Tim is basically living in the past as president of the NY Fed; the fact that he largely responsible for the fate of the dollar and the future of our finances has not dawned on him.
The very essence of being Secretary of the Treasury may be so challenging, he takes comfort and solace in dispensing financial huggies to his former buddies who secretly view him as a water boy. The G20 dismissed him and his message as being irrelevant.
Stress tests, recapitalization and PPIP's were announced to be essential to revitalization the banking sector. PPIP never happened and the perceived success of the banking system rests upon a raft of fraudulent accounting gimmicks including effective repeal of FAS 157, whatever guideline which permits banks to recognize income when their bond prices decrease and the ability to shuffle about, increase or decrease reserves at will.
As to the stress tests, at the end the amount of additional capital required was "negotiated" rather than determined by hard analytics.
Hidden Benefits of a Greek Debt Default [View article]
I'm sure there are bankers supporting "reform" and additional lending to Greece but the primary culprits behind this bankrupt idea are the political leaders who supported the eurozone and the technocrats in Brussels who embrace collectivism in any and all forms. On any given day, you can see thousands of these little creatures, who populate the EU, EUC, ECB, ESCB and EuroStat, donned in trench coats scurrying about with Blackberry's while busily texting and planning the economic revival of Western Europe. For these progressives, a default within the EU would represent failure of the EU of the itself; this would create a serious fissure in the groundless arguments for collectivism and the need for thousands of apparatchiks. Who knows they might have to join the ranks of many in Greece and get a real job.
I agree with much of what the author submits but if nothing else the Volcker rule would remove the insanity of offering these grotesque financial behemoths FDIC insurance and access to the Fed window while, simultaneously, allowing them to gamble and play in global casinos.
We have the regulatory authority to contain and manage systemic risk: stringent underwrting standards. If the loans underlying MBS or CDO's are sound, then you can slice, dice and securtize as much as you want and expect to be repaid. There are a number of reforms I would like to see but one of the most important is limiting CDS to those that actually hold debt being hedged.
Obama, Volcker: Defining the Role of Banks [View article]
I agree Tom and the fact that we guarantee the deposits of institutions heavily involved in betting large sums in the global casinos, as opposed to undertaking and managing their central role, is unconscionable and underscores the power of combined banking interests. We need to address this glaring policy inconsistency and eliminate the problem of too big to fail........whether the result of size or high correlation of risk
Paul Krugman: The Return of Glass-Steagall [View article]
As I’ve written repeatedly, I don’t think that too-big-to-fail is at the heart of our financial problems. ______________________...
Prior to Lehman failing, the policy of too big to fail was very much in force as evidenced by the intervention in Bear, Freddie and Fannie. Lehman was allowed to fail which set the stage for the ensuing panic which was only stopped after the "crafting" of TARP and massive liquidity injections. It is clear that removing TBT roiled the markets and then reinstating TBT calmed the markets.
Big Banks: The Consensus Is Cracking [View article]
I wish King had gone further and observed that most of the policies advocated by this administration are delusional: financial reform, healthcare reform, environmental reform and pending educational reform.
New Era of Wall Street Wealth, In Part Courtesy of Washington D.C [View article]
This uniquely focused and distorted era of wealth is a product of misguided policies that have allowed a select few to prosper, made things worse for most, destabilized the economy and concentrated wealth in ever fewer hands. Failing to correct underlying problems or broadly stabilize the economy, government has made things worse by broadening gaping income disparities and (as noted by Washington's blog) by:
(1) Throwing trillions of dollars at the "too big to fails", instead of admitting that many of them are insolvent
(2) Undermining trust of nations all over the world in the American economy
(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
(4) Attempting to restart high levels of leverage and securitization
(5) Failing to take real measures to decrease employment and increase manufacturing
(6) Creating an enormous debt overhang and trashing our currency
Why Is Goldman a Bank Holding Company? [View article]
Andrew Sorkin does a good job of painting the turmoil roiling markets just before the decision to allow Goldman to become a bank holding company; there was a pervasive crisis of confidence marked by a rush for cash. After being approved as BHC Goldman had acces to liquidity provided by the New York Federal Reserve, received TARP monies and rented the Treasury's balance sheet through issuing debt with FDIC guarantees.
