The President's Bank Reforms Don't Add Up

http://online.wsj.com/article/SB10001424052748704509704575019333516533828.html?mod=rss_opinion_main

First, Mr. Obama has proposed to limit the size of banks or their holding companies, or both. The trouble with limiting the size of these institutions is that no one has the faintest idea what the right size is.


The Glass-Steagall Act, despite what we constantly hear in the media and from people who should know better, still applies to banks; it forbids them from engaging in underwriting or dealing in securities. This should prohibit them from engaging in proprietary trading to the extent that this is dealing in securities. Bank holding companies, however, because they are not banks and not government-backed, can engage in any financial activity, including securities dealing. Why would we prohibit them from doing so when they are using their own funds?

Real-estate loans rose to 55% of all bank loans in 2008 from less than 25% in 1965. These loans will continue to rise in the future, because only real-estate, small business and consumer lending are now accessible activities for banks.

This is not a good trend, because the real-estate sector is highly cyclical and volatile. It was, indeed, the vast number of subprime and other risky mortgages in our financial system that caused the weakness of the banks and the financial crisis. Requiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future.

Bankers Get $4 Trillion Gift From Barney Frank

http://www.bloomberg.com/apps/news?pid=20601039&sid=a48c8UpUMxKQ

The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders.

It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.

The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play. Maybe Bank of America Corp. and Citigroup Inc. shouldn’t have rushed to pay back Troubled Asset Relief Program funds.

U.S. to Lose $400 Billion on Fannie, Freddie

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Z5GnTAPcuo

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Wonderful...

Dubai is Just a Harbinger of Things to Come for Sovereign Debt

http://blogs.telegraph.co.uk/finance/jeremywarner/100002318/dubai-is-just-a-harbinger-of-things-to-come-for-sovereign-debt/

According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.

Dubai debt crisis: Now British Banks Face Fresh Crisis After Investing Billions

http://www.dailymail.co.uk/news/article-1231320/Dubai-debt-crisis-Fears-second-economic-crash-global-stock-markets-tumble.html

British banks were teetering on the brink of a fresh meltdown today after it emerged they had invested heavily in crisis-hit Dubai.

An $80billion debt default in the emirate has already reawakened the spectre of a global 'double dip' - that the first shoots of recovery could be wiped out by a second wave of recession.

Dubai's debt problems are a hangover from a property bubble that imploded after the financial crisis derailed its plans to become a magnet for tourists and a regional hub for everything from shipping to entertainment.

Banks' exposure to a Dubai default pales in comparison to the $2.8 trillion in writedowns the International Monetary Fund estimates U.S. and European lenders will have to make between 2007 and 2010 as a result of the credit crisis.

Dubai in Deep Water as Ripples from Debt Crisis Spread

http://business.timesonline.co.uk/tol/business/markets/the_gulf/article6934261.ece

Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.

Although the scale of Dubai’s debts is comparatively modest at $80 billion (£48 billion), the uncertainty spooked the markets, with no one sure who its creditors are. Several banks rushed out statements to reassure investors that their exposure was small.

FDIC Fund Sinks Into the Red

http://online.wsj.com/article/SB125907631604662501.html?mod=WSJ_hpp_MIDDLTopStories

The government insurance fund that protects more than $4.5 trillion of U.S. bank deposits slipped into the red at the end of September, after fifty banks collapsed during the third quarter.

The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures. This is the second time in the agency's history that the balance has fallen into negative territory.

One Spark that Could Set Wall Street Ablaze: FAS 167

http://5minforecast.agorafinancial.com/fas-167-picking-gold-miners-bernanke-the-dollar-affording-our-wars-and-more/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+5MinForecast+%285+Min.+Forecast%29

Here’s a new abbreviation to add to our crisis vernacular: FAS 167

That’s short for Federal Accounting Standards revision 167, effective Jan. 1, 2010. In essence, it’s a new accounting rule that will force financials to bring bad, off-balance sheet assets onto their books… thus a potential trigger for more Wall Street carnage.

“FAS 167 will be a larger and larger issue for the financial markets in the coming months,” explains Dan Amoss, our resident CFA, “and an emerging story in the financial media. “In short, the banks with large off-balance sheet variable interest rate entity (VIE) exposures will have to hold more capital against these exposures. So they're actively going to shrink the potential size of these VIEs, which are used to house things like credit card receivables.

“This coming consolidation of VIEs is likely one reason that banks have been hoarding cash and jacking rates on business credit cards -- for creditworthy customers -- up to 30% with no advance warning. “This ultimately means slower formation of new credit, and in many cases -- i.e., Citigroup -- the outright shrinking of its balance sheet to a degree that starves a credit-addicted U.S. economy.”

And lest you think we’re making too big a fuss over FAS 167, check out these sound bites. The first is from Freddie Mac’s Q3 earnings report, the second from a Wells Fargo Q3 conference call.

“Under these accounting standards [SFAS 166 & 167], the company will record the underlying mortgage loans in these single-family PC trusts and some of its Structured Transactions on its balance sheet. These mortgage loans have an outstanding unpaid principal balance of approximately $1.8 trillion as of Sept. 30, 2009… While Freddie Mac continues to evaluate the impacts of adoption, the company expects that the adoption could have a significant negative impact on its net worth.”

