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With a record of poor shareholder returns, why do the TBTF banks (JPM, C, BAC) even exist,...

With a record of poor shareholder returns, why do the TBTF banks (JPM, C, BAC) even exist, writes Sheila Bair. Capital markets certainly wouldn't finance such "unstable behemoths" if it weren't for their de facto government backstop. Jamie Dimon can provide a better return to shareholders by recognizing his bank is worth more in smaller pieces.
Comments (86)
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    Wow....brilliant. Seems like someone finally has the guts to call them out. Way to go Sheila !
    25 May 2012, 09:10 AM Reply Like
  • SteveTheHawk
    , contributor
    Comments (1182) | Send Message
     
    We sorely need a full reinstatement of Glass-Steagall. Let them gamble with their money, not our money.
    25 May 2012, 09:24 AM Reply Like
  • jackooo
    , contributor
    Comments (1484) | Send Message
     
    That doesn't matter.
    25 May 2012, 02:51 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Hey, I just hate this conversation.

     

    I will not defend JPM, however Bair's methodology seems to have spun round 180 degrees, or?

     

    She called her buddy, Dimon and handed WaMu to JPM in an organized heist, (WaMu was more liquid than JPM at the time) and NOW they are too big....break them up?

     

    When did she (Bair) get a dose of morality?
    26 May 2012, 02:34 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    From what I understand Bair was not much of a player at the table on the Wamu deal or any of the big bank moves. Paulson, Bernanke and Geithner orchestrated most of those moves. So maybe she just hates big banks because she was not a big player at the table.
    26 May 2012, 02:50 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Everyone remembers what happened, it wasn' that long ago.

     

    From what I understand, it was ONLY Dimon and Bair, uless of course he lied in this interview:

     

    FDIC officials told the FCIC that they had known in advance of WaMu’s troubles and thus had time to arrange the transaction with JP Morgan.

     

    JP Morgan CEO Jamie Dimon said that his bank was already examining WaMu’s assets for purchase when FDIC Chairman Sheila Bair called him and asked, “Would you be prepared to bid on WaMu?” “I said yes we would,” Dimon told the FCIC.

     

    “She called me up literally the next day and said—‘It’s yours.’ " I thought there was another bidder, by the way, the whole time, otherwise I would have bid a dollar—not $1.9 BIL USD, but we wanted to win."

     

    Quite clear, or?
    27 May 2012, 06:04 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    DV

     

    Think about it. Do you really believe that Bair moved a bank the size of WAMU by herself? And with all the problems that were swirling around at the same time?
    27 May 2012, 09:30 AM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    WaMu was picked clean, and she (Bair) was identified as the culprit, as having authority to seize the bank.

     

    (Of course, we know there were other, "far more sinister" shadows lurking about at the time, point taken.)

     

    I worked lead on a Class Action representing a group of European Investors, and am very well versed in the particulars. It was actually far worse than most think.

     

    Washington Mutual had $307B in assets, $188B in deposits, 2239 branches, 4,932 owned and branded ATMs, and 43,198 employees at the time of seizure. They had multiple subsidiaries that were sold as well.

     

    Although a review conducted by the Offices of Inspector General for the FDIC * and the U.S. Treasury Department concluded that WaMu failed because of its high-risk loan strategy, a strategy made worse by the bank’s liberal mortgage underwriting and poor oversight of its operations, they were indeed quite solvent when they were seized, or in exchange for no charges being filed against it's Officers, shall we say "surrendered"?

     

    * (I called the OIG FDIC at the time to start an inquiry against Bair, and was told "they would not serve their boss up to ANYONE on a silver platter.", which then prompted a call to SEC. Never did get an answer, still waiting.)

     

    See:
    http://bit.ly/KIMJ7y

     

    Officially decided, by the Court, that WaMu was indeed quite solvent, full stop.

     

    Strange isn't it, how someone can secure $307 BIL USD in assets, for a fire sale price of under $2 BIL USD?

     

    Bair at FDIC, decided that $1.888 Billion was a fair price for the bank., no comment.

     

    * It is interesting to note that the auction offer presented by the FDIC permitted banks to bid $0.0 for the bank, and also totally ignored the stockholders and bondholders, as well as other liabilities of the bank.

     

    * The FDIC required ONLY the administrative costs for the transaction, and held the bank for only a few hours before ownership was transferred to JPMorgan.

     

    * Washington Mutual Bank was forced to file Chapter 11 the following day. They lost $26 Billion in stock of WAMU (WMB) due to the bank seizure.

     

    SO.....due to the bank’s "liberal underwriting" and "poor oversight of its operations"?

     

    HANG ON!,........ that sounds just like JPMC............or ?

     

    Will JPM now also be seized following this logic?

     

    If not, why not?
    28 May 2012, 03:26 AM Reply Like
  • Zanalyst
    , contributor
    Comments (78) | Send Message
     
    Dr. V: "Will JPM now also be seized following this logic? If not, why not?"

     

    Short answer - JPM is not deemed to be "critically under-capitalized" as was WAMU at the time it was seized/sold.

     

    The FDIC may legally compel a bank's chartering authority to revoke a bank's charter, even while the bank is technically solvent.

