Posts Tagged ‘leverage limits’

Congress Is Blowing It On Financial Reform (Again): Where Are The Limits On Leverage?

Did someone mention leverage? – Ilene

Congress Is Blowing It On Financial Reform (Again): Where Are The Limits On Leverage?

Courtesy of The Daily Bail

Nothing about the single most relevant factor in the blow-up.

Leverage.

Until 2004 (quick refresher) our investment banks had a leverage limit of 12:1.  After Paulson led the multi-year effort to sway the SEC to drop these rules entirely, allowing 5 banks to utilize unlimited leverage, all 5 became effectively insolvent within 4 years.

It’s the most important factor in explaining how this banking crisis was so devastating compared to previous blow-ups, and why it was so widespread — European banks were (and remain) even more leveraged than our own.

And, it’s the easiest part to fix.  Just turn the rule back to pre-2004.

There are only 2 possibilities.

  • Congress is completely, undeniably, captured by Wall Street and so they did not allow leverage limits to make their way into either the House or Senate bill?  OR
  • Congress is so flipping stupid that no one thought to propose a leverage limit?

The obvious answer is ‘captured’, but the more I consider it, the second choice of ‘just plain stupid’ is not out of the realm of possibilities. 

———-

I wrote this short post Friday night; I read this morning that Blodget had a similar thought:

  • Raise capital requirements, forcing the banks to use their tremendous profits to build big cushions against future problems instead of paying huge bonuses.  Given the forced bailouts of last year, why on earth should banks be allowed to pay out normal compensation ratios for the next few years?  Why shouldn’t they be forced to keep this money on hand for a rainy day?
  • In a just world, the way out would be to finally make the bank bondholders pay for their stupidity, converting bank debt to equity and correcting the error made last time.  In the heat of another crisis, however, the government will likely be terrified at the thought of rocking the boat and will fight tooth and nail to give bondholders another free pass.  If this proves politically impossible, the government might actually have to let some firms fail, or risk being run out of town.  And because we have yet to create a system in which banks CAN fail in an orderly


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Geithner Invokes Chicago Cubs’ Battle Cry: “Wait Till Next Year”

Geithner Invokes Chicago Cubs’ Battle Cry: "Wait Till Next Year"

Courtesy of Mish

Geithner admits banks are overleveraged but in his Orwellian world, deleveraging is the wrong thing to do because "the world is fragile".

Please consider New bank capital, leverage limits coming in 2010: Geithner.

Government officials will not set new capital and leverage standards for financial institutions until next year, Treasury Secretary Timothy Geithner said Thursday.

"The world is a little fragile; people aren’t willing to take enough risk now, and we don’t want to do anything that would push people to delever," Geithner said to Fox News Sunday anchor Chris Wallace at an event in Washington hosted by the Atlantic magazine in partnership with the Aspen Institute and the Newseum. "We’ll have the agreement on the numbers, but it won’t happen until next year; in the absence of fragility."

Geithner acknowledged that existing bank-capital restrictions were "too low and easily evaded."

"It’s going to take a while to come out of this because we are saving more money, something we have to do," he commented. "Growth is going to be slower coming out of this, and it is a reasonable expectation that this is going to take a while."

"It’s not a tenable situation for the government to be in the business of running large parts of the economy, and we won’t do it," Geithner said.

Geithner finished speaking the same way he always does, with a lie.

"We won’t do it" is a blatant lie. The government has its direct hand in autos, banks, insurance companies, stock brokers, home builders, and the entire mortgage industry.

The first thing any regulator in his right mind would do would be to dissolve Fannie Mae, Freddie Mac, and the FHA. Instead, leverage was increased to allow loans up to 125% of assessed value and the mortgage lenders of only resort are the GSEs and the FHA.

It was idiotic to take over AIG yet the government did. Cash for clunkers was economic idiocy but the government did that too. Ditto for screwing GM bondholders in favor if the union. We had to do those things under the guise "things were too fragile".

"We’ll have the agreement on the numbers, but it won’t happen until next year; in the absence of fragility."

Chicago Cubs Battle Cry

It’s October, and


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Zero Hedge

The US Can't Afford To Let Shale Fail

Courtesy of ZeroHedge View original post here.