“I want to update you on our most recent analysis of the impact of the application of FAS 166 and 167, which is expected to result in the consolidation of certain off-balance sheet assets currently not included in our financial statements. We provided a preliminary analysis in our second-quarter 10-Q. Based on our continued refinement of this analysis, we now expect approximately $55 billion in incremental GAAP assets to be brought on balance sheet, representing approximately $28 billion in incremental risk-weighted assets… we continue to explore the sale of certain interests we hold in securitized residential mortgage loans, which would further reduce the amount of incremental GAAP assets and incremental risk-weighted assets.”

Tracking the Nation's Bank Failures

http://s.wsj.net/public/resources/documents/info-Failed_Banks-sort.html

Fed to Propose Bank-Pay Guidelines

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAM8enZGH8Gs

The news triggered debate about the government’s reach into private industry, whether pay reductions would spread to other companies and if a talent drain from U.S. firms would ensue.

Give it time...

Bank Failures Top 100

http://apnews.myway.com/article/20091024/D9BH4G780.html

The cascade of bank failures this year surpassed 100 on Friday, the most in nearly two decades. And the trouble in the banking system from bad loans and the recession goes even deeper than the number suggests.

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively - partly to avoid inciting panic and partly because buyers for bad banks are hard to find.
Going slow buys time. An economic recovery could save some banks that would otherwise go under. But if the recovery is slow and smaller banks' finances get even worse, it could wind up costing even more.

The bank failures, 105 in all, are the most in any year since 181 collapsed in 1992, at the end of the savings-and-loan crisis.

When a bank fails, the Federal Deposit Insurance Corp. swoops in, usually on a Friday afternoon. It tries to sell off the bank's assets to buyers and cover its liabilities, primarily customer deposits. It taps the insurance fund to cover the rest.

Bank failures have cost the FDIC's fund that insures deposits an estimated $25 billion this year and are expected to cost $100 billion through 2013. To replenish the fund, the agency wants banks to pay in advance $45 billion in premiums that would have been due over the next three years.

The FDIC won't say how deep a hole its deposit insurance fund is in. It can tap a credit line from the Treasury of up to a half-trillion dollars to cover the gap.

This seems like it continues to be a big deal, yet we don't hear about it often in the news.

FDIC Weighs Extraordinary Steps to Shore up Fund

http://finance.yahoo.com/news/FDIC-weighs-extraordinary-apf-3266069115.html?x=0

The Federal Deposit Insurance Corp. is weighing several costly -- and never-before-used -- options as it struggles to shore up the dwindling fund that insures bank deposits.

The agency is considering borrowing billions from healthy banks.

The FDIC is going to bail itself out with money from banks which itself insures? Are you serious!

The top-performing letter that predicted the Crash of 2008 now predicts a confiscatory Franklin D. Roosevelt-style "bank holiday."

http://www.marketwatch.com/story/schultz-paints-bleak-picture-of-future

HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."

Goldman to make record bonus payout

http://www.guardian.co.uk/business/2009/jun/21/goldman-sachs-bonus-payments

"A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm."

Administration in Early Talks on Ways to Curb Compensation Across Finance

http://online.wsj.com/article/SB124215896684211987.html

"Government officials said their effort, which is just beginning, isn't aimed at setting pay or establishing detailed rules. 'This is not going to be about capping compensation or micro-management,' said an administration official. 'It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation.' "

So now the government knows how to run banks? I didn't know we elected them based on that criteria.

US to put conditions on Tarp repayment

http://www.ft.com/cms/s/0/f3bc75b2-2d1a-11de-8710-00144feabdc0.html

"The official, meanwhile, said banks that had plenty of capital and had demonstrated an ability to raise fresh capital from the market should in principle be able to repay government funds. But the judgment would be made in the context of the wider economic interest."

hmm, having the government decide what is best for the economy, sounds like central planning to me...

U.S. may convert banks’ bailouts to equity share

http://www.msnbc.msn.com/id/30300700/

Nationalization, here we come...

Don't be fooled..."Patriotization"

Government Refuses to Accept Repayment of TARP Money

http://online.wsj.com/article/SB123879833094588163.html

Well there it is people. And they said it couldn't happen here. Now I really hope I am proven wrong and the administration accepts the repayment eventually, but if not, we have just witnessed the beginnings of the forced nationalization of once private sector banks. When will people wake and realize what is happening? Hundreds of years of history has shown that when you give the government more power, it never relinquishes it. This is OUR money that the government is using in TARP. Is this what we want? What is next?

Glenn Beck: Last Line of Defense

http://www.glennbeck.com/content/articles/article/198/22954/

Ok, so we are robbing Peter to pay...Peter, got it!

Note:
Glenn mentioned Zimbabwe as a case study for inflation. I found this informative, but rather long study called "A Decade of Suffering in Zimbabwe" done by the Cato Institute so you know it's good. Truthfully, I just skimmed it, but when I have more time I'd like to read it more in depth. For those of you that are interested:

http://www.cato.org/pubs/dpa/dpa5.pdf