama has focused on Bain only, it’s not hard to see how members of that part of the financial-industrial complex would pour money into Romney to support their franchise.

If journalism were a profession, Calmes’ piece would make a strong case for disbarment. But since reporters increasingly act as scriveners to the powerful, Calmes is likely to continue to enjoy a career of well paid stenography.

http://www.nakedcapitalism.com/2012/07/nyts-jackie-calmes-grossly-inaccurate-hit-piece-on-neil-barofsky.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29&utm_content=Google+Reader#3RAGgIP493JU3WkE.99

As proof of how evil repugs are against finanicial regulation, I offer this article talking about how Obama's administration took it easy on the banks.........

lol boutons

[boutons_deux]

Yes, Geithner and his treasury took it easy on the banks, but it has been the Repugs who have gutted any and all financial regulation.

[TeyshaBlue]

smh

[TeyshaBlue]

Dodd-Frank waves it's collective testicles at you.

[Yonivore]

Dodd-Frank waves it's collective testicles at you.
:lmao

[boutons_deux]

Dodd-Frank waves it's collective testicles at you.

D-F was gutted, loopholed, rendered toothless.

[boutons_deux]

Republicans: CFPB’s funding ‘recipe for disaster’

http://articles.marketwatch.com/2012-02-15/economy/31062099_1_million-on-paper-clips-consumer-financial-protection-bureau-financial-crisis

[boutons_deux]

......

[TeyshaBlue]

D-F was gutted, loopholed, rendered toothless.

...and passed by the Democratically controlled 111th congress and signed by Obama.

[TeyshaBlue]

...which I offer up only as a riposte to your unihinged partisaniac thrust.

[scott]

So what did we decide on re-instituting Glass-Steagall?

[coyotes_geek]

All for it.

Won't happen though...........

[TeyshaBlue]

In for GS.

[boutons_deux]

Even Volcker isn't for G-S again.

[boutons_deux]

The Man Who Invented “Too Big to Fail” Banks Finally Recants. Will Obama or Romney Follow?

This is big game.

If any single person is responsible for Wall Street banks becoming too big to fail it’s Sandy Weill. In 1998 he created the financial powerhouse Citigroup by combining Traveler’s Insurance and Citibank. To cash in on the combination, Weill then successfully lobbied the Clinton administration to repeal the Glass-Steagall Act – the Depression-era law that separated commercial from investment banking. And he hired my former colleague Bob Rubin, then Clinton’s Secretary of the Treasury, to oversee his new empire.

Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don’t. And Weill made a fortune – as did all the other executives and traders. JPMorgan and Bank of America soon followed Weill’s example with their own mega-deals, and their bonus pools exploded as well.

Citigroup was bailed out in 2008, as was much of the rest of the Street, but that didn’t alter the business model in any fundamental way. The Street neutered the Dodd-Frank act that was supposed to stop the gambling. JPMorgan, headed by one of Weill’s protégés, Jamie Dimon, just lost $5.8 billion on some risky bets. Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers.


http://robertreich.org/post/27990127891

[boutons_deux]

naked capitalism, with lots of comments


The Real Significance of Sandy Weill’s “Break Up Big Banks” Recommendation

Read more at http://www.nakedcapitalism.com/2012/07/the-real-significance-of-sandy-weills-break-up-big-banks-recommendation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29&utm_content=Google+Reader#r1Hk1e1YwFyUpziw.99



http://www.nakedcapitalism.com/2012/07/the-real-significance-of-sandy-weills-break-up-big-banks-recommendation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29&utm_content=Google+Reader

[Winehole23]

http://www.project-syndicate.org/commentary/the-growing-consensus-against-big-banks-by-simon-johnson

[RandomGuy]

http://www.project-syndicate.org/commentary/the-growing-consensus-against-big-banks-by-simon-johnson


In the wake of Vikram Pandit’s resignation as CEO of Citigroup, John Gapper pointed out in the Financial Times that “Citi’s shares trade at less than a third of the multiple to book value of Wells Fargo,” because the latter is a “steady, predictable bank,” whereas Citigroup has become too complex. Gapper also quotes Mike Mayo, a leading analyst of the banking sector: “Citi is too big to fail, too big to regulate, too big to manage, and it has operated as if it’s too big to care.”Even Sandy Weill, who built Citi into a megabank, has turned against his own creation.

Pretty much.

I am all for massively scaling up capital requirements for banks as they hit certain sizes. Oh yes, I want progressive requirements.

The larger you get, the larger your % of capital on hand should be. Let market discipline do the rest.

This has the double effect of making these banks more stable, and still allowing for well run banks to get as big as their return on equity will let them.

I don't think breaking them up is really all that feasible or desirable, but if you make it so that they themselves want to spin off subsidiaries to get under the cap they want, you don't have to have a government directed plan.

[RandomGuy]

So what did we decide on re-instituting Glass-Steagall?

Probably a good idea.

I think though, that one could use the level of capital requirements even here, meaning that if you don't hew to this as a policy (as opposed to a legal requirement), then we simply require more capital.

At the risk of taking my idea as a panacea. It seems the most pragmatic solution to reducing systematic risks all around.

[boutons_deux]

ain't nobody gonna break up the TBTF regulated banks. Banks CREATED the Fed for their own benefit, it's their ATM. And the crimninal financial sector OWNS the Exec AND Congress. break up? G M A F B

Even if the regulated banks were broken up and restrained, the unregulated derivatives markets are many $10Ts, and untouchable, while containing much more risk than the TBTF.

[Winehole23]

While Dodd-Frank is aimed at preventing another cycle of bubble-and-bust, shrinking the financial sector is crucial for other reasons. One is a mass of evidence demonstrating that hyper-financialized economies have lower growth. Another is the appalling ethical record of large financial companies. The chance of making huge paydays by risking other people’s money, it seems, can sometimes derange moral compasses.

First, the pro-growth argument for clamping down on the banks: Once the financial sector achieves a certain size, its continued expansion reduces economic growth, according to a new study (http://www.bis.org/publ/work381.pdf) by two senior economists at the Bank for International Settlements, Stephen Cecchetti and Enisse Kharroubi, using a large international data base stretching back more than 30 years.


Their conclusions are unambiguous. No country can achieve a high rate of growth without a well-functioning financial system. China, for example, lacks a deep system of consumer finance, forcing it into a lop-sided development strategy. The result is the creation of dangerous imbalances that could threaten continued rapid growth.


An outsized financial sector expansion can actually reduce economic growth, according to their data. This relationship holds for country after country, and the tipping points are fairly consistent. When private credit grows to between 90 percent and 100 percent of gross domestic product, it is tilting toward too big. In the runup to the 1997-98 Asian financial crises, Thai private credit outstanding grew to 150 percent of GDP and growth turned sharply down. As soon as credit was ratcheted back to 95 percent of GDP, however, Thai productivity picked up sharply.


New Zealand’s economy offers much the same picture. As its financial sector expanded beyond the 100 percent mark, productivity dropped sharply, then rose again as credit was brought under control. Ireland and Spain show a similar pattern.
The sector that typically bears the brunt of hyper-financialization is manufacturing – especially the heavy industries that need working capital to finance materials and work in process. The next most damaged are research-and-development-intensive businesses, perhaps because finance siphons away too much of the best science and math talent. Whatever the reason, when American finance bulked up in the 2000s, there was a cataclysmic fall in manufacturing employment (http://www.bls.gov/opub/mlr/2011/04/art5full.pdf).

http://blogs.reuters.com/great-debate/2012/10/24/are-the-big-banks-winning/

[Winehole23]

Simon Johnson reads the tea leaves:


Tarullo Telegraphs Fed’s Plans to Cap Bank Size
By Simon Johnson (http://www.bloomberg.com/view/bios/simon-johnson/) Dec 9, 2012 5:30 PM CT



Here’s a puzzle to entertain your friends this holiday season. Why would a senior governor of the Federal Reserve System publicly ask a question to which he plainly knows the answer?


We are all familiar with the dark art of reading central bank communications as they pertain to interest rates. The opacity of former Fed Chairman Alan Greenspan was legendary; his successor, Ben S. Bernanke, and other current central bankers lean toward greater transparency and signaling their intentions.



Simon Johnson, who served as chief economist at the International Monetary Fund in 2007 and 2008, is a professor ... MORE (http://www.bloomberg.com/view/bios/simon-johnson/)





But today’s puzzle isn’t directly about interest rates (http://www.bloomberg.com/quote/FDTR:IND). It is about regulation in general, and the Fed’s policy toward big banks in particular.


In the bad old days -- before October -- the Fed would elide such issues more often than not. Officials would point out that there are many other bank regulators or that it was up to Congress to make the big decisions. Even the Dodd-Frank (http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf) financial-reform legislation didn’t immediately inspire Fed governors to take up the role of thought leaders on the nature of systemic financial risk, and what to do about it.


Yet, in prominent speeches delivered Oct. 10 (http://www.federalreserve.gov/newsevents/speech/tarullo20121010a.htm), Nov. 28 (http://www.federalreserve.gov/newsevents/speech/tarullo20121128a.htm) and Dec. 4 (http://www.federalreserve.gov/newsevents/speech/tarullo20121128a.htm), the Fed governor responsible for bank supervision, Daniel K. Tarullo, seemed intent on asserting a leadership role for the central bank. The speech in October laid out a broad agenda and floated the idea of size caps on the largest U.S. banks.
Capitalization RulesIn November, he sensibly proposed actions to ensure that the U.S. operations of foreign banks are capitalized separately. To borrow a phrase from the former Bank of England (http://topics.bloomberg.com/england/) official Charles Goodhart, big banks live globally but die locally, and we should prepare accordingly.


Lawyers for the bankers reply that such arrangements will make cross-border resolution of failing banks harder. That argument makes no sense. In fact, the opposite is true; resolution would become easier. The Fed will prevail on this issue.
The most interesting speech was delivered last week, when Tarullo asked whether there are significant economies of scale or scope in global megabanks. In other words, is there a good reason not to force these institutions to shrink over time?
It is well established that there are no such economies. In fact, we know that the scale of public subsidies for these banks -- and the damage they can cause -- increases as the banks become larger.
So why did Tarullo ask the question? Here are three possibilities:


The first is that he isn’t aware of the careful studies on this issue. But Tarullo is, among other things, a leading academic expert on banking. And, just in case he is too busy, the Fed is full of really good economists who have read everything on this issue. There is zero chance that Tarullo has overlooked the work showing that big banks aren’t more efficient, and receive much larger implicit subsidies than smaller ones.


The definitive summary is the Oct. 25 speech by Andrew Haldane (http://topics.bloomberg.com/andrew-haldane/) of the Bank of England, “On Being the Right Size (http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech615.pdf).” In particular, study Chart 9, which demonstrates that there are no economies of scale when you adjust for the undeniable implicit subsidies received by megabanks.


For anyone on the Fed staff wanting to catch up on the literature, I also recommend: “The Implicit Subsidy of Banks (http://www.bankofengland.co.uk/publications/Documents/fsr/fs_paper15.pdf),” by Joseph Noss and Rhiannon Sowerbutts, also of the BOE. Or have a look at “The Social Costs and Benefits of Too-Big-To-Fail Banks: A Bounding Exercise (http://www.clevelandfed.org/research/Seminars/2011/heitz.pdf),” by John Boyd and Amanda Heitz, or “Too Big to Be Efficient? The Impact of Implicit Funding Subsidies on Scale Economies in Banking (http://www.tilburguniversity.edu/research/institutes-and-research-groups/ebc/events/2012/post-crisis/daviestracey.pdf),” by Richard Davies and Belinda Tracey, or “Size Anomalies in U.S. Bank Stock Returns (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1653083),” by Priyank Gandhi and Hanno Lustig.
Disagreement MaybeAnd there is also a comprehensive soon-to-be-published book, “The Bankers’ New Clothes (http://bankersnewclothes.com/): What’s Wrong With Banking and What to Do About It,” by Anat Admati and Martin Hellwig. It isn’t officially available, though the galleys are a hot property.
The second possible way to explain Tarullo’s question is that he disagrees with the findings in this literature. But in his speech he didn’t mention any of the important findings or take issue with any of the authors and the substantive points they make.
However, he did cite a recent Clearing House study (http://www.theclearinghouse.org/index.html?f=073048) that claims big advantages in having humongous banks. Wisely, he didn’t appear to take seriously this lobbying document, which is based on claims that can’t be independently verified because they are based on “proprietary data” and “interviews.” Why would anyone take such propaganda seriously?


