swaps

Wall Street Breakfast: Must-Know News

After doing what the banks wanted, Geithner is now taking the fall.

Maybe Dimon does not want to serve his country so much as he wants to save the banking system from total wipeout.

Did it not take Chase a century to accumulate its first billion dollars, and then only four years to double that by being the banker in Vietnan, a war advocated by its chaiman?

Will Dimon pursue a policy of breaking down banks to smaller size that are big enough to fail, or will he want to close banks and then sweep its customers into the ever growing JP. Morgan Bank One Chase etc super bank with government backing?

Hopefully Dimon is being altruistic and will do what is best for the public and the republic, but so far bankers are only waging constant class warfare against everyone else.

Too Big to Fail Banks: A Simple Solution

Canada and Australia simply prove that U. S. and British banks are too big to manage.

And Canada and Australia also prove that vigorous regulation of banking keeps bankers from destroying the landscape.

What else is there to prove?

Dow Remains Resilient Despite Calls for a Correction

Ooops. This should read "when I returned from a 10-day road trip,I learned my modest......."


On Nov 10 10:36 AM swaps wrote:

> When I left town on a 10-day road trip in late October I found my
> modest holdings had dropped nine percent.
>
> That was the correction. And now they have already rebounded and
> come close to closing the gap.
>
> So maybe the called for correction has come and gone. I hope so.

Dow Remains Resilient Despite Calls for a Correction

When I left town on a 10-day road trip in late October I found my modest holdings had dropped nine percent.

That was the correction. And now they have already rebounded and come close to closing the gap.

So maybe the called for correction has come and gone. I hope so.

Finance's Changing Playing Field

The dumb money won't complain yet because the big banks led the broader market up from the edge of the abyss that your charts show was forthcoming. Disclosure. Still long.

Congress clearly still does not understand central banking, investment banking - or should we say inwestment banking, cute tv ad.

Congress understands that money comes to it from the financial sector. Maybe that is why they bailed out the banks and turn their heads away from the obscene bonuses being paid to bankers who would be on the street if their holdings had not been bailed out by fiat money.

The uptick rule is still abolished. No get-tough agency has been formed to oversee that FDIC and SEC enforce laws on the books already.

GS rules. Congress follows. The regulators look at porno on their computers during the work day, I guess. They are accountable to no one.

No one.

As Paulson warned last autumn. If Congress gets tough, if Congress does not authorize a private bank to print all the money it wants, if Congress audits the Central Bank - then "we" will take the country down.

As if they haven't already.

The Five Worst Bailouts

I agree with Khan's strategy that the banking system should be liquidated to match its downsized aftermath from fraud and corruption.

But the scale of liquidation is so much larger than the liquidation of the real estate investment trusts in the 1970s. Back then, REIT's that specialized in mortgages and project financing took on projects and customers that banks had turned down. The REIT's were funded by the banks and paid them interest, then turned around and lent money to the banks rejected applicants with a higher interest spread.

Projects that seemed shaky at conventional rates became more so at higher rates, especially since more and more competitors were piling into meeting the real estate needs of the boomer generation.

(It always bothered me that just when the baby boomers were generating huge pressures for capital formation domestically that the money center banks diversifed into foreign lending and subsequently took huge losses overseas - remember the last time that books were claiming Chase Manhatten and City bank were bankrupt and should have been liquidated in the '80s?).

The collapse of the real estate boom back in the '70s resulted in the failure of Continental Mortgage Investors and Diversified Mortgage Investors, as I recall. The CMI list of walking dead companies were slowly put into bankruptcy or reorganization over a 10-year period
I worked for one of the companies that owed something like $50 million to CMI. The company sputtered along for about 10 years, continuing to develop properties and sell land so that a flow of some money would continue to come in.to deveolop projects like The Woods on Red Cedar Lake that singer Pat Boone had started in Wisconsin but the overhang of debt was unsolveable and the company, which had been at the end of the line for liquidation, finally had its number come up.

A consortium of bankers behind CMI took over much of the assets of Terracor and the Terracor CEO caretaker took a few assets and, together with other assets, went on to take over Talcott and morph it into Leucadia.


But I wonder if Chase and Citi had been shut down in the 1980s would the banking industry have learned a lesson that would have prevented the current financial meltdown?

The CMI real estate fiasco was something like $850 million of stranded and lost capital. DMI was in the same ballpartk. In the ensuing decades the Fed was able to inflate the dollar and create truly stunning loss totals in the current financial criisis.

The current list of failed banks should have been put onto a quiet list for orderly liquidation over the next 10 years. And at the very least the huge too big to fail banks should each be broken into a hun dred pieces that do not exceed their executives' ability to manage and oversee.

Dinosaurs became too big for a changing environment to sustain them. Even the Soviet Union had to downsize.Why would essentially collectivist, socialized banks be any different?.