     

    This is one of but several critical risk factors that are unique to bank common stock investments. Complacency with respect to such risk is not limited to European investors, but is wide-spread here in the U.S., even among certain highly regarded pros.
    28 May 2012, 11:43 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    JPM underwriting standards were and are much more strict than WAMU ever was at the end of their corporate life. You can question JPM's derivative exposure as an unknown and potential risk but credit wise JPM has operated in a different world than WAMU. The level of sophistication in these two banks is also markedly different in every way.

     

    And as mentioned elsewhere JPM has a lot of capital.
    28 May 2012, 04:20 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    I am an American.

     

    Obviously you did not bother to read the Court document in my comments which state WaMu was indeed far better capitalized than you personally may think.

     

    They (WaMu) had double the capitalization at the time of their seizure, than JPM has now.

     

    I find it quite strange why so many blindly trust and defend JPM at this time? Personally, I prefer the pragmatic approach, i.e.,"show me".

     

    See for yourself.

     

    Please check JPM balance sheet: (will suffice for general purposes)

     

    http://bit.ly/KHkbeX

     

    Assets: $2.3 TRIL USD
    MINUS
    Liabilities: $2.1 TRIL USD
    ______________________

     

    Net Worth $ 190 BIL USD

     

    Something is wrong here.

     

    Check cash flow.

     

    I smell trouble. Word here in London this morning, total exposure to Iskil's CDX IG 9 trades = $100 BILLION USD

     

    Can you say "bank run"?
    29 May 2012, 10:03 AM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Where is their capital, TVP ?

     

    Show us a spreadsheet.......?

     

    Exactly.

     

    We have all the information we need here from regulators to support our side. EBA will back our claim, as they ARE the authority if you are:

     

    A. a bank
    B. doing business in Europe

     

    You see, I don't do this for fun, I do it under European Supervisory Authority. (EC / EBA / ESRB) at Admin. Level 16.

     

    Rather than continuing to torment us all with your blind defense of JPM, just simply provide us with the basis for your viewpoint, regards this particular issue at hand, JPM's pseudo "capitalization", with a simple spread sheet.

     

    Out with it, c'mon.

     

    Instead of jumping all over the page, JUST answer the question at hand.

     

    You just pulled this with SDNS, when she called you out on changing the TBTF argument to suit your opinion.

     

    This isn't rocket science, if you are an Economist, it should be a walk in the park. Show us your document in support your claim of JPM's "alleged" capitalization adequacy.

     

    You can't, because here are the facts.

     

    JPM has failed to meet CRD IV requirements to date, common knowledge. According to the Official Report:

     

    - Failure to meet minimum Tier 1 Capital requirements

     

    - Shortcomings in liquidity risk management, including stress
    testing

     

    - Asset and liability maturity mismatches; catastrophic failure

     

    * Funding liquidity risks arise because inflows and outflows of funds at banks are not synchronized. A bank is ONLY deemed to be liquid, as long as at each point in time outflows of funds are smaller or equal to the sum of inflows and its stock of liquid assets.

     

    Summary:

     

    - Certain capital instruments did not fulfill loss absorption, permanence and flexibility of payments criteria

     

    - List of regulatory adjustments incomplete or applied not to a
    relevant layer of regulatory capital

     

    - Lack of harmonization in application of regulatory adjustments

     

    - Tier 1 capital ratios reported by banks and, thus, their capital is not reflective of their capacity to absorb losses on a going-concern basis, chiefly among them, JPM.

     

    As the crisis deepened and banks faced growing losses and writedowns, their fundamental solvency was called into question, leading to broader financial instability and necessitating extensive public sector support.

     

    CONCLUSION:

     

    Current Tier 1 capital ratios reported by banks are not reflective of their capacity to absorb losses on a on going-concern basis, chiefly among them, JPM.

     

    Inform yourself:

     

    http://bit.ly/Kpyd5k

     

    http://slate.me/KCg0jh

     

    http://bit.ly/Kpye9j
    29 May 2012, 10:04 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    DV

     

    Either you are short JPM or just have a burr in your saddle about JPM. I have no position just to be clear. Your "bank run" bit in another post is entirely ridiculous which makes me think you are short the stock.

     

    I am fine with your analysis on capital which is a little less than $200 Billion. If you have more losses than that then fine we have a problem. If you don't then time to go back to work.

     

    WAMU was a dead man walking. And I have never seen anyone post a spreadsheet on SA in a comment because it is text only.
    29 May 2012, 10:26 AM Reply Like
  • Pwdrskir
    , contributor
    Comments (135) | Send Message
     
    The WaMu deal is an example of Govt destroying wealth to cover its inept policies. Sheila Bair should be ashamed for her role in creating the JPM behemoth.

     

    $307B in assets sold for $1.9B, sickening...
    29 May 2012, 12:07 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    PW

     

    The $307 Billion in assets casts off an earnings stream or a loss which is what primarily drives the company's valuation. WAMU had a ton of problem loans on the books and it was getting worse. Troubled companies are bought for their assets plus premium if they are healthy but when they are not healthy then look out below.
    29 May 2012, 05:32 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    It was the largest organized bank robbery, at the time it happened.

     

    Your denial cannot change the facts.

     

    I included a Court document supporting the fact that USG admitted, that WaMu was indeed solvent at the time of it's seizure, and there were no subsequent grounds for this action.

     

    Solid evidence.

     

    Recorded facts.
    30 May 2012, 01:45 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Yeah and Bear Stearns was solvent on a Friday and insolvent by Monday.
    30 May 2012, 01:49 AM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    You write:

     

    "And I have never seen anyone post a spreadsheet on SA in a comment because it is text only."