The main proposals on the table -- for example, the Safe, Accountable, Fair and Efficient Banking Act (http://www.brown.senate.gov/newsroom/press/release/brown-introduces-bill-to-end-too-big-to-fail-policies-prevent-mega-banks-from-putting-our-economy-at-risk) sponsored by Senator Sherrod Brown of Ohio (http://topics.bloomberg.com/ohio/) -- would roll back the largest banks to the size they were in the mid-1990s. What great positive impact for the broader economy have we seen from the increase in bank size over the past 15 years? Tarullo didn’t claim any, because there are none.


The last possibility is that Tarullo and his colleagues understand the facts and agree that the largest banks are too big, and he framed his speech to send a signal. What is it?


The Fed agrees that the largest banks are too big. Eradicating the problem of too big to fail may be impossible, though we can move in the right direction by strengthening capital and leverage requirements (more equity for bigger banks), by putting in place a resolution regime that could work (but the cross-border problems loom large), and by removing the funding-cost advantage that big banks enjoy because their creditors know there is effective downside protection from the government.
Still, the Fed isn’t ready to move on this issue by itself. It wants to first stir the hornets’ nest, with angry comment letters from bankers and high-profile congressional hearings.


The Fed has the authority to cap bank size, but it wants to shift the consensus first. The banks will push back hard, which will expose the weakness of their arguments.


The major reform battleground for 2013 is a focused question with a clear answer: Are there economies of scale or scope in banking that outweigh the unfair, nontransparent and highly dangerous government subsidies that megabanks receive? No, there aren’t.

http://www.bloomberg.com/news/2012-12-09/tarullo-telegraphs-fed-s-plans-to-cap-bank-size.html

[boutons_deux]

DoJ admitted that HSBC was Too Big Too Indict (or revoke its US banking license) so it just fined HSBC $1.9B for criminal systematic laundering of money from Iran and drug cartels. HSBC annual profits are about $20B.

HSBC said it was really really really sorry, and that it was completely reformed and virtuous now.

Bankers laughing their asses off at how they have TOTAL CONTROL of the world's financial system and TOTAL IMMUNITY for govt interference.

[Winehole23]

paying a $2B fine isn't total impunity and total control. it's the exact opposite.

[boutons_deux]

paying a $2B fine isn't total impunity and total control. it's the exact opposite.

It's laughable peanuts to the financial sector, and 100% NON-dissuasive.

[Capt Bringdown]

The 2 billion fine was a record amount, right? We'll see if this is enough to impact the TBTF moral hazard.
Since the HSBC included stuff like this, 2 bill sounds kinda light:


For example, an HSBC executive at one point (http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/?ref=) argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda, according to the Congressional report.

[boutons_deux]

The 2 billion fine was a record amount, right? We'll see if this is enough to impact the TBTF moral hazard.
Since the HSBC included stuff like this, 2 bill sounds kinda light:

yes, a record. so the fuck what? stupid comparision.

financial sector's profits, aka the Bullshit Vampire Squid profits, as %age of total US profits is now something like 30%.

[TeyshaBlue]

A 10% haircut smarts no matter how big you are.

[EVAY]

So, who actually pays the $2B? I mean, I know the bank does, but is there any regulation that says that the cost of the fine is payable only by shareowners and not passed along to consumers? If it is just passed along, does it really hurt them?

Serious question. I don't know how something like this works.

[coyotes_geek]

So, who actually pays the $2B? I mean, I know the bank does, but is there any regulation that says that the cost of the fine is payable only by shareowners and not passed along to consumers? If it is just passed along, does it really hurt them?

Serious question. I don't know how something like this works.

It's purely the bank's call as to how they come up with the money to pay the fine. If they want to pass it along to consumers, they can, and probably will.

[EVAY]

It's purely the bank's call as to how they come up with the money to pay the fine. If they want to pass it along to consumers, they can, and probably will.

Thanks for the info. That is what I assumed, but I really didn't know.

That is the sort of thing that makes me think it is less onerous than it would be if had to be payable from shareowners somehow (not sure how), or if they were unable to take a tax deduction for it. There seem to me to be so many ways for the fine payer to reduce the true impact of the fine that it is not all that impressive. If the Board of Directors or senior management were each responsible for a big fine, that would seem to me to be more meaningful. Otherwise, it seems to me that the eventual fine payers are more likely to be the bank's customers and/or the taxpayers.

[coyotes_geek]

Thanks for the info. That is what I assumed, but I really didn't know.

That is the sort of thing that makes me think it is less onerous than it would be if had to be payable from shareowners somehow (not sure how), or if they were unable to take a tax deduction for it. There seem to me to be so many ways for the fine payer to reduce the true impact of the fine that it is not all that impressive. If the Board of Directors or senior management were each responsible for a big fine, that would seem to me to be more meaningful. Otherwise, it seems to me that the eventual fine payers are more likely to be the bank's customers and/or the taxpayers.

I get what you're saying, and generally agree, but it's just one of those situations I don't think you can do anything about. If a parent gets a speeding ticket there's no way to make sure that he/she doesn't cover some of that cost by getting their kid a cheaper Christmas present. Sucks, but it is what it is.

[boutons_deux]

Matt Taibbi: After Laundering $800 Million in Drug Money, How Did HSBC Executives Avoid Jail? Matt Taibbi:

Exactly, exactly. And what’s amazing about that is that’s Forbessaying that. I mean, universally, the reaction, even in—among the financial press, which is normally very bank-friendly and gives all these guys the benefit of the doubt, the reaction is, is "What do you have to do to get a criminal indictment?" What HSBC has now admitted to is, more or less, the worst behavior that a bank can possibly be guilty of. You know, they violated the Trading with the Enemy Act, the Bank Secrecy Act. And we’re talking about massive amounts of money. It was $9 billion that they failed to supervise properly. These crimes were so obvious that apparently the cartels in Mexico specifically designed boxes to put cash in so that they would fit through the windows of HSBC teller windows. So, it was so out in the open, these crimes, and there’s going to be no criminal prosecution whatsoever, which is incredible.

The amazing thing about that rationale is that it’s exactly the opposite of the truth. The message that this sends to everybody, when banks commit crimes and nobody is punished for it, is that you can do it again.

You know, if there’s no criminal penalty for committing even the most obvious kinds of crimes, that tells everybody, investors all over the world, that the banking system is inherently unsafe. And so, the message is, this is not a move to preserve the banking system at all. In fact, it’s incredibly destructive. It undermines the entire world confidence in the banking system. It’s an incredible decision that, again, is met with surprise even with—by people in the financial community.

http://truth-out.org/video/item/13330-matt-taibbi-after-laundering-800-million-in-drug-money-how-did-hsbc-executives-avoid-jail

TB :lol "10% haircut" :lol

one dime out the one year's dollar of profits. :lol It's a FUCKING PARKING ticket! :lol

[boutons_deux]

UBS Expected to Pay at Least $1 Billion in Rate-Rigging Case


The Swiss financial giant UBS is close to finalizing a settlement with authorities over the manipulation of interest rates, a deal that is expected to include at least $1 billion in fines.UBS is in discussions with United States, British and Swiss authorities,

http://mobile.nytimes.com/2012/12/13/blogs/ubs-expected-to-pay-at-least-1-billion-to-settle-rate-rigging-case.xml?f=19

And all the other banks around the world?

[RandomGuy]

paying a $2B fine isn't total impunity and total control. it's the exact opposite.

IT it roughly one month's worth of profits for that entity.

What they need is to put executives in jail, IMO.

Trusting the shareholders to pressure the management... not overly effective IMO, as shareholders will look the other way if the money is good, just like anyone else.

[scott]

Ze Germans have the right idea.

German police raids Deutsche Bank offices in tax fraud probe (http://rt.com/news/deutsche-bank-tax-fraud-904/)

[Winehole23]

Ze Germans have the right idea.

German police raids Deutsche Bank offices in tax fraud probe (http://rt.com/news/deutsche-bank-tax-fraud-904/)Barofsky sounds off:



Nothing, however, was quite as it appeared. Sure, HSBC paid a record fine, but there was something vitally important missing from yesterday's press conference: actual criminal charges for obvious criminal conduct.


Some perspective: HSBC sent more than $800 million in bulk cash from Mexico to the United States, a good chunk of which apparently represented proceeds from some of the most notorious Colombian drug cartels. As someone who tried the first narcotics money laundering case involving extradition from Colombia, let me assure you that this is a lot of money, the discovery of which usually generates vigorous prosecutions and lengthy prison sentences. And it wasn’t HSBC’s only dirty business: There were also hundreds of millions of more dollars of illegally disguised transactions with rogue nations such as Iran and Sudan.


Why no criminal charges? Why instead only some remedial measures and a "historical" fine that can be measured in weeks -- not years -- of earnings? It certainly wasn’t for lack of evidence. No, instead the government determined that HSBC is not only too big to fail, but also too big to jail. As the New York Times first reported (http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/), even though there were strong voices within DOJ pushing for criminal charges, the big banks' best friends within the government (the Treasury Department, of course, and other unnamed regulators) were too fearful that an indictment could destabilize the global financial system. Yes, it's 2008 all over again. In the name of systemic stability, a megabank again escapes accountability for its actions, rescued by compliant officials.Steal a thousand dollars once, go to prison; steal a thousand million while committing hundreds of felonies, accept a decimation of the year's profits.

[Winehole23]

As the problems escalated, Mr. Geithner came to stand for providing large amounts of unconditional support for very big banks – including Citigroup, where Robert Rubin, his mentor, had overseen the dubious hiring of a chief executive and more general mismanagement of risk. (While a director of Citigroup, Mr. Rubin denied responsibility (http://online.wsj.com/article/SB122791795940965645.html) for what went wrong.)


Rather than moving to change management, directors or anything about the big banks’ practices, Mr. Geithner favored more financial assistance – both from the budget (through various versions of the Troubled Asset Relief Program (http://www.federalreserve.gov/bankinforeg/tarpinfo.htm)), from the Federal Reserve (through various kinds of cheap loans) and from all other available means, including insurance for private debt issues provided by the Federal Deposit Insurance Corporation.


In official discussions, Mr. Geithner consistently stood for more support with weaker (or no) conditions. (See “Bull by the Horns (http://books.simonandschuster.com/Bull-by-the-Horns/Sheila-Bair/9781451672480),” by Sheila Bair, former chairwoman of the F.D.I.C., for the most credible account of what happened.)
Mr. Geithner’s appointment as Treasury secretary in January 2009 allowed him to continue to scale up these efforts.


In retrospect, what helped stem the panic was the joint statement of Feb. 23, 2009, issued by the Treasury, the F.D.I.C., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve, that included this statement of principle:


The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.



Mr. Geithner is often given credit for pushing bank stress tests in spring 2009 as a way to back up this statement, so officials could assess the extent to which particular financial institutions needed more loss-absorbing equity. But such stress tests are standard practice in any financial crisis.


Much less standard is unconditional government support for troubled banks. Usually such banks are “cleaned up” as a condition of official assistance, either by being forced to make management changes or being forced to deal with their bad assets. (This was the approach favored by Ms. Bair when she was at the F.D.I.C.; her book lays out realistic alternatives that were on the table at critical moments. The idea that there was no alternative to Mr. Geithner’s approach simply does not hold water.)


