lorddarley

Where's the Outrage at the Banks?

The country would have been just as well off without these large banks, that were so poorly managed, and which decided that traditional banking was not profitable enough.

It was sheer politics that kept them afloat, rather than allowing the bad ones to collapse. The smart survivors could have easily picked up the slack. In fact, they would have more money to lend if we had not wasted so much on the big banks.

If a "bank" wants to derive its revenues from leveraged gambling and speculation, rather than lending, the FDIC should withdraw its insurance.

Let CIT Fail: The Business Model Is Broken

You have raised a legitimate, and painful, point. The typical observation would be "Well, why don't you just go to another bank?"

The real life observation is that "other banks" are just sitting on free capital from the Treasury, and doing nothing with it. Like you, I have to deal with this inanity in real life.

I would recommend (and I am sure you are already doing this) that you aggresively pursue other lending sources. Good luck. You are doing business in a country that does not help small business.




On Jul 11 08:18 AM American Businessman wrote:

> CIT's failure will cripple many small to medium size businesses.
> I am one of the small (not mom and pop) businesses that CIT finances
> and has for the past 17 years. I understand that like many other
> financial institutions CIT has made poor investments/decisions. However
> financing me and thousands of other businesses like me was not one
> of them. We are responsible for about 100 jobs in the US, the same
> number in Mexico and another 200 or so worldwide.
> So multiple our employee numbers by the tens of thousands of CIT’s
> customers, who face the possibility of not being able to secure other
> financing or surviving an interim period, and CIT’s lack of support
> by the Federal Gov’t will be more devastating than any other bank/financial
> institutions failure so far.
>
> [e-mail] (not company's email)

Let CIT Fail: The Business Model Is Broken

Extending that 20 year line of credit was a "noblesse oblige" move by Goldman, which had underwriten the 2006 IPO when CIT spun off from TYCO. Goldman also helped CIT sell its construction finance business.

That Goldman facility is fully secured with investment grade assets which CIT owns. Repeat: it's fully secuured and subject to seizure by Goldman. Don't invest in CIT common just because Goldman made a secure loan to a customer.
______________________...
On Jul 10 09:47 PM shrike wrote:

> Don't schedule the funeral for CIT yet - Goldman Sachs extended a
> $3 billion credit line to them last June and they rarely make loans
> to deadbeats.

Fed Will Tell Bank of America, Citi to Raise Billions More in Capital

<<Scary things are happening and most of our country is in serious denial.>>

Obama figured it out. He is the Bizarro-Reagan, an articulate spokesperson who has assembled a "new majority." (Superman fans will get the Bizarro analogy; the rest of you are too young, you luckies.)

Anyway, the majority for Bizarro-Reagan consists of people who are (1) employed by government, or (2) are financed by government (banks and autos), or (3) depend on government, i.e. welfare types and contractors with profitable defense and welfare-housing businesses.

The "private sector" is outnumbered. It is also too damn old, and aging more each day. Its spokespersons are unattractive. I do not see a reversal in this trend towards a more socialized US. The great majority has not saved, or relies on government for security.

It is sad, but Newt Gingrich and Sarah Palin won't change the inevitable.

A depressed LordD

What to Buy: Debt

I agree only slightly with this article. No one should buy a corporate bond without reading the indenture. You have to know its call, subordination and default provisions. Take call provisions, for example. Unless the bond is deeply in the money, you (the investor) take all the risk. If rates decrease, you lose the bond to a call. If rates go up, you are a reluctant owner until maturity.

The great advantage of bonds (not available to the average person) is that if you buy enough of them, you do get a significant say in the terms of any bankruptcy. If that's your hope, it's better to be with an activist manager than to try to do this on your own with a few thousand (or million) to invest.

It does not take a crystal ball to know that in the next few years that rates will go up significantly. The US government is borrowing huge amounts on a short term basis, and even buying back its long bonds to borrow more on the short end. Although it criticizes consumers who opted into flukey mortgages, the US is the ultimate ARMS borrower, refinancing long debt with short debt for the quick satisfaction of temporarily suppressing long rates.

Is that the environment in which to commit long term money to any bond? No way, except for a quick an nimble speculation.

