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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Phil's Favorites

Momentum Monday - Growth Stocks Have COVID and Ivanhoff Lived

 

Momentum Monday – Growth Stocks Have COVID and Ivanhoff Lived

Courtesy of Howard Lindzon

Happy ‘markets closed’ Monday as we pay respects to Martin Luther King Jr.

Last week Ivanhoff had COVID, but the young scrappy man beat it.

We cannot say the same things about growth stocks which continue to struggle from the financial cocktail aftermath of it.

Here is this week’s episode of Momentum Monday. You can watch/listen right here or I have embedded it on my blog below:

Here a I...



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ValueWalk

Trillium Gold Mines (TSXV:TGM): How This Gold Company Might Hedge your Inflation Risk

By Adam Torkildson. Originally published at ValueWalk.

Investors are concerned about inflation and justifiably so. Consumer prices spiked in 2021 to levels not seen in decades in the U.S. and Canada; in fact, for most global economies, 2021 marked a sharp break from what has been an unusually long period of low-to-moderate inflation. Are we headed for a repeat of the 1970s when inflation reached double digits? If your investment does not generate sufficient returns to beat inflation, one thing is certain – inflation can erode the value of your portfolio, even if you maintain positive returns year-over-year. Many younger investors have never faced this invisible drain on their purchasing power.

Historically, gold as an asset class has proved its worth time and time again as an effective hedge against inflation and econ...



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Politics

What Supreme Court's block of vaccine mandate for large businesses will mean for public health: 4 questions answered

 

What Supreme Court’s block of vaccine mandate for large businesses will mean for public health: 4 questions answered

New York City’s vaccine mandates are unaffected by the court ruling. AP Photo/Mary Altaffer

Courtesy of Debbie Kaminer, Baruch College, CUNY

The U.S. Supreme Court on Jan. 13, 2022, blocke...



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Zero Hedge

Ghislaine Maxwell Will No Longer Fight To Keep Epstein 'John Does' Secret; Suspected Of 'Intimate Relationship' With Prince Andrew

Courtesy of ZeroHedge View original post here.

Convicted sex offender and UK socialite Ghislaine Maxwell will no longer appose keeping "vast swaths of information" about her "sex trafficking operation" with Jeffrey Epstein sealed, after accuser Virginia Roberts Giuffre requested they be made public, according to the Daily Mail.

One of Maxwell's lawyer stated in a letter to federal judge Loretta Preska last week that the defense team will no l...



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Chart School

US Dollar Short Term Cycle Peak Near - Update

Courtesy of Read the Ticker

The short term US Dollar cycle peak is upon us, it is time for capital flows to rule the direction of the DXY.



Previous Post: US Dollar Short Term Cycle Peak Near



Capital flows and interest rate differentials move currency around.



If capital flows take over, then they DXY is going into the 80's at least. Of course hiking rates 4 times is easier on the world when the DXY is near 80 rather than 95. A lot if US debt held by emerging markets is at risk otherwise. And yes a lower US dollar in early 2022 helps China out, as it suppo...



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Biotech/COVID-19

What Supreme Court's block of vaccine mandate for large businesses will mean for public health: 4 questions answered

 

What Supreme Court’s block of vaccine mandate for large businesses will mean for public health: 4 questions answered

New York City’s vaccine mandates are unaffected by the court ruling. AP Photo/Mary Altaffer

Courtesy of Debbie Kaminer, Baruch College, CUNY

The U.S. Supreme Court on Jan. 13, 2022, blocke...



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Digital Currencies

The metaverse is money and crypto is king - why you'll be on a blockchain when you're hopping

 

The metaverse is money and crypto is king – why you’ll be on a blockchain when you’re virtual-world hopping

In the metaverse, your avatar, the clothes it wears and the things it carries belong to you thanks to blockchain. Duncan Rawlinson - Duncan.co/Flickr, CC BY-NC

Courtesy of Rabindra Ratan, Michigan State University and Dar Meshi, Michigan State University ...



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Kimble Charting Solutions

Inflation About To Blast Off or Is The Peak In Play?

Courtesy of Chris Kimble

Current data suggests that inflation has been in our everyday lives for several months. And today’s Producer Price Index data was pretty ugly.

BUT… could inflation be peaking?

Today’s chart 2-pack offers a glimpse of why inflation could subside over the near-term.

Here we look at the “monthly” chart of the US Dollar and Euro currencies. It’s pretty easy to see the rising trend channel for the US Dollar and falling trend channel for the Euro. As well, both currencies have formed a wedge pattern, with the US Dollar testing resistance and the Euro testing support.

Shou...



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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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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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