Busted: Bankers and The Global Economy

August 11, 2008

Banking Healthier Than Last Crisis?

healthy banking or bust
“healthy banking or bust”

There is no end of perspective, outlook or propaganda on the internet. You can surf until your bloodshot eyes can’t see anymore. One news agency will sometimes play both sides of a topic for weeks or months at a time and you can see it for yourself in real time if you are disposed to do so. If you are listening and lame enough to believe everything you read and hear, you are whirling around in your seat from the stress and pressure.

A consistent outlook is that the banking system is healthier than it was during the last crisis. When was that? Assuming we can remember back that far, consider the wonder of the U.S. Savings and Loan debacle. Those were some nasty times and bankers still didn’t learn much except how to create more trouble. Staid economists like this writer know better. But that isn’t the issue.

“Indeed, the recent spate of bank failures seems remarkable only if one compares it to the unusual period of tranquility that preceded it”, a spokesman for the Federal Deposit Insurance Corp., Andrew Gray, said. “If anything, the rate of bank failures is returning to historic norms.”

Between 1986-1995, over 1,000 institutions with total assets of over $500 billion failed. By 1999, the Crisis had cost $153 billion, with taxpayers footing the bill for $124 billion, and the S&L industry paying the rest. At this writing, 8 U.S. banks have failed. Even at worst, the FDIC is projecting that 100 to 200 banks will fail in the next 18 months. This simply doesn’t compare with the S&L debacle, so banking is clearly in better shape.

Naturally, the stellar minds that cooked up that dogma didn’t consider that comparing then with now is like comparing apple and oranges. They are both fruit and they may be overripe, but that is where the similarity ends. Why?

The reality has everything to do with Federal Reserve policy. The Fed has become the official policeman of the U.S. economy and finally the banking industry. In order to keep the economy on its feet and save the banking industry from certain collapse as well as a complete bursting of the confidence bubble, the Federal Reserve has heavily subsidized the banking and finance industry by floating loans in secret to troubled banks across the nation.

The debacle that brought this reality to fruition was not just predatory lending in the mortgage market, but a variety of untested and fraudulently-based banking instruments created by bankers to make more money, largely through the sale of securities for investment purposes. When the market froze up from lack of liquidity, panic and improper management, the economic fraud began to show itself, threatening not just the banks, but the entire economy.

Further, when Bear Stearns neared collapse the entire economy was prepared to go down the sink. To avoid this very real likelihood, the Fed put a new floor in the economy, consistency loaning to banking institutions and protecting them from their own foolish decisions and greed.

The FDIC or the funds that they hold have hardly been touched because the federal government has developed another economic salvation for banking and finance. The reality is that the jury is still very much out on the success that the Federal Reserve has enjoyed in bailing out the banking and finance industry. The cost is already much higher than the previous crisis and has impacted the world. In effect, the federal government through the Fed has bypassed the old system and upped the ante. The whole economy is on the line behind the success of government and Fed actions while inflation threatened to unhinge the system. The health of banking has become a national shell game of sorts: certainly not healthier than the last crisis.

~E. Manning

August 10, 2008

Banks Eat Billions; Credit Crunch Expands

paranoid banking firms gamble on their importance

paranoid banking firms gamble on their importance

The Securities and Exchange Commission stepped in and decided that auction-rate securities have been improperly sold to the public. They haven’t said much else as they carefully watch over the fold of now paranoid bankers. Investment bankers have plenty of egg on their face with punitive action in the immediate future by the Feds.

Citigroup and Merrill Lynch have decided to buy back billions of dollars of securities without admitting liability officially because of state regulator pressure. Bank of America and Countrywide are firmly ensconced in trouble. Swiss giant UBS is in the throes of negotiating a payout that could be in the 25 billion dollar region. As private citizens and investors, we know the reality of the situation. Bankers have tried to play us for fools for the almighty dollar and perhaps investors bit off too much, too soon in the haste for profit.