     

    That's almost cute, we will simplify it for you.

     

    For beginners:
    http://bit.ly/KHkbeX
    30 May 2012, 10:47 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    If you don't know the difference between a spreadsheet and a balance sheet viewed by a hyperlink it is no wonder you are lost.
    30 May 2012, 10:54 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    http://numsum.com
    http://bit.ly/MYlDM6
    30 May 2012, 02:15 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Your pedantic defense tactics are childish.

     

    We know you refuse to read the "balance sheet" (also a spreadsheet).

     

    A modern "spreadsheet" file consists of multiple worksheets (usually called by the shorter name sheets, eg. BALANCE SHEET).

     

    Key to healthy debate = Cogency

     

    I fear you will have to Google that as well.

     

    The point is now mute.
    30 May 2012, 05:00 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Nice one, SDNS.

     

    Cheers.
    30 May 2012, 05:00 PM Reply Like
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    Yes, but can we export/import into a SA comment? When you solve that one.....I will be truly happy !
    30 May 2012, 05:04 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    WMARKW,

     

    Always watching and listening!

     

    Hope the markets are treating you well.

     

    Watch: (WTI Crude) short down to around 82.00
    (EUR/USD) short down to around 1.20

     

    Indications are strong, but caution a must, as always.

     

    Shalom
    31 May 2012, 04:15 AM Reply Like
  • change is the only constant
    , contributor
    Comments (1732) | Send Message
     
    If she is right, then Fannie and Freddie went down due purely to mis- (risk?) management.
    25 May 2012, 09:20 AM Reply Like
  • Chris Kent
    , contributor
    Comments (276) | Send Message
     
    FAnnie and Freddie are solely a result of Barney Frank. 10 years+ ago, he was the one that was pushing these entities to push the limits of prudent lending.
    25 May 2012, 04:39 PM Reply Like
  • Colin Doyle
    , contributor
    Comments (708) | Send Message
     
    Barney Frank "is the only politician I know who has argued that we needed tighter rules that intentionally produce fewer homeowners and more renters."

     

    -Lawrence B. Lindsey, economic advisor to George W. Bush

     

    (This statement seems to contradict your assertion)
    25 May 2012, 08:27 PM Reply Like
  • MexCom
    , contributor
    Comments (3050) | Send Message
     
    I'm all for that. Make all the litigation claimers scramble where to go to get their money.
    25 May 2012, 09:25 AM Reply Like
  • bigTTT
    , contributor
    Comments (258) | Send Message
     
    Shelia, I think you missed a key point. Many of the small regional banks were totally beyond help and went under during the last recession. Many were caught inappropriately lending money to American/Indian investors and good ole boys. If not for the downturn. I don't know if they ever would have been caught. Corruption is always going to be among us. Big or small. At least with the major banks you're money wasn't tied up with Bank going bust.
    25 May 2012, 09:50 AM Reply Like
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    Bank failures by year"
    2012 - 23
    2011 - 89
    2010 - 157
    2009 - 140

     

    1994 - 15
    1993 - 50
    1992 - 181
    1991 - 271
    1990 - 382
    1989 - 534
    1988 - 470
    1987 - 262
    1986 - 204
    1985 - 180
    1984 - 106

     

    I don't think 2009-2011 were all that bad. Aren't there something like 8000 banks in the US?
    25 May 2012, 01:38 PM Reply Like
  • cebu sun
    , contributor
    Comments (207) | Send Message
     
    bigTTT
    It is You that has missed the point. The TBTF Ivy brains are rewarded to take ever larger risks...with your money. This is a system that will continue to fail when risky gains produce bonuses and losses are SOCIALIZED. The corruption between WS and Congress is putrid and is contributing to our fall from empire.
    26 May 2012, 12:07 AM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    But many smaller banks were closed down. Bigger ones are always bailed out. When ML was bailed out in 2008 (it had just been bought by BAC), they used the money to pay huge bonuses for 2008 even though ML was losing money. The point is that banks can go down and should be allowed to go down. This is why they should be smaller, not TBTF. You don't want the system to depend on any particular bank. Taking risk should be limited not because taking risk is bad but because the banks take risk with the money of their depositors. If they want to take risks, they should set up investment funds and invest there but that would be pure equity investment. Of course, they don't like the idea.
    26 May 2012, 05:58 AM Reply Like
  • RAVEN
    , contributor
    Comments (52) | Send Message
     
    Yes, but how much was lost per bank?
    26 May 2012, 06:50 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    When banks make loans they are making an investment which is AKA taking a risk. Banking inherently is risky and it may be news to everyone that all of our banks carrying loans on their books right now are at risk because interest rates are artificially low and as they rise all the banks will have losses on their books. Those loans are going to fall in value.

     

    Regarding risk, if a large bank is carrying $500 Billion of loans or 10,000 banks are carrying $500 Billion of loans the risk is the same to the system with the only caveat that the large bank may hedge the loan portfolio better than the small 1000 banks. Most other countries have a few large banks that dominate the space and they have not had the problems we have had in the US. So what is our problem?