Authored by Robert Rapier via OilPrice.com,

It’s no secret that the growth of U.S. shale oil has been a thorn in the sides of both Saudi Arabia and Russia. They have seen their market shares erode as the shale boom made the U.S. the world’s largest producer of crude oil. But Saudi Arabia’s national oil company, Saudi Aramco, is a single entity that produces 13 percent of the world’s oil and controls 17 percent of the world’s proved reserves. That puts them in a very p...



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ValueWalk

Treasury Secretary Mnuchin on small business help plans

By Jacob Wolinsky. Originally published at ValueWalk.

CNBC transcript: Treasury Secretary Steven Mnuchin Speaks with CNBC’s “Squawk on the Street” today on small business help related to coronavirus

WHEN: Today, Wednesday, April 1, 2020

WHERE: CNBC’s “Squawk on the Street

Q4 2019 hedge fund letters, conferences and more

Full interview with Treasury Secretary Steven Mnuchin on small business help

JIM CRAMER: It’s our pleasure to bring in Steven Mnuchi...



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Kimble Charting Solutions

S&P Facing A Historical Kiss of Resistance?

Courtesy of Chris Kimble

Is the S&P starting out a new month and quarter at a very important price point? This chart would say YES!

This chart looks at the S&P 500 on a weekly basis over the past 12-years, reflecting that it has spent the majority of the past 9-years “inside of this rising channel and above its 200-week moving average!”

The weakness in March saw the S&P break below the bottom of the channel and its 200-week ma line for the first time in 9-years.

The small counter-trend rally last week has the S&...



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The Technical Traders

Weakness Appears To Be Setting For This Weeks Economic Data

Courtesy of Technical Traders

As the world reacts to the global economic slowdown because of the COVID-19 virus event and the massive stimulus programs and central bank efforts to support the global economy, investors still expect weakness in the US and foreign markets.  We believe this expected weakness will not subside until news of a proper resolution to this virus event is rooted in the minds of investors and global markets.

Hong Kong and China are currently concerned about experiencing a “third wave” of the COVID-19 virus within their society.  As the economies open back up to somewhat normal, people are very concerned that a renewed wave of new infections will suddenly appear and potenti...



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Phil's Favorites

Mr. Morgan

 

Mr. Morgan

Courtesy of 

The Federal Reserve had a precursor before it became the lender of last resort. It wasn’t an institution or a government department. It was a single, solitary man named J. Pierpont Morgan. Mr. Morgan, he was called in the newspapers, and you didn’t need to go any further – everyone knew to whom you were referring.

Stock market panics were common in the early 1900’s because of the agrarian nature of the economy. Each summer, the local banks that catered to farmers throughout the country began calling their money back from the banks in New York City and Chicago so they could raise enough capital to bring in the h...



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Insider Scoop

Why NanoVibronix's Stock Is Trading Higher Today

Courtesy of Benzinga

NanoVibronix (NASDAQ: NAOV) shares are trading higher on Wednesday.

The company announced it has received reimbursement approval from the U.S. Centers for Medicare & Medicaid Services for its PainShield.

NanoVibronix focuses on the manufacturing and sale of noninvasive biological response-activating devices that target biofilm prevention, wound healing, and pain therapy. Its principal products include UroShield, an ultrasound-based product to prevent bacterial colonization and biofilm in urinary catheters, enhance antibiotic efficacy,...



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Biotech/COVID-19

The new coronavirus emerged from the global wildlife trade - and may be devastating enough to end it

 

The new coronavirus emerged from the global wildlife trade – and may be devastating enough to end it

Government officers seize civets in a wildlife market in Guangzhou, China to prevent the spread of the SARS disease, Jan. 5, 2004. Dustin Shum/South China Morning Post via Getty Images

Courtesy of George Wittemyer, Colorado State University

COVID-19 is one of countless emerging infectious diseases that are zoonotic, meaning they originate in animals. ...



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Chart School

Big moving Averages and macro investment decisions

Courtesy of Read the Ticker

When price is falling every one wonders where demand will come in.


RTT black screen Tv videos study the simplest measure of price (simple moving average). What has happen before guides us now. 














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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Funny but probably true:

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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