Any fiscally solvent government can stand behind its banks, but providing such guarantees is a recipe for repeated trouble. When Mr. Geithner was at Treasury in the 1990s and Mr. Rubin was Treasury secretary, the advice conveyed to troubled Asian countries – both directly and through American influence at the International Monetary Fund – was quite different: clean up the banks and rein in the powerful people who overborrowed and brought the corporate sector to the brink of financial meltdown.

In Mr. Geithner’s view of the world, the 2010 Dodd-Frank (http://dealbook.nytimes.com/2012/12/11/deconstructing-dodd-frank/) financial reform legislation fixed the problem of too-big-to-fail banks. Outside of Treasury, it’s hard to find informed observers who share this position. Both Daniel Tarullo (http://www.bloomberg.com/news/2012-12-09/tarullo-telegraphs-fed-s-plans-to-cap-bank-size.html) (the lead Fed governor for financial regulation) and William Dudley (http://www.bloomberg.com/news/2012-11-25/fed-s-dudley-signals-a-shift-toward-bank-reform.html) (the current president of the New York Fed) said in recent speeches that the problems of distorted incentives associated with too big to fail were unfortunately alive and well.


Ironically, despite the fact that the Obama administration failed to rein in the megabanks and allowed them to become larger and arguably more powerful, this has not helped the Republicans in electoral terms.
As Ms. Noonan puts it bluntly: “People think the G.O.P. is for the bankers. The G.O.P. should upend this assumption.”


This is a significant opportunity for anyone with clear thinking on the right – someone looking for a Teddy Roosevelt trustbusting or Nixon-goes-to-China moment. Again, Ms. Noonan gets it right: “In this case good policy is good politics. If you are a conservative you’re supposed to be for just treatment of the individual over the demands of concentrated elites.”


Recall that some grass roots conservatives are already there: House Republicans initially voted down TARP, the former presidential candidate Jon Huntsman’s plan to end too big to fail received widespread applause from many Republicans and a number of influential commentators, including George Will and Ms. Noonan, have advocated ending too big to fail.


This would play well in the Republican presidential primaries – and even better in the general election. Watch PBS “Frontline” (http://www.pbs.org/wgbh/pages/frontline/untouchables/) on Jan. 22 for an articulate presentation of why serious potential financial crimes were not prosecuted during the first Obama administration, and think about how to turn these facts into political messages.


A smart candidate could even mobilize plenty of financial-sector support in favor of breaking up or otherwise restricting the too-big-to-fail financial entities. The megabanks have very few genuine friends.
The lasting legacy of Timothy Geithner is to create the perfect electoral issue for Republicans. Will they seize it?

http://economix.blogs.nytimes.com/2013/01/17/the-legacy-of-timothy-geithner/

[Winehole23]

The logical place to begin is by correcting a mistaken premise that has informed conservatives' resistance to financial regulation. Much of their opposition stems from the view that efforts to constrain the activities of financial firms represent inappropriate government interference in our market economy. And as conservatives are defenders of the market, they must necessarily be defenders of the financial-services industry, or must at least be opponents of financial regulation.


In adopting this pose, conservatives make errors of both tactics and principle. There is powerful evidence to suggest that the modern financial industry largely serves its own interests at the expense of the rest of the economy, rather than creating wealth more broadly. Opponents of financial regulation designed to address such rent-seeking behavior are therefore easily perceived as defenders of misbegotten privilege rather than of free-market competition. A sounder approach would be to focus on championing free markets in real goods and services, defending the role of financial intermediaries when they serve those markets and supporting regulation when they instead prey on the rest of the economy.


The tensions between a thriving democratic capitalism and today's brand of finance have unfortunately been lost on many conservatives. Their reflexive defenses of all private enterprise have blinded them to the real harms that the financial sector — often propped up by government supports — has inflicted of late on other sectors of the economy. But recent economic analyses, such as one by economist Thomas Philippon, have shown that the growing size and inefficiency of the financial sector have become a tax on real business activity. As the figure below illustrates, in 1980, the financial sector's share of gross domestic product passed its share of GDP at the height of the financial boom of the 1920s; it has continued to increase ever since, reaching its peak (of more than 8% of GDP) in the 2000s.



http://www.nationalaffairs.com/imgLib/20121219_PosnerWeyl_Chart1VERYSMALL.jpg (http://www.nationalaffairs.com/imgLib/20121219_PosnerWeyl_Chart1LARGE.jpg)

One could argue that some of this growth results from firms' increasing use of financial instruments, or the fact that the typical American requires more financial services. But Philippon adjusts for these factors and finds that, even when they are taken into account, the financial sector has bloated because its overall efficiency has declined by nearly 50% since the 1970s — despite the information-technology revolution, and despite the supposed benefits of financial deregulation.


Our financial markets, then, have simply gotten more expensive. But are they at least providing increased value, better services, and other benefits to justify the cost? Again, Philippon suggests not. With co-authors Jennie Bai and Alexi Savov, he shows that, even with deregulation and the advance of information technology, markets are no better at predicting the future prices of assets than they were in the past. The added expense has not improved the quality of the information markets are credited with supplying.


Moreover, Mark Aguiar and Mark Bils show that, over the period from 1980 to 2007, the fraction of fundamental risk borne by individuals has stayed constant or increased, indicating that the extra expense of our financial markets has not provided valuable insurance. In other words, despite the massive innovation that, according to the financial sector's champions, was supposed to reduce and spread the risks individual investors face, Aguiar and Bils show that today's financial markets may actually increase those risks. Indeed, as Aguiar and Bils do not address the fallout from the financial crisis, their paper probably understates the problem; the allocation of risk has probably worsened since the late 1970s. It is therefore likely that the additional cost of the financial sector is in fact paying for wasteful gambling and bailout arbitrage — where banks take risks financed by taxpayers, as discussed below — rather than valuable economic activity.

http://www.nationalaffairs.com/publications/detail/against-casino-finance

[Winehole23]

http://www.valuewalk.com/2013/01/richard-fisher-dallas-fed-site-crashed-after-banking-speech/

[Winehole23]

Here are some highlights of the proposal, according to Fisher, with more details tomorrow:

– Restructure too-big-to-fail banks into smaller, less-complex institutions so risks can be effectively disciplined by regulators and market forces.

– Restrict federal deposit insurance to only commercial banks.

– Clarify that the federal safety net programs apply only to a commercial bank and its customers and not to customers of any affiliated subsidiary or the holding company.

— Limit the Federal Reserve’s discount window loans to only commercial banks — and no banking affiliates or a parent company.

– Require customers, creditors and counterparties of a banking affiliate and of the senior holding company to sign a simple disclosure statement acknowledging their unprotected status.

– Possibly add more restrictions (or bans) on the ability to move assets or liabilities from banking affiliate to banking affiliate within a holding company.

http://bizbeatblog.dallasnews.com/2013/01/dallas-fed-president-richard-fisher-provides-peak-at-proposal-to-fix-too-big-to-fail-megabanks.html/

[boutons_deux]

http://www.nationalaffairs.com/publications/detail/against-casino-finance

that's national income, financial sector has much larger %age of total corporate profits, like approaching 30% of ALL profits.

[Winehole23]

could be. a cite would be nice, though.

[boutons_deux]

http://www.huffingtonpost.com/2011/03/30/financial-profits-percentage_n_841716.html


http://www.ritholtz.com/blog/wp-content/uploads/2011/12/ch1.gif

http://www.ritholtz.com/blog/2011/12/measuring-the-financial-sector-2/

[boutons_deux]

Note how it explodes after the VRWC stoolie St Ronnie The Diseased takes office and cuts taxes and deregulates financial sector.

[Winehole23]

see how it spiked under Bill Clinton and exploded again after Bush and Obama saved the banks and the Fed offered them open-ended arbitrage on the money supply.

[Winehole23]

*crickets*

[boutons_deux]

What St Ronnie started, and he started LOTS of VRWC shit, simply continued its unstoppable momentum, because the wealth=power of the financial sector means they own the government and know they are impervious to any serious regulation, and esp to being broken up. The Dems are passively compliant. The US an accelerating disaster and failed democray is really the 1% vs the 99% Class War, not right vs left.

[Winehole23]

What St Ronnie started, and he started LOTS of VRWC shit, simply continued its unstoppable momentum, because the wealth=power of the financial sector means they own the government and know they are impervious to any serious regulation, and esp to being broken up. The Dems are passively compliant.Bullshit.The financial innovations conceived and promoted by Bill Clinton, Larry Summers and Bob Rubin helped turn the financial sector into what it is today. Barack Obama oversaw the bailout and subsequent lenience toward megabanks that led them to become bigger and riskier than before.

The Dems actively collaborated in both the failure and the class war you speak of. The idea that they stood by idly, wringing their hands, would be hilarious were it not so pathetically wrong.

[boutons_deux]

"Bill Clinton, Larry Summers and Bob Rubin"

Clinton has admitted that he fucked up, with Wall St "stars in his eyes", by being suckered by Summers, Rubin, Greenspan, Phil Graham, etc, etc, all 1% VRWC major players, into laying the groundwork of the financial sector's criminal frauds of the 2000s.

Barry isn't much better, hiring Wall St into his original WH staff and continuing with repeated failure/Wall Streeter Jack Lew at Treasury.

[Th'Pusher]

"Bill Clinton, Larry Summers and Bob Rubin"

Clinton has admitted that he fucked up, with Wall St "stars in his eyes", by being suckered by Summers, Rubin, Greenspan, Phil Graham, etc, etc, all 1% VRWC major players, into laying the groundwork of the financial sector's criminal frauds of the 2000s.

Barry isn't much better, hiring Wall St into his original WH staff and continuing with repeated failure/Wall Streeter Jack Lew at Treasury.



Let's give jack a chance before we summarily write him off as a Wall Street lackey.

http://www.salon.com/2013/01/17/hey_liberals_lay_off_jack_lew/?mobile.html

[Winehole23]

"Bill Clinton, Larry Summers and Bob Rubin"

Clinton has admitted that he fucked up, with Wall St "stars in his eyes", by being suckered by Summers, Rubin, Greenspan, Phil Graham, etc, etc, all 1% VRWC major players, into laying the groundwork of the financial sector's criminal frauds of the 2000s.

Barry isn't much better, hiring Wall St into his original WH staff and continuing with repeated failure/Wall Streeter Jack Lew at Treasury.Passively compliant? Ha.

[boutons_deux]

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/jack-lew-more-of-the-same-at-treasury?utm_source=CEPR+feedburner&utm_medium=feed&utm_campaign=Feed%3A+cepr+%28CEPR%29

http://www.alternet.org/economy/matt-taibbi-bill-black-obamas-new-treasury-secretary-failure-epic-proportions?paging=off

[TeyshaBlue]

Passively compliant? Ha.

Binary response set:

0: Repug,VWRC,et al
1: Unstoppable ,MIC,Bankster et al


Anything outside of this set does not compute.

[boutons_deux]

Binary response set:

0: Repug,VWRC,et al
1: Unstoppable ,MIC,Bankster et al


Anything outside of this set does not compute.

Another GREAT CONTRIBUTION from the whimpering, bitch-slapped fucktard TB :lol

[TeyshaBlue]

Wow. I really hit nerve.

[Winehole23]

In one of Patrick Henry’s greatest speeches, he noted that, “Different men often see the same subject in different lights.” And then he went on to appeal to all perspectives to do right: “This is no time for ceremony,” he said, for it “… is one of awful moment to this country.”

The great patriot was, of course, addressing the injustice of operating under the thumb of the British Crown. This morning, I am going to address what I consider the injustice of operating our economy under the thumb of financial institutions that are so large they are considered “too big to fail” (TBTF).


I will argue that these institutions operate under a privileged status that exacts an unfair tax upon the American people.