     

    Better root cause analysis needs to be done on the latest financial crisis and it is not TBTF. That is a red herring. And saying a large bank uses depositor funds is hyperventalion when the banks equity and earnings are what pay for losses and then the FDIC and other backstops. By that logic I could say that anyone taking a loan from the bank is using depositor funds as the loan is an investment by the bank.
    26 May 2012, 11:37 AM Reply Like
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    Unfortunately, the Failed Bank List by the FDIC is more than happy to tell you their estimate of each banks cost of failure, but they certainly don't provide a running total. I have a spreadsheet going for this year. I had one for last year. But.....they didn't have memory big enough to handle my spreadsheets in 1984. If I recall....32k was the limit. And just to show you what deflation is.....I paid $5000 for a 10 meg hard drive.
    26 May 2012, 11:47 PM Reply Like
  • TWagen
    , contributor
    Comments (143) | Send Message
     
    Isnt that the pot (Gov't) calling the Kettle (Banks) black in terms of managing risk and efficiency. How about smaller government ! That would help me more personally.

     

    I have smaller banking options if I desire. Just leave them alone (In good times and bad) and let depositors know that is your intent. They will then get smarter and choose the most prudent options for their deposits.
    25 May 2012, 09:59 AM Reply Like
  • bernie 1
    , contributor
    Comments (509) | Send Message
     
    Shelia Bair doesn't look that young or uneducated not to remember the Keating 5. Just to give her & her yes people a reminder,the 5 were senators (4 Democrat & 1 Republican) who bent over backwards to protect & save Mr.. Keatings bacon for helping with the failure of almost 750 SMALL SAVINGS & LOAN Corporations. If it wasn't for the FDIC bailing out the small institution investor the few billion that Chase lost would be tip money !
    All of you big bank haters please remember this, Big Countries & Big Companies want to do business with equivalent banks. Do you think these giants want to go to the Spedunk Savings & Loan Company for their needs?
    Get rid of JPM,C,Bac,etc. & in a year or 2 Shelia & all her fans will be doing business with a GIGANTIC Chinese or Russian Bank !
    25 May 2012, 10:28 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    bernie

     

    You are absolutely spot on. Other countries have huge banks and they help their economies function in the broader economy. And TBTF is really a smokescreen for the real issue which is when you have systemic failure of an industry like housing all banks will be hammered that participate. Small banks used real estate as their bread and butter and they got creamed. BofA bought CW which was absolutely stupid although the government was twisting their arm. JPM took on WAMU and the jury is still out on that acquisition. Wells Fargo was fine. Citi was the only really stupid large bank. AIG was an insurance company.

     

    If we are going to carry out the TBTF logic then clearly our federal government is the worse offender as they are being bailed out by the Federal Reserve in keeping interest rates low to fund the debt. And what about GM and other large companies?

     

    Sheila sees the world through a small bank prism because that is all she works with and she is likely miffed that the Federal Reserve really has oversight on the large banks and she is not a big player in that sphere. But she has done a pretty good job dealing with all the issues on her plate so she deserves credit for that.
    25 May 2012, 10:42 AM Reply Like
  • Buckoux
    , contributor
    Comments (5803) | Send Message
     
    Da!
    25 May 2012, 01:32 PM Reply Like
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    Bernie and TVP. There has to be a distinction between the traditional banking (recent additions) functions to these banks and their investment banking functions (their legacy functions).

     

    Yes large corporations need large financial institutions to provide banking functions to global enterprises, but small individuals do not need JPM to establish branch banking and credit card functions. And real-estate owners do not need JPM or Goldman or MS in the residential real estate market.
    25 May 2012, 01:44 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    WM

     

    That is an ongoing discussion/arguement that has its pros and cons. My sense is that derivatives are the heart of the discussion and in my mind if they don't all go on an exchange with transparency then anyone who wants to play in deriviatives opaquely can do it outside of the banking system. We need transparency in these FI's.

     

    Further discussion about separating banks from IB's has to realize that IB's traditionally borrowed a lot of their funds from the banks so the separation is not a chinese wall so to speak. Maybe the ultimate truth is that any risk behavior in the economy can ripple across other sectors and entities regardless of legal structures so the real issue is how do we manage risk?

     

    Putting that aside I think big banks are necessary.
    25 May 2012, 02:49 PM Reply Like
  • Colin Doyle
    , contributor
    Comments (708) | Send Message
     
    "Do you think these giants want to go to the Spedunk Savings & Loan Company for their needs?"

     

    I laughed out loud when I read: "Spedunk Savings & Loan"

     

    I prefer "Podunk" myself, but "Spedunk" will do.
    25 May 2012, 08:33 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Nice one, as usual.

     

    Hope the markets are treating you fairly.
    27 May 2012, 06:04 AM Reply Like
  • geodan85
    , contributor
    Comments (161) | Send Message
     
    Very accurate points on other countries global universal banks, which are TBTF as well. Let us not forget foreign state owned or controlled banks (read China) that are also growing global players influencing markets. Our government is the problem, not the solution, and the forcing of Fannie and Freddie to lower lending standards over twenty years ago is a primary reason for the current real estate bust. The S&L bust in the 1980s was also government driven by deregulating what the S&Ls could invest in while keeping the deposit insurance in place.

     

    The TBTF banks also were under governemnt pressure to make more loans to the less than prime borrowers. However, it grew out of control due to securitization of these loans with many banks utilizing this procedure to remove the weaker credits off their books via the bond market and believing the risk was gone while the fee income machine will go on forever minting what seemed like risk free income. This also led to loans being made on inflated values that the banks likely knew were moving too high too fast, but if they weren't going to hold the loan then if wasn't their problem.