On Sep 06 07:13 PM Mansoor H. Khan wrote:

> The core problem of the United States' banking system (and maybe
> the world's banking system) is not liquidity but insolvency. The
> liabilities of the United States' banking system exceed the value
> of its assets. The issue is not only the toxic assets (toxic mortgage
> backed securities, toxic commercial real estate loans, sub-prime
> mortgages, alt-A loans, adjustable loans likely to go bust, increase
> in prime mortgage default rates, etc) but also off-balance sheet
> liabilities (such as expected huge unaccounted for future derivatives
> losses).
> This means that bailouts are just beginning and will require bigger
> and bigger sums of taxpayer money as time goes on. The government
> will resort to borrowing more and more and eventually to printing
> money when treasury debt auctions start failing. The end result of
> this path is a currency collapse and probably total chaos as expected
> by gold bugs.
> One other way to deal with this issue is to stop the bailouts and
> let the dominoes fall. Defaults and cross-defaults will cause many,
> many depository institutions (even very large ones) to collapse leading
> to extreme decrease in money supply as bank deposits are destroyed.
> Deposits of failed banks cannot be used to pay bills, make purchases
> and/or service debts.
> Which will probably lead to even more defaults as unemployment increases
> and debtor's are unable to service their debts. This process will
> probably cause extreme deflation as businesses lower prices in a
> bid to survive. This will also lead to wage cuts, increased unemployment
> and a deflation spiral and much chaos. But probably less chaos than
> a currency collapse.
> Is there a better way?
> Here is my idea:
> 1) We essentially need an orderly bankruptcy and liquidation of the
> United States' financial system.
> 2) I suggest we create a government owned bank and transfer all deposits
> of the private commercial banking system to the new government owned
> bank. This "transfer" is really just new money creation. This new
> money will be digital cash (electronic version of physical paper
> cash). Very much like reserves at the FED.
> 3) Note that the plan will not create net new money since we will
> be destroying all deposits of the commercial banking system in the
> process.
> 4) All assets of the commercial banking system will be transferred
> to the government and auctioned off in an orderly manner over the
> next 10 years. The proceeds from the sale would go the United States
> treasury and not the commercial banks. The assumption here is that
> commercial banks deserve nothing since the entire industry would
> have been most likely destroyed any way. Even good banks would have
> been destroyed due to bank runs and defaults if the government had
> allowed the dominoes to fall. Of course bank shareholders, bank bond
> holders and counter parties of bank derivatives would not receive
> anything.
> 5) After the transfer FDIC protection will be removed for any private
> bank which wishes to remain in business or any new private depository
> institution or bank. From that point on the government should make
> it absolutely clear that there will be no more bailouts and no more
> conversions. This will discourage (but not completely eliminate)
> fractional reserve deposit banking and private money creation that
> results from pyramiding of government created money. This will also
> limit debasement of the currency that results from fractional reserve
> deposit banking. In fact, we can have "free banking" from that point
> on and not even have reserve requirements or capital requirements.
> All depositors who use private banks will be fully at-risk. The industry
> will have to set the interest rate high enough to attract depositors.
>
> 6) The new government bank will act as an electronic "piggy bank"
> only. All deposits will be 100% reserve and it will not make any
> loans. Loan making will be left to the private banking system (with
> no deposit insurance or a possibility of a future bailout). The new
> government owned bank exists only as a "safe" money storage and a
> payment clearing system so the public does not have to carry around
> physical paper cash to make purchases and pay bills.
> 6) Of course this plan is not without pain or cost. Cost of funds
> for banks and borrowers will probably rise as bank deposits are a
> source of very low cost money for the banks. Nothing is free. We
> are just exchanging higher cost of funds for removal of systemic
> failure risk. Economically we are recognizing that when money is
> loaned there is always credit risk.
> 7) We are just separating the payment and clearing transaction system
> which is absolutely necessary for day-to-day commerce (no credit
> risk) from the loan banking and investment system (has credit risk).

Is Wells Fargo Regretting Its Wachovia Acquisition?