I will argue that they represent not only a threat to financial stability but to fair and open competition, that they are the practitioners of crony capitalism and not the agents of democratic capitalism that makes our country great.


I will argue that by the attorney general’s own admission, their privileged status places them above the rule of law.


I will argue that the effort crafted by Congress to correct the problems of TBTF—known as the Dodd–Frank Act—is, despite its best intentions, counterproductive and needs to be changed, that it is an example of the triumph of hope over experience.


And, last, I will argue that dealing with TBTF is a cause that should be embraced by conservatives, liberals and moderates alike. For regardless of your ideological bent, there is no escaping the reality that TBTF banks’ bad decisions inflicted harm upon the American people during the “awful moment” of the 2008–09 crisis. The American people will be grateful to whoever liberates them from a recurrence of taxpayer bailouts.

http://dallasfed.org/news/speeches/fisher/2013/fs130316.cfm

[TeyshaBlue]

http://dallasfed.org/news/speeches/fisher/2013/fs130316.cfm

A redneck bubba makes this speech at CPAC. Go figure.

[TeyshaBlue]

Boom!

First, we would roll back the federal safety net—deposit insurance and the Federal Reserve’s discount window—to apply only to traditional commercial banks and not to the nonbank affiliates of bank holding companies or the parent companies themselves (for which the safety net was never intended).

Second, customers, creditors and counterparties of all nonbank affiliates and the parent holding companies would sign a simple, legally binding, unambiguous disclosure acknowledging and accepting that there is no government guarantee—ever—backstopping their investment. A similar disclaimer would apply to banks’ deposits outside the Federal Deposit Insurance Corp. (FDIC) protection limit and other unsecured debts.

Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of the banking entities themselves, that they be of a size that is “too small to save.” Addressing institutional size is vital to maintaining a credible threat of failure, thereby providing a convincing case that policy has truly changed. This step gets both bank incentives and structure right, neither of which is accomplished by Dodd–Frank.

[Winehole23]

wish more politicians had the guts to say it. the rip off was, and remains, epochal.

[Winehole23]

Federal Reserve Board Chairman Ben Bernanke on Wednesday said regulators would take additional steps to eliminate the problem of "too big to fail" if current efforts fall short.

Although he noted progress that regulators have made, including new capital and liquidity rules targeting the largest institutions, the central banker was clear that "too big to fail" has not yet been solved.


"We need to keep assessing," said Bernanke at a press conference following a two-day Federal Open Market Committee meeting. "If we don't achieve the goal, I think, we'll have to do additional steps. It's not something we can just forget about."
Bernanke said the issue remains a top priority for regulators.


"It may take some time, but 'too big to fail' was a major part of the source of the crisis and we will not have successfully responded to the crisis if we don't address that problem successfully," said Bernanke.

http://www.americanbanker.com/issues/178_55/bernanke-we-will-do-what-it-takes-to-end-too-big-to-fail-1057723-1.html

[boutons_deux]

Beranke can talk it, but Congress won't EVER walk it

[Winehole23]

that he talks it is newsworthy in itself. if there's another financial panic within the decade the pols might come around -- supposing the political order remains intact.

[boutons_deux]

"the pols might come around"

no, they won't. the pols, esp the Repugs, work for the financial sector. as we can see as the House Repugs gut and defund and loophole the already feeble regs post-2008.

[Winehole23]

In a previous post (http://www.bloomberg.com/news/2013-03-15/why-we-should-rip-the-banks-in-two.html), I explained that banks are inherently fragile. One way to make them more robust is to increase equity capital requirements. This is the remedy advocated by Bloomberg View's editors. The banks call it radical but it's really pretty moderate, because it leaves the basic structure of banking alone. The same is true of calls to make the banks smaller. Smaller banks are still banks.

A genuinely radical approach would be to kill banking as we know it. Rip all banks, large or small, in two -- separate deposit-taking from credit-creation. Back the deposits one-for-one with reserves at the central bank. Then fund loans not with deposits or other money-like liabilities but by tapping investors who understand they've put their savings at risk.


This approach, unfamiliar as it sounds, has a long and distinguished academic lineage. Luminaries such as Irving Fisher, Milton Friedman and James Tobin have all advocated ithttp://www.bloomberg.com/news/2013-03-27/the-best-way-to-save-banking-is-to-kill-it.html

[boutons_deux]

Think Your Money is Safe? Think Again: The Confiscation Scheme Planned for US and UK Depositors

A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here (http://www.webofdebt.com/articles/big_brother_basel.php)); and that the result will be to deliver clear title to the banks of depositor funds.

New Zealand has a similar directive, discussed in my last article here (http://webofdebt.wordpress.com/2013/03/21/a-safe-and-a-shotgun-or-public-sector-banks-the-battle-of-cyprus/), indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported (http://www.voxy.co.nz/politics/national-planning-cyprus-style-solution-greens/5/150410) on March 19 th:

The National Government pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. [I]If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here (http://books.google.com/books?id=bbEe7b6uEtUC&pg=PA83&lpg=PA83&dq=a+depositor+is+an+unsecured+creditor+of+the+ban k+%26+cases&source=bl&ots=sz1VsR2Qrn&sig=yxgREMX75x3gpGlSy7d-e36ElyE&hl=en&sa=X&ei=OpFOUazgHeThiAKJyIHwAQ&ved=0CF4Q6AEwBA#v=onepage&q=a%20depositor%20is%20an%20unsecured%20creditor%2 0of%20the%20bank%20%26%20cases&f=false) and here (http://www.creditwritedowns.com/2013/03/ecb-creditor-preferences-bank-resolution.html).)

But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “ Resolving Globally Active, Systemically Important, Financial Institutions (http://www.fdic.gov/about/srac/2012/gsifi.pdf).” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S ., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country , the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as (http://www.ey.com/Publication/vwLUAssets/Recovery_and_resolution_planning/$FILE/Recovery_and_resolution_planning.pdf) a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

http://www.alternet.org/economy/think-your-money-safe-think-again-confiscation-scheme-planned-us-and-uk-depositors

[Winehole23]

During Jeb Hensarling's first congressional bid, a man at a campaign stop in Athens, Texas, asked the Republican if he was "pro-business."

"No," the candidate replied, drawing curious stares from local business leaders who had gathered to hear him speak, a former Hensarling aide recalled. "I'm not pro-business. I'm pro-free enterprise."


Now, more than a decade later, that distinction has Wall Street on edge. The new chairman of the House financial services committee wants to limit taxpayers' exposure to banking, insurance and mortgage lending by unwinding government control of institutions and programs the private sector depends on, from mortgage giants Fannie Mae and Freddie Mac to flood insurance.


Banks and other large financial institutions are particularly concerned because Mr. Hensarling plans to push legislation that could require them to hold significantly more capital and establish new barriers between their federally insured deposits and other activities, including trading and investment banking.


"A great case can be made that we need greater capital and liquidity standards," the conservative 55-year-old Texan said in a recent interview. "Certainly, we have to do a better job ring-fencing, fire-walling—whatever metaphor you want to use—between an insured depository institution and a noninsured investment bank." http://finance.yahoo.com/news/texans-plans-put-wall-street-000500764.html

[Winehole23]

While some suggest that the 2010 Dodd-Frank Act (http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf) removed all protections and subsidies for these largest firms, there is no evidence to support that assertion. Recently, Attorney General Eric Holder testified before the Senate (http://www.washingtonpost.com/business/economy/holder-concerned-megabanks-too-big-to-jail/2013/03/06/6fa2b07a-869e-11e2-999e-5f8e0410cb9d_story.html) that there is a reluctance to pursue legal actions against these firms for fear of destabilizing the markets. The subsidy and its effects remain entrenched and continue to distort the free market.


This form of corporate welfare allows the protected giants — those “too big to fail” — to profit when their subsidized bets pay off, while the safety net acts as a buffer when they lose, shifting much of the cost to the public. For example, the conglomerates can cover — and even double down on — their trading positions for extended periods using insured deposits or discounted loans from the Federal Reserve that come with the commercial bank charter. The subsidy often allows them to stay in the game long enough to win the bet, but it supersizes the loss if the bet should finally fall apart.


This system distorts the market and turns appropriate risk-taking into recklessness. The result is a more concentrated and powerful financial sector — and a more fragile economy. The way to return the financial services industry to the free market is by separating trading from commercial banks and by reforming the so-called shadow banking sector (http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/05/the-case-for-the-too-big-to-fail-banks/). Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers.


Non-banking financial activities such as proprietary trading, market making and derivatives should be placed outside of commercial banks and so outside of the safety net. Trading and investment companies would be free to engage in these activities; they would be subject to the forces of market discipline and have greater incentives to innovate and thrive.


None of these reforms can be effective unless the shadow banking system is also removed from the safety net by ending the subsidy for money-market funds (http://www.fdic.gov/about/learn/board/hoenig/index.html) and the short-term institutional loans known as repurchase agreements or “repos.” Money-market funds should be required to represent themselves for what they are: uninsured investments, the value of which changes daily. Similarly, repo lenders that accept mortgage-related collateral should be subject to the same bankruptcy laws as other secured creditors. (Details of my proposal can be found at www.fdic.gov/about/learn/board/hoenig/*index.html (http://www.fdic.gov/about/learn/board/hoenig/index.html).)


As entitlement reforms are being debated, the subsidy enjoyed by the most powerful players in the financial services industry should not be overlooked. Stronger, sustainable economic growth will stem from successful firms that are the right size and structure to support the economy instead of being dependent on government protection.


It is time to return our financial system to one in which success is no longer achieved through government protections but, rather, through innovation and competition. While trading and investment activities are vital parts of the financial services industry, there is no economic or social rationale for protecting and subsidizing them. Financial services firms are in the business of taking risks. Our country shouldn’t attempt to take the risk out of the system. But we should absolutely stop subsidizing it. http://www.washingtonpost.com/opinions/federal-government-should-stop-subsidizing-wall-street/2013/03/28/c976b8d0-917a-11e2-9cfd-36d6c9b5d7ad_story.html


Thomas M. Hoenig (http://www.fdic.gov/about/learn/board/hoenig/index.html) is vice chairman of the Federal Deposit Insurance Corp (http://www.fdic.gov).

[boutons_deux]

Think Your Money is Safe? Think Again: The Confiscation Scheme Planned for US and UK Depositors

A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here (http://www.webofdebt.com/articles/big_brother_basel.php)); and that the result will be to deliver clear title to the banks of depositor funds.

New Zealand has a similar directive, discussed in my last article here (http://webofdebt.wordpress.com/2013/03/21/a-safe-and-a-shotgun-or-public-sector-banks-the-battle-of-cyprus/), indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported (http://www.voxy.co.nz/politics/national-planning-cyprus-style-solution-greens/5/150410) on March 19 th:

The National Government pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. [I]If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here (http://books.google.com/books?id=bbEe7b6uEtUC&pg=PA83&lpg=PA83&dq=a+depositor+is+an+unsecured+creditor+of+the+ban k+%26+cases&source=bl&ots=sz1VsR2Qrn&sig=yxgREMX75x3gpGlSy7d-e36ElyE&hl=en&sa=X&ei=OpFOUazgHeThiAKJyIHwAQ&ved=0CF4Q6AEwBA#v=onepage&q=a%20depositor%20is%20an%20unsecured%20creditor%2 0of%20the%20bank%20%26%20cases&f=false) and here (http://www.creditwritedowns.com/2013/03/ecb-creditor-preferences-bank-resolution.html).)

But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “ Resolving Globally Active, Systemically Important, Financial Institutions (http://www.fdic.gov/about/srac/2012/gsifi.pdf).” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S ., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country , the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as (http://www.ey.com/Publication/vwLUAssets/Recovery_and_resolution_planning/$FILE/Recovery_and_resolution_planning.pdf) a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

http://www.alternet.org/economy/think-your-money-safe-think-again-confiscation-scheme-planned-us-and-uk-depositors

When the banks screw up, the authorities will simply STEAL DEPOSITORS' MONEY.