Your second question is perhaps more interesting:
-Why is Goldman Sachs allowed to maintain leverage ratios significantly higher than the large legacy bank holding companies like Wells Fargo, Bank of America (BAC), JPMorgan (JPM) and Citigroup (C)?
-Why is Goldman allowed to operate like a private equity company, holding large stakes of foreign non-financial corporations? (I should note that Financial Holding Companies do have ten years in which to sell their stakes)
-Why is Goldman (and other large banks) allowed to operate like a hedge fund and take outsized risks with capital via large proprietary trading operations. Most of Goldman’s profits are coming from this area. At least Deutsche Bank (DB) has offloaded these bets onto hedge funds in which it invests. Given the fact that the large too-bog-to-fail financial institutions have received a large backstop from the taxpayer, the fact that they are loading up in prop trading shows that regulation in the U.S. is non-existent.
-Why is Goldman allowed to have an interest in the failure of other financial firms? We now hear that Goldman has an interest in the failure of CIT (CIT), a major lender to small-and medium-sized businesses. These perverse incentives are everywhere in the derivatives world and were an enabler of the financial meltdown and the principal reason AIG was bailed out with taxpayer money.
I think the answer to that question lies in the dark corridors connecting Wall Street, Treasury and the Fed, whose identities are becoming increasingly blurred. It is also seen in the unwillingness to (1) institute meaningful financial reform, (2) reinstate Glass Stegall and (3) abolish the too big to fail doctrine.
U.S. Government Needs to Take Heed as Banks Re-Submerge [View article]
From the article:
"Wait, coaxing banks to lend in the most inadvisable of enviroments? That's just the brutal spiral of a pyramid-scheme: tomorrow's continual growth is necessary to cover yesterday's liabilities."
A nice summary of current policy direction but thus far the banks are not biting because they carry too much baggage in the form of impaired (toxic) assets. These were politely overlooked at the last meeting of the G20 where platitudes take precedence over original thinking and where form trumps substance.
Commercial Mortgage Portfolios and America's Banks: Is the Sky Falling? [View article]
Pasted below is a headline which appeared earlier. I would make a wager that S&P changed its methodology to accomodate the whims of the Fed as opposed to making refinements in its ratings methodology. The Fed wants to help CRE through the TALF facility but by law must hold AAA paper. Just a coincidence?
S&P unexpectedly switches its rating of some commercial mortgage-backed securities, upgrading the bonds to AAA just days after the same bonds had been sharply downgraded. The move further tarnishes S&P's already-shaky credibility.
Commercial Mortgage Portfolios and America's Banks: Is the Sky Falling? [View article]
This timebomb is ticking and when it explodes it could have the concussive forces as sub-prime did.
With $ 6.7trillion out there, 25% of which has been securitized, and $2.0 trillion coming due between now and 2018, there are serious refinancing issues as commercial properties have lost 35% of their peak values and vacancies and defaults are at record levels across the board. The pain, though, will be felt immediately as $ 1.4 trillion must be refinanced between now and 2013.
Not lost on congress, Bernanke in recent testimony answered many questions related to the threats posed by CRE and more or less said it was an area of concern, particularly for smaller banks. When you go to your Fed speak translator, this means they are scared shitless.
While not disagreeing with anything said, what I have observed is broad, alternating themes of (1) reflation which is accompanied by strength in commodities and equities and (2) deflation which is accompanied by strength in the dollar and US Treasuries.
As I posted elsewhere today, I believe her sentiment towards Goldman is being driven by a belief that it will profit from the avalanche of debt to be issued by all levels of government.
From your chart it is easy to see she expects earnings of $3.62 from the eight banks she covers versus the consensus of $2.95; compared to the consensus, she expects Goldman to earn $1.00 more than the median estimate while she expects the other seven to earn $.33 less. All in all she's hardly gushing over the sector, something reflected in her estimates and ratings.
