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

Trash Wars: Duterte Orders Tons Of Garbage Shipped Back To Canada Or Dumped In Territorial Waters

Courtesy of ZeroHedge. View original post here.

Outspoken Philippines President Rodrigo Duterte has ordered that containers carrying trash from Canada should be shipped back to the country. It is the latest chapter in a disagreement over more than 100 containers of trash that were shipped to the Philippines between 2013 and 2014, illegally, by a Canadian company. 

Canada had previously agreed to take the trash back, but has been slow in making arrangements for its return. Duterte threatened to leave the trash in Canadian waters if Ottawa refuses to take it back, according to Salvador Panelo...



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Phil's Favorites

Animal Spirits: The Absence of Stuff

 

Animal Spirits: The Absence of Stuff

Courtesy of 

Mention Animal Spirits to receive 20% off from YCharts (*New YCharts users only)

Stories Discussed

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Kimble Charting Solutions

DAX (Germany) About To Send A Bearish Message To The S&P 500?

Courtesy of Chris Kimble.

Is the DAX index from Germany about to send a bearish message to stocks in Europe and the States? Sure could!

This chart looks at the DAX over the past 9-years. It’s spent the majority of the past 8-years inside of rising channel (1), creating a series of higher lows and higher highs.

It looks to have created a “Double Top” as it was kissing the underside of the rising channel last year at (2).

After creating the potential double top, the DAX index has continued to create a series of lower highs, while experiencing a bearish divergence with the S...



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Insider Scoop

55 Biggest Movers From Yesterday

Courtesy of Benzinga.

Gainers
  • Obalon Therapeutics, Inc. (NASDAQ: OBLN) shares jumped 233.3 percent to close at $1.30 on Wednesday after the company reported expanded data from a large scale commercial use study that was presented at the Digestive Disease Week.
  • Ascent Capital Group, Inc. (NASDAQ: ASCMA) shares jumped 51.4 percent to close at $1.37 after the company announced a restructuring support agreement with Monitronics International.
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Chart School

Weekly Market Recap May 18, 2019

Courtesy of Blain.

China – U.S. trade talk continued to dominate the week.   A heavy selloff Monday was followed by 3 up days, with Friday moderately down.

On Monday, Chinese officials announced retaliatory tariffs against the U.S., hitting $60 billion in annual exports to China with new or expanded duties that could reach 25%.

Then on Wednesday:

The Trump administration plans to delay a decision on instituting new tariffs on car and auto part imports for up to six months, according to media reports.

...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Biotech

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

Reminder: We are available to chat with Members, comments are found below each post.

 

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University

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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

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It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

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Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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