Posted by Larry Doyle on November 25th, 2013 9:38 AM |
What does that figure represent? The subsidy (aka competitive advantage) that accrues to our major banking institutions from favorable borrowing rates given their status as ‘too big to fail.’
Those tens of billions of dollars truly represent a nice, big head start for a handful of banks, and a withering assault on the precepts of free market capitalism for the rest of us.
As if $82 billion were not enough of a subsidy, let’s not forget that these banks pay you, as a depositor, virtually zero interest for the ‘privilege’ of holding your money there. Well, that may be changing. How so? How would you like to actually pay interest to the banks in order to keep your money in their institutions? Really? No way?
Yes way. (more…)
Posted by Larry Doyle on September 12th, 2013 9:09 AM |
Do you think there is a reason why bank balance sheets are so convoluted and opaque? Of course there is.
The lack of meaningful transparency allows the banks to continue to employ excessive degrees of leverage across a widely disparate array of businesses and with a paucity of competition all in the hope of generating outsized returns. But who do you think bears the ultimate risk?
They pursue these paths with the support of the Federal Reserve’s zero interest rate policy and a regulatory system that belies meaningful oversight despite those who might want us to believe that Dodd-Frank brought reform to the system.
Former FDIC chair Sheila Bair does not leave much to interpretation on these topics. (more…)
Posted by Larry Doyle on March 12th, 2013 8:25 AM |
In December 2011, President Obama was interviewed on 60 Minutes and had the following exchange with CBS’ Steve Kroft in regard to behaviors on Wall Street:
KROFT: One of the things that surprised me the most about this poll is that 42%, when asked who your policies favor the most, 42% said Wall Street. Only 35% said average Americans.
My suspicion is some of that may have to do with the fact that there’s not been any prosecutions, criminal prosecutions, of people on Wall Street.
And that the civil charges that have been brought have often resulted in what many people think have been slap on the wrists, fines. “Cost of doing business,” I think you called it in the Kansas speech. Are you disappointed by that? (more…)
Posted by Larry Doyle on January 14th, 2013 9:54 AM |
As much as I detest the involvement of the government in what are supposed to be free markets, I can appreciate the need for Uncle Sam’s stepping in to save our banking system in late 2008.
Now going on five years hence, it is time that we move to save capitalism. How do we do this? We need to break up the banks. Why so? Here’s a handful of reasons why: (more…)
Posted by Larry Doyle on November 10th, 2009 4:28 PM |
Having broached expectant difficulties in the Federal Home Loan Bank system last spring, I try to keep a close eye out for news of note on this largely unknown – but critically important – system of banks. To a large extent, the FHLBs have been flying under the radar despite some serious problems within their investment portfolios and loan books.
High five to KD for pointing out that the folks at FHLB-Seattle probably are not getting much sleep these days. Why is that? Insufficient capital will do it to you every time. As the American Banker offers, FHLB Seattle Still “Undercapitalized,” Regulator Says:
The Federal Housing Finance Agency said late Friday that the Federal Home Loan Bank of Seattle remains “undercapitalized” and will not be allowed to redeem or repurchase stock or pay dividends.
At the end of 2004, as the bank struggled with the size of its mortgage purchase program, it said members who wish to redeem their stock must wait five years before receiving their money.
But with that time period almost up, the Finance Agency said it would not allow the bank to begin redeeming stock, fearing it could lower its capital base. (more…)
Posted by Larry Doyle on April 20th, 2009 2:30 PM |
The broad equity market indices are down 3+% on the day. Why would that happen when the bulk of company news today was generally positive? At least on the surface the news was positive:
1. Bank of America posted .44 earnings per share vs. expectations of .04
2. Eli Lilly earnings were up 23% outpacing expectations.
3. Halliburton disappointed with earnings down 35% but that is due to the massive correction in the price of oil from a year ago.
4. Oracle is purchasing Sun Microsystems in a $7.4 billion deal.
5. Pepsi is buying two bottling companies for $6 billion.
6. Glaxo is purchasing Stiefel for $2.9 billion.
Leading economic indicators declined by .3 but that decline is offset by an improved reading from the prior month.
Then, why is the market down so much? Two reasons are promoted, but only one of them is getting proper coverage.
Market analysts supposedly are focused today on the ongoing increases in chargeoffs and writedowns on the loan portfolios in the banking industry. These loans consist of credit card loans, residential mortgages, commercial mortgages, and corporate loans.
I don’t buy this line of reasoning for today’s selloff. Increased chargeoffs and writedowns have been widely expected for a while. The level of reserves taken by the banks has been widely panned as being insufficient. Then why is the market down so much? (more…)
Posted by Larry Doyle on April 9th, 2009 3:56 PM |
Any investor or manager with a degree of experience knows that the “first loss is the best loss.” What do I mean by that? Once the market detects a loss or a weakened position, the price for that asset will remain capped unless and until the asset is sold or liquidated. This price action occurs in every sector of every market.
Welcome to the world of global finance 2009. As banks, insurance companies, hedge funds, and other financial entities deal with losses, we see a lack of aggressive posture being taken on dealing with these losses. Why? Once moral hazard is violated with a single entity, every other entity will look to violate it as well.
Immediate losses are forestalled in hopes that they will be covered or disguised. However, every loss ultimately must be recognized. By whom and how is the question.
At this juncture, more of the losses in our financial system are being directed toward the taxpayers. How? Via the wide array of government programs. What is the cost? A likely underperforming economy due to a lack of credit, and higher taxes to offset lower revenues. (more…)