In my eyes, she's making a big call on Goldman by going way outside of the envelop, a call I doubt she would make unless confident of her instincts. With much prestige and credibility at stake, if proven correct she will retain her status as a very savvy banking analyst capable of seeing what eludes others.
The Treasury's Pump and Dump Scheme for Bank Stocks [View article]
The author and I are on the same page so to speak.
I would, though, like to add two comments. First, the change in accounting rules allowed banks to blow through estimated earnings in the first quarter. Beyond reducing losses through relaxation of M2M, some of the accounting profits are arcane and in some instances stem from fluctuating bond prices. In toto, though, the changes served their purpose and investors flocked like lemmings to part with money and invest in these citadels of finance.
Secondly, and with respect to too big to fail, I know that failure of a large financial firm could have unknown and unfavorable ripple effects throughout global financial markets which could be sufficiently ominous that no one wants to experiment with a big failure. And maybe TBTF stops here but I, in a conspiratorial epiphany, started thinking about ulterior motives. Maybe the administration and Treasury want big banks around for a more sinister purpose: purchase of Treasury debt.
Historically, they have accounted for precious little but that is not to say things could not change. And with bulging deficits and the avalanche of debt to be thrown at global markets, its not impossible that a deal was struck under which "I will save you if you save me".
Rally Is Not Structurally Based [View article]
Art Cashin embraces this view and believes that money is leaving debt and going into equities, cautioning things could change in a moment.
The Trouble With Tim's Treasury [View article]
The very essence of being Secretary of the Treasury may be so challenging, he takes comfort and solace in dispensing financial huggies to his former buddies who secretly view him as a water boy. The G20 dismissed him and his message as being irrelevant.
Stress tests, recapitalization and PPIP's were announced to be essential to revitalization the banking sector. PPIP never happened and the perceived success of the banking system rests upon a raft of fraudulent accounting gimmicks including effective repeal of FAS 157, whatever guideline which permits banks to recognize income when their bond prices decrease and the ability to shuffle about, increase or decrease reserves at will.
As to the stress tests, at the end the amount of additional capital required was "negotiated" rather than determined by hard analytics.
Hidden Benefits of a Greek Debt Default [View article]
More Thoughts on the Volcker Rule [View article]
We have the regulatory authority to contain and manage systemic risk: stringent underwrting standards. If the loans underlying MBS or CDO's are sound, then you can slice, dice and securtize as much as you want and expect to be repaid. There are a number of reforms I would like to see but one of the most important is limiting CDS to those that actually hold debt being hedged.
Obama, Volcker: Defining the Role of Banks [View article]
Paul Krugman: The Return of Glass-Steagall [View article]
______________________...
Prior to Lehman failing, the policy of too big to fail was very much in force as evidenced by the intervention in Bear, Freddie and Fannie. Lehman was allowed to fail which set the stage for the ensuing panic which was only stopped after the "crafting" of TARP and massive liquidity injections. It is clear that removing TBT roiled the markets and then reinstating TBT calmed the markets.
Big Banks: The Consensus Is Cracking [View article]
New Era of Wall Street Wealth, In Part Courtesy of Washington D.C [View article]
(1) Throwing trillions of dollars at the "too big to fails", instead of admitting that many of them are insolvent
(2) Undermining trust of nations all over the world in the American economy
(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
(4) Attempting to restart high levels of leverage and securitization
(5) Failing to take real measures to decrease employment and increase manufacturing
(6) Creating an enormous debt overhang and trashing our currency
Why Is Goldman a Bank Holding Company? [View article]
Your second question is perhaps more interesting:
-Why is Goldman Sachs allowed to maintain leverage ratios significantly higher than the large legacy bank holding companies like Wells Fargo, Bank of America (BAC), JPMorgan (JPM) and Citigroup (C)?
