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HomeWill ‘Too Big to Fail’ Banks Charge for Deposits?
Posted by Larry Doyle on November 25th, 2013 9:38 AM |
$82 billion.
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…)
FDIC “Kicks the Can”
Posted by Larry Doyle on June 24th, 2010 9:31 AM |
How secure do you feel about your bank deposits? They are insured, right? Well, how secure would you feel about your health insurance if your provider was not collecting badly needed premiums?
I am not pulling any fire alarms, but a recent announcement from the FDIC in regard to its insurance premiums collected from depository institutions speaks volumes about the current state of our banking system and our overall economy.
Recall that the FDIC’s insurance fund was exhausted late last year (Sense on Cents commentary: FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance). To replenish its fund, the FDIC had banks prepay estimated assessments of $45 billion, and also imposed higher premiums to rebuild the fund.
While Wall Street banks were in a position to pay out approximately $140 billion in 2009 bonuses, we now learn that the banking system is not in a position to begin paying the higher premiums to the FDIC. (more…)
Simon Johnson Provides Mega-Sense on Cents
Posted by Larry Doyle on April 5th, 2010 2:02 PM |
Is the Wall Street landscape 2010 merely a precursor to another systemic crisis in which the “too big to fail” banks come running to Uncle Sam for more bailouts? Selected senior bankers on Wall Street, including JP Morgan’s Jamie Dimon, have publicly stated that the markets and our economy need to ready themselves for crises on a more regular basis. If that is the case, is this truly any way to run a financial system, let alone a country? I do not think so, nor does Simon Johnson. Who is Johnson? (more…)
Where is Wall Street Hiding Hundred Plus Billion in Lo$$es?
Posted by Larry Doyle on March 8th, 2010 11:24 AM |
U.S. Rep. Barney Frank (D-MA)
Banks are increasingly healthy, right? Our nation’s accounting rules promote real transparency and integrity in our financial reporting, right? Housing is bottoming, right? No, no, and no!
Why so pessimistic, you may ask? I am not pessimistic at all. I am merely searching for the truth in the midst of the smoke and mirrors on Wall Street and in Washington.
Thank you to our friends at 12th Street Capital for sharing a recently released letter from Congressman Barney Frank imploring the four largest banks involved in mortgage originations to write off second liens they are holding on their books at inflated values.
Why does Congressman Frank believe these loans need to be written off? (more…)
Elizabeth Warren Calls for New Bank Stress Tests
Posted by Larry Doyle on February 11th, 2010 9:34 AM |
The initial Bank Stress Tests run by Treasury Secretary Geithner were largely a sham. I questioned as much last April in writing, “Bank Stress Tests: Major Sham?”:
As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically.
What does the FDIC, led by Ms. Bair, have to say about the upcoming Bank Stress Tests? The New York Post provides a CHILLING perspective: (more…)
It’s the Economy, Stupid!!
Posted by Larry Doyle on October 16th, 2009 9:05 AM |
The American public is becoming increasingly wise to the ways of Wall Street and Washington.
Many Americans were duped by financial practices and products emanating from Wall Street. Where was Washington? I would assess Washington’s involvement and responses in the following fashion:
1. At worst, Washington was complicit given a wide array of failed public policy programs, especially in housing. These public policies were largely ‘greased’ by lobbying dollars and campaign contributions.
2. To a large extent, Washington was negligent in terms of oversight, especially on the financial regulatory front.
3. At best, Washington was naive given a general lack of understanding of markets and finance.
The American public is now responding in appropriate fashion. How so? In increasing numbers, they are choosing not to play the Wall Street game. What game is that? Active trading and investing. While the numbers of pure day traders may have increased, the American population at large is focused elsewhere. Where is that focus? On the economy at large and on their individual pocket books.
Washington’s focus on Wall Street and its selling of the market rebound as reflective of a return towards prosperity is a product that will not fly . . . try as they might. Why?
It’s the economy, stupid! Reports this morning indicate that wages will likely show the greatest decline since 1991. Even in the face of declining wages, consumers’ purchasing power is being further eroded by the continuing decline in the value of the dollar. That decline is inflationary which hurts consumers but it continues to present a very cheap funding vehicle for those who want to use the greenback to employ leverage in the markets. Who has the advantage in that process? The large banks. Do they spread that wealth in terms of increased credit and higher savings rates? Now why would they do that?
The American saver and consumer shouldered the cost of the bank bailouts in 2008. They are now shouldering the cost of the wealth transfer to the banks in 2009. While Washington would like to sell this dynamic differently, the American public gets it.
Washington will continue to sell this dynamic at its peril.
LD
Elizabeth Warren Highlights Washington’s Losing Battle on Housing
Posted by Larry Doyle on October 9th, 2009 9:21 AM |
Who in Washington will give you a straight answer? Elizabeth Warren.