     

    I am reminded of the saying " I am from the government and I am here to help" as being a phrase that many misunderstand since the last word help really needs to be followed by "myself".
    25 May 2012, 11:29 AM Reply Like
  • jypd
    , contributor
    Comments (5) | Send Message
     
    I have owned BAC and/or its predecessors since 1970. Continual growth and decent dividends...until 2008. Then the results of years of political pressure (making the banks loan money to poor credit risks under the guise of social justice), ill-founded regulations(mark to market) and panic style rush-to -judgement by media and government finally brought a great system to the edge of the abyss. Maybe we can get out of trouble.....and maybe not.
    On another matter, taking "risks" is absolutely necessary for recovery and growth.

     

    JYPD
    25 May 2012, 11:54 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    While I agree with the sentiment that these TBTF banks are a disaster waiting to happen, the choice of examples here is atrocious. JPM and BAC actually bailed out taxpayers during the financial meltdown, not the other way round. BAC swallowed Merrill and JPM swallowed Washington Mutual. Both took TARP monies but that was more due to Bernanke and Paulson wanting to obscure which banks needed them. The funds were paid back as quickly as the Fed allowed.
    25 May 2012, 12:12 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Is it fair to say that the two biggest disasters we have had in the past 40 years in the banking industry have been in real estate? The last one was a RE industry failure and the first one was due to S&L's having incongruent legislation dropped on them.

     

    We don't see a lot if any large banks failing for their own individual reasons we typically see a wave of failures tied to a specific asset category.

     

    So who has been the largest player in RE the past 70 to 80 years? Our fabulous federal government that is only trying to help us all and then they wonder why so much is now on their balance sheet. Please stop helping.
    25 May 2012, 01:35 PM Reply Like
  • RALPHSCHAUSS
    , contributor
    Comments (58) | Send Message
     
    Sheila Bair 's opinion is totally off-the-wall. She always hated big US banks. It is good she left the FDIC CEO job. She completely is not suited for the job with her personal bias!. Incidentally, was the FDIC not just as asleep at the wheel in the build up to the crisis as all the other regulators like the SEC, the FED, the OCC , CTFC and so on. All things were just fine, no perceptible national housing crisis on the event horizon, no toxic products, and over 9,000 MB -bonds rated triple AAA by the three ratings agencie- who never were held pesponsible for their conflict of interest and manifest incompence. But as a top buraucrat you won't get fired. She should have awarded a medal to Ken Lewis for protecting the US tax payer
    at the expense of the BAC shareholders in Dec 2007 and 2008.

     

    Frankfurt, Germany
    25 May 2012, 12:14 PM Reply Like
  • jackooo
    , contributor
    Comments (1484) | Send Message
     
    Totally agree about Shelia. Worthless in her last job so they promoted her to another job.
    25 May 2012, 02:53 PM Reply Like
  • Mrnomad
    , contributor
    Comments (312) | Send Message
     
    Jim Cramer said it all last nite on his tv show. Until the CEOs and employees are held personally liable (jail time, no salary) for the egregious acts committed, the fines are paid by the shareholders as well as the lawyers. If u were a bank ceo, you'd take risks too because you have nothing to lose. Cramer actually went even further to explain why this will never happen. The public has no lobbyists whereas the banks have OUR money to spend on lobbyists who bankroll congress. In essence, we have the best guv money can buy.
    25 May 2012, 12:51 PM Reply Like
  • jackooo
    , contributor
    Comments (1484) | Send Message
     
    Here is my take repeated over and over.
    The problems of the banks could not of happened without the agencies dedicated to oversight ignoring their jobs. Even today the Todd-Frank or ANY laws we have on the books will not suffice. There can still be another blackmail for bailouts.
    One or two sentences can stop this in the future but no one is willing to put those sentences into law.
    1. All personal assets will be forfeited if any abuse of funds is deemed to be inconsistent with the objectives of the institution goals. They will include, but not be limited to, cars, boats, houses, pensions, savings accounts, airplanes, etc.

     

    2. All misappropriations of funds will carry a felony criminal indictment with jail time. There will no longer be a FINE without admitting guilt.

     

    Pretty simple, huh???
    25 May 2012, 01:07 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    The most feasible solution was the proposal to create a bank-funded insurance pool for these big banks. Unfortunately that got shot down in Congress along strictly partisan lines. I'll let you guess which party hated the idea of banks funding their own bailout insurance.
    25 May 2012, 02:05 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Why are the paying into the FDIC then? This would be managed as well as SSA is today.

     

    I would also venture that if you add up all the losses from small to medium sized banks in the past 40 years you will be looking at a big number and perhaps larger than a supposed TBTF.
    25 May 2012, 02:51 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    Thomas, the FDIC insures depositors up to a certain amount. TBTF is about systemic risk, not about loss of depositors' accounts. FDIC has no bearing on TBTF concerns beyond the fact that it's an example of a system that's worked. The proposed legislation would have taken the FDIC example and applied it to the systemic risk problem posed by gigantic banks and bank holding companies.
    25 May 2012, 03:10 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    SD

     

    Now the conversation is getting goofy. What do you want them to insure? And how do you measure it?
    25 May 2012, 03:38 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    Thomas, Why do you consider it goofy to mention that there was in fact proposed legislation to let banks, rather than taxpayers, be the ones to insure against damage from a TBTF bank failure in the context of a post about how to prevent damage from a TBTF bank failure?
    25 May 2012, 04:19 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    SD

     

    Legislators are idiots just grandstanding to give the appearance they are doing something and trying to make us all believe it.