Destruction of Cyprus Economy Proceeding Ahead of Schedule

Big depositors in Cyprus’s largest bank stand to lose far more than initially feared under a European Union rescue package to save the island from bankruptcy, a source with direct knowledge of the terms said on Friday.


Under conditions expected to be announced on Saturday, depositors in Bank of Cyprus will get shares in the bank worth 37.5 percent of their deposits over 100,000 euros, the source told Reuters, while the rest of their deposits may never be paid back…

Officials had previously spoken of a loss to big depositors of 30 to 40 percent….

At Bank of Cyprus, about 22.5 percent of deposits over 100,000 euros will attract no interest, the source said. The remaining 40 percent will continue to attract interest, but will not be repaid unless the bank does well.

===

over 60% of deposits at the Bank of Cyprus could be toast:

Under the terms of the transaction, large depositors would have 77.5 percent of their savings turned into different forms of equity, with the rest remaining as a frozen, non-interest-bearing deposit that they would be able to access in the future.

If the bank does well, depositors would be able to sell their stock. But even in the best case, in which the bank thrives on the back of a quickly recovering economy — a long shot most economists believe — the loss is likely to exceed 60 percent and could well be much more than that.

Lawyers and bankers who have analyzed the transaction believe the ultimate loss to the depositor could be anywhere between 60 and 77.5 percent.

http://www.nakedcapitalism.com/2013/03/destruction-of-cyprus-economy-proceeding-ahead-of-schedule.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

I suppose Cyprus' "big depositors" aren't GERMANS. :)

[Winehole23]

When the banks screw up, the authorities will simply STEAL DEPOSITORS' MONEY.the banks have to screw up badly enough for the FDIC to fail. not unthinkable, minus a public backstop, but hard to see how raiding insured deposits will be more more palatable politically than another TARP/QE style bailout.

[BradLohaus]

This can only happen to our acounts right before we're drafted... for freedom.

[Winehole23]

ouch

[RandomGuy]

I suppose Cyprus' "big depositors" aren't GERMANS. :)

Don't make the germans cranky. You wouldn't like them when they are cranky.

[boutons_deux]

the banks have to screw up badly enough for the FDIC to fail. not unthinkable, minus a public backstop, but hard to see how raiding insured deposits will be more more palatable politically than another TARP/QE style bailout.

Since when does the plutocracy give a fuck about politics or Human-Americans? Whatever the financial wants and/or needs, it gets.

[boutons_deux]

Sherrod Brown Goes After the Big Banks

Boiled down to its essence, Senator Brown’s legislative initiative may compel Democrats to ask themselves, Are we with the people on this, or should we stick with the big guys? This may prove to be a seminal question for the future of the party, not to mention the health of the economy. If Democrats stay with the financial titans and ignore the disorders of the Wall Street monopoly, the party will become ever more distant from its working class legacy. If instead Democrats like Sherrod Brown, joined by newly elected bank critics like Elizabeth Warren, lead the party in the direction of aggressive reform, we might see the beginning of something big. http://www.thenation.com/article/173336/sherrod-brown-goes-after-big-banks

I bet Brown/Warren fail. Wall St owns the Democrats as much as it owns the Repugs. Repugs own the House, while Repug Senators, even tea bagger assholes like Cruz, will obstruct anything.

[Th'Pusher]

http://www.rollingstone.com/politics/blogs/taibblog/the-growing-sentiment-on-the-hill-for-ending-too-big-to-fail-20130403

[boutons_deux]

http://www.rollingstone.com/politics/blogs/taibblog/the-growing-sentiment-on-the-hill-for-ending-too-big-to-fail-20130403

"Minority Report in reverse – pre-noncrime."

Truly an amazing status: govt won't prosecute because the banks are simply too big.

Of course, the Repugs will absolutely, repeatedly obstruct any regs to reduce the planet's exposure to US mega bank cartel

[Th'Pusher]

"Minority Report in reverse – pre-noncrime."

Truly an amazing status: govt won't prosecute because the banks are simply too big.

Of course, the Repugs will absolutely, repeatedly obstruct any regs to reduce the planet's exposure to US mega bank cartel

Last time I checked holder was appointed by a democrat. Props to sanders, but this issue needs bipartisan effort to be addressed.

[boutons_deux]

Last time I checked holder was appointed by a democrat. Props to sanders, but this issue needs bipartisan effort to be addressed.

Of course, the Repugs will absolutely, repeatedly obstruct any regs to reduce the planet's exposure to US mega bank cartel

Do really think a Repug DoJ would even bother to admit that?

[Th'Pusher]

Of course, the Repugs will absolutely, repeatedly obstruct any regs to reduce the planet's exposure to US mega bank cartel

Do really think a Repug DoJ would even bother to admit that?

Not only do I expect him to admit it, I expect him to lean in and fight it. There is ideological symmetry with the right and the left on this issue. What's missing is the moneyed interest in the middle.

[Winehole23]

At least three Wall Street analysts this week have written reports about the possibility of the biggest banks (http://www.reuters.com/sectors/industries/overview?industryCode=128&lc=int_mb_1001) breaking themselves up to boost profitability, signaling that investors may be more willing to embrace an idea that is still toxic to some lawmakers in Washington.

New regulations in areas like capital requirements are imposing higher costs on the biggest investment banks (http://www.reuters.com/sectors/industries/overview?industryCode=128&lc=int_mb_1001), raising doubts about their future profitability. These questions make the biggest global investment banks "un-investable," wrote analyst Kian Abouhossein, who himself works at JPMorgan, one of the biggest global investment banks.

http://www.reuters.com/article/2013/04/11/us-usbanks-breakups-analysts-idUSBRE93A19020130411

[RandomGuy]

http://www.reuters.com/article/2013/04/11/us-usbanks-breakups-analysts-idUSBRE93A19020130411


I think you just need to rachet up the capital requirements to the point where they break themselves up for that very reason.


"Releasing shareholder value"


One can only hope. The banking ecosystem would be better served by more, smaller banks anyway.

[coyotes_geek]

I think you just need to rachet up the capital requirements to the point where they break themselves up for that very reason.


"Releasing shareholder value"


One can only hope. The banking ecosystem would be better served by more, smaller banks anyway.

:tu

[Th'Pusher]

Minds are changing on Too Big to Fail. A month ago, it was just something in the air (http://www.rollingstone.com/politics/blogs/taibblog/the-growing-sentiment-on-the-hill-for-ending-too-big-to-fail-20130403). Now, it looks like we're headed for a real legislative confrontation. And man, is the finance sector freaking.Last week, on April 24th, Democratic Senator Sherrod Brown of Ohio and Louisiana Republican David Vitter introduced legislation (http://www.washingtonpost.com/opinions/brown-vitter-banking-bill-aims-to-address-an-unhealthy-situation/2013/04/28/f7a66db2-ae8b-11e2-98ef-d1072ed3cc27_story.html) called the "Terminating Bailouts for Taxpayer Fairness Act of 2013 Act," or the "Brown-Vitter TBTF Act" for short. The bill is a gun aimed directly at the head of the Too-Big-To-Fail beast.During the Dodd-Frank negotiations a few years ago, Brown teamed up with Delaware Democrat Ted Kaufman to introduce an amendment that would have physically capped the size of the biggest banks. The amendment was bold and righteous but was slaughtered on the floor (http://www.rollingstone.com/politics/news/wall-streets-war-20100526) by a 61-33 margin, undermined by leaders of both parties – 27 Democrats voted against it.Brown-Vitter offers a different and, in a way, more elegant solution to the problem than Brown-Kaufman. Rather than impose size limits, it simply insists that banks with over $500 billion in assets maintain higher capital reserves than are currently required. Companies like J.P. Morgan Chase, Wells Fargo, Morgan Stanley, Goldman Sachs, Citigroup and Bank of America will have to keep capital reserves of about 15 percent, about twice the current amount.The bill only has such tough requirements for just those few megabanks, which sounds unfair, except that the aim of the bill, precisely, is to level the playing field. Right now, the biggest U.S. banks enjoy a massive inherent market advantage in that they're able to borrow money far more cheaply than other banks, because everybody on earth knows the government will never let them fail and will always bail them out in a pinch, making their debt essentially U.S.-government guaranteed. Studies have shown that these banks borrow money at about 0.8 percent more cheaply than other banks, and that this implicit government subsidy is worth about $83 billion a year (http://www.bloomberg.com/news/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-.html) just to the top 10 banks in America. This bill would essentially wipe out that hidden subsidy and make the banks bailout-proof.As soon as Brown-Vitter was introduced, a very interesting thing happened. The Independent Community Bankers of America, or ICBA, issued a press release (http://www.icba.org/news/newsreleasedetail.cfm?ItemNumber=160593) boosting the bill. "ICBA strongly supports this legislation," the release read, "and urges all community banks to join the association in advocating passage of legislation to end too-big-to-fail."This was a big thing. It was the first time since the crisis that a prominent financial industry group opposed the will of the TBTF banks. I remember covering Dodd-Frank and being told by a number of members in the House and the Senate that the sentiment of many community bankers was for breaking up or at least curtailing the power of companies like Chase and Bank of America, but that the community banking lobby was not yet prepared to take that step.But now, after the London Whale, the LIBOR scandal, the outrageous HSBC settlement and nearly five years of rapacious market-dominating behavior by these state-backed banks, the community banks have finally split off from TBTF.This is another in a series of defections on this issue that in the past year has included many Republican politicians, numerous important financial regulators (even the New York Fed has taken a semi-stand (http://www.newyorkfed.org/newsevents/speeches/2012/dud121115.html) against TBTF) and, hilariously, the creator of Too-Big-To-Fail himself, former Citigroup CEO and legendary lower-Manhattan raging asshole Sandy Weill. Weill was the man for whom the Glass-Steagall Act was repealed back in the nineties, so that his already-completed Citigroup merger could be legalized. But even he came out last year (http://www.rollingstone.com/politics/blogs/taibblog/when-did-sandy-weill-change-his-mind-about-too-big-to-fail-and-why-20120803) and said we have to break up the banks.Naturally, there was going to be a response to Brown-Vitter from Wall Street. And we got it last week, shockingly not from one of the banks or a lobbying firm connected to the banks, but from the Standard and Poor's ratings agency – supposedly a strict, humorlessly conservative auditor that should always abhor risk and look favorably upon greater safety and security. The very fact that such a company came out against a bill forcing banks to have safer balance sheets is in itself absolute proof of how completely fucked and corrupt our current system is.The S&P report, entitled "Brown-Vitter Bill: Game-Changing Regulation For U.S. Banks", is so incredibly hysterical in its tone that, reading it, one cannot help but deduce that people on Wall Street are genuinely afraid of this bill. The paper essentially hints that forcing banks to retain more capital could lead to world financial collapse, the onset of a new Ice Age, mammoths roaming Nebraska, etc. "The ratings implications of the Brown-Vitter bill, if enacted, for all U.S. banks would be neutral to negative," the report read. In the second paragraph, it reads:
If congress enacts the bill as proposed, Standard and Poor's Ratings Services would have concerns about the economic impact on banks' creditworthiness stemming from the transition to substantially higher capital requirements.