-Why is Goldman allowed to operate like a private equity company, holding large stakes of foreign non-financial corporations? (I should note that Financial Holding Companies do have ten years in which to sell their stakes)
-Why is Goldman (and other large banks) allowed to operate like a hedge fund and take outsized risks with capital via large proprietary trading operations. Most of Goldman’s profits are coming from this area. At least Deutsche Bank (DB) has offloaded these bets onto hedge funds in which it invests. Given the fact that the large too-bog-to-fail financial institutions have received a large backstop from the taxpayer, the fact that they are loading up in prop trading shows that regulation in the U.S. is non-existent.
-Why is Goldman allowed to have an interest in the failure of other financial firms? We now hear that Goldman has an interest in the failure of CIT (CIT), a major lender to small-and medium-sized businesses. These perverse incentives are everywhere in the derivatives world and were an enabler of the financial meltdown and the principal reason AIG was bailed out with taxpayer money.
I think the answer to that question lies in the dark corridors connecting Wall Street, Treasury and the Fed, whose identities are becoming increasingly blurred. It is also seen in the unwillingness to (1) institute meaningful financial reform, (2) reinstate Glass Stegall and (3) abolish the too big to fail doctrine.
U.S. Government Needs to Take Heed as Banks Re-Submerge [View article]
"Wait, coaxing banks to lend in the most inadvisable of enviroments? That's just the brutal spiral of a pyramid-scheme: tomorrow's continual growth is necessary to cover yesterday's liabilities."
A nice summary of current policy direction but thus far the banks are not biting because they carry too much baggage in the form of impaired (toxic) assets. These were politely overlooked at the last meeting of the G20 where platitudes take precedence over original thinking and where form trumps substance.
Commercial Mortgage Portfolios and America's Banks: Is the Sky Falling? [View article]
S&P unexpectedly switches its rating of some commercial mortgage-backed securities, upgrading the bonds to AAA just days after the same bonds had been sharply downgraded. The move further tarnishes S&P's already-shaky credibility.
Commercial Mortgage Portfolios and America's Banks: Is the Sky Falling? [View article]
With $ 6.7trillion out there, 25% of which has been securitized, and $2.0 trillion coming due between now and 2018, there are serious refinancing issues as commercial properties have lost 35% of their peak values and vacancies and defaults are at record levels across the board. The pain, though, will be felt immediately as $ 1.4 trillion must be refinanced between now and 2013.
Not lost on congress, Bernanke in recent testimony answered many questions related to the threats posed by CRE and more or less said it was an area of concern, particularly for smaller banks. When you go to your Fed speak translator, this means they are scared shitless.
Key Factors Driving the Market [View article]
These relationships can be see here:
stockcharts.com/charts...
Meredith Whitney Ratings [View article]
From your chart it is easy to see she expects earnings of $3.62 from the eight banks she covers versus the consensus of $2.95; compared to the consensus, she expects Goldman to earn $1.00 more than the median estimate while she expects the other seven
to earn $.33 less. All in all she's hardly gushing over the sector, something reflected in her estimates and ratings.
In my eyes, she's making a big call on Goldman by going way outside of the envelop, a call I doubt she would make unless confident of her instincts. With much prestige and credibility at stake, if proven correct she will retain her status as a very savvy banking analyst capable of seeing what eludes others.
The Treasury's Pump and Dump Scheme for Bank Stocks [View article]
I would, though, like to add two comments. First, the change in accounting rules allowed banks to blow through estimated earnings in the first quarter. Beyond reducing losses through relaxation of M2M, some of the accounting profits are arcane and in some instances stem from fluctuating bond prices. In toto, though, the changes served their purpose and investors flocked like lemmings to part with money and invest in these citadels of finance.
Secondly, and with respect to too big to fail, I know that failure of a large financial firm could have unknown and unfavorable ripple effects throughout global financial markets which could be sufficiently ominous that no one wants to experiment with a big failure. And maybe TBTF stops here but I, in a conspiratorial epiphany, started thinking about ulterior motives. Maybe the administration and Treasury want big banks around for a more sinister purpose: purchase of Treasury debt.
Historically, they have accounted for precious little but that is not to say things could not change. And with bulging deficits and the avalanche of debt to be thrown at global markets, its not impossible that a deal was struck under which "I will save you if you save me".