     

    The issue is simple. How do you measure systemic risk? And how do you measure the system? What is the system? Insurance works on the premise that you can define something, measure it and then understand probable outcomes and then insure the infrequent outcomes that are undesirable.

     

    More broadly the failures we have suffered in the past 40 years are from a failed industry, with government involvement at every level, namely home lending and that impacted banks regardless of size. Outside of Citi and likely Wachovia the largest banks did quite well and bailed out the government. The government's two largest agencies failed completely so 100% of the government involvement failed.

     

    As a taxpayer I am looking for insurance against our TBTF Fed government.
    25 May 2012, 05:47 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    The TBTF pool was to insure against bank failures. By definition, if a bank wasn't paying into the pool, it wouldn't get that insurance and if it was paying into the pool and it failed, that insurance would be used to stabilize it while it was being sold off. Same as with FDIC. We have empirical evidence that FDIC works well.
    25 May 2012, 05:56 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    The last two large scale industry failures took government intervention and the number of banks numbered in the 100's. One big bank is not an issue it is when scores of banks go down together.
    25 May 2012, 06:47 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    Thomas, the whole reason for the insurance pool was to AVOID gov't intervention and to get the banks to bear some of the responsibility rather than pushing it all off onto taxpayers.
    25 May 2012, 06:53 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    I know all this but my point is that the idea that large banks have a seperate fund makes no sense or if it does then something is wrong with the general fund. Because we typically are having real estate industry failure and that effects all banks. If we could keep from having crazy meltdowns in RE every 20 to 30 years that would be a good goal.
    25 May 2012, 09:34 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    Thomas, you're skirting the point, which is that when a bank becomes so large that its risk-taking can fracture the entire economic fabric, it makes sense to insure against that event. You want tax payers to pay for clean up out of the general fund yet you also want them to have no say-so in the risk (zero regulations). I prefer that the banks have some skin in the game, that the TBTF banks either pay for their own insurance or be broken into smaller entities, and I also have some regulatory thoughts but that's a different topic.
    25 May 2012, 11:12 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    SD

     

    I don't agree with your premise that large banks are the issue. And you don't understand my point. If we have let's say $500 Billion of bank real estate loans in the US I don't care if it is under 1 bank or 1 million banks. If the RE industry goes sour the taxpayer is the ultimate backstop if it is bad enough. Our wide spread bank problems thus far continue to be in RE so let's deal with the real world and not fight imaginary problems.

     

    With the exception of Citi this has been our experience. Citi should have been shredded but Robert Rubin was a director so he likely held off the pitchfork crowd.
    25 May 2012, 11:48 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    Tomas,

     

    I see what you're saying but I don't agree that a particular investment sector (e.g. real estate) is going to have evenly spread risk. We saw exactly this in 2007-9, where some banks had really let risk get out of hand (Wamu, e.g.) while others such as JPM and BAC had mostly avoided that risk. (BAC jumped into Countrywide near the end, but had the good sense to stay away before then).

     

    The FDIC works. You keep saying insurance can't work but the fact is FDIC works well. Even with the meltdown, FDIC avoided taxpayer losses and was able to unwind the smaller banks that were in its purview. If we'd had a similar pool for TBTF, it's entirely plausible that TARP could have been mostly avoided and the unwinding wouldn't have needed to involve increasing the size and therefore the political influence of the largest banks and the distribution of taxpayer money as bonuses to those who helped crash the system. AIG would still have been a problem, because it's not a bank, so this isn't a perfect solution but it's still a more appropriate allocation of responsibility.

     

    I also disagree that it was real estate that crashed the financial system. Financial instruments, derivatives, with unlimited leverage are what crashed the financial system.
    26 May 2012, 12:10 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    SD

     

    Keep in mind that WAMU and CW chose RE as their specialty many years ago so they were already committed in that direction. Banks cannot change that quickly as their loan officers and distribution networks are specialized. The net of it is that they had more risk than say JPM because that was the industry they chose many years before the bubble hit.

     

    I don't have a problem with the FDIC per se I just don't believe we separate large from small FI's and then spin our wheels on differences and try to figure out where that line lies. Risk is all over the sector and needs to be managed and anyone thinking it is in the large banks is not looking at the bank failure records very closely. Small banks are always very exposed because they don't have many tools to protect their investments from volatility.

     

    TARP was not about insurance it was the bazooka saying the government was "in it to win it" and they put a floor under the industry without saying who was really in trouble.

     

    RE would have crashed regardless of instruments because the bubble was induced by low rates, speculation and bubble fervor. Similar to the DOT.COM bubble around 2000.
    26 May 2012, 11:50 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2564) | Send Message
     
    "WAMU and CW chose RE as their specialty many years ago so they were already committed in that direction. Banks cannot change that quickly as their loan officers and distribution networks are specialized. The net of it is that they had more risk than say JPM because that was the industry they chose many years before the bubble hit."

     

    Your point?