Long-termers should stay in cash, and start buying the stocks of great companies which are on sale. If you want to play with bonds, wait two years and you will get munis at 8-12%, because state and local governments have no way of catching up with their debts and unfinded pension liabilities.

LordD

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

This is a good article, but missing the big picture. Are banks good investments? I believe that most realize (finally) that all of the sizzle in their stocks was fluff from the non-banking businesses that were added after the repeal of Glass-Steagall.

Please, a reality check is in order for those who want to be bullish about banks. There is way too much banking capacity in the US. Our government is hell-bent to keep big bad ones afloat. The "good" banks will accordingly not get the profit they deserve, any more than the "good" homeowner, who paid bills on time, will profit from the Pelosi-Obama agenda.

It reminds me of the airline industry, which used federal bankruptcy laws to maintain constant pressure on margins of responsible carriers, with the result that none of them are good investments.

People forget that a bank was traditionaly a simple thing. It takes in deposits (liabilities) and makes loans (assets). Assuming that the loans are good, a bank is worth a little more than book. It's only when you add a little imagination, nonbanking products, and greed that you value a bank for more than that.

I would be sanguine about USB and other "good banks" in this article if I thought their less successful competitors were going out of business. However, they will be propped up by government, so they will continue to pressure margins of "good" banks.

Banks get money for almost nothing, and can lend it out at great margins. However, there just aren't enough good customers, and there are too many banks chasing them. Avoid the sector unless you are a short term trader angling for a bounce.

LordD

Bank Nationalization: It's Just Plain Wrong

Who knows what a Bank is these days? Since the repeal of Glass-Steagall, we have a lot of financial supermarkets. The current spin is that the investment houses (like Goldman) now get to pose as banks.

And what are the loans which these "banks" actually hold in portfolio? Many are loans to speculators, to abet the outlandish hedging positions permitted by laxity of the past Administration.

We should let "banks' that can't pay their way go into bankruptcy, and the federal government should be present to purchase selected portfolios of loans which were made in the national interest and to insure deposits, regardless of FDIC limit. (Most of the legitimate bank activity at the supermarket "banks" would be purchased by real banks, anyway, if we insisted on bankruptcies.)

Instead, we are spending billions just to prop up counterparty loans on leveraged gambles of big banks that were too big just to be banks. Those gambling positions should not have been honored with taxpayer money. Let's put it simply. We are bailing out bookies. The loans which they made to assist hedgie gambling, and the institutions which made those loans, should be flushed through the bankruptcy courts, as we have done with other incompetent and unnecessary businesses over the decades.

Instead, we are contributing capital to prop up bad bets, and not putting money into the real economy. $800 billion per year would cover all of the employment taxes in the USA. That's a 7 & 1/2 % boost in wages for each worker, and a 7 & 1/2% support to their employers. That is how the money should be spent if we want to get working America back on its feet.

LordD

Why Is Everyone Blaming the CEOs? It's the Government's Fault

The problem was the dismantling of Glass Steagall. Banking and exotic underwriting do not belong under the same roof. That may mean less "profitable" banks, but it's clear that the profits were just a chimera, siphoned off as compensation.

We have too many banks in this country, and we would have been better off to let these banks go into bankruptcy reorganization.

At present, the money center banks are hogging the federal reserve money that could have been used by more viable banks for lending. Money center banks stand in the way of recovery, because we are helping them to bail out the non-banking parts of their corrupt organizations and keeping credit away from more viable lenders..

LordD

In Defense of the U.S. Taxpayer: End Deferred Compensation and Its Tax Subsidy

There is some wisdom to this post, but also a bit of unfortunate populism.

The tax "subsidy" of deferred compensation is a chimera. Corporate and individual rates are essentially the same. A corporation cannot deduct deferred compensation until it is paid. In the year of deferal, the executive des not pay tax (but the corporation pays tax on the deferred amoutn). It's a wash for the Treasury.

I'm in favor of eliminating deferred compensation, but it's more for "fairness" rather than Treasury collections. Under Dept. of Labor rules, it's not allowed to defer compensation unless you are a "top hat" employee. Theoretically, that prevents average people from subjecting deferred compensation to the risk of corporate bankruptcy. In the real world, it gives the "top hats" exclusive rights to a tax planning technique not available to the masses.


LordDarley

The suggestion that equity grants be