Who is Elizabeth Warren? Her Wikipedia bio reads:
Elizabeth Warren
Elizabeth Warren (born 1949) is the Leo Gottlieb Professor of Law at Harvard Law School, where she teaches contract law, bankruptcy, and commercial law. In the wake of the 2008-9 financial crisis, she has also become the chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout, formally known as the Troubled Assets Relief Program. In 2007, she first developed the idea to create a new Consumer Financial Protection Agency, which President Barack Obama, Christopher Dodd, and Barney Frank are now advocating as part of their financial regulatory reform proposals.
In May 2009, Warren was named one of Time Magazine’s 100 Most Influential People in the World.
Ms. Warren consistently takes no prisoners or provides no pandering in making honest assessments of the interaction between Washington and Wall Street. She has called the banks on the carpet. She has called Secretary Geithner on the carpet. She has called Congress on the carpet. Why? A general lack of honesty, integrity, and transparency in dealing with the American public.
When she speaks, I listen.
What did she have to say this morning? In commenting on a recently released report on the effectiveness of government programs to support housing, Warren questioned the scalability and the permanence of the impact of the TARP funding. Bloomberg provides further color in writing TARP Oversight Group Says Treasury Mortgage Plan Not Effective. The report highlights:
“Rising unemployment, generally flat or even falling home prices and impending mortgage-rate resets threaten to cast millions more out of their homes,” the report said. “The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures and consider whether new programs or program enhancements could be adopted.”
New programs or program enhancements? Yesterday I opined “Washington Needs a New Housing Model” and wrote:
While the administration swims upstream on this issue, bank policy of tight credit and restrictive lending only further exacerbates the housing market. Make no mistake, though, banks are taking that approach to tight credit at the behest of regulators who know the level of losses in the banking system and are trying to preserve the industry as a whole.
I like a rallying equity market as much as anybody, but I wouldn’t spend any paper gains just yet. Why? The new housing model is displaying that:
“As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans,” concluded Sapienza. “This has an adverse effect on homeowners who do pay their mortgages, and the after-effects of more defaults and more price collapse could be economic catastrophe.”
This model needs some quick-dry crazy glue, which could only be applied in the form of a serious principal reduction program. Banks would take immediate and massive hits to capital which they clearly won’t accept.
So how can we generate some support for housing?
Aside from a principal reduction program, the penalty for those who would strategically default on their mortgage needs to be far more onerous.
The principal reduction would negatively impact bank earnings. Too bad. The banks are currently feeding at the taxpayer trough and would not be here without the bailouts. The individuals who are capable of making their payments need to accept the moral responsibility that is embedded in a contract.
Given the massive violation of moral hazards and breaking of contracts by Uncle Sam, that old man does not have a lot of credibility on that front.
What do we really learn here? Ultimately, the market is the market and efforts to manipulate or support a falling market will only be temporary. The market needs to find the clearing level where private money will purchase properties. That private money will wait while Uncle Sam continues to try to prop the market.
In the meantime, do not expect any meaningful support for housing.
LD
Wall Street Compensation Reform in Name Only
Posted by Larry Doyle on October 6th, 2009 9:27 AM |
Say what you want about movie producer Michael Moore, but he is no fool in tapping into the American spirit. Moore takes on Wall Street in highlighting the enormous bank bailouts emanating from this economic crisis. While there are many factors that drove our banking industry and our economy to its knees, ultimately the Wall Street compensation system allowed those taking risk to ‘swing for the fences’ while playing ‘heads we win, tails you lose.’ Washington is going to fix this, right? Having appointed a pay czar in Ken Feinberg, the Obama administration is going to address the crux of this critical issue and reform it, right? I mean, The Wall Street Journal this very morning profiles how Pay Czar Targets Salary Cuts:
The Obama administration’s pay czar is planning to clamp down on compensation at firms receiving large sums of government aid by cutting annual cash salaries for many of the top employees under his authority, according to people familiar with the matter.
Instead of awarding large cash salaries, Kenneth Feinberg is planning to shift a chunk of an employee’s annual salary into stock that cannot be accessed for several years, these people said. Such a move, the most intrusive yet into corporate compensation, would mark the government’s first effort to curb the take-home pay of everyone from auto executives to financial traders.
Folks, with all due respect to Ken Feinberg, these efforts to implement reform in Wall Street compensation practices are largely a joke. Why? While the subtitle of the WSJ’s article includes the term ‘compensation,’ Feinberg’s focus is limited to the term in the title, that being ‘salary.’ (more…)
Roubini and Birinyi on the Market
Posted by Larry Doyle on March 26th, 2009 8:42 AM |
I always keep a close ear for the market insights of any of our Economic All-Stars. Highly proclaimed NYU professor and economist Nouriel Roubini is decidedly bearish on the state of financial companies, the economy, and the markets. Bloomberg reports, Roubini Says Stocks Will Drop as Banks Go Belly Up.
Laszlo Birinyi is more tempered in his assessment but believes the market has come too far, too fast and is subject to some pullbacks. Please remember that we saw a market bottom in the S&P 500 at the 666 level (pretty scary, eh) on Friday March 6. We have moved up 22% in a very short time frame. Birinyi further offers that this market is less geared for long term investors and more for short term traders focused on picking individual stocks.
LD