     

    "TARP was not about insurance"
    No one said it was. The insurance would be to avoid future replays of TARP. Hurricanes are not "about insurance" either. Risk sharing for the cost of hurricane damage IS about insurance.

     

    "RE would have crashed regardless of instruments"

     

    And again...your point?

     

    You're making a lot of statements but they don't add up to anything. It was the enormous leverage on the financial derivatives that led to this being a financial crisis. If it weren't for that leveraged loss, we'd have had something closer to a commodities bubble, which would have been a much softer landing. Wamu could have been handled under FICA while Merrill, Lehman, and AIG wouldn't have become black holes of financial leverage capable of swallowing the entire global economy. Leverage was the problem, not real estate.
    26 May 2012, 12:16 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    SDNS, well stated.

     

    TBTF is indeed a macro policy.

     

    Your explanation is spot on.

     

    Marc Labonte shared this a few months back:

     

    http://bit.ly/KMY5U8
    27 May 2012, 06:04 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    SD

     

    You really don't understand root cause analysis.

     

    TBTF is a red herring. Keep chasing it though as politicians have you by the nose pointing you in a direction that leads away from them.
    27 May 2012, 09:34 AM Reply Like
  • geodan85
    , contributor
    Comments (161) | Send Message
     
    The ultimate TBTF bank is now Federal Reserve since Bernake has made the central bank into a quasi investment bank as an active bond market player for treasuries and agency debt while still being the lender of last resort (or maybe first).

     

    As stated above BAC provided a huge assist to the government with the Merrill (good for BAC) and the Countrywide (very bad for BAC) acquisitions. For those good deeds, BAC is now essentially an operating subsiidiary of the Fed with no real leeway to do anything not approved by HQ in Washington (despite paying back all TARP money with interest as well as warrants). In case anyone doubts this, just look how BAC has reduced their size under the heading "New BAC" which is an ongoing effort to reduce the size of the bank and make them less problematic for the parent.

     

    JPM had more leeway given their reputation and Dimon's image as the best of breed CEO of a large money center bank. Now that has changed, and JPM will likely be told to shrink the size of their presence in many derivative markets by HQ down in Washington ultimately impacting liquidity in the markets where they were the dominant player and furthering the de-leveraging trend by banks globally.

     

    Finally, it should be noted that taxpayers MADE MONEY on the TARP funds to the TBTF banks and taxpayer money being spent outside the financial sector should now be the focus and an important issue for this year's election.
    25 May 2012, 02:26 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    geo

     

    I would only quibble on one point and that is the Fed Government is what is TBTF not the FR. The FR is the last backstop behind all the downstream players doing stupid things and they are struggling with accommodating Congress and the President who are failing all of us.
    25 May 2012, 02:54 PM Reply Like
  • remurraymd
    , contributor
    Comments (2287) | Send Message
     
    Bankers are not traders who are "risk" experts bankers do not know squat about "derivatives" Only 2 risks
    \
    #1 You can lose 100%(that is the best one)
    #2 Infinite loss potential CDS shorting stock selling uncovered calls

     

    Initnity is where Jamie is now and not out and now it is known the other side the trade will press him hard.Truly ironic that Bear was allowed to fail for doing this by the US Government(Ms. Blair) given by Jamie the "expert" who did the same thing.Government did this by delegating incorrectly Stay away until the dust settles much lower on Captitulation.The coast is NOT clear.
    25 May 2012, 03:01 PM Reply Like
  • geodan85
    , contributor
    Comments (161) | Send Message
     
    Tomas

     

    Agreed, it is the Federal government that is TBTF and despite the fact that Fed is supposely independent the two are very much linked. With the Fed's balance sheet near $3.0 trillion with treasuries and agency paper, the question is what happens if they hold all the paper to maturity (likely) and the Treasury pays/prints the dollars to the Fed? The Fed has already injected these dollars into the system, hence the potential inflation worries, although I believe the banks are using much of this liquidity to reserve and write off bad loans/mortgages which should reduce the concern over a hyper inflation cycle. However, once the Fed has cash from redeemed bonds/notes on their balance sheet, what do they do? The Fed by law remitts any profits they make to the Treasury every year, do they send the cash back to the Treasury? Is national debt reduced? Clearly, further so called reinvesting of the matured paper (either directly to Treasury or from the market) will be viewed as very inflationary and the dollar will suffer, although so far the world seems ok with the dollar and the Fed's POMO injection to the money supply. Sorry, to get off topic here, but to me this is the $3.0 trillion question.
    25 May 2012, 07:04 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    I wish 3 Trillion was our only problem. I would embrace that in a heartbeat.
    25 May 2012, 09:26 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Interesting take, but doing business with the gigantic Chinese or Russian bank(s) that conceivably might replace TBTF U.S. or UK banks would present major hazards.

     

    The FDIC is unaccountable. This is a mark against Ms. Bair and something she did not adequately address during her tenure. The problem with financial institutions (and public companies) is lack or dearth of transparency and disclosure. Surprises and lack of transparent accounting always have adverse effects and perturb markets. Moral hazard is also an issue, made worse by implied government backstops that are unaccountable.
    25 May 2012, 07:55 PM Reply Like
  • Eighthman
    , contributor
    Comments (212) | Send Message
     
    TBTF violates the very notion of legitimate government representing the consent of the governed. They are an unelected authoritarian force in society that endangers the rule of law by egregious scofflaw behavior. It is simply bizarre to witness massive document fraud, first in regard to mortgages and then with credit cards - and have this go unpunished and published in the media as if it were trivial and mundane.
    If the government continues unable to discipline them, then the label Too Big To Jail is justified - and the matter should be considered settled: They are too big.
    25 May 2012, 08:04 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    You mean TBTF like GM and various defense companies? How about solar companies are they TBTF?

