Posts Tagged
‘too big to fail banks’
by ilene - October 16th, 2010 12:54 am
Here’s another great article on the frauds at the heart of the mortgage and banking sectors. – Ilene
Courtesy of Charles Hugh Smith, Of Two Minds
The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal…
Tags: banking sector, Banks, due process, foreclosed properties, foreclosure crisis, Fraud, Housing Market, investors, kleptocracy, loans, MERS, mortgage servicing, Mortgages, oligarchy, privatized profits, property rights, socialized losses, title companies, too big to fail banks
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by ilene - April 23rd, 2010 2:41 pm
Courtesy of Tyler Durden, Zero Hedge
Larry Summers, whose days in the Obama administration are thankfully numbered, presents the most incoherent rambling defense of our monopoly banking system, yet to appear in the public domain. When asked if US mega banks should be broken up, reports the HuffPo, "Summers said no. He added that it’s not significant. But that’s not the important issue," Summers said during the interview, adding to his answer as to why the U.S. shouldn’t break up megabanks. "[Observers] believe that it would actually make us less stable, because the individual banks would be less diversified and, therefore, at greater risk of failing, because they would haven’t profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many — many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment."
We dare you to reread the above from Larry the Hutt and not have your frontal lobe disintegrate into antimatter. Sure, 4 out of 5 Goldman CDO traders totally agree that Goldman’s monopoly in the capital markets is terrific, and, in fact, if someone could "organize" a liquidity event at RBC, Barclays, UBS and CS, they would really apprciate it, doubly so if, like JPM, they could then acquire the firms for a dollar over their Fed guaranteed debt. As for everybody else, well, if you have any doubt that Larry Summers is having his future personal assistant organizing his corner office at 200 West, we hope this should resolve it.
Yet there may still be hope that not all of America is run by corrupt demagogues. HuffPo writes:
A bill championed by Democratic Senators Ted Kaufman of Delaware, Sherrod Brown of Ohio, Robert P. Casey of Pennsylvania and Sheldon Whitehouse of Rhode Island proposes to break up financial behemoths. Observers say the proposal is gaining steam.
A test vote in the Senate Budget Committee on Thursday, which essentially would have expressed support for breaking up megabanks, failed by just a 12-10 vote. The small margin was surprising, one Senate aide said.
HuffPost posed the following questions, which were based on Summers’s remarks, to the White House:
- Does Mr. Summers and/or the administration wish to
…
Tags: Banks, Economy, Financial System, GS, Larry Summers, profits, Ted Kaufman, the Federal Reserve, too big to fail banks
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by ilene - April 10th, 2010 6:14 pm
Courtesy of John Mauldin at Thoughts from the Frontline
It’s Time for Reform We Can Believe In
The Fed Must Be Independent
Credit Default Swaps Threaten the System
Too Big To Fail Must Go
And This Thing About Leverage
What Happens If We Do Nothing?
New York, Media, and La Jolla
Casey Stengel, manager of the hapless 1962 New York Mets, once famously asked, after an especially dismal outing, "Can’t anybody here play this game?" This week I ask, after months of worse than no progress, "Can’t anybody here even spell financial reform, let alone get it done?" We are in danger of experiencing another credit crisis, but one that could be even worse, as the tools to fight it may be lacking when we need them. With attacks on the independence of the Fed, no regulation of derivatives, and allowing banks to be too big to fail, we risk a repeat of the credit crisis. The bank lobbyists are winning and it’s time for those of us in the cheap seats to get outraged. (And while this letter focuses on the US and financial reform, the principles are the same in Europe and elsewhere, as I will note at the end. We are risking way too much in the name of allowing large private profits.) And with no "but first," let’s jump right in.
Last Monday I had lunch with Richard Fisher, president of the Federal Reserve Bank of Dallas. Mr. Fisher is a remarkably nice guy and is very clear about where he stands on the issues. My pressing question was whether the Fed would actually accommodate the federal government if it continued to run massive deficits and turn on the printing press. Fisher was clear that such a move would be a mistake, and he thought there would be little sentiment among the various branch presidents to become the enabler of a dysfunctional Congress.
But that brought up a topic that he was quite passionate about, and that is what he sees as an attack on the independence of the Fed. There are bills in Congress that would take away or threaten the current independence of the Fed.
I recognize that the Fed is not completely independent. Even Greenspan said so this past week: "There’s a presumption that …
Tags: AIG, Banks, Bear Stearns, CDS, Chris Dodd, Congress, Credit Default Swaps, Dodd's bill, Economy, Elliott Spitzer, Federal Reserve, Federal Reserve governors, finances, Hank Greenberg, John Mauldin, Lehman, leverage, lobbyists, reform, regulation, risk, too big to fail banks
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by ilene - February 23rd, 2010 7:31 am
Courtesy of George Washington at Washington’s Blog
The Arizona Republic reports:
Sen. John McCain of Arizona … says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.
"Obviously, that didn’t happen," McCain said in a meeting Thursday with The Republic‘s Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. "They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street – I guess it was trickle-down economics – that therefore Main Street would be fine."
McCain isn’t the only one to say that Paulson was doing a bait-and-switch.
The TARP Inspector General found that Paulson misrepresented the too big to fail banks’ health in the run-up to passage of TARP.
Congressmen Brad Sherman and Paul Kanjorski and Senator James Inhofe all say that the government warned of martial law if TARP wasn’t passed (Inhofe says Paulson was the one doing the talking).