In theory, when times get better larger investors and even banks should be able to sell off the securities once the markets ease and there’s more credit in the system. That is the public line, but the truth is probably altogether different. Selling off investments with major liquidity issues is a big maybe considering the quantity of these beleaguered banking instruments. Following the aftermath of the subprime mortgage debacle, this is yet another blow to the reputation of investment banks, who may struggle to sell such “sweet deals” in future times even at fire sale prices.

British banks are taking huge hits as a result of the credit crunch with increased pressure to perform for stockholders. Lloyds, Halifax and Alliance & Leicester have been fairly decimated profit-wise. Now RBS and Barclays are taking turns with profit thrashing. British banks haven’t found the credit crunch much easier than U.S. banks. Housing prices continue to drop in the U.S. and the United Kingdom. Foreclosures are a uniform blight in both economies while bankers and economies struggle to adjust. The U.S. market has lost nearly a million homes to foreclosure with more on the way: the worst since the Great Depression.

July 18, 2008

June 23, 2008

Banking: Central Banks and World Domination

Three months ago, the FOMC approved the establishment of the Primary Dealer Credit Facility (PDCF). This action was taken pursuant to Section 13(3) of the Federal Reserve Act, which empowers the Board of Governors of the Federal Reserve to authorize a Federal Reserve Bank to lend to a corporation, including a securities firm, in “unusual and exigent” circumstances when the corporation cannot “secure adequate credit accommodations from other banking institutions.”

At that time, the Board of Governors made the “necessary” statutory (more…)

June 14, 2008

Is the Fed Promoting a Global Banking System

One of the latest proposals by the Federal Reserve :

Banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with “appropriate requirements for capital and liquidity”, according to Timothy Geithner, president of the Federal Reserve Bank of New York.

Geithner was the head of policy development at the International Monetary Fund. He became the president of the New York Federal Reserve Bank in mid-November of 2003. Do you see yet another global banking connection?

The reality is that any global system for banking is in reality in place right now and heralds back to the Roman Empire through the Roman Catholic Church and, of course, Rome. The difference is that central bankers are promoting their global reality instead of hiding their coalition. That global banking system is simply growing in power, both in the U.S. and abroad. Even the likes of Lew Rockwell have recently pointed at the “objectionable truth”. If you have been reading this blog, you already know the truth.

May 18, 2008

Paradox of Market Turmoil

World financial market turmoil has revealed two paradoxes. The first is that after several years of high profits the global banking sector was thought to be well capitalized, even bullet-proof. Actual capital buffers and provisioning in banking were much less robust than they had seemed. Everyone forgot to measure risk and looked at the profit. Little, if nothing has changed.

The second paradox is that elements of a massive liquidity freeze occurred in certain financial market segments (for example, the United States) within a context of overall excess dollar liquidity worldwide. In other words, because of bad bank securities and the risk of accepting them or trading value-for-value, bankers on a global scale began to refuse to trade with fellow bankers to protect themselves.

World bankers are looking at these arenas for salvation: risk management in financial institut- ions; the originate-to-distribute business model of the large banks; and the coordination of financial regulation and supervision across financial institutions, markets and national borders.

World bankers say that improvement in financial literacy can be made by realigning the incentives among the originators and other participants in the securitization chain through attention to detail. (more…)

May 4, 2008

The Federal Reserve Panic Button

With so little wiggle room in the interest rate, we’ve mused about what the Fed intends to do to encourage the market and to free up liquidity. The Fed has come up with another quick fix. It’s called expanding the Term Auction Facility to $75 billion per auction. Now, the Fed is allowing an expansion of what it will receive as collateral for the TAF. The Fed will now accept securitized “junk” bonds based on the subprime and alt-a mortgage loans in exchange for bank credit to expand banking liquidity. This action is hoped to take additional pressures from the liquidity-pressed commercial bankers in the U.S.

Interestingly, similar measures are being adopted at other international “fellow central banks”. (more…)

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