Having a ratings agency bent to monopolistic bank influence give a bad rating to a piece of legislation designed to . . . curb monopolistic bank influence is a bad surrealistic joke, like a Rene Magritte take on lobbying – Ceci n' (http://upload.wikimedia.org/wikipedia/en/b/b9/MagrittePipe.jpg)est pas une Too-Big-To-Fail! (http://upload.wikimedia.org/wikipedia/en/b/b9/MagrittePipe.jpg)Remember, one of the primary causes of the financial crisis in the first place was the corruption of the independent ratings agencies. In the crisis years, companies like S&P and Moody's and Fitch were so desperate to avoid losing business from the big investment banks (who paid the ratings firms to rate products like mortgage-backed securities) that these companies often gave embarrassingly overenthusiastic grades to a generation of toxic assets.The Financial Crisis Inquiry Commission in its final report placed blame for the crisis squarely on the shoulders of these firms. "The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval," the FCIC report read (http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf). "This crisis could not have happened without the rating agencies."So intellectually compromised ratings agencies were guilty before, because they were too quick to help Too-Big-To-Fail banks sell bad products into the world marketplace.Now, an intellectually-compromised ratings agency is helping sell the very Too-Big-To-Fail system in an attempt to beat back a reform bill – an agency that once stated explicitly that it does not take public positions on legislation.Years ago, Standard and Poor's was involved a similar situation. In the mid-2000s, the Senate was considering creating a regulatory body with receivership powers that could have oversight over Fannie Mae and Freddie Mac. S&P, seemingly doing the bidding of Fannie and Freddie (which wanted no part of any new regulatory oversight), warned that such legislation might lead to a downgrade of the so-called Government-Sponsored Entities, or GSEs. In other words, if you pass this bill, we're going to take a financial axe to Fannie and Freddie.When then-Senator John Sununu asked then-S&P president Kathleen Corbet if it didn't seem to her like the ratings agency was meddling in the legislative process by issuing such a dire warning, Corbet testily replied in the negative."First of all, Senator," she said (http://www.gpo.gov/fdsys/pkg/CHRG-109shrg28059/html/CHRG-109shrg28059.htm). "Standard & Poor's does not advocate positions on any legislation."With that in mind, here are some of passages from S&P's new report, "Brown-Vitter Bill: Game-Changing Regulation For U.S. Banks":
If the requirements force banks to deleverage, a credit crunch could ensue and the U.S. economy might be thrown off course . . . the U.S. banking industry could become less competitive in world financial markets . . . All in all, the bill's goal of ending TBTF could lead to unintended consequences – a destabilized financial system.

So Standard and Poor's does not advocate positions on any legislation, mind you. It just thinks the world as we know it will end if this particular bill passes.In reality, of course, about the only things that would be "destabilized" if TBTF ended would be the compensation packages for a small group of overpaid banking executives like Jamie Dimon. Another consequence might be that ratings agencies would actually have to work for a living, and earn reputations for honesty and integrity in the market, instead of getting endless streams of free money from big banks to give sparkly AAA ratings to every half-baked security or derivative instrument their obese, Fed-fattened clients cranked out.Some of the other arguments in the report were amazing. Standard and Poor's seemed particularly concerned about the effect such a bill would have on banks' ability to raise money, either by borrowing or by selling stock:
We see broad implications for investors in bank-funding instruments, both debt and equity. For instance, so far, bank equity investors have not been totally enthusiastic about the pace and scope of financial regulation, particularly in relation to expected returns on equity. The draft legislation is hardly making it more attractive, in our view, and the prospect of lower returns and considerable dilution is likely to turn equity investors away.

This doesn't sound like it, but it's really an extraordinary passage. The ratings agency here is admitting that banks that have the implicit support of the United States government and have virtually unlimited access to free cash from the Federal Reserve are still having trouble getting people to invest in their futures.Rather than finding in that fact a shocking and horrific truth that desperately requires public action – that even the awesome advantages of Too-Big-To-Fail no longer outweigh the fear investors have about the big banks' opaque accounting and risk-heavy business strategies – S&P instead concludes that it's somehow worse to fix the problem than it is to allow these cancerous firms to continue to underperform under the current system.The report goes on to talk about the consequences for such banks in a world where they would have trouble raising the needed cash. "Faced with little to no access to equity markets," S&P writes, "the largest banks would be forced into asset sales, divestitures, or would simply need to break up."Right. That, or they could reform their compensation structures and freeze dividends during their transitions from casino operations to actual job-creating, business-supporting banks. But since paying themselves less could not possibly be contemplated, executives from the biggest banking firms probably would jump straight to mass breakups if the bill passed."They're basically saying, 'How do you expect bankers to keep up their extravagant lifestyles and meet these crazy safety standards?'" is how one analyst put it to me.There are many other loony arguments in the report. It claims that by going farther than the Swiss Basel III international accords would in demanding bank safety, the U.S. would be "abandoning its seat in global banking reform," which might make the U.S. banking industry "less competitive in world financial markets." But this is exactly the opposite of the truth – by taking these bold steps, the U.S. would very much be acting as a leader in global banking reform, and the increased safety and transparency of our banking system would make our banks more competitive globally, not less.But the craziest part of the S&P report, to me, is the conclusion. "It is tempting to assume that we would raise credit ratings because higher capital increases creditworthiness to bondholders," the agency writes. "However . . ."Here the S&P is saying: "You might think, just because we're a ratings agency that's supposed to always think safety and security are good things, that we think increased safety and security for these banks is a good idea. However . . ."So what's the "However"? Well, it talks about the banks having a lessened ability to lend (although they're not lending now – they're still sitting on over a trillion and a half dollars (http://research.stlouisfed.org/fred2/series/EXCRESNS) in excess reserves just in their Fed accounts!), about the growth of shadow banks, about decreased profitability of the big-six banks. But then they come to their big money-shot conclusion:
Under our methodology, we would potentially no longer factor in government support if we believed that once large banks are broken up, we would not classify these banks as having high systemic importance.

Translated into English, what they mean is: If this bill passes, these banks would no longer be Too Big To Fail. So we'd probably have to downgrade them.Well – duh!Not only is this an explicit admission that Dodd-Frank didn't fix the Too-Big-To-Fail issue (Wall Street has long insisted that Dodd-Frank was more than sufficient to deal with the "moral hazard" problem), it's a crazy thing to say out loud. S&P writes about having to factor out the implicit government backing of big banks as though that would be a bad thing. But if implicit government support is the only thing keeping the ratings of these companies even as high as they are now, that means they really should be rated lower, in a true free market.And Standard and Poor's is, what – against admitting that?It's nuts. A true capitalist auditor would be sick to the point of vomiting at having to upgrade a company based upon its sleazy co-dependent relationship with the government. This report expresses just the opposite, and shows how backwards things have gotten on Wall Street.I've talked to a number of people on the Hill and in finance in the finance sector in the last week and they all say the same thing. The tone of reports like this S&P thing, and op-eds by other bank-friendly critics, are more strident and desperate than we've seen previously and suggest a genuine fear that this bill may pass.There are others who think that the bill isn't designed to pass, that it's more designed to bully the banks into supporting Dodd-Frank and/or the Basel accords, which banks spent fortunes lobbying against but are now, humorously, suddenly being hailed (http://qz.com/71597/brown-vitter-draft-bill-would-undo-all-the-progress-international-regulators-have-made-in-controlling-finance/) in the finance sector as sensible and perhaps-sufficient (http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=1&ved=0CCsQqQIoADAA&url=http%3A%2F%2Fblog.heritage.org%2F2013%2F04%2F3 0%2Ftoo-big-to-fail-brown-vitter-swings-and-misses%2F&ei=PQuBUbv1E4_H4AP0uoGwAQ&usg=AFQjCNH4DVTImbjtHhTQKjJKh0-xAljv6w&sig2=7_W4UbDly-VnMhaPPQrnXg&bvm=bv.45921128,d.dmg&cad=rja) solutions to Wall Street's problems.But even some of those critics admit that there are endgames here where Brown-Vitter makes it out of the Senate Banking Committee (where South Dakota Democratic chair Tim Johnson is currently seen as an obstacle to this bill passing) and goes to a vote, where of course anything might happen. The banks, after all, know that their current level of popular support outside of their cash-buttressed Beltway bubble is hovering somewhere between nuclear waste and bowel cancer. A public referendum on their continued state-sponsored existence is not in any way desirable, even if it's a longshot to pass.


Read more: http://www.rollingstone.com/politics/blogs/taibblog/too-big-to-fail-takes-another-body-blow-20130501#ixzz2S61dQjOZ

[Th'Pusher]

Wow. ^ didn't paste as I expected. sorry.

[boutons_deux]

this won't pass, but anyway

In Brown-Vitter Bill, a Banking Overhaul With Possible TeethThe biggest banks have done an excellent job of delaying and undermining the Dodd-Frank financial overhaul law and staving off criminal investigations into wrongdoing.


Maybe, just maybe, they’ve been too successful.


Senators Sherrod Brown, Democrat from Ohio, and David Vitter, Republican from Louisiana, introduced a bill last week that calls for two things: making the giant banks much safer and tying regulators’ hands to prevent them from using taxpayer money to save a failing financial institution.


If the bankers who blew up the financial world had been held accountable, the popular fury that fuels this bill would have dissipated by now. And if Dodd-Frank were fully in place today, instead of being bogged down in the courts and in the halls of Washington regulatory offices, there would be no political momentum behind such an effort.


Now, we will see whether the bill is simply a barbaric yawp of anger at the big banks or something with actual force. It probably won’t get passed, but its underlying premise cannot be dislodged from the Washington conversation.


The Brown-Vitter bill calls for the banks with more than $500 billion in assets — I’m looking at you, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley — to have capital reserves of 15 percent. That’s a much higher standard than exists today, especially because the current requirements have weak definitions of capital and total asset size.


The banks have rounded up a bunch of critics, led by the likes of the law firm Davis Polk & Wardwell and the lobbying firm Hamilton Place Strategies, the volume of their lamentations most likely in direct proportion to the hourly rate they bill their clients. They invoke terrifying, talismanic statements: the bill is a “punishment” to big banks. It is simplistic, impossible, will render American banks “uncompetitive,” lead to financial crises and probably cause tooth decay.


This naïve bill would force the giant banks to raise too much capital and would hurt the economy as the companies were forced to shrink or break up. Standard & Poor’s is one of the observers warning of a financial crisis. And who better to know than the people who brought us the last one?


Goldman Sachs and S.& P. estimate the big banks might be forced to raise $1 trillion or more. That’s a lot, so much that the leviathans’ agents cry out that they couldn’t sell that much stock. But they don’t have to raise it all at once. And they can retain their earnings and stop paying dividends in addition to selling shares.


In putting that argument forward, they don’t realize they make Senator Brown’s and Senator Vitter’s case for them. If investors are so terrified of the big banks that they won’t buy their stock, that’s a terrific problem. Most of the big banks trade below their net worth, an indication that investors don’t trust them. Brown-Vitter might actually help banks by restoring that trust.


http://mobile.nytimes.com/blogs/dealbook/2013/05/01/in-brown-vitter-bill-a-banking-overhaul-with-possible-teeth/

the financial sector is untouchable, unstoppable.

[Winehole23]

you only wish, boutons. life ain't that simple.

political power is real.

[boutons_deux]

you only wish, boutons. life ain't that simple.

political power is real.

the power is with the Congress, controlled by UCA/1%, NOT by the fully disenfranchised people. The "people" won't even have candidates that represent them first, and certainly NEVER enough candidates elected, aka Congressional votes, to address America's real problems, rather than addessing/protecting/enriching themselves and the UCA/1%. America is a kleptocratic plutocratic rentier society, not a democracy.

IT'S THAT SIMPLE

[Winehole23]

you're like the hedgehog who only sees one big thing. unfortunately for all of us, your mouth only says one thing too.

[RandomGuy]

this won't pass, but anyway

In Brown-Vitter Bill, a Banking Overhaul With Possible TeethThe biggest banks have done an excellent job of delaying and undermining the Dodd-Frank financial overhaul law and staving off criminal investigations into wrongdoing.


Maybe, just maybe, they’ve been too successful.


Senators Sherrod Brown, Democrat from Ohio, and David Vitter, Republican from Louisiana, introduced a bill last week that calls for two things: making the giant banks much safer and tying regulators’ hands to prevent them from using taxpayer money to save a failing financial institution.