And Paulson himself has said:
During the two weeks that Congress considered the [TARP] legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
So Paulson knew "by the time the bill was signed" that it wouldn’t be used for its advertised purpose – disposing of toxic assets – and would instead be used to give money directly to the big banks. But he didn’t tell Congress before they voted to approve the TARP legislation.
Tags: Banks, Congress, Henry Paulson, TARP Legislation, too big to fail banks
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by ilene - February 2nd, 2010 7:08 pm
Courtesy of Reggie Middleton
Senator Corker challenged Mr. Volcker’s stance in today’s congressional hearings on the Volcker Rule by saying that no financial holding company that had a commercial bank failed while performing proprietary trading. It appears as if Mr. Corker may have received his information from the banking lobby, and did not do his own homework.
Let’s reference the largest commercial bank/thrift failure of all:
From …
Tags: Bank of America, CDS, Deutsche Bank, Goldman, Ken Lewis, Merrill, Merrill Lynch, Mr. Corker, Paul Volcker, prop HVOL4 trade, Ten. Senator Bob Corker, too big to fail banks, U.S. Government, US taxpayer, Zero Hedge
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by ilene - February 1st, 2010 2:28 pm
Courtesy of Ellen Brown at Web of Debt
We are witnessing an epic battle between two banking giants, JPMorgan Chase (Paul Volcker) and Goldman Sachs (Rubin/Geithner). The bodies left strewn on the battleground could include your pension fund and 401K.
The late Libertarian economist Murray Rothbard wrote that U.S. politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players. No popular third party candidate had a real chance at winning, because the bankers had the exclusive power to create the national money supply and therefore held the winning cards.
In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920s. In 1928, it launched the Goldman Sachs Trading Corp., a closed-end fund similar to a Ponzi scheme. The fund failed in the stock market crash of 1929, marring the firm’s reputation for years afterwards. Former Treasury Secretaries Henry Paulson and Robert Rubin came from Goldman, and current Treasury Secretary Timothy Geithner rose through the ranks of government as a Rubin protégé. One commentator called the U.S. Treasury “Goldman Sachs South.”
Goldman’s superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets. Formerly just an investment bank, in 2008 Goldman magically transformed into a bank holding company. That gave it access to the Federal Reserve’s lending window; but at the same time it remained an investment bank, aggressively speculating in the markets. The upshot was that it can now borrow massive amounts of money at virtually 0% interest, and it can use this money not only to speculate for its own account but to bend markets to its will.
But Goldman Sachs has been caught in this blatant market manipulation so often that the JPMorgan faction of the banking
…
Tags: Goldman Sachs, Henry Paulson, JPMorgan, Morgans, Murray Rothbard, Politics, Robert Rubin, Rockefellers, Rubin, stock market crash, Summers, Timothy Geithner, too big to fail banks, Volcker
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by ilene - October 20th, 2009 10:41 pm
Courtesy of Edward Harrison at Credit Writedowns
David Einhorn delivered a speech at the 2009 Value Investing Conference that is creating a lot of buzz in the blogosphere. He said a lot of interesting things about the investing and political climate. A surprising amount of it comes out of the playbook here at Credit Writedowns.
Below are the quotes I want to highlight for you. At the bottom is an embedded copy of his speech.
Enjoy.
On short-termism in politics and government
Winston Churchill said that, “Democracy is the worst form of government except for
all the others that have been tried from time to time.”
As I see it, there are two basic problems in how we have designed our government.
The first is that officials favor policies with short-term impact over those in our long-term
interest because they need to be popular while they are in office and they want to be reelected. In recent times, opinion tracking polls, the immediate reactions of focus groups, the 24/7 news cycle, the constant campaign, and the moment-to-moment obsession with the Dow Jones Industrial Average have magnified the political pressures to favor short-term solutions. Earlier this year, the political topic du jour was to debate whether the stimulus was working, before it had even been spent.
On crony capitalism and regulatory capture
The second weakness in our government is “concentrated benefit versus diffuse harm” also known as the problem of special interests. Decision makers help small groups who care about narrow issues and whose “special interests” invest substantial resources to be better heard through lobbying, public relations and campaign support. The special interests benefit while the associated costs and consequences are spread broadly through the rest of the population. With individuals bearing a comparatively small extra burden, they are less motivated or able to fight in Washington.
In the context of the recent economic crisis, a highly motivated and organized banking lobby has demonstrated enormous influence. Bankers advance ideas like, “without banks, we would have no economy.” Of course, there was a public interest in protecting the guts of the system, but the ATMs could have continued working, even with forced debt-to-equity conversions that would not have required any public funds. Instead, our leaders responded by handing over hundreds of billions
…
Tags: David Einhorn, government, Politics, too big to fail banks
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by ilene - October 10th, 2009 9:04 pm
Courtesy of Washington’s Blog
Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking.
This is easy to confirm in black-and-white. See for yourself: here, here, here, here, here and here.
Manhattan Institute senior fellow Nicole Gelinas says:
The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span
And economic historian Niall Ferguson says:
Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].
No wonder two powerful congressmen said that banks run Congress.
No wonder two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy.
With the exception of a handful couple of Congress members who have the American people’s interest in mind, Congress is bought and paid for.
Note: A friend on the Hill made an important point to me by email.
Maxine Waters and Ron Paul get almost nothing [from the financial lobby. Sherman, Kucinich, Grayson and Kaptur are some other congress members who have not been bought and paid for].
The story isn’t just that a lot of members are bought and paid for, it’s that some aren’t.
Tags: bought and paid for Congress, financial industry, lobbiests, Obama Administration, oligarchy, too big to fail banks
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site