While implementation will take years to accomplish I believe that the “Volcker Rule” is part of the correct long term solution to end “The Great Credit Crunch”. After all, Federal Reserve policy has been ill-advised in my judgment since the 21st Century began. The US Treasury came up with TARP, and then used this taxpayer money in unintended ways with little impact on Main Street. The FDIC has not been quick enough to resolve failing banks.
Paul Volcker was the Fed Chairman during the Reagan years, and his unpopular monetary policy decisions back then paved the way for a twenty-five year bull market for stocks.
The President has drawn several lines in the sand when he said, “We want our money back” and he wants Wall Street to pay. The cheap money given to Wall Street by Treasury, the Fed and the FDIC resulted in huge profits and record bonuses, while Main Street suffered through job losses, loan defaults and mortgage foreclosures. The signs of life on Main Street are meager at best. I am all for the “Wall Street Greed” tax to provide funding for future banking problems. I favor putting an end to proprietary trading by banks that take in consumer deposits.
I say that there should be three more lines drawn in the sand: End “off balance sheet” trusts that house billions of toxic mortgage securities and derivative-related exposures. Establish a mark to market for derivative contracts that have ballooned to $206 trillion in the US banking system alone. Tell all banks that are overexposed to C&D and CRE loans to get back within regulatory guidelines or face failure.
I say forget establishing a super bank regulator, and replace existing regulators instead.
Each of our banking regulators has skeletons in their closets. Treasury Secretary Geithner had income tax issues and now he runs the IRS. As NY Fed Chief he was the architect of the bailouts of Bear Stearns and AIG and was the protagonist in the Lehman failure, and other non-publicized background financial deals.
Fed Chief Bernanke has not come clean on his involvement in his discussions between Bank of America (NYSE:BAC) and Merrill Lynch. He cannot even price the Bear Stearns collateral. His monetary policy decisions created and popped bubbles in Gold, Crude Oil and Stocks. Bernanke will be re-elected as Chairman of the FOMC at this week’s meeting. Bernanke will be re-appointed as Chairman of the Board of Governors by the Senate in a close call. Regardless, Bernanke is a member of the Board of Governors into 2020, which is the regulator of Commercial Banks, whose over-leverage brought the US economy to its knees,
FDIC Chair Sheila Bair took out two mortgages worth more than one million from Bank of America during the ongoing negotiations concerning that bank’s bailout. The FDIC prohibits employees from participating in regulatory issues involving a bank from which they are seeking a loan.
I am sure that under the advisement of Paul Volcker the president can find honest replacements.
The FDIC closed another Five Banks on Bank Failure Friday for a total of nine in 2010 so far. All five banks were overexposed to C&D and CRE loans. In 2008 there were 25 failures, in 2009 there were 140, so the total for “The Great Credit Crunch” is now 174. Of the five failed banks two were publicly traded Evergreen Bank (EVGG) and Columbia River Bank (CBBO). Both were on the ValuEngine List of Problem Banks.
Assuming the FDIC collected $45 billion in Deposit Insurance Fees for 2010 through 2012 this fund is down to less than $25 billion. This fund will run dry this year as more than 150 additional banks fail.
That’s today’s Four in Four. Have a great day.
Disclosure: I hold no positions in the stocks I cover.