If the bankers who blew up the financial world had been held accountable, the popular fury that fuels this bill would have dissipated by now. And if Dodd-Frank were fully in place today, instead of being bogged down in the courts and in the halls of Washington regulatory offices, there would be no political momentum behind such an effort.


Now, we will see whether the bill is simply a barbaric yawp of anger at the big banks or something with actual force. It probably won’t get passed, but its underlying premise cannot be dislodged from the Washington conversation.


The Brown-Vitter bill calls for the banks with more than $500 billion in assets — I’m looking at you, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley — to have capital reserves of 15 percent. That’s a much higher standard than exists today, especially because the current requirements have weak definitions of capital and total asset size.


The banks have rounded up a bunch of critics, led by the likes of the law firm Davis Polk & Wardwell and the lobbying firm Hamilton Place Strategies, the volume of their lamentations most likely in direct proportion to the hourly rate they bill their clients. They invoke terrifying, talismanic statements: the bill is a “punishment” to big banks. It is simplistic, impossible, will render American banks “uncompetitive,” lead to financial crises and probably cause tooth decay.


This naïve bill would force the giant banks to raise too much capital and would hurt the economy as the companies were forced to shrink or break up. Standard & Poor’s is one of the observers warning of a financial crisis. And who better to know than the people who brought us the last one?


Goldman Sachs and S.& P. estimate the big banks might be forced to raise $1 trillion or more. That’s a lot, so much that the leviathans’ agents cry out that they couldn’t sell that much stock. But they don’t have to raise it all at once. And they can retain their earnings and stop paying dividends in addition to selling shares.


In putting that argument forward, they don’t realize they make Senator Brown’s and Senator Vitter’s case for them. If investors are so terrified of the big banks that they won’t buy their stock, that’s a terrific problem. Most of the big banks trade below their net worth, an indication that investors don’t trust them. Brown-Vitter might actually help banks by restoring that trust.


http://mobile.nytimes.com/blogs/dealbook/2013/05/01/in-brown-vitter-bill-a-banking-overhaul-with-possible-teeth/

the financial sector is untouchable, unstoppable.

YAY,,,, my preferred solution has an actual bill!!

WOnder how long before the TBTF lobbists corner it in an alley and dump the body in the Potomac...?

[RandomGuy]

you're like the hedgehog who only sees one big thing. unfortunately for all of us, your mouth only says one thing too.

While Boutons may be over the top in the way he puts that particular bit, I am struck by the paucity of lobbying groups in Washington for poor single moms and the working poor families in this country.

When we as a country allow our goverment to be essentially run by money, people get ground up in the process.

Especially given that the kinds of people Romney directed his "47%" comments at are the ones who can fund all manner of think-tanks and policy papers to supply the media outlets they control with ready-made plausible sounding propaganda. Given Romney's doubling down on that schtick I can't help but wonder that the majority of the plutocrats in this country don't feel the same way.

Given the kinds of things drummed into the information bubble that the right wing in this country prefers to live in, it worries me.

[boutons_deux]

you're like the hedgehog who only sees one big thing. unfortunately for all of us, your mouth only says one thing too.

you always miss the big picture to fuck around uselessly, academically, sterilely in silly details.

"political power is real" and it does not rest with Human-Americans, but with Corporate-Amercans, 1%, plutocratic politicians. Start from there see how silly your "political power is real" is a source of hope-y and change-y.

[TeyshaBlue]

Those, silly, silly details. Tsk tsk.

[Winehole23]

While Boutons may be over the top in the way he puts that particular bit, I am struck by the paucity of lobbying groups in Washington for poor single moms and the working poor families in this country.no money in it, nor any grand political payoff.

(Democratic Party used to do a bit of that on its own time but has since moved on to greener pastures, I gather.)

[Winehole23]

"political power is real" and it does not rest with Human-Americans, but with Corporate-Amercans, 1%, plutocratic politicians. Start from there see how silly your "political power is real" is a source of hope-y and change-y.it is neither silly nor sterile to point out that business must lobby government to get what it wants in the law.

the two are not coextensive: government regs and rules apply, with meaningful costs attached to compliance and contumely.

pretending political power no longer exists is just that. pretending.

(shrugs)

[boutons_deux]

it is neither silly nor sterile to point out that business must lobby government to get what it wants in the law.

the two are not coextensive: government regs and rules apply, with meaningful costs attached to compliance and contumely.

pretending political power no longer exists is just that. pretending.

(shrugs)

political power exists, I pose no strawman that it doesn't.

It's just that UCA/1% hold all the significant political power, not Human-Americans. An overwhelming majority of Americans want b/g checks, Congress kills it.

govt rules and regs exist, but loopholes, weak enforcement dominate, combined with defunding, compromised, corporate-friendly regulators, and Congressional intimidation render rules and regs ineffective.

[Winehole23]

http://dallasfed.org/assets/documents/research/staff/staff1301.pdf

[boutons_deux]

The "financialization" of the US economy, where the finance sector occupies a huge slice of income, HURTS the 99%, hurts America, benefits only the 1%

Two New Papers Say Big Finance Sectors Hurt Growth and Innovation (http://www.nakedcapitalism.com/2015/02/two-new-papers-say-big-finance-sectors-hurt-growth-innovation.html)

Titled, Why does financial sector growth crowd out real economic growth? (https://www.bis.org/publ/work490.pdf), its analysis of why too much finance is a bad thing is robust and compelling. This article is a follow up to a 2012 paper by the same authors, Stephen Cecchetti and Enisse Kharroubi, which found that when finance sectors exceeded a certain size, specifically when private sector debt topped 100% of GDP or when financial services industry professions were more than 3.9% of the work force, it became a drag on growth.

Notice that this finding alone is damning as far as policy in the US is concerned, where cheaper debt, deregulation, more access to financial markets, and “financial deepening” are all seen as virtuous.

And the big reason is one that is no surprise to anyone in the US, that finance has been sucking “talent,” as in the best and brightest from a large range of disciplines, ranging from mathematicians, physicists, the best MBAs (which remember could be running manufacturing operations or in high-growth real economy businesses) and lawyers. The banking sector’s gain is Main Street’s loss. From the abstract:

In this paper we examine the negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity. We begin by showing that by disproportionately benefiting high collateral/low productivity projects, an exogenous increase in finance reduces total factor productivity growth. Then, in a model with skilled workers and endogenous financial sector growth, we establish the possibility of multiple equilibria.

In the equilibrium where skilled labour works in finance, the financial sector grows more quickly at the expense of the real economy. We go on to show that consistent with this theory, financial growth disproportionately harms financially dependent and R&D-intensive industries.


And how does this come about? One big reason is that financial firms like to lend, and to lend against collateral rather than business earnings. That drives lending to collateral-intensive activities, most of all real estate, which is not all that productive from a societal perspective:

In our model, we first show how an exogenous increase in financial sector growth can reduce total factor productivity growth.2 This is a consequence of the fact that financial sector growth benefits disproportionately high collateral/low productivity projects. This mechanism reflects the fact that periods of high financial sector growth often coincide with the strong development in sectors like construction, where returns on projects are relatively easy to pledge as collateral but productivity (growth) is relatively low.


And the access to funding then drives where resources go:

Next, we introduce skilled workers who can be hired either by financiers to improve their ability to lend, increasing financial sector growth, or by entrepreneurs to improve their returns (albeit at the cost of lower pledgeability).3,4 We then show that when skilled workers work in one sector it generates a negative externality on the other sector.

The externality works as follows: financiers who hire skilled workers can lend more to entrepreneurs than those who do not. With more abundant and cheaper funding, entrepreneurs have an incentive to invest in projects with higher pledgeability but lower productivity, reducing their demand for skilled labour.

Conversely, entrepreneurs who hire skilled workers invest in high return/low pledgeability projects. As a result, financiers have no incentive to hire skilled workers because the benefit in terms of increased ability to lend is limited since entrepreneurs’ projects feature low pledgeability.5 This negative externality can lead to multiple equilibria. In the equilibrium where financiers employ the skilled workers, so that the financial sector grows more rapidly, total factor productivity growth is lower than it would be had agents coordinated on the equilibrium where entrepreneurs attract the skilled labour.6

Looking at welfare, we are able to show that, relative to the social optimum, financial booms in which skilled labour work for the financial sector, are sub-optimal when the bargaining power of financiers is sufficiently large.


And remember, even though the authors blandly mention “the bargaining power of financiers” the model does not include the further distortion seen in many advanced economies, of laundering subsidies to the housing sector through housing finance or tax breaks.

And they test their model against real economy outcomes:

Here we focus on manufacturing industries and find that industries that are in competition for resources with finance are particularly damaged by financial booms. Specifically, we find that manufacturing sectors that are either R&D-intensive or dependent on external finance suffer disproportionate reductions in productivity growth when finance booms. That is, we confirm the results

in the model: by draining resources from the real economy, financial sector growth becomes a drag on
real growth.


The impact is large:

We find unambiguous evidence for very large effects of financial booms on industries that either have significant external financing needs or are R&D-intensive. We report estimates that imply that a highly R&D-intensive industry located in a country with a rapidly growing financial system will experience productivity growth of something like 2 percentage points per year less than an industry that is not very R&D-intensive located in a country with a slow-growing financial system.


Brad DeLong, earlier this week, flagged another important article (http://equitablegrowth.org/2015/02/13/nighttime-must-read-thomas-philippon-finance-vs-wal-mart-financial-services-expensive/)on why finance has become a productivity drain by Thomas Philippon, titled Finance vs. Wal-Mart: Why are Financial Services so Expensive? (http://www.russellsage.org/sites/all/files/Rethinking-Finance/Philippon_v3.pdf)

Despite the financial services industry having so much bigger and supposedly more efficient firms, the cost of financial intermediation is higher than in 1910. How is that possible? Is it all the new and improved looting? It’s even simpler. It’s Keynes’ capital markets as a casino problem:

…the current financial system does not seem better at transferring funds from savers to borrowers than the financial system of 1910.

The role of the finance industry is to produce, trade and settle financial contracts that can be used to pool funds, share risks, transfer resources, produce information and provide incentives. Financial intermediaries are compensated for providing these services. Total compensation of financial intermediaries (profits, wages, salary and bonuses) as a fraction of GDP is at an all-time high, around 9% of GDP. What does society get in return? Or, in other words, what does the finance industry produce? I measure the output of the finance industry by looking at all issuances of bonds, loans, stocks (IPOs, SEOs), as well as liquidity services to firms and households.

Measured output of the financial sector is indeed higher than it has been in much of the past. But, unlike the income earned by the sector, it is not unprecedentedly high. Historically, the unit cost of intermediation has been somewhere between 1.3% and 2.3% of assets. However, this unit cost has been trending upward since 1970 and is now significantly higher than in the past.

In other words, the finance industry of 1900 was just as able as the finance industry of 2010 to produce loans, bonds and stocks, and it was certainly doing it more cheaply. This is counter-intuitive, to say the least. How is it possible for today’s finance industry not to be significantly more efficient than the finance industry of John Pierpont Morgan?… Technological improvements in finance have mostly been used to increase secondary market activities, i.e., trading. Trading activities are many times larger than at any time in previous history. Trading costs have decreased, but I find no evidence that increased liquidity has led to better (i.e., more informative) prices or to more insurance


This is another damning finding from a policy perspective, in that the bias of regulations has been strongly toward promoting more market liquidity. Readers may recall that we’ve been skeptical of that premise for years, noting that in the stone ages of our youth, investors were not terribly bothered by limited liquidity in large and important markets like corporate bonds. Yet the SEC and the Fed have been all in with the “more liquidity is better” program, with the SEC pushing for lower and lower transaction charges (which has the perverse effect of leading financial services firms as trading counterparties to be fleeced rather than good customers to be nutured) and promoting high frequency trading, and the Fed allowing derivatives to grow like kudzu, out of the belief (among other things) that they would facilitate price discovery in cash markets.