Wells Fargo will do just fine. I just typed in Wells Fargo and predatory and got lots of hits alleging predatory behavior.
The big financial melt has morphed into one big predators' ball and the biggest predators are gorging and feasting with no fear of indigestion because Benranke and Geithner and Congress will give them all the trillions they need to settle their stomaches..
I note an earlier poster, a smaller bank executive from the heartland, observes that big government is biased toward big banking.
But by its nature, banking ever evolves into bigger and bigger entities, gobbling up or destroying the less nimble, the less astute, the less well connected with guvmint.
Of course, the customers get trampled in the process, but that is the American way....
Soon after moving to a sleepy Colorado town I observed to a county commissioner:
" Why in southeastern Colorado do you see crumbling ruins surrounding a shiny bank building?"
Well, we have a crumbling America with a few big, shiny banks.
Disclosures: Own AIB and my outlook is biased by living in rural America, rather than in bright shiny suburban America. I truly hope your bright shiny view of glossy shopping centers and new bank and office buildings leads to an American Renaissance.
But I think we have to come up with a different system not utilizing usury. There was no usury during the European Renaissance

Major Banks Now Much Too Big to Fail

The too big to fail banks have become even bigger?
In part, that's because the federal government was brainwashed intgo thinking it could not simply print money. Instead it had to borrow money from banks - and pay them interest which would take away money from future spending needs and trigger the need for higher taxes.
Last autumn the population screamed to let the banks fail - but you saw how Congress caved into the bankiers when they threatened to take down the nation if they were not saved because they did not give a damn.
So what if the banks are now bigger. They have bankrupted a government that should have kept them smaller and unable to destroy the nation.
If you think these big banks are such a great asset - then you must think Benranke's panic is unfounded and the Federal Reserve which propped up these massive empty shells can pass an audit.
And I agree with George Archers that the concentration of media ownership has been very damaging too. These media moguls are co-conspirators and successfully keeping the masses from truly understanding what has happened.

Has President Obama's Mortgage Modification Plan Failed?

The comments are not universal enough. It can easily be argued that everything George Bush touched failed too - the wars, the economy, balanced budgets, free marketing, historic foreign policy alliances, credit markets. This mess clearly started with him and the bozos he surrounded himself with..

Clinton left behind a functioning government and economy when his mission was accomplished.

Bush left behind what is essentially a drug war in Afghanistan, a useless ground war against a Third World nation that never attacked us, a federal budget in ruins, an economy falling off the cliff, a free market economy that required massive government intervention and takeovers, shattered foreign alliances, collapsing corporate values and an money market industry that froze up due to lack of trust, morals and courage.

This was and is an Obama - Bush failure, a Republicrat failure.

Five Reasons the Market Could Crash This Fall

Great analysis. You confirmed my intuition that the privately owned Federal Reserve was running up the stock market. What are the odds some insider tipped off GS and BA and Morgan that a short squeeze was going to ensue?

Have we foregotten how the manipulated market blew up that head and shoulders chart that trapped the bears just two weeks ago?
I am going to ride this rally some more and switch to inverse index investments the moment incipient panic surfaces.. But only then.
Soros out gunned the Bank of England but Benranke (sic) is trying to outgun the Gazillion deriviatives looming disaster. Will even the privately owned Fed be able to pick the American pockets for another 10 trillion dollars - plus compounding interest? If not, not only the market will crash but also the senators, congresspeople and the house of cards they have built in lieu of a sound government. No, I take that back. As it collpases Congress will award itself golden parachutes in the form of gold drawn to their accounts from Fort Knox.
But now I fear that succesful inverse investments I am waiting to pull the trigger on won't be honored when the big players and Congress evanesce into the mist.

'Too Big to Fail' Should Not Exist

Free markets in a America is a myth. We have monopolists who are continuously propped up by government support.
A free market America would have let the money center banks go belly up so the free markets could cleanse themselves.
I recall it was the huge banks in Japan that prompted the U. S. to encourage U. S. banks to merge into unmanageable mega-bigness. Didn't Japan experience a still ongoing economic crush despite having megabanks too?
And now free markets simply means U. S. producers and manufacturers should shut down so companies in second and third world labor markets can become the new monopolists.
It was partly the banks that encouraged the huge concentrations in industry after industry because in their thinking it is easier to make one mega loan - and watch it (fail) - than make many smaller loans. But the megalenders have found out the borrowers are now so big the bank now works for them. Think about it. The borrowers can and do just liquidate and walk away.
The banks have to figure out how to get their huge megaloans back. How to get the mega derivatives unwound. How to make one huge loan to a lot of foreign low wage workers they wanted brought in.
When the banks started favoring a few businesses in each industry in order to consolidate them for lending efficiency they started down the free market path that leads to corporate welfare.

Supreme Court Rules Against Banks: A Win for Consumer Protection

It's too bad if banks have to implement 50 local compliance regimes. The banks have proven they are too big to manage anyway. As they downsize their balance sheets they will downsize operations. If they have good management they will retrench from markets where they are less profitable or poorly positioned.
But if a bank is managed by megalomaniac....

The Next Major Financial Crisis

The looming credit card crisis can easily be papered over with more handouts from the Federal Reserve, which will charge U. S. taxpapers interest on said handouts.
Of course the inability of U. S. taxpayers to pay back the credit card handouts plus interest (presumably the pre-set default rate of 29 percent) will be the crisis after the credit card crisis.