     

    Banks are paying heavily for various sins if you bother to notice.
    25 May 2012, 09:28 PM Reply Like
  • Colin Doyle
    , contributor
    Comments (708) | Send Message
     
    Her statement is only true if she cherry-picks the data. For reference, see Wells Fargo Corporation. It has returned fantastic sums to shareholders.
    25 May 2012, 08:17 PM Reply Like
  • buyitcheap
    , contributor
    Comments (1848) | Send Message
     
    The squid and company pay good money to their DC servants to ensure they grow and grow. Nothing short of threatening to unseat the servants will even begin to scare them into action. Meanwhile, they all set their hollow teeth deeper and deeper into our necks.
    25 May 2012, 09:15 PM Reply Like
  • bigTTT
    , contributor
    Comments (258) | Send Message
     
    I say we start a, 'Crammer for Vice President campaign'!
    26 May 2012, 11:07 AM Reply Like
  • Eighthman
    , contributor
    Comments (212) | Send Message
     
    Again, no one goes to jail? For record-breaking document fraud across the whole country?

     

    Banks are paying heavily for their sins? Apparently, that doesn't include jail time for egregious, massive violations like fraud - or even potential murder (yes, murder - ask Andrew Maguire).

     

    It's a very simple matter: if they are above the law as regards jailtime (or even prosecution, in many cases), then they are the government's superiors. They ARE the government, de facto.
    27 May 2012, 10:25 AM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    Immunity from prosecution is a doctrine of international law that allows an accused to avoid prosecution for criminal offences.

     

    Immunities are of two types.

     

    1) functional immunity, or immunity ratione materiae. This is an immunity granted to people who perform certain functions of state.

     

    2) personal immunity, or immunity ratione personae. This is an immunity granted to certain officials because of the office they hold, rather than in relation to the act they have committed.
    28 May 2012, 01:38 AM Reply Like
  • bigTTT
    , contributor
    Comments (258) | Send Message
     
    Well, the great thing about Wall Street is nobody has been jumping out windows lately! But then again, maybe that is because you can't open Hotel windows anymore! lol
    29 May 2012, 09:21 AM Reply Like
  • RedCar135
    , contributor
    Comments (4) | Send Message
     
    I'm a retired lawyer who practiced over 50 years in a small town in a mostly rural county in a formerly industrialized southern state so I don't really know what I am talking about but I tend to think there is a single cause of most of our problems. I'm a lifelong Democrat with no plans to change parties but if ole Roosevelt was still around - Teddy, not Franklin - we wouldn't have these few tremendously big businesses running the country. I still think the founding fathers did a wonderful job writing the Constitution but it was never thought that it would last forever so they included provisions for amending it. I have some ideas about that. Start with the one we have. Eliminate life tenure for Supreme Court Justices. Make it impossible to extend citizenship rights to anyone but humans. That should do it but I'm barely open to other ideas.
    29 May 2012, 03:10 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    I concur.

     

    As long as we can read, we certainly can dispel with the opinions of the Justices presiding.

     

    Since the Constitution was written in an overly "user friendly" style (having been intentionally dumbed down), I feel quite confident in my comprehension of its contents, and their subsequent meaning, regards the law.

     

    Add a Due Diligence Packet for Presidential Candidates. A Committee will convene to screen applicants BEFORE they are allowed to campaign, to make sure they meet or exceed the Constitutional requirements for a Presidential Candidate.

     

    Hopefully, this will reduce the mudslinging and libelous tactics we must suffer through in the election process.
    31 May 2012, 10:01 AM Reply Like
  • WMARKW
    , contributor
    Comments (10234) | Send Message
     
    But Dr. V., a Presidential campaign is a marketing event. The candidates, IMHO are selected by the Puppet Masters behind the scenes for their "market" appeal. You will notice that our current President had ZERO qualifications to be President and ZERO qualifications to be awarded Nobel Peace Prize.....but nonetheless, here we are.

     

    Thus....I would support your "pre-screening" strategy. And no one should be allowed to vote who pays ZERO Federal Income Tax. And, no corporation should be allowed to contribute to a candidate if they pay ZERO Federal Income Tax.

     

    There, I said it.....I feel much better now. And it's not even Friday.
    31 May 2012, 12:26 PM Reply Like
  • Dr. V
    , contributor
    Comments (1179) | Send Message
     
    WMARKW,

     

    Correct.

     

    They are chosen for their ability to take a caning in the Press as well as the history books, when blamed for whatever the shadow government decides to enact or enforce during their tenure.

     

    Actually, it is ILLEGAL for POTUS to accept a foreign award.

     

    Article I, Section 9, of the Constitution, the Emolument Clause, clearly stipulates: "And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State."

     

    If he REALLY went to all those prestigious schools, AND taught law, certainly it would have dawned on him, or at the very least the, people who concocted his background story and bio.

     

    With of course all due respect, to the OFFICE, of the President of the United States.
    4 Jun 2012, 05:05 AM Reply Like
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