And of course, an overly costly financial services sector on a raw transaction level again drains resources from other sectors.

As the Tax Justice Network noted (http://www.taxjustice.net/2015/02/18/new-official-warning-much-finance-bad-economy/),

…an oversized large financial sector is not the Golden Goose providing benefits for all, but a cuckoo in the nest, crowding out and harming other sectors and society.

Winston Churchill summarised:

“I would rather see finance less proud and industry more content.”



Indeed.

http://www.nakedcapitalism.com/2015/02/two-new-papers-say-big-finance-sectors-hurt-growth-innovation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

Remedies? one would be sales/transactions TAXES on every financial trade. Force banks to divest from non-banking (eg, infrastructure, distribution, real estate) sectors.

[101A]

Remedies? one would be sales/transactions TAXES on every financial trade. Force banks to divest from non-banking (eg, infrastructure, distribution, real estate) sectors.


I think the VERY first would be to make income = income; no more of a break for income from capital gains. If anything, tax that higher, and lower the rate on earned income. Gotta encourage the best and brightest OUT of the financial sector.

[boutons_deux]

BigFinance extorting Dems/Warren to back off, or else they get a financial bullet to the head

Wall Street Firms Threatens Democratic Party After Call To Break Them Up (http://firedoglake.com/2015/03/27/wall-street-firms-threatens-democratic-party-after-call-to-break-them-up/)

The Too Big To Fail banks are none too pleased with Senator Elizabeth Warren’s call to break them up so they no longer pose a systemic risk to the financial system and economy. According to a report Reuters, the banksters are now telling officials in the Democratic Party that they will withhold campaign contributions (http://www.reuters.com/article/2015/03/27/us-usa-election-banks-idUSKBN0MN0BV20150327)if the party does not distance itself from progressive positions on financial reform.

The message was intended to isolate Senators Warren (D-Mass), Brown (D-OH), and any others in the Democratic Party who stand against Wall Street being above the law, beyond regulation, and always guaranteed a bailout.

Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street, sources familiar with the discussions said this week.

Bank officials said the idea of withholding donations was not discussed at a meeting of the four banks in Washington but it has been raised in one-on-one conversations between representatives of some of them. However, there was no agreement on coordinating any action, and each bank is making its own decision, they said.



The banksters did however say that they had no problem with Hillary Clinton and were planning on donating to her campaign - shocking. (http://news.firedoglake.com/2013/12/12/hillary-clinton-tells-wall-street-she-believes-anti-wall-street-rhetoric-foolish/)

JPMorgan in particular seemed to be throwing its weight around and has reportedly only donated a third of its usual annual contribution to the Democratic Party. JPM has faced numerous civil fines from the Obama Justice Department and still faces the possibility of a criminal prosecution until the statute of limitations kicks in later this year. (http://firedoglake.com/2015/03/19/petition-tell-doj-to-bring-charges-against-wall-street-before-statute-of-limitations-is-up/)

Maybe JPM is waiting until the Democratic White House let’s them off the hook before giving the party their bribes.

http://firedoglake.com/2015/03/27/wall-street-firms-threatens-democratic-party-after-call-to-break-them-up/

BigFinance would prefer a Repug plutocrat as President (they gave Bishop Gecko 10:1 vs The Muslim in 2012), but they LOVE hard-core establishentarian Hillary just as much. And, if elected, her DoJ, Treasury, and SEC will will LOVE them back.

[boutons_deux]

http://www.reuters.com/article/2015/03/27/us-usa-election-banks-idUSKBN0MN0BV20150327

[Winehole23]

11 years on, little has changed, the TBTFs are bigger and more powerful than ever.


The Office of the Controller of the Currency just fined Citibank $400 million for being a really poorly run bank. The Fed also sanctioned Citigroup, the holding company, for being generally lousy and for violating past promises to stop laundering money, but the Fed’s punishment was more on the order of having Citi write ten thousand times on a blackboard, “I’m a very bad bank and I promise to do better.”

Oh, and probably more consequential to Citi is a ban on making new acquisitions until the regulators think Citi has sufficiently fixed its controls.

I’m not making that up. It sounds a lot like CalPERS, which is truly alarming for an institution of Citi’s scale and ability to generate financial black holes.
First, from the OCC’s press release (https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-132.html):


The OCC took these actions based on the bank’s unsafe or unsound banking practices for its long-standing failure to establish effective risk management and data governance programs and internal controls….

The agency also issued a cease and desist order requiring the bank to take broad and comprehensive corrective actions to improve risk management, data governance, and internal controls. The order requires the bank to seek the OCC’s non-objection before making significant new acquisitions and reserves the OCC’s authority to implement additional business restrictions or require changes in senior management and the bank’s board should the bank not make timely, sufficient progress in complying with the order.



In other words, this action was a sighting shot. The normally bank-friendly OCC has warned it could go as far as ousting top executives and board members if Citi doesn’t get its house in order.
Even allowing for the fact that risk control at banks is designed to be eyewash, the OCC Cease and Desist Order makes it sound as if no one at Citi is controlling much of anything. For instance:


(4)The OCC has identified the following deficiencies, noncompliance with 12 C.F.R. Part 30, Appendix D, or unsafe or unsound practices with respect to the Bank’s data quality and data governance, including risk data aggregation and management and regulatory reporting:


(a)failure to establish effective front-line units, independent risk management, internal audit, and control functions as required by 12 C.F.R. Part 30, Appendix D;

(b)inability to develop and execute on a comprehensive plan to address data governance deficiencies, including data quality errors and failure to produce timely and accurate management and regulatory reporting; and

(c)inadequate reporting to the Board on the status of data quality and progress in remediating identified deficiencies.




The OCC added that senior management and board oversight were inadequate.

The Fed had similar problems with Citigroup and added a few others, like reneging on promises to stop money laundering and foreign exchange market rigging, which had resulted in nearly $1.3 billion in fines in 2015 (https://www.citigroup.com/citi/news/2015/150520a.htm): (https://www.citigroup.com/citi/news/2015/150520a.htm)


WHEREAS, the most recent supervisory assessment of Citigroup issued by the Federal Reserve Bank of New York (“Reserve Bank”) identified significant ongoing deficiencies in implementation and execution by Citigroup with respect to various areas of risk management and internal controls, including for data quality management and regulatory reporting, compliance risk management, capital planning, and liquidity risk management;

WHEREAS, Citigroup has not adequately remediated the longstanding enterprise-wide risk management and controls deficiencies previously identified by the Federal Reserve, including in the areas described above and those addressed in (i) the Consent Order issued by the Board of Governors on March 21, 2013 to remediate outstanding deficiencies in Citigroup’s anti-money laundering compliance program and (ii) the Consent Order issued by the Board of Governors on May 20, 2015 to remediate outstanding deficiencies in Citigroup’s compliance and control infrastructure relating to its foreign exchange program and designated market activities.



As Benjamin Lawsky demonstrated when he led the New York State Department of Financial Services, any foreign bank caught out money laundering, and particularly being a recidivist, got hit with serious fines. By contrast, the Fed is giving Citigroup lots of homework, including putting some items on the board’s desk:


Within 120 days of this Order, Citigroup’s board of directors shall submit a written plan acceptable to the Director of the Division of Supervision and Regulation that describes the actions it will take to execute its oversight of the matters identified in this Order. The plan shall include the following four items:
(a) actions that the board of directors will take to hold senior management accountable for executing effective and sustainable remediation plans by committed deadlines;
(b) actions the board of directors will take to ensure senior management improves, and thereafter maintains, effective and independent enterprise-wide risk management, and that internal audit findings are effectively remediated;
(c) actions that the board of directors will take to ensure that senior management incentive compensation is consistent with risk management objectives and measurement standards; and
(d) actions that the board of directors will take to ensure effective reporting to the board of directors that will enable it to oversee management’s execution of the matters identified in this Order.




Oh, and Citi has to talk to the Fed often about its progress.

Now, you can blame the disconnect between the pretty serious-sounding deficiencies and more-bark-than -bite regulatory action to the business-friendly Trump Administration. Or you could attribute it to the lack of high profile stories of harm resulting from these gaping control failures. The Fed and OCC may be telling themselves they got to Citi before it did a Wells Fargo to itself.
However the other reason for soft gloves treatment is that Citi is a bomb that can’t be disarmed. Citi controls a unique payments system that is critical for all but the very largest companies doing business overseas. The really big boys can afford to have multiple foreign banks in their major offshore markets. For the others, a system called GTS provides essential plumbing. As we explained in 2010, when the press and pundits were still debating what to do about Citi (https://www.nakedcapitalism.com/2010/01/wsj-runs-dubious-argument-for-keeping-citi-intact.html):


GTS [Global Transaction Services] is a big cash management/information service. It is also a bread and butter earner for Citi. Per the Journal (https://online.wsj.com/article/SB126317001431624045.html):
Otis Otih, the treasurer of candy maker Mars Inc., uses GTS to handle most payments to employees and vendors of Mars operations in 68 countries. “Citibank is the only truly, truly global company for us — I don’t see any alternative,” he says.

As an example of what the unit allows multinationals to do, an Asian subsidiary of a European company can deposit funds with Citigroup locally and the money will instantly show up on the ledger of the parent a continent away. The system makes it easier for corporate treasurers to manage their finances, and many corporate and government clients outsource a wide range of other finance work to GTS….

Executives told officials with the Treasury Department and the Fed that GTS’s technology and presence in more than 100 countries made it too dangerous for the U.S. to let Citigroup collapse….

While Citigroup is primarily known for its retail banking and credit-card businesses, the GTS unit is increasingly integral to the parent company’s functioning. Clients that move funds through GTS leave a lot of cash on deposit at the unit, which funnels the money to other parts of Citigroup for lending or other uses. GTS’s deposit-gathering muscle has grown more important since the financial crisis began, now providing about 40% of Citigroup’s $800 billion of deposits.



Yves here. GTS is a big piece of what makes Citi a difficult to disarm bomb. One of the swords of Damocles that the big bank had over the officialdom is that, prior to the crisis, it had $500 billion of uninsured foreign deposits. If Citi looked wobbly, sensible depositors would withdraw funds, and that could quickly morph into a run. Moreover, the any other international bank with meaningful cross border deposits could come under scrutiny…

The Journal argues that GTS is essential to Citi. This is rubbish. GTS is a sophisticated payments system and a source of low-cost deposits. It may provide a foot in the door, and help deepen some relationships, but let us face it, cash management and payments systems are at best assistant treasurer relationships at big companies. Proof of the pudding: it is a no-brainer that companies like Goldman, Morgan Stanley, Barclays, and UBS are doing complex, high margin transactions at companies that are also using GTS.



As we explained in later posts, due to crisis liquidity measures, Citi’s dependence on GTS-supplied deposits plunged. There was a window when it would have been feasible to force GTS to be spun out but the officialdom lacked either the alertness or the will to recognize that.

https://www.nakedcapitalism.com/2020/10/citis-recidivist-rule-breaking-and-incompetence-shows-persistence-of-too-big-complex-to-fail-problem.html

[RandomGuy]

11 years on, little has changed, the TBTFs are bigger and more powerful than ever.


https://www.nakedcapitalism.com/2020/10/citis-recidivist-rule-breaking-and-incompetence-shows-persistence-of-too-big-complex-to-fail-problem.html

They are beginning to act as a cartel.

Nothing will happen until we get a handle on the ocean of cash flowing into campaigns from Citizens.

FUCK.

[Winehole23]

https://pbs.twimg.com/media/E2kmwNOUUAcOvzt?format=jpg&name=900x900

[Winehole23]

The US Congress, Barack Obama and the Federal Reserve finished off capitalism in 2008-9, tbh.

In a capitalistic system insolvent firms are allowed to fail and get liquidated. Capitalism also has a crucial feature called price discovery that a decade of QE and zero-bound interest rates keep short circuiting.

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